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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-Q   þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2005
 or o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
 Commission file number 0-23637 Global Preferred Holdings, Inc. (Exact Name of Registrant as Specified in its Charter)
 DELAWARE(State or other Jurisdiction of
Incorporation or Organization)
    
    58-2179041(I.R.S. Employer
Identification Number)
 6455 EAST JOHNS CROSSING, SUITE 402
DULUTH, GEORGIA 30097
(770) 248-3311(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrants Principal Executive Offices)   Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ As of May 10, 2005, there were 4,141,685 shares of common stock outstanding.




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TABLE OF CONTENTS PART I  FINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
    
    
    3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    11ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    25ITEM 4. CONTROLS AND PROCEDURES
    
    
    25PART II  OTHER INFORMATION
    
    
    26ITEM 1. LEGAL PROCEEDINGS
    
    
    26ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    26ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    26ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    26ITEM 5. OTHER INFORMATION
    
    
    26ITEM 6. EXHIBITS
    
    
    26EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
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PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) GLOBAL PREFERRED HOLDINGS, INC. Condensed Consolidated Balance Sheets
(Unaudited) December 31,
    
    
    March 31,2004
    
    
    2005AssetsFixed maturity securities  available for sale (amortized cost
of $19,885,253 and $19,222,116 for 2004 and 2005, respectively)
    
    $
    20,071,625
    
    
    $
    19,140,050Other equity investments (cost of $500,000)
    
    
    548,819
    
    
    
    562,239Cash and cash equivalents
    
    
    12,463,601
    
    
    
    14,992,576Reinsured policy loans
    
    
    1,475,516
    
    
    
    1,592,016Total invested assets
    
    
    34,559,561
    
    
    
    36,286,881Investment income due and accrued
    
    
    234,220
    
    
    
    250,544Accounts receivable
    
    
    11,357
    
    
    
    75Reinsurance balances receivable
    
    
    2,567,121
    
    
    
    3,033,069Deferred acquisition costs
    
    
    40,167,670
    
    
    
    39,058,007Prepaid expenses
    
    
    223,973
    
    
    
    136,617Fixed assets (net of accumulated depreciation of
$433,046 and $438,205 for 2004 and 2005, respectively)
    
    
    43,095
    
    
    
    41,564Total assets
    
    $
    77,806,997
    
    
    $
    78,806,757Liabilities and Stockholders EquityLiabilities:Future policy benefits
    
    $
    19,401,495
    
    
    $
    19,602,234Accrued expenses and accounts payable
    
    
    526,316
    
    
    
    667,910Current income tax payable
    
    
    377,075
    
    
    
    454,874Deferred tax liability
    
    
    8,236,127
    
    
    
    8,024,049Total liabilities
    
    
    28,541,013
    
    
    
    28,749,067Commitments and contingencies (Note 11)Stockholders equity:Preferred stock, par value $.001, 2,000,000 shares authorized;
no shares issued
    
    
    
    
    
    
    Common stock, par value $.001, 15,000,000 shares authorized;
4,149,074 shares issued
    
    
    4,149
    
    
    
    4,149Additional paid-in capital
    
    
    23,326,026
    
    
    
    23,326,492Accumulated other comprehensive income (loss)
    
    
    123,007
    
    
    
    (54,162
    )Retained earnings
    
    
    25,862,069
    
    
    
    26,830,478Treasury stock, at cost (7,390 shares)
    
    
    (49,267
    )
    
    
    (49,267
    )Total stockholders equity
    
    
    49,265,984
    
    
    
    50,057,690Total liabilities and stockholders equity
    
    $
    77,806,997
    
    
    $
    78,806,757
 See accompanying notes to condensed consolidated financial statements. 3




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GLOBAL PREFERRED HOLDINGS, INC. Condensed Consolidated Statements of Income
(Unaudited) Three Months EndedMarch 31,2004
    
    
    2005Revenues:Premiums
    
    $
    4,302,218
    
    
    $
    4,195,143Reinsured policy revenues
    
    
    3,198,812
    
    
    
    2,949,090Net investment income
    
    
    177,741
    
    
    
    260,020Net realized gain on investments
    
    
    
    
    
    
    35,119Net unrealized gain on trading investments
    
    
    
    
    
    
    13,420Other income
    
    
    6,980
    
    
    
    2,500Total revenues
    
    
    7,685,751
    
    
    
    7,455,292Benefits and expenses:Benefits, claims and settlement expenses
    
    
    1,975,820
    
    
    
    1,941,309Change in future policy benefits
    
    
    214,469
    
    
    
    127,441Reinsurance expense allowances, net
    
    
    1,975,295
    
    
    
    1,881,211Amortization of deferred acquisition costs
    
    
    1,434,337
    
    
    
    1,251,847Operating expenses
    
    
    838,522
    
    
    
    938,564Interest expense
    
    
    93,493
    
    
    
    Total benefits and expenses
    
    
    6,531,936
    
    
    
    6,140,372Income before income tax
    
    
    1,153,815
    
    
    
    1,314,920Income tax expense
    
    
    (322,264
    )
    
    
    (346,511
    )Net income available to common stockholders
    
    $
    831,551
    
    
    $
    968,409Basic earnings per share
    
    $
    0.20
    
    
    $
    0.23Diluted earnings per share
    
    $
    0.20
    
    
    $
    0.23Weighted-average common shares outstanding
    
    
    4,141,684
    
    
    
    4,141,684Total weighted-average common and common
equivalent shares outstanding
    
    
    4,141,684
    
    
    
    4,192,442
 See accompanying notes to condensed consolidated financial statements. 4




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GLOBAL PREFERRED HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited) Three Months EndedMarch 31,2004
    
    
    2005Cash flows from operating activities:Net income
    
    $
    831,551
    
    
    $
    968,409Adjustments to reconcile net income to net cash provided by
operating activities:Amortization and depreciation
    
    
    1,496,408
    
    
    
    1,291,045Net realized gain on investments
    
    
    
    
    
    
    (35,119
    )Net unrealized gain on trading investments
    
    
    
    
    
    
    (13,420
    )Deferred tax expense (benefit)
    
    
    289,346
    
    
    
    (120,808
    )Capitalization of deferred acquisition costs
    
    
    (221,499
    )
    
    
    (142,184
    )Change in:Investment income due and accrued
    
    
    (30,684
    )
    
    
    (16,324
    )Accounts receivable
    
    
    36,333
    
    
    
    11,282Reinsurance balances receivable
    
    
    507,148
    
    
    
    (465,948
    )Prepaid expenses
    
    
    88,585
    
    
    

    87,356Current income tax recoverable
    
    
    29,668
    
    
    
    Future policy benefits
    
    
    (174,173
    )
    
    
    200,739Reinsurance balances payable
    
    
    (48,142
    )
    
    
    Accrued expenses and accounts payable
    
    
    143,570
    
    
    
    141,594Accrued interest payable
    
    
    (94,006
    )
    
    
    Current income tax payable
    
    
    
    
    
    
    77,799Net cash provided by operating activities
    
    
    2,854,105
    
    
    
    1,984,421Cash flows from investing activities:Proceeds from principal payments on mortgage-backed
securities available-for-sale
    
    
    43,062
    
    
    
    131,676Proceeds from maturity of available-for-sale securities
    
    
    200,000
    
    
    
    Proceeds from sale of fixed maturity securities
available-for-sale
    
    
    
    
    
    
    532,540Purchase of fixed maturity securities available-for-sale
    
    
    (1,511,000
    )
    
    
    Purchase of fixed assets
    
    
    
    
    
    
    (3,628
    )Change in reinsured policy loans
    
    
    (60,297
    )
    
    
    (116,500
    )Net cash (used in) provided by investing activities
    
    
    (1,328,235
    )
    
    
    544,088Cash flows from financing activities:Expense of stock options
    
    
    
    
    
    
    466Net cash provided by financing activities
    
    
    
    
    
    
    466Net increase in cash and cash equivalents
    
    
    1,525,870
    
    
    
    2,528,975Cash and cash equivalents at beginning of period
    
    
    11,580,045
    
    
    
    12,463,601Cash and cash equivalents at end of period
    
    $
    13,105,915
    
    
    $
    14,992,576Supplemental disclosure of cash flow information:Interest paid
    
    $
    187,500
    
    
    $
    Income taxes paid
    
    $
    3,250
    
    
    $
    389,520
 See accompanying notes to condensed consolidated financial statements. 5




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GLOBAL PREFERRED HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements March 31, 2005
(Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Global Preferred
Holdings, Inc. (Global Preferred) have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) for interim financial information and
with the instructions for Form 10-Q. Accordingly, they do not include all of the information and
footnotes required by GAAP 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 three months ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2005.
The unaudited condensed consolidated financial statements should be read in conjunction with Global Preferreds audited
financial statements included in Global Preferreds 2004 Annual Report on Form 10-K, as amended and
filed with the Securities and Exchange Commission. On December 30, 2004, Global Preferred announced that it had entered into an agreement and
plan of reorganization (the Reorganization Agreement) with AEGON N.V. (AEGON) and its wholly
owned subsidiary, GPRE Acquisition Corp. (GAC). If the transactions contemplated by the
Reorganization Agreement are consummated, Global Preferred will receive approximately $57 million of marketable
AEGON common shares in exchange for all of the outstanding shares of Global Preferred Re Limited.
As a result, Global Preferreds operations and substantially all operating cash flows, except for
investment income and run-off expenses, will cease. The Reorganization Agreement provides that, no
more than twelve months after closing of the asset transfer, Global Preferred must dissolve and
distribute all remaining AEGON common shares received pursuant to the Reorganization Agreement and
any of its other remaining assets to its stockholders, after making adequate provision for its
liabilities in accordance with Delaware law. The accompanying
unaudited condensed consolidated financial statements have not been
adjusted to the liquidation basis. In
connection with the Reorganization Agreement, AEGON filed a
registration statement on Form F-4 on February 28, 2005, which
was amended by an Amendment No. 1 filed on April 5, 2005, that also served as Global
Preferreds proxy statement for the special meeting of its stockholders held on May 10, 2005 to
consider the Reorganization Agreement. At the special meeting, the proposals to consider the sale
of Global Preferred Re and subsequent dissolution and liquidation of Global Preferred were both
approved by holders of approximately 69% of Global Preferreds outstanding shares of common stock.
The transactions are still subject to various closing conditions, one
of which requires that AEGON use its best efforts to complete its purchase of shares to be used as consideration in
this transaction no later than seven business days, that are not AEGON blackout days, after May
10, 2005. The Reorganization Agreement specifies that the closing will take place on the third day
following the date that all conditions to closing have either been satisfied or waived. 6




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The following table presents the carrying amounts of the major classes of assets and
liabilities of Global Preferred Re: March 31,2005AssetsFixed maturity securities  available for sale (amortized cost
of $16,542,691)
    
    $
    16,476,156Other equity investments (cost of $500,000)
    
    
    562,239Cash and cash equivalents
    
    
    11,487,407Reinsured policy loans
    
    
    1,592,016Total invested assets
    
    
    30,117,818Investment income due and accrued
    
    
    218,175Reinsurance balances receivable
    
    
    3,033,069Deferred acquisition costs
    
    
    39,058,007Prepaid expenses
    
    
    27,263Total assets
    
    $
    72,454,332LiabilitiesFuture policy benefits
    
    $
    19,602,234Current income tax payable
    
    
    455,872Deferred tax liability
    
    
    8,672,494Total liabilities
    
    $
    28,730,600
 2. Deferred Taxes Global Preferred uses the asset and liability method to record deferred income taxes.
Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases using an effective federal income tax rate of 34%.
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes,
specifically excludes recognition of the small life insurance company deduction available under
Section 806 of the Internal Revenue Code for qualifying life insurance companies. This special
deduction can reduce the effective federal income tax rate from 34% to less than 20% depending upon
the amount of taxable income. Consequently, the effective tax rate on Global Preferreds earnings
may ultimately prove to be less than the deferred income tax liabilities and related expenses
determined under SFAS No. 109 at March 31, 2005. 3. Comprehensive Income SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and
displaying comprehensive income and its components in a full set of general-purpose financial
statements. The primary component of accumulated other comprehensive income or loss as shown under
the equity section of the consolidated balance sheet is the unrealized gain or loss on
available-for-sale fixed maturity securities. Total comprehensive income for the three months
ended March 31, 2005 was $791,240 compared to $985,464 for the three months ended March 31, 2004. 4. Earnings Per Share Basic earnings per share is computed based on the weighted-average number of common shares
outstanding during the period, in accordance with SFAS No. 128, Earnings Per Share. Diluted
earnings per share is computed based on the total weighted-average number of common and common
equivalent shares outstanding during the period. The dilutive effect of the 264,846 stock options
outstanding on March 31, 2005, which was computed using the treasury stock method, was not
significant to Global Preferreds financial statements for the
three-month period ended March 31, 2005. For further discussion, refer to Note 15 to the consolidated financial
statements in Global Preferreds Annual Report on Form 10-K, as amended, for the year ended
December 31, 2004. 7




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5. Stock Options Global Preferreds employee stock incentive plan and directors stock option plan (the stock
option plans) are accounted for under the intrinsic value recognition and measurement principles
of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. The application of APB No. 25 did not result in significant
compensation expense for the three-month periods ended March 31, 2004 and 2005. The following
table illustrates the effect on net income and earnings per share if Global Preferred had applied
the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to
the stock option plans as of the dates reported. For purposes of this pro-forma disclosure, the estimated fair value of the options is assumed
to be amortized as a stock-based compensation expense over the options vesting periods. Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,(In ThousandsExcept Per Share Amounts)
    
    2004
    
    
    2005Net income, as reported
    
    $
    831.6
    
    
    $
    968.4Less: Total stock-based employee
compensation expense determined under the
fair value method for all awards, net of
tax
    
    
    (2.9
    )
    
    
    (3.2
    )Pro-forma net income
    
    $
    828.7
    
    
    $
    965.2Reported and
pro-forma basic earnings per common share
    
    $
    0.20
    
    
    $
    0.23Reported and
pro-forma diluted earnings per common share
    
    $
    0.20
    
    
    $
    0.23
 6. Accounting Pronouncements In December 2004, FASB issued a revision to SFAS No. 123, Accounting for Stock-Based
Compensation, Share-Based Payment. Because Global Preferred is a non-public company, as defined in
SFAS No. 123, the provisions of this statement are effective for fiscal periods beginning after
December 15, 2005. Global Preferred is in the process of analyzing the effect of this statement on
its financial statements. 7. Segment Reporting Global Preferred defines reportable segments based on the nature of its reinsurance agreements
and the accounting treatment used for the various reinsurance agreements. Based on this
definition, two reportable segments have been identified: non-universal life-type agreements and
universal life-type agreements (as each is referenced in SFAS No. 97, Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from
the Sale of Investments, paragraphs 44 and 45). Global Preferred reinsures certain variable
universal life insurance policies on a renewable term basis, which are reported below as
Non-Universal Life-Type Agreements and, as such, these revenues are classified as premium revenue.
Renewable term reinsurance involves the reinsurance of mortality risk whereby premiums are not
directly related to the premium rates on the original plan of insurance. Global Preferreds
renewable term agreements are accounted for under SFAS No. 60, Accounting and Reporting by
Insurance Enterprises. Global Preferred reinsures variable annuity contracts and certain other
variable universal life insurance policies on a coinsurance and modified coinsurance basis, which
are reported below as Universal Life-Type Agreements and, as such, these revenues are classified as
reinsured policy revenues. Coinsurance involves the reinsurance of mortality and investment risks on the same basis
as that of the underlying policies. The ceding life companies and Global Preferred share in these
risks on a pro rata basis. Global Preferreds existing coinsurance and modified coinsurance
agreements are accounted for under SFAS No. 97. 8




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##### Table of Contents



Items not directly related to the business segments and unallocated corporate items (i.e.,
other income, interest expense on corporate debt and unallocated operating expenses) are shown
separately, consistent with Global Preferreds internal measurement process. Segment assets
reported include those assets directly attributable to the reinsurance agreements such as
reinsurance balances receivable, deferred acquisition costs, policy loans, prepaid expenses,
invested assets and cash. Cash and invested assets are allocated to the agreements based upon
statutory reserves, the letters of credit posted in support of the statutory reserves held,
statutory receivables and allocated surplus, which is consistent with Global Preferreds current
internal measurement process. Three Months Ended
March 31, 2004
    
    
    2005Non
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Universal
    
    
    Universal
    
    
    
    
    
    
    
    
    
    
    Universal
    
    
    Universal(Dollars in thousands)
    
    Life-Type
    
    
    Life-Type
    
    
    Other
    
    
    Total
    
    
    Life-Type
    
    
    Life-Type
    
    
    Other
    
    
    TotalPremiums
    
    $
    4,302
    
    
    $
    
    
    
    $
    
    
    
    $
    4,302
    
    
    $
    4,195
    
    
    $
    
    
    
    $
    
    
    
    $
    4,195Reinsured policy revenues
    
    
    
    
    
    
    3,199
    
    
    
    
    
    
    
    3,199
    
    
    
    
    
    
    
    2,949
    
    
    
    
    
    
    
    2,949Benefits, claims and
settlement expenses*
    
    
    1,642
    
    
    
    548
    
    
    
    
    
    
    
    2,190
    
    
    
    1,765
    
    
    
    304
    
    
    
    
    
    
    
    2,069Reinsurance expense
allowances, net
    
    
    1,482
    
    
    
    493
    
    
    
    
    
    
    
    1,975
    
    
    
    1,443
    
    
    
    438
    
    
    
    
    
    
    
    1,881Amortization of deferred
acquisition costs
    
    
    31
    
    
    
    1,403
    
    
    
    
    
    
    
    1,434
    
    
    
    46
    
    
    
    1,206
    
    
    
    
    
    
    
    1,252Underwriting profit
    
    
    1,147
    
    
    
    755
    
    
    
    
    
    
    
    1,902
    
    
    
    941
    
    
    
    1,001
    
    
    
    
    
    
    
    1,942Net investment income
    
    
    8
    
    
    
    24
    
    
    
    146
    
    
    
    178
    
    
    
    19
    
    
    
    32
    
    
    
    209
    
    
    
    260Net realized gain on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    35Net unrealized gain on
trading investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    13Other income
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Other expenses
    
    
    38
    
    
    
    101
    
    
    
    794
    
    
    
    933
    
    
    
    59
    
    
    
    135
    
    
    
    744
    
    
    
    938Segment operating income
(loss) before income tax
    
    
    1,117
    
    
    
    678
    
    
    
    (641
    )
    
    
    1,154
    
    
    
    901
    
    
    
    898
    
    
    
    (484
    )
    
    
    1,315Income tax expense (benefit)
    
    
    312
    
    
    
    189
    
    
    
    (179
    )
    
    
    322
    
    
    
    238
    
    
    
    237
    
    
    
    (128
    )
    
    
    347Segment net income (loss)
    
    $
    805
    
    
    $
    489
    
    
    $
    (462
    )
    
    $
    832
    
    
    $
    663
    
    
    $
    661
    
    
    $
    (356
    )
    
    $
    968Segment assets
    
    $
    5,612
    
    
    $
    46,010
    
    
    $
    28,843
    
    
    $
    80,465
    
    
    $
    6,620
    
    
    $
    42,650
    
    
    $
    29,537
    
    
    $
    78,807
   *
    Benefits, claims and settlement expenses include change in future policy benefits. During each of the three month periods ended March 31, 2004 and 2005, the percentage of
total premiums and reinsured policy revenues that related to business issued by Western Reserve
Life Assurance Co. of Ohio (Western Reserve) was 92%. The percentages of total underwriting
profit that related to business issued by Western Reserve for the three month periods ended March
31, 2004 and 2005 were 96% and 95%, respectively. 9




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8.
Investments As of March 31, 2005, none of Global Preferreds investments were deemed to be
other-than-temporarily impaired. The following table shows the fair value and unrealized loss
summarized by investment category for investments in an unrealized loss position as of March 31,
2005. None of these investments have been in an unrealized loss position for 12 months or more.
Of the 26 investments in an unrealized loss position, the largest unrealized loss by dollar amount
and percentage was $19,805 and 4.1%, respectively. March 31, 2005Fair Value
    
    
    Unrealized LossU.S. government agency obligations
    
    $
    4,677,672
    
    
    $
    75,476Corporate bonds
    
    
    6,511,097
    
    
    
    78,825Mortgage-backed securities
    
    
    822,692
    
    
    
    3,379Total
    
    $
    12,011,461
    
    
    $
    157,680
 All of the unrealized losses on investments were caused by increases in market interest rates.
The contractual terms of these investments do not permit the issuer to settle the securities at a
price less than the amortized cost of the investment. Because Global Preferred has the ability and
intent to hold these investments until a recovery of fair value, which may be at maturity, Global
Preferred does not consider these investments to be other-than-temporarily impaired at March 31,
2005. 9. Reclassification Global Preferred has reclassified the presentation of certain 2004 information to conform to
the 2005 presentation. 10. Employment Agreements Global Preferred has written employment agreements with its executive officers. These
agreements govern employee conduct and Global Preferreds obligation to compensate such key
employees. The agreements expire on either December 31, 2005 or December 31, 2006 and are
renewable by agreement of the parties for additional one-year periods. 11. Commitments and Contingencies Under its reinsurance agreements, Global Preferred is required to provide security through
letters of credit for the benefit of the ceding life companies with which it has agreements. Global
Preferred has three letters of credit totaling $5.85 million, which are issued by its custodian,
Comerica Bank, for the benefit of the ceding life companies. Liabilities for future policy benefits under modified coinsurance agreements equal reinsured
policy account balances on the underlying life insurance and annuity policies. With regard to the
separate account benefits reinsured on a modified coinsurance basis, liabilities are recorded as an
offset to related assets as the intentions and rights under the agreements with the ceding life
companies meet the appropriate conditions governing rights of setoff. Separate account benefits
and related assets reinsured on a modified coinsurance basis total $264.4 million as of March 31,
2005. 10




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
addresses the financial condition of Global Preferred Holdings, Inc. as of March 31, 2005 compared
with December 31, 2004, and its results of operations for the three months ended March 31, 2005,
compared with the three months ended March 31, 2004. This discussion should be read in conjunction
with the unaudited condensed consolidated financial statements and accompanying notes included
elsewhere in this report and with the MD&A and Global Preferreds consolidated financial statements
and notes thereto included in Global Preferreds 2004 Annual Report on Form 10-K, as amended. Overview Global Preferred Holdings, Inc. was incorporated in Delaware in 1995 as a holding company and
owns all of the outstanding capital stock of Global Preferred Re Limited, Global Preferred
Solutions, Inc., Global Preferred Resources, Inc. and Preferred Advantage Insurance Services, Inc.
Global Preferred Re Limited is a Bermuda company registered as a long-term insurer under the
Bermuda Insurance Act 1978 that was formed during 1995. Global Preferred Solutions, Global
Preferred Resources and Preferred Advantage Insurance Services were formed during 2003. References
in this report to Global Preferred, we, us, our and our company refer to Global Preferred
Holdings, Inc. and its subsidiaries unless the context otherwise requires or is expressly stated. Global Preferred, through its subsidiaries, provides profit sharing solutions for independent
marketing organizations or IMOs in the life insurance and annuity industry. An IMO is an
organization of independent agents that contracts with one or more insurance companies to
distribute and market securities and insurance products. These organizations include: insurance
agencies, insurance brokers, broker-dealers, banks, savings and loans and any other group or
institution that markets life insurance and annuities. Our profit sharing solutions include:  
    A reinsurance development program for IMOs utilizing proprietary strategies that permits
the members of the IMO to share in the economics of the business reinsured, thus aligning
the long-term interests of the life insurance companies with the interests of the marketing
organizations;
    Life insurance management and actuarial advisory services to IMOs and life insurers to
aid clients in their assessment of the strategic and structural benefits of establishing a
profit sharing program through their distributor-insurer relationships, such as
producer-owned reinsurance;
    A management support structure to leverage our core competencies and provide economies
of scale to IMOs and insurance companies who already have formed, or are considering
forming, a producer-owned reinsurance enterprise; and
    A managing general agency structure that facilitates product distribution relationships
between IMOs and life insurers. Both the IMOs and insurers benefit from mutually rewarding relationships based on aligned
interests, a dedication to improving the quality of business written, and a focus on managing
insurance and distribution risk for long-term economic rewards. Through these collaborative
relationships:  
    IMOs can share in the profits of the business they sell, enhance their recruiting and
retention programs, increase their role in product development and better assess the
quality of business they write;
    Insurance companies can benefit from secure, stable growth in distribution, increased
attention to the quality of business written, lower marketing costs due to continuity in
distribution and renewed focus on long-term goals; and
    Global Preferred can share in the economic benefits derived from fee income for managing
the reinsurance risk and administering the reinsurance structure, and also from our
participation in a portion of the reinsurance of the products sold by the IMOs. 11




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Our core business consists of providing reinsurance on business that has resulted from a
relationship with the independent agents of an IMO affiliate of AEGON USA, Inc. Although our
reinsurance business is directed to us through these independent agent relationships, the life
insurance and annuity policies that we currently reinsure are underwritten and issued by various
ceding life companies. In the insurance industry, the term ceding refers to the use of
reinsurance to transfer from one insurance company to another some or all of the risks associated
with one or more insurance policies. We often refer to a life insurance company that reinsures
life insurance and annuity policies through us as a ceding life company. The ceding life
companies who issue the policies we currently reinsure are:  
    Western Reserve Life Assurance Co. of Ohio, a subsidiary of AEGON USA, Inc. (Western
Reserve);
    American Skandia Life Assurance Corporation, a subsidiary of Prudential Financial, Inc.
(American Skandia);
    Pacific Life Insurance Company (Pacific Life); and
    Federal Kemper Life Assurance Company, a subsidiary of J.P. Morgan Chase & Co. (Kemper). Under a reinsurance agreement, like the ones we have entered into with the above insurance
companies, the economic consequences of certain insurance risks are transferred from the ceding
life company to the reinsurer. Depending upon the type of reinsurance agreement, these risks may
include mortality, persistency, investment and expense. Key considerations in evaluating the risks
include:  
    industry experience;
    the ceding life companys pricing and assumptions;
    the type of product;
    the ceding life companys underwriting practices and procedures;
    the type of distribution system;
    the ceding life companys recent experience; and
    the market for the product. The ceding life companies retain responsibility for the payment of all claims, surrender
values, commissions, and expenses involved in issuing and maintaining the policies we reinsure. In
addition, the ceding life companies administer the reinsurance contracts and, on a monthly and
quarterly basis, provide us with information regarding premiums, reserves and benefits and the
amounts we owe to the ceding life company for claims and settlement expenses on the policies we
reinsure. Sale of Global Preferred Re On December 30, 2004, we entered into an agreement and plan of reorganization (the
Reorganization Agreement) with AEGON N.V. (AEGON) and GPRE Acquisition Corp. (GAC), a direct,
wholly owned subsidiary of AEGON, to transfer to GAC all of the outstanding shares of Global
Preferred Re. Pursuant to the terms of the Reorganization Agreement, we will receive AEGON common
shares in exchange for all of the outstanding shares of Global Preferred Re. The Reorganization
Agreement provides that, no more than twelve months after closing of the asset transfer, we must
dissolve and distribute all remaining AEGON common shares received pursuant to the Reorganization
Agreement and any of our other remaining assets to our stockholders, after making adequate
provision for our liabilities in accordance with Delaware law. The Reorganization Agreement specifies that the transactions are subject to the approval of
our stockholders, customary closing conditions and regulatory reviews, including approval of the
transaction by the Bermuda Monetary Authority which has been obtained. The Reorganization
Agreement is terminable in certain circumstances, some of which may be subject to payment of a
termination fee by the respective terminating party. If these transactions are not completed,
Global Preferreds operations will continue as we explore alternatives to offer our stockholders
liquidity for their Global Preferred stock. 12




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While the Reorganization Agreement is in effect, Global Preferred and Global Preferred Re must
obtain prior written consent from AEGON and GAC to conduct certain transactions, which may include:
(1) paying dividends, (2) issuing or repurchasing our stock, (3) sale of assets or property, (4)
entering into or modifying any contracts or reinsurance agreements, (5) altering the mix of
invested assets of Global Preferred Re, (6) incurring any indebtedness, or (7) making any loans,
capital contributions or investments that would constitute an asset of Global Preferred Re. Recent Development In
connection with the Reorganization Agreement, AEGON
filed a registration statement on Form F-4 on February 28,
2005, which was amended by an Amendment No. 1 filed on April 5, 2005,
that also served as our proxy
statement for the special meeting of stockholders held on May 10, 2005 to consider the
Reorganization Agreement and the transactions contemplated thereby including our dissolution
following the consummation of the sale of Global Preferred Re. At the special meeting on May 10,
2005, the proposals to consider the sale of Global Preferred Re and subsequent dissolution and
liquidation of Global Preferred were both approved by holders of approximately 69% of our
outstanding shares of common stock. Types of Reinsurance We currently write three types of reinsurance on a quota share basis: renewable term,
coinsurance and modified coinsurance. Renewable Term.Renewable term, also referred to as risk premium reinsurance, which includes
monthly renewable term and yearly renewable term, is a plan of reinsurance in which the premium
rates are not directly related to the premium rates on the original plan of insurance. Under
renewable term reinsurance, the ceding life company reinsures a portion of the mortality risk with
us. The amount reinsured in any one period is not based on the face amount of the policy, but
rather on the portion of the net amount of risk we reinsure. The net amount of risk is typically
defined as the difference between the death benefit and the cash value of a policy. The ceding
life company establishes the policy reserves, which are reduced for the mortality risk reinsured
with us, and pays all policy benefits, commissions and expenses involved in issuing and maintaining
the business. Correspondingly, we establish reserves specific to the mortality risk reinsured. Under renewable term reinsurance, we may also be subject to the effects of persistency risk.
Persistency risk is the risk that a policyholder either stops paying premiums, which would cause
the policy to lapse, or chooses to surrender the policy for the cash surrender value. The effect
of persistency risk on us is that possible future revenue will be reduced, potentially reducing
profits. Coinsurance.Under a coinsurance arrangement, the insured risks are ceded to us on
essentially the same basis as underwritten by the ceding life company. The ceded risks include
mortality, persistency, investment and expense. We share the risks pro rata with the ceding life
company. We receive a proportionate share of gross premiums from the ceding life company and
provide contractual expense allowances to the ceding life company to pay for the expenses
associated with the reinsured policies. Expenses include commissions and costs associated with
underwriting, marketing, policy issue and maintenance. We also pay our proportionate share of
death benefits and other policy benefits to the ceding life company. The reserves on the ceded
portion of the policy are held by us and are our obligations. Correspondingly, we invest the
assets related to the reserves and receive investment income from those assets. Modified Coinsurance.Modified coinsurance is similar to coinsurance except the ceding life
company does not transfer the reserves or the invested assets related to the reserves. Modified
coinsurance is used primarily for products that develop cash values and allows the ceding life
company to retain the associated assets for investment purposes. 13




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Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions regarding
uncertainties that affect certain amounts in the unaudited condensed consolidated financial
statements and related footnotes. Accounts that we deem to be sensitive to changes in estimates
include deferred acquisition costs and future policy benefits. In all instances, actual results
could differ from estimates. Information included elsewhere herein, including Fair Value
Disclosure  Investments, and in Note 2 to the consolidated financial statements in our Annual
Report on Form 10-K, for the year ended December 31, 2004, as amended, includes a summary of the
critical accounting policies used in the preparation of our unaudited condensed consolidated
financial statements. Income Statement Impact Reinsurance Revenues.For renewable term reinsurance, we record as premiums the amount of
reinsurance premiums we receive over the payment periods of the reinsured policies. For policies
reinsured on a coinsurance or modified coinsurance basis, we record as reinsured policy revenues
our proportionate share of the gross revenues received by the ceding life company over the payment
periods of the reinsured policies. These revenues represent the policy mortality and expense
charges, asset-based fees and deferred sales charges that have been assessed against the reinsured
policy account balances. Reinsurance Expenses.Regardless of the type of reinsurance, our related expenses may
include: (1) benefits, claims and settlement expenses, which represent our share of the payments
made under the reinsured policies during the period, the change in claims in course of settlement
and the change in claims incurred but not reported; (2) expense allowances paid to the ceding life
company for expenses associated with the reinsured policies, including commissions and costs
associated with underwriting, marketing, policy issue and maintenance; and (3) amortization of
deferred acquisition costs, which are discussed in more detail below. Net Income.Our profitability, in part, depends on the volume of policies reinsured and
experience of the reinsured policies. Factors that affect the experience of the business include
reinsured policy persistency, death claims and investment performance of the separate account
balances. While death claims are reasonably predictable over a period of years, claims become less
predictable over shorter periods, and are subject to fluctuation from quarter to quarter and year
to year. Similarly, separate account investment returns, upon which a significant portion of our
revenues depend, may have relatively stable returns over a period of years but can be volatile over
shorter periods. A considerable amount of separate account balances is invested in equities;
therefore, a prolonged deterioration in the equity markets will result in a decrease in our current
and future income. Balance Sheet Impact Deferred Acquisition Costs.We capitalize and defer costs that vary with and are primarily
related to the acquisition of the reinsured policies. These expenses are deferred to the extent
that such costs are deemed recoverable from future policy revenues and are recorded as deferred
acquisition costs on the balance sheet. Such costs include reinsurance expense allowances paid to
ceding life companies, and may include other underwriting costs such as actuarial, legal and
accounting fees. Deferred acquisition costs are amortized over the lives of the underlying policies, in
conformity with the terms of the reinsurance agreement. Under the renewable term agreements,
deferred acquisition costs are amortized in proportion to the premium revenue related to the
mortality risk reinsured. Such premium revenue is estimated using the same assumptions used for
computing liabilities for future policy benefits. Such assumptions include estimates of expected
investment yields, mortality, persistency and expenses applicable at the time the policies are
reinsured. Original assumptions on renewable term business continue to be used in subsequent
accounting periods to determine changes in the deferred acquisition costs unless a premium
deficiency exists. Under the renewable term agreements, the amortization is in proportion to the
ratio of premiums collected during the then current period to total anticipated premiums and is
adjusted to reflect actual persistency of the insurance in force. 14




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Under the coinsurance and modified coinsurance agreements, the amortization of the deferred
acquisition costs is in proportion to the ratio of gross profits recognized during the then current
period to total actual and future expected gross profits. During each accounting period,
assumptions used in calculating the amortization of deferred acquisition costs reflect actual
experience for the then current accounting period. We also review, on a periodic basis, our
evolving experience concerning our assumptions with regard to mortality, persistency, investment
yields and expenses in determining our estimate of anticipated future expected gross profits. This
periodic review is commonly referred to as unlocking. Our normal period of observation is from
October 1 of the previous calendar year through September 30 of the current calendar year. If we
believe variances from expected assumptions are permanent, we will change the assumptions we use
with regard to future experience. Upon adoption of any change in assumptions used with regard to
future experience, amortization of the deferred acquisition costs will be recalculated and
reflected during the then current accounting period. A material component of variable life and annuity product revenues is derived from the
asset-based fees that have been assessed against the policy account balances, of which a
considerable portion is invested in the equity markets. The volatility of equity market returns
over the short-term can be significant without materially impacting long-term equity market
returns. Historical equity market performance shows equity market volatility is much higher over
short-term horizons as compared to long-term horizons. The short-term volatility of the policy
account balance would result in a proportional adjustment to all future expected gross profits if
no other adjustments were made to account for the differences between long-term and short-term
volatility. To account for the differences between long-term and short-term volatility, we utilize
a credibility approach. Under this approach, the estimates of future expected gross profits are
adjusted to recognize the effects short-term volatility and market yields have upon long-term yield
expectations. We review our approach annually to determine if additional adjustments to
amortization are necessary as a result of prolonged and/or severe negative or positive equity
market performance. In such instances, the equity market performance must be sufficiently high or
low to justify a belief that the effect of current market conditions on future expected gross
profits should be more permanently reflected. In addition, certain variable annuity policies we reinsure include a death benefit typically
equal to the greater of (i) a return of premium or (ii) the highest level the policy account
balances had accumulated over certain prescribed periods under the annuity policy. Upon the death
of an annuity policyholder, we will incur a claim expense equal to the excess, if any, of the
amount guaranteed under this provision over the then current policy account balance. The claim
expense, as a percentage of the death benefit, tends to increase when equity markets decline and
decrease when equity markets increase. The claim expense depends, in part, on the number and
amount of death claims incurred. To account for the expense associated with these guaranteed
minimum death benefits, we utilize an explicit method consistent with Statement of Position (SOP)
03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate Accounts. Under this method, we may establish a guaranteed minimum
death benefit (GMDB) liability if expected future claims expenses are not proportionate to future
expected policy charges. Future expected gross profits are then reduced to account for future
expected claims expenses and adjusted for anticipated changes in the GMDB liability. The
short-term volatility of the policy account balance will result in significant volatility in the
expected claims expense and in the GMDB liability balance if no recognition is made to acknowledge
differences between long-term yields and short-term volatility. Using a credibility approach, our
explicit method recognizes the effect of long-term versus short-term volatility when accounting for
guaranteed minimum death benefits. Future Policy Benefits.Liabilities for future benefits on life insurance and annuity
policies are established in an amount we estimate is adequate to meet the estimated future
obligations on the policies in effect. Policy reserves are included in future policy benefits on
the unaudited condensed consolidated balance sheet. Liabilities for future policy benefits under the renewable term agreements include provisions
for expected future claims. The liability is estimated using assumptions such as estimates of
expected investment yields, mortality, persistency and expenses applicable at the time the
reinsurance contracts are executed. Liabilities for future policy benefits under coinsurance and modified coinsurance agreements
equal reinsured policy account balances on the underlying life insurance and annuity policies. With
regard to the separate account benefits reinsured on a modified coinsurance basis, we record the
liabilities as an offset to related assets as our intentions and rights under the agreements with
the ceding life companies meet the appropriate conditions governing rights of setoff. The nature
of separate account benefits under variable life insurance or variable annuity policies do not 15




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permit us to reinsure those benefits on a coinsurance basis. We currently reinsure the fixed
account portion of life insurance and annuity policies only on a coinsurance basis and,
accordingly, the liabilities for that portion of the reinsurance are recorded as future policy
benefits. Liabilities for future policy benefits under our reinsurance agreements may include provisions
for claims that have been incurred but have not yet been paid. A portion of these claims represent
claims reported to us that are in the course of settlement. The remainder of this liability
represents claims that may have been incurred but not yet reported to us. Liabilities for future policy benefits reflected in the unaudited condensed consolidated
financial statements are based on information provided to us by the ceding life companies. Reserves
established by us with respect to individual risks or classes of business may not be the same as
those established by ceding life companies due to differing risks and assumptions regarding
mortality, persistency, investment and expenses. Fair Value Disclosure Investments.We classify all fixed maturity securities and equity securities that are not
classified as trading securities as available for sale. Such securities are reported at fair
value. Fixed maturity securities available for sale are so classified based upon the possibility
that such securities could be sold prior to maturity if that action enables us to execute our
investment philosophy and appropriately match investment results to operating and liquidity needs.
Equity securities available for sale are so classified because we do not intend to actively trade
such securities. Unrealized gains and losses on marketable equity securities and fixed maturity
securities available for sale, less applicable deferred income taxes, are reported as a separate
component of accumulated other comprehensive income within stockholders equity. Investment
income is recognized as it accrues or becomes legally due. Other equity investments, classified as
trading securities, are bought and held principally for the purpose of selling them in the near
term. Unrealized gains and losses on trading securities are reported as a separate revenue
component on the income statement. Realized gains or losses on sales of investments are included in income, as are write-downs of
securities where declines in value are deemed to be other-than-temporary. In determining whether a
decline in market value on our fixed income securities is other-than-temporary, we consider the
cause of the impairment, the length of impairment, the amount of impairment as a percentage of the
fair value of the security and other relevant information about the issuer or security. Although
we utilize an independent investment manager to invest and manage our assets in accordance with our
investment guidelines, we have the ability and intent to hold these securities until a forecasted
recovery of fair value is at least equal to the amortized cost or until maturity. The cost of
investment securities sold is determined based upon the specific identification method. Other Financial Assets and Liabilities.The carrying value of cash and cash equivalents,
reinsurance receivables and payables, short-term debt, accrued expenses and accounts payable
approximate their fair values due to the short-term nature of these accounts. The carrying value of
future policy benefits approximates its fair value as credited interest approximates current market
rates. Reinsurance Relationships Current Reinsurance Business We currently provide reinsurance for variable universal life and variable annuity policies
issued by four large life insurance companies. Our reinsurance agreements with these ceding life
companies provide for our assumption of a portion of defined risks associated with specified
products sold by certain independent agents with which we have a relationship. Reinsurance under
these agreements is automatic, meaning we are required to accept the business ceded to us so long
as the ceding life companies satisfy the terms of the reinsurance agreements. 16




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The following table indicates, by ceding life company, the types of policies we are currently
reinsuring and the type of reinsurance applicable to each. Type of ReinsuranceCeding Life Company
    
    Renewable Term
    
    Coinsurance
    
    Modified CoinsuranceWestern ReserveVariable universal life
    
    ü
    
    ü
    
    üVariable annuity.
    
    
    
    ü
    
    üAmerican SkandiaVariable annuity.
    
    
    
    
    
    üPacific LifeVariable universal life
    
    üKemperVariable universal life
    
    ü
 We have four separate reinsurance agreements with Western Reserve that cover variable
universal life insurance and variable annuity policies issued by Western Reserve on or after
January 1, 1992, which are sold by the agents of World Financial Group, Inc. and its predecessor.
These agreements were entered into on July 1, 1996, January 1, 1998, April 1, 1998, and October 1,
1999, respectively. The agreement with American Skandia began on January 1, 1997 and covers
policies on an American Skandia variable annuity product issued between January 1, 1997 and
December 31, 2002 sold by those same agents. The Kemper agreement was effective September 1, 1996
and covers all policies on a Kemper variable universal life product issued between September 1,
1996 and March 31, 2001 sold by those agents. Our agreement with Pacific Life was effective
January 1, 2001 and covers policies on individual variable universal life products issued on or
after January 1, 2001, sold by those agents. Effective January 1, 2005, we ceased reinsurance of the Western Reserve Freedom Premier
variable annuity products due to the limited volume of new policies we anticipate to be written for
this product. However, we will continue to reinsure all Freedom Premier policies we reinsured as
of December 31, 2004. We believe that the terms of our reinsurance arrangements are favorable for our industry and
that we were able to obtain these terms in part because of our relationships with the agents that
sell the policies we reinsure. Our right to reinsure new business under our reinsurance agreements
generally extends for an initial term of 3 to 5 years, with automatic renewals and one-year notices
of termination following the initial term. Termination of our right to reinsure new business does
not, however, affect our right to continue to reinsure the policies reinsured at the time of
termination. Under our agreements, we have the right to continue to reinsure a policy for as long
as it remains in effect or until the ceding life company otherwise recaptures it. A ceding life
company may have the right to recapture a reinsured policy only upon certain defaults or after a
period of 10 years or longer, depending on the terms of the relevant reinsurance agreement. First Right Agreement In July 2001, we entered into a First Right Agreement with Western Reserve that provides us a
first right to reinsure certain new products issued by Western Reserve or its U.S. affiliates that
are sold by agents associated with World Financial Group. Pursuant to this agreement, we possess
the following contractual rights to:  
    Commence reinsurance of Freedom Elite Builder variable universal life insurance policies
and riders issued from January 1, 2002 through December 31, 2002 up to 20% on a coinsurance
and modified coinsurance basis;
    Commence reinsurance of any single life variable universal life insurance policies and
riders issued from January 1, 2003 through March 31, 2006 up to 20% on a coinsurance and
modified coinsurance basis. This contractual right is subject to certain premium
production requirements;
    Prospectively reinsure all new single life variable universal life insurance policies up
to 20% on a monthly renewable term basis at 105% of premium rates otherwise available from
certain commercial reinsurers. This right extends through March 31, 2006 and is subject to
certain premium production requirements; and 17




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
    Commence or increase reinsurance on certain variable annuity policies issued from
January 1, 2003 through December 31, 2005 up to 40% on a coinsurance and modified
coinsurance basis, subject to certain premium production requirements. These rights automatically extend for one-year renewal periods unless either party gives
notice of termination 180 days prior to the expiration of the applicable initial or renewal term.
Certain of these rights would have expired at December 31, 2003 and thereafter, but have been
indefinitely extended to a date 90 days following receipt of written notice by either party, which
notice may not be given before the earlier of (a) the Effective Time (as defined in the
Reorganization Agreement) or (b) the date of termination of the Reorganization Agreement. For the coinsurance and modified coinsurance of variable universal life and variable annuity
products, rights under the First Right Agreement are subject to minimum sales volume thresholds.
Western Reserve has indicated to us that total premium production requirements were not met for the
reinsurance of variable universal life policies issued in 2003 and 2004 and for variable annuity
policies issued in 2004. Global Preferreds decision to reinsure these products, subject to the restrictions of the
Reorganization Agreement, is based on a number of relevant factors, including the attractiveness of
the reinsurance rates prescribed by the agreement, the volume of business and our available
capital. So far, we have chosen not to commence reinsurance of this business because (a) deferral
of the election will maximize our return on such business reinsured, (b) continued increases in our
capital may result in opportunities of securing additional financing at a favorable cost, and (c)
deferral allows us to maintain flexibility to invest in new business initiatives for
diversification and future growth. Directed Reinsurance Agreement Global Preferred entered into a Directed Reinsurance Agreement with World Financial Group in
July 2001 that extends through June 8, 2008, which requires World Financial Group to use its
commercially reasonable best efforts to help us attain the opportunity to reinsure all insurance
products sold by its agents for insurance companies with which it has selling agreements other than
Western Reserve and Western Reserves affiliates. Reinsurance of New Business with Other Insurance Companies We seek to enter into reinsurance agreements with other insurance companies from time to time
and such decisions will be based on a number of relevant factors, including the proposed type of
reinsurance, the attractiveness of the reinsurance rates prescribed by the agreement, the volume of
business, our relationship with the insurance company and/or the IMO, and our available capital
capacity. We also seek to enter into agreements with other IMOs similar to our directed
reinsurance agreement with World Financial Group. However, while the Reorganization Agreement is
in effect, Global Preferred and Global Preferred Re must obtain prior written consent from AEGON or
GAC to enter into new reinsurance agreements. 18




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##### Table of Contents



Our Current Reinsurance Agreements The life insurance and annuity policies that we have reinsured to date are underwritten and
issued by Western Reserve, American Skandia, Kemper and Pacific Life. The following table indicates
the percentage of our reinsurance revenues derived from our ceding life companies: Three MonthsYear Ended
    
    
    Year Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    March 31,2003
    
    
    2004
    
    
    2005Western Reserve
    
    
    92%
    
    
    
    92%
    
    
    
    92%American Skandia
    
    
    7
    
    
    
    6
    
    
    
    6Kemper
    
    
    1
    
    
    
    1
    
    
    
    1Pacific Life
    
    
    
    (1)
    
    
    1
    
    
    
    1Total
    
    
    100%
    
    
    
    100%
    
    
    
    100%
   (1)
    
    Less than 1%. The following table indicates, by ceding life company: (1) the names and types of
insurance products we currently reinsure; (2) the type of reinsurance agreement applicable to each;
(3) policy issue dates reinsured under each agreement; and (4) the commencement date of the
reinsurance. ReinsurancePolicy Issue
    
    CommencementCeding Life Company
    
    Reinsured Product Name
    
    Product Type(1)
    
    Reinsurance Type(2)
    
    Dates
    
    DateWestern Reserve
Western Reserve
Western Reserve
Western Reserve
Western Reserve
Western Reserve
Western Reserve
Kemper
Pacific Life
American Skandia
Western Reserve
Western Reserve
    
    Freedom Equity Protector
Financial Freedom Builder
Financial Freedom Builder
Financial Freedom Builder
Financial Freedom Builder
Financial Freedom Builder
Freedom Elite Builder
Power VUL
Select Exec II
Imperium
Freedom Wealth Creator
Freedom Premier
    
    VUL
VUL
VUL
VUL
VUL
VUL
VUL
VUL
VUL
VA
VA
VA
    
    MRT
MRT
Co/Modco
MRT
Co/Modco
MRT
Co/Modco
MRT
YRT
Modco
Co/Modco
Co/Modco
    
    1/92 to12/99
7/97 to 3/98
4/98 to 12/98
1/99 to 3/01
4/01 to 12/01
1/02 to 12/02
7/01 to 12/01
9/96 to 3/01
1/01 to present
1/97 to 12/02
1/98 to 12/01
10/00 to 12/04
    
    7/96
7/97
4/98
10/99
1/02
10/99
1/02
9/96
1/01
1/97
1/98
10/00
   (1)
    
    VUL means variable universal life product. VA means variable annuity product.(2)
    
    MRT means monthly renewable term. YRT means yearly renewable term. Co/Modco means
coinsurance and modified coinsurance. Under our reinsurance agreements with the ceding life companies, we currently reinsure
variable life insurance and variable annuity policies on either a renewable term basis or a
coinsurance and modified coinsurance basis. The policies we reinsure on a renewable term basis
represented 59% of our reinsurance revenues for the quarter ended March 31, 2005. The policies we
reinsure on a coinsurance and modified coinsurance basis represented 41% of our reinsurance
revenues for the same period. Of the 41%, 57% relates to variable life insurance policies and 43%
relates to variable annuity policies. 19




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##### Table of Contents



Results of Operations Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 The following table sets forth certain operating data as a percentage of total revenue for the
periods indicated: Three Months EndedMarch 31,2004
    
    
    2005(As a percentage of total revenue)Consolidated Statements of Income Data:Revenues:Premiums
    
    
    56%
    
    

    
    56%Reinsured policy revenues
    
    
    42
    
    
    
    40Net investment income
    
    
    2
    
    
    
    3Net realized gain on investments
    
    
    
    
    
    
    1Net unrealized gain on trading investments
    
    
    
    
    
    
    Other income
    
    
    
    
    
    
    Total revenues
    
    
    100%
    
    
    
    100%Benefits and expenses:Benefits, claims and settlement expenses
    
    
    26
    
    
    
    26Change in future policy benefits
    
    
    3
    
    
    
    2Reinsurance expense allowances, net
    
    
    26
    
    
    
    25Amortization of deferred acquisition costs
    
    
    18
    
    
    
    17Operating expenses
    
    
    11
    
    
    
    12Interest expense
    
    
    1
    
    
    
    Total benefits and expenses
    
    
    85
    
    
    
    82Income before income tax
    
    
    15
    
    
    
    18Income tax expense
    
    
    (4)
    
    
    
    (5)Net income
    
    
    11%
    
    
    
    13%
 Revenues Premiums.Premiums decreased $107,000, or 2%, for the three months ended March 31, 2005,
compared to the same period in 2004. The majority of the premium decrease was due to the
decreasing business in force under our renewable term agreements, which is partially offset by an
increase in the average premium per policy. Policies in force are decreasing because the number of
policy surrenders and lapses currently exceeds the number of new policies reinsured. Average
premiums per policy increase as policyholders age. Reinsured Policy Revenues.Reinsured policy revenues decreased $250,000, or 8%, for the three
months ended March 31, 2005, compared to the same period in 2004. This decrease was primarily
attributable to a decrease in asset-based fees which resulted from a decrease in reinsured policy
account balances during 2005. Policy account balances decreased primarily because of policy
surrender activity which was partially offset by premiums and deposits. Net Investment Income.Net investment income increased $82,000, or 46%, for the three months
ended March 31, 2005, compared to the same period in 2004, primarily due to the increased average
size of our fixed maturity and equity securities portfolio during the first quarter of 2005 as
compared to the same period in 2004. The increase in our fixed maturity and equity securities
portfolio resulted from the purchase of $6.8 million of fixed maturity securities during 2004. No
additional securities were purchased during the three months ended March 31, 2005. 20




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##### Table of Contents



The purchases and sales activities by quarter are shown in the table below: Quarter EndedMar. 31,
    
    
    June 30,
    
    
    Sept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2005Fixed maturity and equity
securities:Balance, beginning of quarter
    
    $
    17,767,668
    
    
    $
    19,231,373
    
    
    $
    20,311,334
    
    
    $
    21,037,149
    
    
    $
    20,620,444Purchases
    
    
    1,511,000
    
    
    
    3,743,030
    
    
    
    1,000,000
    
    
    
    500,000
    
    
    
    Sales
    
    
    
    
    
    
    (2,009,731
    )
    
    
    (529,185
    )
    
    
    (500,000
    )
    
    
    (532,540
    )Other activity
    
    
    (47,295
    )
    
    
    (653,338
    )
    
    
    255,000
    
    
    
    (416,705
    )
    
    
    (385,615
    )Balance, end of quarter
    
    $
    19,231,373
    
    
    $
    20,311,334
    
    
    $
    21,037,149
    
    
    $
    20,620,444
    
    
    $
    19,702,289
 Net Realized Gain on Investments.The sale of $533,000 of fixed maturity securities available
for sale for the three months ended March 31, 2005 resulted in a net realized gain on investments
of $35,000. There were no sales of fixed maturity or equity securities for the three months ended
March 31, 2004, thus no gains or losses were realized. Net Unrealized Gain on Trading Investments.For the three months ended March 31, 2005, there
was $562,000 of other equity investments classified as trading securities which represented an
unrealized gain on investments of $13,000. There were no other equity investments classified as
trading securities for the three months ended March 31, 2004, thus no unrealized gains or losses
were recognized in income. Benefits and Expenses Benefits, Claims and Settlement Expenses.Benefits, claims and settlement expenses decreased
$35,000, or 2%, for the three months ended March 31, 2005, compared to the same period in 2004.
The decrease was primarily associated with the declining aggregate face value of insurance
reinsured, partially offset by the increasing age of the policies reinsured. The aggregate face
value of insurance underlying the policies we reinsured at March 31, 2005 was $6.9 billion compared
to $7.5 billion at March 31, 2004. Change in Future Policy Benefits.Change in future policy benefits decreased $87,000, or 41%,
for the three months ended March 31, 2005, compared to the same period in 2004. The decrease
resulted from the aging of the policies and the decrease in business in force reinsured on a
renewable term basis. Reinsurance Expense Allowances, Net.Net reinsurance expense allowances decreased $94,000, or
5%, for the three months ended March 31, 2005, compared to the same period in 2004. This decrease
was primarily attributable to a decrease in business in force due to policy lapse and surrender
activity. Amortization of Deferred Acquisition Costs.Amortization of deferred acquisition costs
decreased $182,000, or 13%, for the three months ended March 31, 2005, compared to the same period
in 2004. The decrease in amortization primarily resulted from lower policy lapse and surrender
activity and lower gross profits associated with the coinsurance and modified coinsurance business
for the three months ended March 31, 2005. Gross profits decreased due to lower policy revenues,
which were partially offset by lower death claims and lower reinsurance expense allowances. Operating Expenses.Operating expenses increased $100,000, or 12%, for the three months
ended March 31, 2005, compared to the same period in 2004. These expenses include salaries and
benefits, professional fees for legal, actuarial and accounting fees and other operating expenses.
The increase was primarily attributable to increases in accounting and legal fees relating to the Reorganization Agreement. Interest Expense.Interest expense decreased $93,000, or 100%, for the three months ended
March 31, 2005, compared to the same period in 2004. The decrease was due to the repayment on July
29, 2004 of the $5 million promissory note, plus outstanding interest due to Money Services, Inc.,
a subsidiary of AEGON USA, Inc. 21




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##### Table of Contents



Income Taxes.Due to higher levels of income before income taxes, income taxes increased
$24,000, or 8%, for the three months ended March 31, 2005, compared to the same period in 2004.
The small life insurance company deduction available under Section 806 of the Internal Revenue
Code for qualifying life insurance companies can reduce the effective federal income tax rate from
34% to less than 20% depending upon the amount of current taxable income. Based upon the amount of
taxable income we expect in 2005, we have estimated our effective tax rate to be 26% for 2005, as
compared to 28% for 2004. The tax rate for the first quarter of 2005 reflects a $310,000 benefit
from the small life insurance company deduction, as compared to $234,000 for the same period in
2004. In accordance with SFAS No. 109, Accounting for Income Taxes, we have $1.4 million of net
operating loss carry-forwards, which begin to expire in 2018. These net operating loss
carry-forwards at a 34% effective tax rate are included as an offset to the deferred tax liability.
If the transactions contemplated by the Reorganization Agreement are not consummated, it is our
belief that it is more likely than not that the deferred tax assets will be realized by us as an
offset against future taxable income, however, if we do not have sufficient taxable income in the
future to utilize this asset, a write-off may result, thereby reducing our net income, otherwise,
these assets will be transferred in the sale of Global Preferred Re. Liquidity and Capital Resources To grow our life and annuity business, we use cash to pay for the initial marketing and
underwriting expenses of the policies we reinsure. These same policies thereafter provide cash to
us from premiums, policy charges and policy fees over their lifetime. We also use cash to pay for
policy claims, policy benefits and operating expenses which include: salaries and benefits, and
professional fees for management, legal, investment, custodial, accounting, tax and consulting
services. In addition to operating cash flows, cash is provided by and used in investing and
financing activities we undertake to increase our capital position and through activities
associated with our invested assets. Our primary sources of liquidity were $19.1 million in fixed maturity securities available for
sale, $15.0 million in consolidated cash and cash equivalents, and $562,000 of equity securities at
March 31, 2005. The effective duration of our fixed maturity portfolio is 3.2 years with 100% of
the fixed maturity securities having an effective maturity of less than 10 years. Our fixed
maturity portfolio represents 55% of our total invested assets, and has an average Moodys quality
rating of Aa2. We have gross unrealized losses of $158,000 and gross unrealized gains of $76,000
on our fixed maturity securities available for sale as of March 31, 2005. We have determined that
none of our fixed maturity securities are other-than-temporarily impaired. Our capital structure
consists only of equity. Operating Cash Flows.Under the renewable term reinsurance agreements, premiums typically
vary in proportion with the expected mortality claims reinsured. Our cash inflows under the
renewable term agreements are premiums for the mortality risk reinsured. Our cash outflows are
reinsurance expense allowances and death benefit claims. The reinsurance expense allowances
represent our share of acquisition and maintenance expenses incurred by the ceding life company
that are attributable to the risks reinsured by us. Under the coinsurance and modified coinsurance agreements, since we are reinsuring risks on
essentially the same basis as that of the original policy, reinsurance premiums are materially
greater than premiums received on the renewable term reinsurance. During the first year in which a
policy is reinsured on a coinsurance basis, we are required to reimburse the ceding life company
for our share of acquisition costs, including first year commissions and issuance expenses.
Thereafter, we reimburse the ceding life company for our share of renewal commissions and
maintenance expenses. Further, under modified coinsurance, the ceding life company does not
transfer the reserves or the invested assets related to reserves in support of reinsured policy
benefits (e.g., cash values). Accordingly, because of the type of reinsurance and the basis
reinsured, the net first year cash outlays could be as much as, or more than, that years premiums
paid for variable universal life insurance, and as much as 10% of variable annuity premiums. After
the first policy year, our cash outlays for reinsurance expense allowances are significantly lower. Net cash flows provided by operating activities were $2.9 million and $2.0 million for the
three months ended March 31, 2004 and 2005, respectively. Cash flows provided by operating
activities in 2005 related primarily to policies previously in force because we utilized less cash
to acquire new reinsurance business than was provided by in force business. The decrease in cash
flows provided by operating activities was primarily the result of income tax
payments made, higher operating expenses and lower reinsurance settlements received for the
three months ended March 31, 2005, as compared to the same period in 2004. 22




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##### Table of Contents



Investment Cash Flows.We generally receive premiums in advance of paying related benefits
and claims. In addition, some policies we reinsure require that we credit interest on funds that
are deposited with us. We invest these assets in securities that will provide a return and cash
flow stream that are consistent with these benefits. Investment cash flows are the result of
buying, selling and holding these securities in addition to activities relating to buying and
selling fixed assets. Net cash flows (used in) provided by investing activities were ($1.3 million) and $554,000 for
the three months ended March 31, 2004 and 2005, respectively. The cash flows provided by investing
activities in 2005 primarily related to the sale and principal payments from $664,000 of
available-for-sale securities. The cash flows used in investing activities in 2004 were the result
of the purchase of $1.5 million of fixed maturity and equity securities. We have incurred no
significant capital expenditures during 2005. Financing Cash Flows.Financing cash flows relate primarily to activities associated with our
capital position. Net cash flows provided by financing activities were zero during the three
months ended March 31, 2004 and $500 during 2005. Restrictions.Global Preferred Holdings, Inc. is a holding company with no direct operations,
and whose principal assets are the capital stock of Global Preferred Re and $6.2 million of cash
and invested assets, as of March 31, 2005. Global Preferred relies primarily on funds retained at
the holding company level, management service fees from its subsidiaries and potential dividends
from Global Preferred Re to meet ongoing cash requirements. The ability of Global Preferred Re to
pay dividends to Global Preferred is subject to, among other things, regulatory restrictions under
the insurance laws of Bermuda. In addition, the Reorganization Agreement specifies that while the
agreement is effective Global Preferred Re may not pay Global Preferred cumulative dividends in
excess of $6,384 per day and cumulative management fees in excess of $8,000 per day. As of March
31, 2005, Global Preferred Re had total statutory capital and surplus of $28.4 million, which
included up to $13.1 million available for distribution as dividends without seeking regulatory
approval. During the three months ended March 31, 2005, Global Preferred Re paid $581,000 of
dividends to Global Preferred. Under our reinsurance agreements, we are required to provide security through a letter of
credit for the benefit of the ceding life companies. We have three letters of credit issued by
Comerica Bank, our custodian, for the benefit of Western Reserve, Pacific Life and Kemper, in the
amounts of $5.5 million, $50,000 and $300,000, respectively. We assess our letter of credit needs
in support of each reinsurance agreement. If determined to be necessary, we will undertake to
develop facilities for future letters of credit and trust arrangements in support of additional
reinsurance agreements. If the transactions contemplated by the Reorganization Agreement are consummated, we will
receive approximately $57 million of marketable AEGON common shares in exchange for all of the
outstanding shares of Global Preferred Re. As a result, our operations and substantially all
operating cash flows, except for investment income and run-off expenses, will cease. The
Reorganization Agreement provides that, no more than twelve months after closing of the asset
transfer, we must dissolve and distribute all remaining AEGON common shares received pursuant to
the Reorganization Agreement and any of our other remaining assets to our stockholders, after
making adequate provision for our liabilities in accordance with Delaware law. Contractual Obligations and Commitments The following table shows our contractual obligations and commitments, including our payments
due by period payable after March 31, 2005. Further information is included elsewhere herein and
in Note 10 to the Consolidated Financial Statements in our Annual Report on Form 10-K, as amended,
for the year ended December 31, 2004. (in 000s)
    
    Total
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Office lease
    
    $
    477.2
    
    
    $
    68.4
    
    
    $
    127.6
    
    
    $
    136.0
    
    
    $
    140.1
    
    
    $
    5.1Operating leases
    
    
    27.7
    
    
    
    27.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    504.9
    
    
    $
    96.1
    
    
    $
    127.6
    
    
    $
    136.0
    
    
    $
    140.1
    
    
    $
    5.1
 23




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##### Table of Contents



Forward-Looking Statements Certain statements made in this report are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and are subject to the safe-harbor
provisions of that Act. Additionally, any written or oral statements made by us or on our behalf
may include forward-looking statements that reflect our current views with respect to future events
and financial performance. These statements may include, but are not limited to statements relating
to reinsurance revenues, gross profits, cash flows, and net income in future periods. Such
statements often include the words believes, expects, assumes, predicts, continue,
potential, should, could, can, may, will, proposes, anticipates, intends,
plans, estimates, projects, and variations or negations of such expressions or similar
expressions. When we make forward-looking statements, we are basing them on our managements
beliefs and assumptions, using information currently available to us. Because such forward-looking
statements involve risks, both known and unknown, and uncertainties, there are important factors
that could cause actual results to differ materially from those expressed or implied by such
forward-looking statements, including but not limited to:  
    The transactions contemplated in the Reorganization Agreement
are not consummated;
    A decrease in the level of demand for our reinsurance business, or increased competition in the industry;
    Extent to which we are able to develop new reinsurance programs;
    Adverse reinsurance experience, including death claims and surrenders;
    Estimates of reserves;
    Assumptions used in accounting for deferred acquisition costs;
    Negotiation of reinsurance agreements;
    Our cash requirements;
    Our ability to compete successfully;
    The passage of federal or state legislation subjecting our business to additional supervision or regulation, including
additional tax regulation, in the United States or other jurisdictions in which we operate; and
    Changes in economic conditions, including interest rate and equity market conditions, which could affect our investment
portfolio and reinsured policy revenues. These forward-looking statements are subject to change and uncertainty that are beyond our
control and have been made based upon our expectations and beliefs concerning future developments
and their potential effect on our business. We cannot assure you that future developments will be
in accordance with our expectations or that the effect of future developments will be those we
anticipate. Actual results could differ materially from those we expect, depending upon the outcome
of certain factors, including those described in the forward-looking statements. We caution readers
not to place undue reliance on these forward-looking statements, which speak only as of their
dates. We have described some important factors that could cause our actual results to differ
materially from our expectations in Factors That May Affect Future Results of Operations included
as Exhibit 99.1 in our 2004 Annual Report on Form 10-K, as amended. You should carefully review
these risks and additional risks described in other documents we file from time to time with the
Securities and Exchange Commission, including quarterly reports on the Form 10-Q. Except as
otherwise required by federal securities laws, we undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information, future events or
otherwise. 24




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We seek to earn a favorable risk-adjusted total return on our assets by engaging in an
investment strategy that employs strategies to manage investment risk. We attempt to maintain
adequate liquidity in our fixed income portfolio to fund operations and protect against unexpected
events. We have diversified our portfolio to reduce volatility. We seek to manage our credit risk
through industry and issuer diversification, and interest rate risk by monitoring the duration and
structure of our investment portfolio relative to the duration and structure of our liability
portfolio. We are exposed to potential loss from various market risks, primarily changes in
interest rates and equity prices. Accordingly, earnings would be affected by these changes. We
manage our market risk based on investment policies approved by our board of directors. We do not directly manage the allocation of our assets to strategies or underlying funds, nor
do we control the manner in which they are invested by underlying fund managers. We utilize an
independent investment manager to invest our assets in accordance with our investment guidelines.
Conning Asset Management Inc., a subsidiary of Swiss Reinsurance Company, has been our investment
manager since June 1998. Conning has discretionary authority to manage our non-cash investment
portfolio. As a result, the performance of our aggregate investment portfolio depends largely on
the ability of Conning to select and manage appropriate investments. However, we consistently and
systematically monitor the strategies and funds in which we are invested, and we believe our
overall risk is limited as a result of our selected strategy. Our cash and fixed income portfolio includes investments that are subject to changes in market
values with changes in interest rates. The impact on our cash and fixed income investment
portfolio from an immediate 100 basis point increase in market interest rates would have resulted
in an estimated decrease in fair value of 1.31%, or approximately $458,000 on a portfolio valued at
approximately $34.8 million at March 31, 2005. The impact on our cash and fixed income investment
portfolio from an immediate 100 basis point decrease in market interest rates would have resulted
in an estimated increase in fair value of 0.95%, or approximately $330,000. The foregoing reflects
the use of an immediate time horizon. Credit spreads are assumed to remain constant in these
hypothetical examples. 
 ITEM 4. CONTROLS AND PROCEDURES As of the most recent fiscal quarter end, we carried out an evaluation of the effectiveness of
our disclosure controls and procedures (as defined by Rule 13a-14(c) of the Securities Exchange Act
of 1934) under the supervision and with the participation of our chief executive officer and chief
financial officer. Based on and as of the date of such evaluation, the aforementioned officers
have concluded that our disclosure controls and procedures were effective, in all material aspects,
to ensure that information required to be disclosed in the reports we file with the Securities and
Exchange Commission is recorded, processed, summarized and reported as and when required. There were no significant changes in our internal controls or other factors that could
significantly affect these controls subsequent to the date our chief executive officer and chief
financial officer carried out their evaluation. There were no significant deficiencies or material
weaknesses identified in the evaluation and, therefore, no corrective actions were taken. 25




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##### Table of Contents



PART II  OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS We are currently not a party to any material legal proceedings. 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no changes in securities during the three months ended March 31, 2005. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES There have been no defaults in the payment of principal or interest of any indebtedness of the
issuer. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the first quarter of 2005, no matters were submitted to our security holders for a
vote. 
 ITEM 5. OTHER INFORMATION None. 
 ITEM 6. EXHIBITS  31.1
    Certification by Edward F. McKernan, Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    Certification by Bradley E. Barks, Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    Certification by Edward F. McKernan, Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    Certification by Bradley E. Barks, Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 26




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in
the City of Duluth, State of Georgia on the 16th day of May, 2005. GLOBAL PREFERRED HOLDINGS, INC.By:
    
    /s/ EDWARD F. MCKERNANEdward F. McKernanChief Executive Officer and President and DirectorBy:
    
    /s/ BRADLEY E. BARKSBradley E. BarksChief Financial Officer and Senior Vice President  Finance
 27