| SECURITIES AND  EXCHANGE COMMISSION                                                                                                                                                                                                                                                                                                                                                                       |
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| WASHINGTON, DC                                                                                                                                                                                                                                                                                                                                                                                            |
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| FORM 10-Q                                                                                                                                                                                                                                                                                                                                                                                                 |
| QUARTERLY REPORT                                                                                                                                                                                                                                                                                                                                                                                          |
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| Under Section 13 or  15(d) of the Securities Exchange Act of 1934                                                                                                                                                                                                                                                                                                                                         |
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| FOR THREE MONTHS  ENDED                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                      |
| September 30, 2001                                                                                                                                                                                                                                                                                                                                                                                        |
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| Commission File:  0-1999                                                                                                                                                                                                                                                                                                                                                                                  |
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| KENTUCKY INVESTORS,  INC.                                                                                                                                                                                                                                                                                                                                                                                 |
| (Exact Name of  registrant as specified in Charter)                                                                                                                                                                                                                                                                                                                                                       |
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| KENTUCKY                                                                                                                                                                                                                                                                                                                                                                                                  |
| (State of Other  Jurisdiction of Incorporation or Organization)                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                      |
| 61-6030333                                                                                                                                                                                                                                                                                                                                                                                                |
| (IRS Employer  Identification Number)                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                      |
| 200 Capital Avenue,  P. O. Box 717                                                                                                                                                                                                                                                                                                                                                                        |
| Frankfort, Kentucky  40602                                                                                                                                                                                                                                                                                                                                                                                |
| (Address of Principal  Executive Offices)                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                      |
| Registrant's  Telephone Number - (502) 223-2361                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                      |
| Securities  registered pursuant to Section 13(g) of the Act:                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                      |
| Common Capital  Stock par value $1.00 per share                                                                                                                                                                                                                                                                                                                                                           |
| (Title of Class)                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                      |
| Number of  outstanding shares as of September 30, 2001 - 1,132,584.700                                                                                                                                                                                                                                                                                                                                    |
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| Indicate by check mark whether the registrant (1) has  filed all reports required to be filed by Section 13 or 15(d) off 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___

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| ** **

**PART I -  CONSOLIDATED FINANCIAL STATEMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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| **ITEM 1.** The following condensed consolidated  financial statements have been prepared by management in accordance with  accounting principles generally accepted in the United States (GAAP). In  management's opinion, all adjustments and certain reclassifications necessary  for a fair statement of financial position at September 30, 2001 and December  31, 2000 and the results of operations for the three and nine month periods  ended September 30, 2001 and 2000 have been made.

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KENTUCKY INVESTORS,  INC.

 
Condensed  Consolidated Balance Sheets

 
 

(Unaudited)

 

 

September 30, 2001

December 31, 2000

Assets

 

 

   Investments

 

 

     Fixed maturities available  for sale at

 

 

       fair value  (amortized cost

 

 

       2001-$228,249,051  - 

 

 

       $210,733,662

$241,519,915

$220,446,702

   Short term investments

947,089

1,890,815

   Mortgage loans on real estate

24,274,489

23,864,291

   Other investments

    9,884,410

     9,555,231

 

 

 

       Total  investments

$276,625,903

$255,757,039

 

 

 

   Cash and cash equivalents

5,292,831

3,324,447

   Due and deferred premiums

3,898,176

4,601,062

   Deferred acquisition costs

24,220,763

23,962,641

   Present value of future profits

533,158

586,298

   Leased property under capital leases

109,808

224,879

   Other assets

9,677,059

8,076,162

   Amounts recoverable from reinsurers

    68,764,879

    69,403,217

 

 

 

 

$389,122,577

$365,935,745

 

 

 

Liabilities and Stockholders' Equity

 

 

   Liabilities

 

 

     Policy liabilities

 

 

       Benefit reserves

$302,765,366

$290,096,285

       Unearned premium  reserves

22,473,486

23,816,171

       Other  policyholders' funds

     4,481,326

     4,456,286

         Total  policy liabilities

$329,720,178

$318,368,742

       Federal income  taxes

7,513,465

3,810,143

       Obligations  under capital leases

101,877

228,991

       Notes payable

2,307,663

2,000,000

       Other  liabilities

     5,149,316

     4,273,551

 

 

 

       Total  liabilities

$344,792,499

$328,681,427

 

 

 

Stockholders' Equity

 

 

   Common Stock (shares issued:

 

 

     2001 - 1,132,585 - 1,149,503

$    1,132,585

$    1,151,323

   Paid-in surplus

8,410,874

8,399,106

   Accumulated other comprehensive

 

 

     income

8,490,821

3,001,407

   Retained earnings

    26,295,798

    24,702,482

 

 

 

       Total  stockholders' equity

$  44,330,078

$  37,254,318

 

 

 

 

$389,122,577

$365,935,745

 

See accompanying  notes.

KENTUCKY INVESTORS,  INC.

 
Condensed  Consolidated Income Statements (Unaudited)

 
 
 

Three Months Ended  September 30

 
 

2001

2000

 
REVENUES

 

 

 
 

 

 

 
   Premiums and other considerations

$12,723,215

$12,786,790

 
   Investment income, net of expenses

4,595,800

4,355,269

 
   Realized gain on investments, net

408,112

7,558

 
   Other income

      309,880

      291,068

 
 

 

 

 
      Total revenues

$18,037,007

$17,440,685

 
 

 

 

 
BENEFITS AND EXPENSES

 

 

 
 

 

 

 
   Death and other policyholder benefits

$  7,250,746

$  6,292,646

 
   Guaranteed annual endowments

163,317

171,331

 
   Dividends to policyholders

175,827

172,149

 
   Increase in benefit reserves and  unearned 

 

 

 
     premiums

5,140,765

5,960,665

 
   Amortization of deferred acquisition

 

 

 
     costs, net

(263,258)

(321,186)

 
   Commissions

1,575,621

1,521,196

 
   Other insurance expenses

    2,577,456

    2,716,800

 
 

 

 

 
      Total benefits and  expenses

$16,620,474

$16,513,601

 
 

 

 

 
Income from operations before Federal

 

 

 
   income taxes

$  1,416,533

$     927,084

 
   

 

 

 
Provision for income taxes:

 

 

 
   Current

$     224,772

$    (13,310)

 
   Deferred

       243,000

       281,095

 
 

 

 

 
 

$     467,772

$     267,785

 
 

 

 

 
Income from operations

$     948,761

$     659,299

 
 

 

 

 
Net Income

$     948,761

$     659,299

 
 

 

 

 
Earnings per share

$           0.73

$           0.57

 
 

 

 

 
Dividends per share

$                 -

$                 -

 

See accompanyingnotes.

 

KENTUCKY INVESTORS,  INC.

Condensed  Consolidated Income Statements (Unaudited)

 

 

Nine Months Ended  September 30

 

2001

2000

REVENUES

 

 

 

 

 

   Premiums and other considerations

$37,941,069

$36,752,855

   Investment income, net of expenses

13,674,023

12,614,304

   Realized gain on investments, net

573,667

74,926

   Other income

      836,170

      807,729

 

 

 

      Total revenues

$53,024,929

$50,249,814

 

 

 

BENEFITS AND EXPENSES

 

 

 

 

 

   Death and other policyholder benefits

$22,359,435

$20,237,758

   Guaranteed annual endowments

555,814

580,454

   Dividends to policyholders

550,045

549,436

   Increase in benefit reserves and  unearned 

 

 

     premiums

14,654,785

15,230,173

   Amortization of deferred acquisition

 

 

     costs, net

(987,590)

(928,195)

   Commissions

4,573,497

4,610,390

   Other insurance expenses

    7,647,756

    7,364,088

 

 

 

      Total benefits and  expenses

$49,353,742

$47,644,104

 

 

 

Income from operations before Federal

 

 

   income taxes

$  3,671,187

$  2,605,710

 

 

 

Provision for income taxes:

 

 

   Current

$     374,435

$     133,542

   Deferred

       861,000

       676,273

 

 

 

 

$  1,235,435

$     809,815

 

 

 

Income from operations

$  2,435,752

$  1,795,895

 

 

 

Net Income

$  2,435,752

$  1,795,895

 

 

 

Earnings per share

$           2.04

$           1.56

 

 

 

Dividends per share

$           0.38

$           0.38

 

See accompanyingnotes.

 

KENTUCKY INVESTORS,  INC.

Condensed  Consolidated Statements of Cash Flow (Unaudited)

 

 

 

 

         Nine  Months Ended September 30

 

                2001

             2000

 

 

 

Net cash provided by operating activities

$   17,108,452

$   16,762,733

 

 

 

Investing activities

 

 

   Securities available-for-sale:

 

 

     Purchases

$(36,455,935)

$(21,752,526)

     Sales and maturities

24,842,678

9,863,495

   Other investments:

 

 

     Cost of acquisition

(3,617,822)

(6,938,482)

     Sales and maturities

4,061,114

2,206,886

   Net purchase of Franklin American Life

 

 

     Insurance Company policy  obligations

0

6,303,944

   Other investing activities

              1,409

       (194,580)

 

 

 

Net cash used by investing activities

$(11,168,556)

$(10,511,263)

 

 

 

Financing Activities

 

 

   Receipts from universal life policies       credited to policyholders account

 

 

     balances

$    2,597,870

$    3,308,407

   Return of policyholder account balances

 

 

     on universal life policies

(6,036,723)

(6,177,159)

   Net proceeds from notes payable

307,663

0

   Other financing activities

      (840,322)

      (511,969)

 

 

 

Net cash used by financing activities

$ (3,971,512)

$ (3,380,721)

 

 

 

Increase in cash and cash equivalents

$    1,968,384

$    2,870,749

 

 

 

Cash and cash equivalents at beginning

 

 

     of period

     3,324,447

      2,428,652

 

 

 

Cash and cash equivalents at end of period

$    5,292,831

$    5,299,401

 

See accompanyingnotes.

 

KENTUCKY INVESTORS,  INC.

NOTES TO CONDENSED  CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2001

(Unaudited)

 

**NOTE A - Nature of Operations:** Kentucky Investors,  Inc. (Kentucky Investors) is the holding company of Investors Heritage Life  Insurance Company (Investors Heritage), Investors Heritage Printing, Inc., a  printing company and Investors Heritage Financial Services Group, Inc., an  insurance marketing company. These entities are collectively hereinafter  referred to as the 'Company'. The operations of Kentucky Investors are  principally that of its life insurance company, Investors Heritage. The  operations of the non-insurance subsidiaries of Kentucky Investors accounts  for less than 1% of the Company's total operations.

 

The Company's operations involve the sale and  administration of various insurance and annuity products, including, but not  limited to, participating, non-participating, whole life, limited pay,  universal life, annuity contracts, credit life, credit accident and health  and group insurance policies. The principal markets for the Company's  products are in the Commonwealths of Kentucky and Virginia, and the states of  North Carolina, South Carolina, Ohio, Indiana, Florida, Tennessee, Illinois,  Georgia, West Virginia, Arizona, Michigan, Mississippi and Texas.

 

**NOTE B - Basis of Presentation:** The accompanying  unaudited condensed consolidated financial statements of the Company have  been prepared in accordance with accounting principles generally accepted in  the United States for interim financial information and with the instructions  to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not  include all of the information and footnotes required by accounting  principles generally accepted in the United States for complete financial  statements. In the opinion of management, all adjustments (consisting of  normal recurring accruals) considered necessary for a fair presentation have  been included. Operating results for the nine months ended September 30,  2001, are not necessarily indicative of the results that may be expected for  the year ending December 31, 2001. For further information, refer to the  consolidated financial statements and footnotes thereto for the year ended  December 31, 2000, included in the Company's Annual Report on Form 10-K.

 

The preparation of financial statements in conformity with  accounting principles generally accepted in the United States requires  management to make estimates and assumptions that affect the amounts reported  in the financial statements and accompanying notes. Actual results could  differ from those estimates.

 

Certain prior period amounts have been reclassified to  conform to the current period presentations.

 

**NOTE C - Earnings per Share:** Earnings per share of  common stock were computed based on the weighted average number of common  shares outstanding during each period. The number of shares used in this  computation for the Company is 1,194,322 and 1,147,929 for September 30, 2001  and 2000, respectively.

 

**NOTE D - Segment Data:** The Company operates in four  segments as shown in the following table. All segments include both  individual and group insurance. Identifiable revenues and expenses are  assigned directly to the applicable segment. Net investment income is  generally allocated to the insurance and the corporate segments in proportion  to policy liabilities and stockholders' equity, respectively. Corporate  segment results for the parent company, Investors Heritage Printing, Inc. and  Investors Heritage Financial Services Group, after elimination of intercompany  amounts, are presented.

 

 

Three Months Ended

 

September 30, 2001

September 30, 2000

Revenues:

 

 

   Preneed & Burial Products

$13,593,375

$13,406,436

   Traditional & Universal Life  Products

3,296,266

3,399,454

   Credit Insurance Products &

 

 

     Administrative Services

209,027

82,990

   Corporate & Other

       938,339

       551,805

 

$18,037,007

$17,440,685

 

 

 

Pre-Tax Income from Operations:

 

 

   Preneed & Burial Products

$     465,461

$    464,025

   Traditional & Universal Life  Products

340,441

257,476

   Credit Insurance Products & 

 

 

     Administrative Services

(27,372)

11,663

   Corporate & Other

      638,003

      193,920

 

$ 1,416,533

$    927,084

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

September 30, 2001

September 30, 2000

Revenues:

 

 

   Preneed & Burial Products

$40,657,394

$38,145,477

   Traditional & Universal Life  Products

9,905,023

10,145,729

   Credit Insurance Products &

 

 

     Administrative Services

318,677

344,559

   Corporate & Other

    2,143,835

    1,614,049

 

$53,024,929

$50,249,814

 

 

 

Pre-Tax Income from Operations:

 

 

   Preneed & Burial Products

$  1,570,952

$  1,425,007

   Traditional & Universal Life  Products 

1,061,646

468,516

   Credit Insurance Products &

 

 

     Administrative Services

74,460

111,004

   Corporate & Other

       964,129

      601,183

 

$  3,671,187

$ 2,605,710

 

**NOTE E - Federal Income Taxes:** Current taxes are  provided based on estimates of the projected effective annual tax rate.  Deferred taxes reflect the net tax effects of temporary differences between  the carrying amounts of assets and liabilities for financial reporting  purposes and the amounts used for income tax purposes.

 

**NOTE F - Comprehensive Income:** The components of  comprehensive income, net of related tax, are as follows:

 

 

Three Months Ended

 

September 30, 2001

September 30, 2000

Net income

$      948,761

$    659,299

Net unrealized gains on available-

 

 

   for-sale Securities

    4,516,925

  2,626,243

Comprehensive income

$   5,465,686

$ 3,285,542

 

 

 

 

Nine Months Ended

 

September 30, 2001

September 30, 2000

Net income

$   2,435,752

$1,795,895

Net unrealized gains on available-

 

 

   for-sale Securities

     5,489,414

  2,113,831

Comprehensive income

$   7,925,166

$ 3,909,726

 

**NOTE G - New Accounting Pronouncements:** In June  2001, the Financial Accounting Standards Board issued Statements of Financial  Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill  and Other Intangible Assets, effective for fiscal years beginning after  December 15, 2001. Under the new rules, goodwill will no longer be amortized  but will be subject to annual impairment tests in accordance with the  Statements. Other intangible assets will continue to be amortized over their  useful lives.

 

The Company will apply the new rules on accounting for  goodwill and other intangible assets beginning in the first quarter of 2002.  During 2002, the Company will perform the first of the required impairment  tests of goodwill as of January 1, 2002 and has not yet determined what the  effect of these tests will be on the earnings and financial position of the  Company.

 

**ITEM 2. Management's Discussion and Analysis of  Financial Condition and Results of Operations.**

 

**General**

 

Kentucky Investors, Inc. (the 'Company') is incorporated  under the laws of the Commonwealth of Kentucky and wholly owns Investors  Heritage Life Insurance Company ('Investors Heritage'), a life insurance  company also incorporated under the laws of the Commonwealth of Kentucky,  Investors Heritage Financial Services Group, Inc. ('FSG'), an insurance  marketing company which was formed in 1994, and Investors Heritage Printing,  Inc. ('IHP'), a printing company that provides printing to Investors Heritage  and other unaffiliated parties.

 

Investors Heritage offers a full line of life insurance  products including, but not limited to, whole life, term life, single premium  life, multi-pay life and annuities. Investors Heritage's primary lines of  business are insurance policies and annuities utilized to fund preneed funeral  contracts, credit life and credit disability insurance, and term life and  reducing term life sold through financial institutions.

 

During the second quarter 2001, Investors Heritage  introduced a new whole life final expense product. The new product, Heritage  Final Expense, will replace the Legacy 2000 Final Expense series and will be  marketed through funeral homes and independent agencies. The Company has also  entered into a new reinsurance agreement with regard to this new product to  reduce initial surplus strain and level out future profits.

 

The Company's operating earnings are derived primarily  from revenues generated from the sale of these products by Investors  Heritage, plus the Company's investment results, including realized gains  (losses), less interest credited, benefits to policyholders and expenses.

 

While the Company continues to expand the operations of  FSG and IHP, less than 1% of the Company's total operations were generated by  those subsidiaries. As expected, more than 10% of FSG's revenues during the  third quarter 2001 were derived from the sale of the Investors Heritage's  credit insurance products. The Company anticipates a dividend to be paid by  FSG during the fourth quarter in 2001. A small dividend was declared and paid  by IHP during 2001.

 

The Company's primary uses of cash are operating expenses,  debt service and dividend payments, and the Company's principal sources of  cash are the dividends paid to it by Investors Heritage, FSG and IHP.  Investors Heritage's principal sources of cash are from the sale of life  insurance policies and investment income, including realized gains (losses),  less benefits to policyholders and expenses. Therefore, the remainder of the  discussion will deal with the financial condition and results of operations  of Investors Heritage.

 

**Investments, Liquidity and Capital Resources**

 

Premiums, which include mortality and expense charges, and  investment income are Investors Heritage's primary sources of cash flow used  to meet short-term and long-term cash requirements.

 

Investors Heritage's short-term obligations consist  primarily of policyholder benefits and operating expenses. Investors Heritage  has historically been able to meet these obligations out of operating cash,  premiums and investment income.

 

Management is not aware of any commitments or unusual  events that could materially affect the Company's capital resources. During  the fourth quarter of 2000 Kentucky Investors borrowed $2,000,000 and during  the second quarter of 2001, borrowed an additional $400,000 on a long-term  basis; however, there was no short-term external debt. Kentucky Investors  utilized $200,000 of the loan amount to reduce debt to Investors Heritage and  $1,800,000 was loaned to Investors Heritage in exchange for a surplus note.  The note calls for Investors Heritage to pay, on or before the first day of  each quarter, interest at a 5.0% annual rate, upon prior approval by the  Kentucky Department of Insurance. Such interest may be paid out of Investors  Heritage's earned surplus, operating income, or paid-in and contributed  surplus. The Company also has a $150,000 line-of-credit note with a bank, of  which $-0- is outstanding at September 30, 2001. However, the Company and  Investors Heritage will continue to explore various opportunities including  corporate reorganizations, acquisitions and purchasing blocks of business  from other companies, which may dictate a need for either long-term or  short-term debt.

 

Investors Heritage has maintained a sound, conservative  investment strategy. At September 30, 2001, 86.5% of invested assets  consisted of fixed income public bonds compared to 85.3% at December 31,  2000. Fixed income assets are managed by Conning Asset Management Company, an  independent portfolio manager.

 

Additionally, Investors Heritage also engages in  commercial and residential mortgage lending with approximately 95% of these  investments being in commercial properties. All mortgage loans are originated  in-house and all loans are secured by first mortgages on the real estate. At  September 30, 2001, 8.8% of invested assets consisted of mortgage loans  compared to 9.3% at December 31, 2000. Management anticipates funding several  new mortgage loan investments during the remainder of 2001 to maintain a  similar to slightly higher percentage of mortgage loans to total invested  assets.

 

Investors Heritage's conservative approach in the product  development area and the strength and stability of its fixed income and  mortgage loan portfolios provide adequate liquidity both in the short-term  and the long-term. At September 30, 2001, and at December 31, 2000 Investors  Heritage's fixed income investments were 100.0% investment grade as rated by  Standard & Poor's. None of Investors Heritage's fixed income assets are  in default and there has been no material change in the distribution of its  fixed income portfolio.

 

Investors Heritage's principal long-term obligations are  fixed contractual obligations incurred in the sale of its life insurance  products. The premiums charged for these products are based on conservative  and actuarially sound assumptions as to mortality, persistency and interest.  Investors Heritage believes these assumptions will produce revenues  sufficient to meet its future contractual benefit obligations and operating  expenses, and provide an adequate profit margin.

 

**Results of Operations**

 

Total premium income (net of reinsurance) for the third  quarter decreased 0.5% when compared to the third quarter of 2000 and  increased 3.2% for the first nine months of 2001 when compared to the same  period in 2000. The increase for the first nine months of 2001 over the  previous year is due primarily to sales in our pre-need market being at or  above targets. Management feels that the events of September 11 in New York  and Washington, D.C. and the weeks that followed were a factor in the  decrease in sales for the third quarter of 2001 compared to 2000. Net  investment income for the third quarter 2001 compared to the third quarter of  2000 increased 5.5% and increased 8.4% for the first nine months of 2001 when  compared to the same period in 2000 primarily due to the increase in  Investors Heritage's investment asset base. Overall Revenue for the third  quarter 2001 increased 3.4% when compared to the third quarter of 2000 and  increased 5.5% for the first nine months of 2001 when compared to the same  period in 2000.

 

Total Benefits and Expenses were 0.6% higher in the third  quarter of 2001 when compared to the same quarter of 2000 and 3.6% higher the  first nine months of 2001 when compared to the same period in 2000 primarily  due to higher premium production. After providing for federal income taxes,  the Company's Net Income was $948,761 with Earnings per share of $0.73 for  the third quarter of 2001 as compared to Net Income of $659,299 and Earnings  per share of $0.57 for the same period in 2000. The Company's Net Income was  $2,435,752 with Earnings per share of $2.04 for the first nine months of 2001  as compared to Net Income of $1,795,895 and Earnings per share of $1.56 for  the same period in 2000. A dividend of $0.38 per share was paid April 6,  2001, to stockholders of record on March 23, 2001.

 

**Business Segments**

 

Management internally evaluates the performance of  Investors Heritage operations by the following business segments:

 

Preneed & Burial Products include both life and  annuity products sold by funeral directors or affiliated agents to fund  prearranged funerals. Revenues for this segment were 1.4% higher for the  third quarter of 2001 when compared to the same period of 2000 and 6.6%  higher in the first nine months of 2001 when compared to the same period of  2000. The increase is due to a steady increase in sales from Investors  Heritage's Legacy 2000 Series of Preneed and final expense products used in  the preneed funeral and final expense markets. Pre-Tax Income from Operations  for the third quarter 2001 was 0.3% higher than the comparable period for  2000 and 10.2% higher in the first nine months of 2001 when compared to the  same period of 2000 due primarily to increased sales when compared to the  first nine months of 2000. Investors Heritage plans to continue its expansion  of territory and recruitment of agents in the Preneed and Burial insurance  market.

 

Traditional & Universal Life Products include  traditional life and group life insurance products, annuities (primarily  qualified) and universal life products. Revenues for this segment were 3.0%  lower for the third quarter of 2001 when compared to the third quarter of  2000 and 2.4% lower for the first nine months of 2001 when compared to the  same period in 2000. Pre-Tax Income from Operations for the third quarter of  2001 was 32.2% higher than the comparable period for 2000 and 126.6% higher  for the first nine months of 2001 when compared to the same period in 2000.  Revenues for the first nine months of 2001 were slightly lower than  projected. Pre-Tax Income from Operations for the first and second quarters  2001 was significantly higher than projected primarily due to lower than  projected claims.

 

Credit Insurance Products and Administrative Services  include the marketing and administration of credit life and credit accident  & health insurance products. Revenues were $126,037 higher and Pre-Tax  Income from Operations was $39,035 lower for the third quarter of 2001 when  compared to the second quarter of 2000. Revenues were $25,882 lower for the  first nine months of 2001 when compared to the same period in 2000. Pre-Tax  Income was $36,544 lower for the first nine months of 2001 when compared to  the same period in 2000. Revenues and Pre-Tax Income for this segment are  generated primarily from independent contractors and pertain to debt related  products. The Company charges fees for administration but has no underwriting  risk in the products that are sold. This business segment is insignificant to  the overall operations of the Company.

 

Corporate & Other consists of corporate accounts  measured primarily by stockholders' paid-in capital, contributed surplus,  earned surplus, property and equipment, and other minor business lines which  include group annuities and group and individual accident and health  products. Revenues were 70.0% higher for the third quarter of 2001 when  compared to the same period in 2000. Revenues were 32.8% higher for the first  nine months of 2001 when compared to the same period in 2000. Pre-Tax Income  from Operations was 229.0% higher for the third quarter of 2001 when compared  to the same period in 2000 and Pre-Tax Income was 60.4% higher for the first  nine months of 2001 when compared to the same period in 2000. The increase in  Pre-Tax Income is primarily due to net realized gains from the sale of  investments.

 

**Federal Income Taxes**

 

Current taxes are provided based on estimates of the  projected effective annual tax rate. Deferred taxes reflect the net tax  effects of temporary differences between the carrying amounts of assets and  liabilities for financial reporting purposes and the amounts used for income  tax purposes. The effective tax rate for the third quarter of 2001 was 33.0%  and 28.9% for the same period in 2000. The effective tax rate for the first  nine months of 2001 was 33.7% and 31.1% for the same period in 2000. The  increase in the effective tax rate is due primarily to the reduced benefit of  the small life insurance company deduction resulting from an increase in net  income.

 

**Forward Looking Information**

 

The Company cautions readers regarding certain  forward-looking statements contained in this report and in any other  statements made by, or on behalf of, the Company, whether or not in future  filings with the Securities and Exchange Commission (the 'SEC').  Forward-looking statements are statements not based on historical information  and which relate to future operations, strategies, financial results, or  other developments. Statements using verbs such as 'expect', 'anticipate','  believe' or words of similar import generally involve forward-looking  statements. Without limiting the foregoing, forward-looking statements  include statements which represent the Company's beliefs concerning future  levels of sales and redemptions of Investors Heritage's products, investment  spreads and yields, or the earnings and profitability of the Company's or  Investors Heritage's activities.

 

Forward-looking statements are necessarily based on  estimates and assumptions that are inherently subject to significant  business, economic and competitive uncertainties and contingencies, many of  which are beyond the Company's control and many of which are subject to  change. These uncertainties and contingencies could cause actual results to  differ materially from those expressed in any forward-looking statements made  by, or on behalf of, the Company. Whether or not actual results differ  materially from forward-looking statements may depend on numerous foreseeable  and unforeseeable factors and developments. Some of these may be national in  scope, such as general economic conditions, changes in tax law and changes in  interest rates. Some may be related to the insurance industry generally, such  as pricing competition, regulatory developments, industry consolidation and  the effects of competition in the insurance business from other insurance  companies and other financial institutions operating in the Company's market  area and elsewhere. Others may relate to the Company specifically, such as  credit, volatility and other risks associated with the Company's investment  portfolio. The Company cautions that such factors are not exclusive. The  Company disclaims any obligation to update forward-looking information.

**Part II - OtherInformation**

 

**Item 1.**

**Legal Proceedings**

 

 

The Company is not involved in any legal proceedings. From  time to time Investors Heritage is involved in litigation relating to claims  arising out of its operations in the normal course of business. As of  November 5, 2001, Investors Heritage is not a party to any legal proceedings,  the adverse outcome of which, in management's opinion, individually or in the  aggregate, would have a material adverse effect on Investors Heritage's or  the Company's financial condition or results of operations.

 

**Item 2.**

**Changes in Securities**

 

 

None

 

**Item 3.**

**Defaults Upon Senior Securities**

 

 

None

 

**Item 4.**

**Submission of Matters to a Vote of Security Holders**

 

 

None

 

**Item 5.**

**Other Information**

 

 

None

 

**Item 6.**

**Exhibits and Reports on Form 8-K**

 

 

a) Exhibits

 

 

     No exhibits were filed for  the quarter ended September 30, 2001.

 

 

b) Reports on Form 8-K

 

 

     No reports on Form 8-K were  filed for the quarter ended September 30, 2001.

**SIGNATURES**

 

Pursuant to the requirements of the Securities and  Exchange Act of 1934, the registrant has duly caused this report to be signed  on its behalf by the undersigned thereunto duly authorized.

 

 

KENTUCKY INVESTORS, INC.

 

 

/s/ Harry Lee Waterfield II

 

BY: HARRY LEE WATERFIELD II, PRESIDENT

DATE: November 13, 2001

 

 

 

/s/ Jimmy R. McIver

 

BY: JIMMY R. MCIVER, TREASURER

DATE: November 13, 2001

 

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