##### Table of Contents



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 1934
 For the quarterly period ended June 30, 2005
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-23637
 Global Preferred Holdings, Inc.
 (Exact Name of Registrant as Specified in its Charter)
 DELAWARE
    
    58-2179041(State or other Jurisdiction of
Incorporation or Organization)
    
    (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)
 
 þ o
 o þ
 þ o




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TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3Condensed Consolidated Statement of Net Assets in Liquidation (Unaudited)
    
    
    3Condensed Consolidated Balance Sheet (Going Concern Basis)
    
    
    4Condensed Consolidated Statement of Changes in Net Assets in Liquidation (Unaudited)
    
    
    5Condensed Consolidated Statements of Income (Going Concern Basis) (Unaudited)
    
    
    6Condensed Consolidated Statements of Cash Flows (Going Concern Basis) (Unaudited)
    
    
    7ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    26ITEM 4. CONTROLS AND PROCEDURES
    
    
    26PART II  OTHER INFORMATION
    
    
    27ITEM 1. LEGAL PROCEEDINGS
    
    
    27ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    27ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    27ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    27ITEM 5. OTHER INFORMATION
    
    
    27ITEM 6. EXHIBITS
    
    
    27EX-31.1 SECTION 302 CERTIFICATION OF THE CAOEX-32.1 SECTION 906 CERTIFICATION OF THE CAO
   2




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##### Table of Contents



PART I
 FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 GLOBAL PREFERRED HOLDINGS, INC.
 
 Condensed Consolidated Statement of Net Assets in Liquidation
 (Unaudited)
 June 30,2005Estimated Values of Assets:Cash and cash equivalents
    
    $
    3,330,337Fixed maturity securities
    
    
    2,419,014Equity securities
    
    
    57,957,136Investment income due and accrued
    
    
    24,984Accounts receivable
    
    
    49,780Current income tax recoverable
    
    
    4,510Fixed assets
    
    
    16,505Estimated future investment income
    
    
    225,957Total estimated assets
    
    
    64,028,223Estimated Liabilities:Accrued expenses and accounts payable
    
    
    151,251Estimated
future operating costs and settlement reserves
during liquidation period
    
    
    5,919,836Total estimated liabilities
    
    
    6,071,087Net assets in liquidation
    
    $
    57,957,136
  3




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GLOBAL PREFERRED HOLDINGS, INC.
 
 Condensed Consolidated Balance Sheet (Going Concern Basis)
 December 31,2004AssetsFixed
maturity securities  available for sale (amortized cost
of $19,885,253)
    
    $
    20,071,625Other equity investments (cost of $500,000)
    
    
    548,819Cash and cash equivalents
    
    
    12,463,601Reinsured policy loans
    
    
    1,475,516Total invested assets
    
    
    34,559,561Investment income due and accrued
    
    
    234,220Accounts receivable
    
    
    11,357Reinsurance balances receivable
    
    
    2,567,121Deferred acquisition costs
    
    
    40,167,670Prepaid expenses
    
    
    223,973Fixed assets (net of accumulated depreciation of $433,046)
    
    
    43,095Total assets
    
    $
    77,806,997Liabilities and Stockholders EquityLiabilities:Future policy benefits
    
    $
    19,401,495Accrued expenses and accounts payable
    
    
    526,316Current income tax payable
    
    
    377,075Deferred tax liability
    
    
    8,236,127Total liabilities
    
    
    28,541,013Commitments and contingenciesStockholders 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
    
    
    4,149Additional paid-in capital
    
    
    23,326,026Accumulated other comprehensive income
    
    
    123,007Retained earnings
    
    
    25,862,069Treasury stock, at cost (7,390 shares)
    
    
    (49,267
    )Total stockholders equity
    
    
    49,265,984Total liabilities and stockholders equity
    
    $
    77,806,997
  4




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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.
 
 Condensed Consolidated Statement of Changes in Net Assets in Liquidation
 (Unaudited)
 For the PeriodMay 26, 2005 throughJune 30, 2005Accumulated Stockholders Equity as of May 25, 2005
    
    $
    50,413,081Adjustment of assets and liabilities to estimated
fair value
    
    
    8,444,710Estimated net assets in liquidation as of May 26, 2005
    
    
    58,857,791Change in estimate of:Future
operating costs and settlement reserves
during liquidation period
    
    
    (4,233
    )Fair value of invested assets
    
    
    (907,061
    )Future investment income
    
    
    14,089Fixed assets
    
    
    (3,450
    )Net change in net assets in liquidation
    
    
    (900,655
    )Net assets in liquidation at June 30, 2005
    
    $
    57,957,136
  5




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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.
 
 Condensed Consolidated Statements of Income (Going Concern Basis)
 (Unaudited)
 For the Period
    
    
    
    
    
    For the PeriodApril 1, 2005
    
    
    
    
    
    January 1, 2005Three Months
    
    through
    
    Six Months
    
    throughEnded
    
    May 25, 2005
    
    Ended
    
    May 25, 2005June 30, 2004
    
    (55 Days)
    
    June 30, 2004
    
    (145 Days)Revenues:Premiums
    
    $
    4,270,641
    
    
    $
    2,549,856
    
    
    $
    8,572,859
    
    
    $
    6,744,999Reinsured policy revenues
    
    
    3,112,639
    
    
    
    1,706,074
    
    
    
    6,311,451
    
    
    
    4,655,164Net investment income
    
    
    210,350
    
    
    
    165,750
    
    
    
    388,091
    
    
    
    425,770Net realized (loss) gain on
investments
    
    
    (29,456
    )
    
    
    1,666
    
    
    
    (29,456
    )
    
    
    36,785Net unrealized gain on trading
investments
    
    
    
    
    
    
    3,503
    
    
    
    
    
    
    
    16,923Other income
    
    
    
    
    
    
    6,550
    
    
    
    6,980
    
    
    
    9,050Total revenues
    
    
    7,564,174
    
    
    
    4,433,399
    
    
    
    15,249,925
    
    
    
    11,888,691Benefits and expenses:Benefits, claims and settlement
expenses
    
    
    1,450,943
    
    
    
    1,600,518
    
    
    
    3,426,763
    
    
    
    3,541,827Change in future policy benefits
    
    
    157,817
    
    
    
    61,627
    
    
    
    372,286
    
    
    
    189,068Reinsurance expense allowances,
net
    
    
    1,991,046
    
    
    
    1,146,349
    
    
    
    3,966,341
    
    
    
    3,027,560Amortization of deferred
acquisition costs
    
    
    1,469,670
    
    
    
    703,956
    
    
    
    2,904,007
    
    
    
    1,955,803Operating expenses
    
    
    732,203
    
    
    
    662,512
    
    
    
    1,570,726
    
    
    
    1,601,076Interest expense
    
    
    93,493
    
    
    
    
    
    
    
    186,986
    
    
    
    Total benefits and expenses
    
    
    5,895,172
    
    
    
    4,174,962
    
    
    
    12,427,109
    
    
    
    10,315,334Income before income tax
    
    
    1,669,002
    
    
    
    258,437
    
    
    
    2,822,816
    
    
    
    1,573,357Income tax expense
    
    
    (542,477
    )
    
    
    (14,430
    )
    
    
    (864,741
    )
    
    
    (360,941
    )Net income
    
    $
    1,126,525
    
    
    $
    244,007
    
    
    $
    1,958,075
    
    
    $
    1,212,416Basic earnings per share
    
    $
    0.27
    
    
    $
    0.06
    
    
    $
    0.47
    
    
    $
    0.29Diluted earnings per share
    
    $
    0.27
    
    
    $
    0.06
    
    
    $
    0.47
    
    
    $
    0.29Weighted-average common shares
outstanding
    
    
    4,141,684
    
    
    
    4,141,684
    
    
    
    4,141,684
    
    
    
    4,141,684Total weighted-average common and
common equivalent shares
outstanding
    
    
    4,141,684
    
    
    
    4,209,972
    
    
    
    4,141,684
    
    
    
    4,197,857
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GLOBAL PREFERRED HOLDINGS, INC.
 
 Condensed Consolidated Statements of Cash Flows (Going Concern Basis)
 (Unaudited)
 For the PeriodSix Months
    
    January 1, 2005Ended
    
    through May 25, 2005June 30, 2004
    
    (145 Days)Cash flows from operating activities:Net income
    
    $
    1,958,075
    
    
    $
    1,212,416Adjustments to reconcile net income to net cash provided by operating activities:Amortization and depreciation
    
    
    3,028,971
    
    
    
    2,018,782Net realized loss (gain) on investments
    
    
    29,456
    
    
    
    (36,785
    )Net unrealized gain on trading investments
    
    
    
    
    
    
    (16,923
    )Deferred tax expense (benefit)
    
    
    837,491
    
    
    
    (279,238
    )Capitalization of deferred acquisition costs
    
    
    (551,764
    )
    
    
    (229,242
    )Loss on disposal of assets
    
    
    
    
    
    
    1,821Expense of stock option compensation
    
    
    
    
    
    
    6,534Change in:Investment income due and accrued
    
    
    (37,423
    )
    
    
    4,561Accounts receivable
    
    
    39,338
    
    
    
    4,723Reinsurance balances receivable
    
    
    (16,847
    )
    
    
    1,589,678Prepaid expenses
    
    
    75,832
    
    
    
    (763,182
    )Current income tax recoverable
    
    
    (2,125
    )
    
    
    (16,378
    )Future policy benefits
    
    
    (99,752
    )
    
    
    (268,597
    )Reinsurance balances payable
    
    
    136,976
    
    
    
    377,573Accrued expenses and accounts payable
    
    
    (115,517
    )
    
    
    (133,448
    )Accrued interest payable
    
    
    (513
    )
    
    
    Current income tax payable
    
    
    
    
    
    
    (377,075
    )Net cash provided by operating activities
    
    
    5,282,198
    
    
    
    3,095,220Cash flows from investing activities:Proceeds from principal payments on mortgage-backed securities available-for-sale
    
    
    103,589
    
    
    
    231,240Proceeds from maturity of available-for-sale securities
    
    
    200,000
    
    
    
    750,000Proceeds from sale of equity securities
    
    
    2,009,731
    
    
    
    Proceeds from sale of fixed maturity securities available for sale
    
    
    
    
    
    
    532,540Purchase of fixed maturity securities available for sale
    
    
    (5,254,029
    )
    
    
    Purchase of fixed assets
    
    
    
    
    
    
    (3,629
    )Change in reinsured policy loans
    
    
    (137,910
    )
    
    
    (205,478
    )Net cash (used in) provided by investing activities
    
    
    (3,078,619
    )
    
    
    1,304,673Cash flows from financing activities:Issuance of stock
    
    
    
    
    
    
    11Net cash provided by financing activities
    
    
    
    
    
    
    11Net increase in cash and cash equivalents
    
    
    2,203,579
    
    
    
    4,399,904Cash and cash equivalents at beginning of period
    
    
    11,580,045
    
    
    
    12,463,601Cash and cash equivalents at end of period
    
    $
    13,783,624
    
    
    $
    16,863,505Supplemental disclosure of cash flow information:Interest paid
    
    $
    187,500
    
    
    $
    Income taxes paid
    
    $
    29,375
    
    
    $
    1,033,632
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GLOBAL
PREFERRED HOLDINGS, INC.
 
      8




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As of(Dollars in Thousands)
    
    May 26, 2005Assets held for sale adjusted to estimated fair value
    
    $
    16,352.3Estimated future investment income
    
    
    236.8Elimination of prepaid expenses
    
    
    (934.5
    )Fixed assets adjusted to estimated fair value
    
    
    (17.1
    )Elimination of deferred tax asset
    
    
    (694.4
    )Reduction of accrued expenses
    
    
    196.6Estimated
future operating costs and settlement reserves during liquidation
    
    
    (6,695.0
    )Total adjustment of assets and liabilities to estimated fair value
    
    $
    8,444.7


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
    
    Cash and cash equivalents are stated at fair value. At times, cash balances held in
financial institutions may be in excess of federally insured amounts. Cash balances held
in money market funds are not insured.
    
    Fixed maturity securities represent estimated net sales proceeds less the costs of
disposal.
    
    Equity securities consist of 4,503,274 AEGON common shares to be distributed to stockholders.
The AEGON common shares were valued at $13.07 per share as of the close of business on May 25,
2005 when received by us pursuant to the Reorganization Agreement and are valued at $12.87
per share as of June 30, 2005.
    
    Investment income due and accrued represents interest due and unpaid on fixed maturity
securities and cash as of June 30, 2005.
    
    Accounts receivable represents balances due and unpaid by clients of Global Preferred
Solutions and refunds or deposits unpaid by third-party service providers.
    
    Current income tax recoverable represents an overpayment of 2005 estimated taxes paid in 2005.
    
    Fixed assets are assets such as furniture and equipment stated at net realizable value.
    
    Future investment income was estimated by management based upon prevailing interest
rates, anticipated investment portfolio composition and future expected cash flows.
  
    
    Accrued expenses and accounts payable include all current amounts due that remain unpaid
for recurring administrative costs.
    
    Estimated future operating costs and settlement reserves during liquidation were
recorded on May 26, 2005 when Global Preferred adopted the liquidation basis of accounting
and include all estimated future amounts that remain unpaid for liquidation activities.
  As of
    
    
    
    
    
    Costs
    
    As ofMay 26,
    
    Change in
    
    Incurred
    
    June 30,(Dollars in Thousands)
    
    2005
    
    Estimate
    
    and Paid
    
    2005Employee compensation and benefits,
including severance payments
    
    $
    2,925.8
    
    
    $
    7.5
    
    
    $
    209.1
    
    
    $
    2,724.2Legal, audit and other professional
fees
    
    
    1,078.4
    
    
    
    25.9
    
    
    
    505.3
    
    
    
    599.0Other estimated costs of liquidation
    
    
    200.6
    
    
    
    (18.6
    )
    
    
    65.0
    
    
    
    117.0Settlement reserve
    
    
    2,490.2
    
    
    
    (10.6
    )
    
    
    
    
    
    
    2,479.6Total estimated future operating
costs and settlement reserves
    
    $
    6,695.0
    
    
    $
    4.2
    
    
    $
    779.4
    
    
    $
    5,919.8
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Reporting Comprehensive Income
  Earnings Per Share
  Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
  Three
    
    
    
    
    
    SixMonths
    
    55 Days
    
    Months
    
    145 DaysEnded
    
    Ended
    
    Ended
    
    EndedJune 30,
    
    May 25,
    
    June 30,
    
    May 25,(In ThousandsExcept Per Share Amounts)
    
    2004
    
    2005
    
    2004
    
    2005Net income
    
    $
    1,126.5
    
    
    $
    244.0
    
    
    $
    1,958.1
    
    
    $
    1,212.4Less: Total stock-based employee
compensation expense determined under the
fair value method for all awards, net of
tax
    
    
    (8.7
    )
    
    
    3.3
    
    
    
    (11.6
    )
    
    
    (0.1
    )Pro-forma net income
    
    $
    1,117.8
    
    
    $
    247.3
    
    
    $
    1,946.5
    
    
    $
    1,212.3Reported basic earnings per common share
    
    $
    0.27
    
    
    $
    0.06
    
    
    $
    0.47
    
    
    $
    0.29Reported diluted earnings per common share
    
    $
    0.27
    
    
    $
    0.06
    
    
    $
    0.47
    
    
    $
    0.29Pro-forma basic earnings per common share
    
    $
    0.27
    
    
    $
    0.06
    
    
    $
    0.47
    
    
    $
    0.29Pro-forma diluted earnings per common
share
    
    $
    0.27
    
    
    $
    0.06
    
    
    $
    0.47
    
    
    $
    0.29
 11




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Shares Available
    
    Number of
    
    Weighted Average(Shares in Thousands)
    
    for Options
    
    Shares
    
    Exercise PriceDecember 31, 2002
    
    
    1,780.0
    
    
    
    
    
    
    
    N/AGrants
    
    
    (249.3
    )
    
    
    249.3
    
    
    $
    10.46Cancellations
    
    
    
    
    
    
    (3.9
    )
    
    $
    10.46December 31, 2003
    
    
    1,530.7
    
    
    
    245.4
    
    
    $
    10.46Grants
    
    
    (44.4
    )
    
    
    44.4
    
    
    $
    10.94Cancellations
    
    
    
    
    
    
    (6.8
    )
    
    $
    10.46(1.1
    )
    
    $
    10.94December 31, 2004
    
    
    1,486.3
    
    
    
    238.6
    
    
    $
    10.4643.3
    
    
    $
    10.94Grants
    
    
    
    
    
    
    1.3
    
    
    $
    10.460.4
    
    
    $
    10.94Cancellations
    
    
    
    
    
    
    (18.1
    )
    
    $
    10.46(5.5
    )
    
    $
    10.94Exercised
    
    
    
    
    
    
    (221.8
    )
    
    $
    10.46(38.2
    )
    
    $
    10.94June 30, 2005
    
    
    1,486.3
    
    
    
    
    
    
    
    N/AOptions exercisable at:December 31, 2002
    
    
    
    
    
    
    
    
    
    
    N/ADecember 31, 2003
    
    
    
    
    
    
    81.2
    
    
    $
    10.46December 31, 2004
    
    
    
    
    
    
    128.0
    
    
    $
    10.46
   Accounting for Stock-Based Compensation, Share-Based Payment
 12




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Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments Accounting and Reporting by Insurance Enterprises
  Three Months Ended June 30, 2004
    
    55 Days ended May 25, 2005Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Universal
    
    Universal
    
    
    
    
    
    
    
    
    
    Universal
    
    Universal(Dollars in thousands)
    
    Life-Type
    
    Life-Type
    
    Other
    
    Total
    
    Life-Type
    
    Life-Type
    
    Other
    
    TotalPremiums
    
    $
    4,271
    
    
    $
    
    
    
    $
    
    
    
    $
    4,271
    
    
    $
    2,550
    
    
    $
    
    
    
    $
    
    
    
    $
    2,550Reinsured policy revenues
    
    
    
    
    
    
    3,113
    
    
    
    
    
    
    
    3,113
    
    
    
    
    
    
    
    1,706
    
    
    
    
    
    
    
    1,706Benefits, claims and
settlement expenses*
    
    
    1,418
    
    
    
    191
    
    
    
    
    
    
    
    1,609
    
    
    
    1,310
    
    
    
    352
    
    
    
    
    
    
    
    1,662Reinsurance expense
allowances, net
    
    
    1,465
    
    
    
    526
    
    
    
    
    
    
    
    1,991
    
    
    
    865
    
    
    
    282
    
    
    
    
    
    
    
    1,147Amortization of deferred
acquisition costs
    
    
    42
    
    
    
    1,428
    
    
    
    
    
    
    
    1,470
    
    
    
    27
    
    
    
    677
    
    
    
    
    
    
    
    704Underwriting profit
    
    
    1,346
    
    
    
    968
    
    
    
    
    
    
    
    2,314
    
    
    
    348
    
    
    
    395
    
    
    
    
    
    
    
    743Net investment income
    
    
    8
    
    
    
    22
    
    
    
    180
    
    
    
    210
    
    
    
    11
    
    
    
    14
    
    
    
    141
    
    
    
    166Net realized (loss) gain on
investments
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Net unrealized gain on trading
Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Other expenses
    
    
    42
    
    
    
    90
    
    
    
    694
    
    
    
    826
    
    
    
    27
    
    
    
    48
    
    
    
    588
    
    
    
    663Segment operating income
(loss) before income tax
    
    
    1,312
    
    
    
    900
    
    
    
    (543
    )
    
    
    1,669
    
    
    
    332
    
    
    
    361
    
    
    
    (435
    )
    
    
    258Income tax expense (benefit)
    
    
    426
    
    
    
    292
    
    
    
    (176
    )
    
    
    542
    
    
    
    19
    
    
    
    20
    
    
    
    (25
    )
    
    
    14Segment net income (loss)
    
    $
    886
    
    
    $
    608
    
    
    $
    (367
    )
    
    $
    1,127
    
    
    $
    313
    
    
    $
    341
    
    
    $
    (410
    )
    
    $
    244Segment assets
    
    $
    5,692
    
    
    $
    45,417
    
    
    $
    30,600
    
    
    $
    81,709
    
    
    $
    5,738
    
    
    $
    38,801
    
    
    $
    33,697
    
    
    $
    78,236
 
 * Benefits, claims and settlement expenses include change in future policy benefits. 13




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##### Table of Contents



Six Months Ended June 30, 2004
    
    145 Days ended May 25, 2005Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Universal
    
    Universal
    
    
    
    
    
    
    
    
    
    Universal
    
    Universal(Dollars in thousands)
    
    Life-Type
    
    Life-Type
    
    Other
    
    Total
    
    Life-Type
    
    Life-Type
    
    Other
    
    TotalPremiums
    
    $
    8,573
    
    
    $
    
    
    
    $
    
    
    
    $
    8,573
    
    
    $
    6,745
    
    
    $
    
    
    
    $
    
    
    
    $
    6,745Reinsured policy revenues
    
    
    
    
    
    
    6,311
    
    
    
    
    
    
    
    6,311
    
    
    
    
    
    
    
    4,655
    
    
    
    
    
    
    
    4,655Benefits, claims and
settlement expenses*
    
    
    3,060
    
    
    
    739
    
    
    
    
    
    
    
    3,799
    
    
    
    3,075
    
    
    
    656
    
    
    
    
    
    
    
    3,731Reinsurance expense
allowances, net
    
    
    2,947
    
    
    
    1,019
    
    
    
    
    
    
    
    3,966
    
    
    
    2,308
    
    
    
    720
    
    
    
    
    
    
    
    3,028Amortization of deferred
acquisition costs
    
    
    73
    
    
    
    2,831
    
    
    
    
    
    
    
    2,904
    
    
    
    73
    
    
    
    1,883
    
    
    
    
    
    
    
    1,956Underwriting profit
    
    
    2,493
    
    
    
    1,722
    
    
    
    
    
    
    
    4,215
    
    
    
    1,289
    
    
    
    1,396
    
    
    
    
    
    
    
    2,685Net investment income
    
    
    15
    
    
    
    47
    
    
    
    326
    
    
    
    388
    
    
    
    30
    
    
    
    46
    
    
    
    350
    
    
    
    426Net realized (loss) gain on
investments
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    37Net unrealized gain on
trading
Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    17Other income
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    9Other expenses
    
    
    79
    
    
    
    191
    
    
    
    1,488
    
    
    
    1,758
    
    
    
    86
    
    
    
    183
    
    
    
    1,332
    
    
    
    1,601Segment operating income
(loss) before income tax
    
    
    2,429
    
    
    
    1,578
    
    
    
    (1,184
    )
    
    
    2,823
    
    
    
    1,233
    
    
    
    1,259
    
    
    
    (919
    )
    
    
    1,573Income tax expense (benefit)
    
    
    744
    
    
    
    484
    
    
    
    (363
    )
    
    
    865
    
    
    
    283
    
    
    
    289
    
    
    
    (211
    )
    
    
    361Segment net income (loss)
    
    $
    1,685
    
    
    $
    1,094
    
    
    $
    (821
    )
    
    $
    1,958
    
    
    $
    950
    
    
    $
    970
    
    
    $
    (708
    )
    
    $
    1,212Segment assets
    
    $
    5,692
    
    
    $
    45,417
    
    
    $
    30,600
    
    
    $
    81,709
    
    
    $
    5,738
    
    
    $
    38,801
    
    
    $
    33,697
    
    
    $
    78,236
 
 * Benefits, claims and settlement expenses include change in future policy benefits.    14




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##### Table of Contents



(Dollars in Thousands)
    
    Fair ValueFixed maturity securities:U.S. government agency obligations
    
    $
    996,289Corporate bonds
    
    
    997,333Mortgage-backed securities
    
    
    425,392Total
    
    
    2,419,014Equity securities
    
    
    57,957,136Total fixed maturity and equity securities
    
    $
    60,376,150
         15




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##### Table of Contents



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 May 25, 2005 compared
with December 31, 2004, and its results of operations for the 55 and 145 day periods ended May 25,
2005, compared with the three and six month periods ended June 30, 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
  Plan of Liquidation
     16




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##### Table of Contents



As of(Dollars in Thousands)
    
    June 30, 2005Employee compensation and benefits, including severance
    
    $
    2,724.2Legal, audit and other professional services
    
    
    599.0Other estimated costs of liquidation
    
    
    117.0Settlement reserve
    
    
    2,479.6Total
    
    $
    5,919.8
 Status of Liquidation
    17




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##### Table of Contents



Business Operations Prior to Asset Sale
   
    
    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).
   Critical Accounting Policies and Estimates
  Income Statement Impact
 Reinsurance Revenues.
 Reinsurance Expenses.
 18




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##### Table of Contents



Net Income.
 Balance Sheet Impact
 Deferred Acquisition Costs.
   Future Policy Benefits.
     19




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##### Table of Contents



Fair Value Disclosure
 Investments.
  Other Financial Assets and Liabilities.
 Reinsurance Agreements under Global Preferred Re
  145 DaysYear Ended
    
    Year Ended
    
    EndedDecember 31,
    
    December 31,
    
    May 25,2003
    
    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%.  20




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##### Table of Contents



Results of Operations
 The 55 and 145 Day Periods Ended May 25, 2005 Compared to Three Months and Six Months Ended June
30, 2004
   Three
    
    
    
    
    
    SixMonths
    
    55 Days
    
    Months
    
    145 DaysEnded
    
    Ended
    
    Ended
    
    EndedJune 30,
    
    May 25,
    
    June 30,
    
    May 25,2004
    
    2005
    
    2004
    
    2005(As a percentage of total revenue)Consolidated Statements of Income Data:Revenues:Premiums
    
    
    56
    %
    
    
    58
    %
    
    
    56
    %
    
    
    57
    %Reinsured policy revenues
    
    
    41
    
    
    
    38
    
    
    
    41
    
    
    
    39Net investment income
    
    
    3
    
    
    
    4
    
    
    
    3
    
    
    
    4Total revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Benefits and expenses:Benefits, claims and settlement expenses
    
    
    19
    
    
    
    36
    
    
    
    23
    
    
    
    30Change in future policy benefits
    
    
    2
    
    
    
    1
    
    
    
    2
    
    
    
    2Reinsurance expense allowances, net
    
    
    26
    
    
    
    26
    
    
    
    26
    
    
    
    26Amortization of deferred acquisition costs
    
    
    20
    
    
    
    16
    
    
    
    19
    
    
    
    16Operating expenses
    
    
    10
    
    
    
    15
    
    
    
    10
    
    
    
    13Interest expense
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Total benefits and expenses
    
    
    78
    
    
    
    94
    
    
    
    81
    
    
    
    87Income before income tax
    
    
    22
    
    
    
    6
    
    
    
    19
    
    
    
    13Income tax expense
    
    
    (7
    )
    
    
    
    
    
    
    (6
    )
    
    
    3Net income
    
    
    15
    %
    
    
    6
    %
    
    
    13
    %
    
    
    10
    %
 Revenues
 Premiums.
 Reinsured Policy Revenues.
 21




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##### Table of Contents



Net Investment Income.
  Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    April 1ended
    
    ended
    
    ended
    
    ended
    
    throughJune 30,
    
    Sept. 30,
    
    Dec. 31,
    
    Mar. 31,
    
    May 25,(Dollars in Thousands)
    
    2004
    
    2004
    
    2004
    
    2005
    
    2005Fixed maturity and equity
securities:Balance, beginning of period
    
    $
    19,231.4
    
    
    $
    20,311.3
    
    
    $
    21,037.1
    
    
    $
    20,620.4
    
    
    $
    19,702.3Purchases
    
    
    3,743.0
    
    
    
    1,000.0
    
    
    
    500.0
    
    
    
    
    
    
    
    Sales
    
    
    (2,009.7
    )
    
    
    (529.2
    )
    
    
    (500.0
    )
    
    
    (532.5
    )
    
    
    Other activity
    
    
    (653.4
    )
    
    
    255.0
    
    
    
    (416.7
    )
    
    
    (385.6
    )
    
    
    (705.9
    )Balance, end of period
    
    $
    20,311.3
    
    
    $
    21,037.1
    
    
    $
    20,620.4
    
    
    $
    19,702.3
    
    
    $
    18,996.4
 Net Realized Gain on Investments.
 Net Unrealized Gain on Trading Investments.
 Benefits and Expenses
 Benefits, Claims and Settlement Expenses.
 Change in Future Policy Benefits.
 Reinsurance Expense Allowances, Net.
 Amortization of Deferred Acquisition Costs.
 22




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##### Table of Contents



Operating Expenses.
 Interest Expense.
 Income Taxes.
 Accounting for Income Taxes
 Liquidity and Capital Resources
    23




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##### Table of Contents



Cash flows for the 55 and 145 Day Periods Ended May 25, 2005 Compared to Three Months and Six
Months Ended June 30, 2004
  Operating Cash Flows.
   Investment Cash Flows.
  Financing Cash Flows.
 24




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##### Table of Contents



Contractual Obligations and Commitments
  (In Thousands)
    
    Total
    
    2005
    
    2006Severance payments and
benefits
    
    $
    1,859.7
    
    
    $
    650.4
    
    
    $
    1,209.3Office lease
    
    
    36.5
    
    
    
    36.5
    
    
    
    Operating leases
    
    
    19.8
    
    
    
    19.8
    
    
    
    Total
    
    $
    1,916.0
    
    
    $
    706.7
    
    
    $
    1,209.3
 Forward-Looking Statements
  
    
    The distribution of AEGON shares and cash, if any, prior to payment of liquidation expenses;
    
    Estimates of our cash requirements and costs of liquidation;
    
    Estimates of our asset values, including future investment income;
    
    Estimates of our settlement reserve during liquidation;
    
    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.
  25




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     
 ITEM 4. CONTROLS AND PROCEDURES
   26




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 31.1
    
    Certification by Caryl P. Shepherd, Chief Accounting 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 Caryl P. Shepherd, Chief Accounting Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 27




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##### Table of Contents



SIGNATURES
 nd
 GLOBAL PREFERRED HOLDINGS, INC.By:
    
    /s/ CARYL P. SHEPHERDCaryl P. ShepherdChief Accounting Officer, Vice President and Treasurer
 28