##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K



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|  |  |                                                                                       
|- |  | --------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the fiscal year ended December 31,
    2003                                       
| 
|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)




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Securities registered under Section 12(b)
of the Exchange Act:

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|                    |  |                                          
|None                |  | None                                     

Securities registered under Section 12(g)
of the Exchange Act:

Common Stock, Par Value $.001

(Title of class)


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

Indicate by check
mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

Indicate by check
mark whether the registrant is an accelerated filer (as defined
in Exchange Act
Rule 12b-2).     Yes o          No þ

The aggregate
market value of the voting common stock, held by non-affiliates
of the registrant as of June 30, 2003, was approximately
$23,941,438 computed on the basis of the last price at which the
common equity was sold ($10.00 per share).

At March 15,
2004, there were 4,141,684 shares of common stock
outstanding.



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TABLE OF CONTENTS

|                                             |  |                                                                                           |  |  |    | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  |  | -- | 
|PART I                                      
|Item 1.                                      |  | Business                                                                                  |  |  | 2  | 
|Item 2.                                      |  | Properties                                                                                |  |  | 13 | 
|Item 3.                                      |  | Legal Proceedings                                                                         |  |  | 14 | 
|Item 4.                                      |  | Submission of Matters to a
    Vote of Security Holders                                   |  |  | 14 | 
|PART II                                     
|Item 5.                                      |  | Market for Registrants
    Common Equity and Related Stockholder Matters                 |  |  | 14 | 
|Item 6.                                      |  | Selected Financial Data                                                                   |  |  | 15 | 
|Item 7.                                      |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  |  | 16 | 
|Item 7A.                                     |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |  |  | 33 | 
|Item 8.                                      |  | Financial Statements and
    Supplementary Data                                           |  |  | 34 | 
|Item 9.                                      |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure  |  |  | 34 | 
|Item 9A.                                     |  | Controls and Procedures                                                                   |  |  | 34 | 
|PART III                                    
|Item 10.                                     |  | Directors and Executive Officers of the Registrant                                        |  |  | ** | 
|Item 11.                                     |  | Executive Compensation                                                                    |  |  | ** | 
|Item 12.                                     |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |  | ** | 
|Item 13.                                     |  | Certain Relationships and Related Transactions                                            |  |  | ** | 
|Item 14.                                     |  | Principal Accounting Fees and Services                                                    |  |  | ** | 
|PART IV                                     
|Item 15.                                     |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                       |  |  | 35 | 
|EX-23.1 CONSENT OF DELOITTE AND TOUCHE LLP  
|EX-23.2 CONSENT OF KPMG LLP                 
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO
|EX-99.1 SAFE HARBOR COMPLIANCE STATEMENT    





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|   |                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Portions of the definitive proxy statement for
    the annual meeting of stockholders, which the registrant intends
    to file no later than 120 days after December 31,
    2003, are incorporated by reference in Part III.

1



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##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

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. (Preferred Advantage). Global
Preferred Re Limited is a Bermuda company registered as a
long-term insurer under the Bermuda Insurance Act 1978
(Global Preferred Re) and was formed during 1995.
Global Preferred Solutions, Global Preferred Resources and
Preferred Advantage 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 was formed principally to
provide an opportunity for the independent agents associated
with an independent marketing organization to participate
indirectly in the reinsurance of the policies they sold. An
independent marketing organization (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.

Global Preferred, through its subsidiaries,
provides reinsurance solutions for the life insurance and
annuity industry. Through our subsidiaries, we provide:



| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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, primarily as a value added service to our clients.                                                                                                                               

Both the IMOs and insurers benefit from mutually
rewarding relationships based on parallel 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.

Our core business consists of providing
reinsurance on business that has resulted from a relationship
with the independent agents of an IMO member of the AEGON Group.
Although our reinsurance business is directed to us through
these independent agent relationships, the life insurance and
annuity

2



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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 the life insurance
companies that reinsure life insurance and annuity policies
through us as the ceding life companies. The ceding
life companies who issue the policies we 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 Bank One Corporation (Kemper).                          

Currently, our largest reinsurance relationship
is with Western Reserve, which accounted for 92% of our
reinsurance premiums and reinsured policy revenues as of
December 31, 2003.

When we reinsure a policy for a life insurance
company, we continue to reinsure that policy for as long as the
policy remains in effect. Although the life insurance company
may have the right to cancel the reinsurance on one or more
policies, this right can generally occur only upon certain
defaults or after a period of 10 years or longer, depending
on the particular reinsurance agreement. By maintaining a
continued financial interest in these policies, we share the
ongoing revenue streams associated with the policies.
Additionally, as we reinsure new policies, we expand the base of
policies in which we maintain an economic interest.

For the year ended December 31, 2003, we
earned net income of $1.9 million on revenues of
$30.7 million. Our total assets and stockholders
equity at December 31, 2003 was $79.3 million and
$45.3 million, respectively. As of December 31, 2003,
we reinsured over 239,000 life insurance policies and riders
with an aggregate face value of over $7.6 billion and over
48,000 annuity policies with aggregate contract benefits of over
$250 million.

New Initiatives

During the first quarter of 2003, Global
Preferred formed two wholly owned subsidiaries, Global Preferred
Solutions, Inc. and Global Preferred Resources, Inc.
Global Preferred Solutions provides actuarial and management
advisory services to marketing organizations and life insurers.
Global Preferred Solutions principal focus is to evaluate
the strategic and structural benefits of establishing a profit
sharing program such as producer-owned reinsurance. Global
Preferred Solutions also offers consulting services such as
distribution effectiveness, product design and development,
insurance company due diligence, and capacity utilization.

Global Preferred Resources offers its management
support structure to marketing organizations, banks, broker/
dealers, and insurance companies who already have formed, or are
considering the formation of, a producer-owned reinsurance
enterprise. The objective of Global Preferred Resources is to
leverage the core competencies and economies of scale of Global
Preferred Holdings and enable companies to bring best practices
and independent objectivity to their reinsurance enterprise.
Global Preferred Resources services include operations
management, financial reporting, accounting, claims management,
reinsurance administration, and actuarial services.

In late 2003, Global Preferred formed Preferred
Advantage, which operates in the capacity of a managing general
agency that facilitates product distribution relationships
between IMOs and life insurance companies. Through Preferred
Advantage, Global Preferred is positioned to introduce new
products to IMOs and present new distribution to insurers.

3



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Life Insurance Overview

Life insurance products typically fall within a
spectrum ranging from insurance protection products that pay a
sum of money upon the death of the insured to asset accumulation
products that offer the insured a tax-advantaged investment
vehicle for long-term savings and retirement income. At the
insurance protection end of the spectrum is term life insurance.
Term life insurance is often renewable on a yearly basis and
pays a sum of money upon the death of the insured. In general,
as you move along the insurance product spectrum, the investment
component becomes increasingly more meaningful, with the end
point being a variable annuity product, which is an asset
accumulation product. Variable annuities provide the
policyholder the opportunity to vary benefit payments depending
on the investment results of the assets held in the account.

We currently reinsure two types of insurance
products: variable universal life insurance and variable
annuities. We have the capability, and it is our intent, to
expand the scope of our reinsurance to include other life
insurance products, such as term life, whole life, universal
life and fixed annuities.

Variable Universal
Life.Variable universal life is an
investment-oriented insurance product that combines an
investment product with a death benefit. This product enables
the policyholder to vary the timing and amount of premium
payments, the level of death benefit protection, and the
investment allocation of policy funds. Premiums paid by the
policyholder, which comprise a separate pool of assets, are
placed in the insurance companys fixed account or separate
accounts. For the funds in the separate accounts, the
policyholder may choose among alternative investment vehicles,
usually including stock funds, corporate or government bond
funds, and money-market accounts. The death benefits and cash
values in variable universal life policies vary to reflect the
investment experience of the policys fixed or separate
accounts. The policy may have a guaranteed minimum death benefit
while cash values vary with the investment performance of the
fixed or separate account.

Variable Annuities.Variable annuity policies provide for flexible premium payments
and guarantee that the policyholder will receive periodic
benefit payments beginning on a specified date. Prior to the
specified date, premium payments made and resulting income
earned accumulate on a tax-deferred basis. Similar to variable
universal life, variable annuity policyholders may allocate
their account balances among a variety of investment vehicles.
Accordingly, the resulting benefit payments to the annuity
policyholder will vary depending on the performance of the
invested assets. Variable annuity policies may provide a
guaranteed minimum death benefit prior to the commencement of
annuity benefit payments.

Reinsurance Overview

Life insurance companies spread the risks they
assume by purchasing insurance, known as reinsurance, from other
insurers, known as reinsurers. A reinsurer agrees to indemnify
another insurance company, commonly referred to as the ceding
life company, for all or a portion of the insurance risks
underwritten by the ceding life company under one or more of its
own insurance polices. According to Standard &
Poors, the percentage of new life insurance business
written in the United States that is reinsured has risen from
34% in 1990 to almost 70% in 2002. During 2002, the American
Council of Life Insurers reported that purchases of individual
life insurance totaled $1.7 trillion of face amount.

Ceding life companies receive a number of direct
benefits from reinsurance, including:



| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reduced net liability on individual risks;                                                                                                                                                      
|
| |  | Catastrophe protection from large events or an
    aggregation of multiple small claims;                                                                                                        
|
| |  | Reduced fluctuations in profit and loss margins
    that are inherent to the insurance industry;                                                                                                
|
| |  | Assistance in maintaining acceptable leverage
    ratios; and                                                                                                                                   
|
| |  | Additional underwriting capacity by permitting
    them to assume larger risks and underwrite a greater number of
    policies without being required to increase their capital and
    surplus.

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In addition to the direct benefits of
reinsurance, a ceding life company that reinsures through an
organization that has a relationship with the distribution
channel that sells the product that is reinsured may receive a
number of indirect benefits that more closely align their
economic interests with those of the distribution channel. These
indirect benefits may include higher quality, more profitable
business, longer-term relationships, and higher sales volumes.

In exchange for assuming a portion of the risk
associated with a reinsured policy, the reinsurer receives a
portion of the revenue stream associated with the policy so long
as the reinsurance remains in effect.

Reinsurance can be written on either a
proportional, also known as quota share or pro rata, basis or a
non-proportional, referred to as excess share or excess of loss,
basis. Under quota share reinsurance, the reinsurer indemnifies
the ceding life company against a predetermined percentage or
share of the benefits paid by the ceding life company under
policies it has issued. In reinsurance written on an excess
share basis, the reinsurer indemnifies the ceding life company
against that portion of benefits paid on the original policy in
excess of a specified dollar amount.

Types of Reinsurance

We currently write three types of reinsurance on
a quota share basis: renewable term, coinsurance and modified
coinsurance. For additional information pertaining to the types
of reinsurance we write, refer to Item. 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations  Types of Reinsurance.

Industry Trends

We believe that over the last few decades the
production and distribution of life insurance has experienced
several fundamental trends.



| |                                                        
| | -------------------------------------------------------
| | Trends in the Production of Life Insurance
    Products



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Product
    Proliferation.The life insurance
    market has evolved from one offering a handful of
    industry-standardized products to one with products that are
    highly differentiated across the industry and even within a
    particular company. This has been driven primarily by the
    markets demand for more complex, investment-oriented
    products, as well as technological improvements that have
    enabled the support and administration of such products.                                                                                                                                                                                                                       
|
| |  | Demutualization.A
    number of large mutual life insurance companies have converted
    into publicly traded stock companies. We believe that this
    conversion has caused those companies to focus more on
    maximizing product profitability and stockholder value.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Consolidation among Life Insurance
    Companies.Industry pressures on
    profitability and the desire to achieve economies of scale have
    driven consolidation of life insurance companies. Although we
    believe that larger, stronger insurance companies have a more
    focused approach to distribution channels, it has also created a
    greater degree of competition among fewer insurers for access to
    those distribution channels. This increased competition has
    pressured insurance companies to increase agent commissions,
    thereby lowering their profit margins, and increasing the
    insurers focus on securing stable, reliable access to
    distribution channels.



| |                                                          
| | ---------------------------------------------------------
| | Trends in the Distribution of Life
    Insurance Products



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Diversification of Distribution
    Channels.Historically, most life
    insurers distributed their products through their own captive
    agency sales force. Although this traditional distribution
    channel is still utilized, insurers are now increasingly selling
    their products through IMOs (including independent agents,
    brokerage firms, banks and other alternative distribution
    channels), enabling the insurers to focus their resources on
    their principal expertise: product development, underwriting,
    investment

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | management and policy administration. As a
    result, insurers increasingly rely on IMOs for agent
    recruitment, training and sales support.                                                                                                                                                                                                                                               
|
| |  | Increasingly Complex Regulatory
    Environment.Regulation of insurance
    sales has become more extensive as products have become more
    complicated and the distribution systems have become more
    diverse. As a result, the cost of compliance with such
    regulations has risen dramatically and has made it more
    difficult for IMOs to manage a diverse portfolio of products.
|
| |  | Consolidation among Distribution Channels and
    the Emergence of National Distribution
    Franchises.In order to achieve
    economies of scale and increased bargaining power, a number of
    IMOs have grown and acquired other, smaller IMOs.                                                                                                                                           

We believe that these trends have led to a
misalignment of interests between the IMOs that distribute the
products and the life insurance companies that create those
products. The separation of life insurance companies from
distribution channels, followed by the growing strength of those
distribution channels, creates an environment where the
distributors control access to the life insurance consumers. The
independent distributors ability to select the products to
sell to the public has given them significantly greater
influence over product development. Often, product selection
decisions are driven by a desire for immediate commissions
rather than on the value provided by long-term relationships
focused on writing persistent, high quality business.
Additionally, this short-term focus has inhibited the product
development process, as life insurance companies are reluctant
to invest in the development of products for distribution
relationships that may not be long lasting. We believe that
these trends have created an environment in which life insurance
companies seek more stable and reliable distribution networks in
which distributors have long-term incentives to write
persistent, high quality business and the insurance companies
have less pressure to pay higher commissions to the distributors
solely to gain and maintain access to the consumers.

The Global Preferred Value
Proposition

We strive to align the interests between life
insurance distributors and life insurance companies by
developing long-term, collaborative reinsurance relationships.
The foundation for these relationships is our ability to provide
IMOs meaningful financial incentives through profit-sharing
structures, such as producer-owned reinsurance.



| |                         
| | ------------------------
| | Benefits to Distributors



| |   |                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Participates in Benefits from
    Reinsurance.Through the financial
    incentives we provide, distributors receive financial benefits
    in addition to traditional commissions. Alternatively, we
    provide focused advisory services to IMOs interested in
    establishing their own reinsurance structure.                                                          
|
| |  | Increases in Net Operating
    Margins.Similarly, to the extent that
    the receipt of financial incentives results in a recognizable
    item for income statement purposes, distributors will be able to
    substantially increase their net operating margins without
    incurring additional costs.                                                                  
|
| |  | Enhances Ability to Assess Quality of
    Business.As the overall economic
    package to the distributor is increasingly influenced by the
    long-term performance of the business they sell, distributors
    will be driven to gain more information regarding the drivers of
    profitability and they will seek to enhance the quality of
    business they produce.
|
| |  | Increases Involvement in Product
    Development.As distributors become
    increasingly focused on long-term product success, they will
    want to become more involved in product development decisions to
    improve sales volume and profitability within the products they
    sell.                                                                                 



| |                    
| | -------------------
| | Benefits to Insurer



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Stabilizes Product
    Distribution.Reinsurance-driven
    partnerships with distribution channels interested in
    performance-based incentives should result in more stable
    relationships with the channels.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | As the financial benefits of a profit-sharing
    program are realized over a number of years, a long-term
    relationship between the distribution channel and the insurer
    develops.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Motivates Distributor to Focus on Quality of
    Business.As distributors
    economic interests become more aligned with those of the
    insurers whose policies they sell, they will become more focused
    on the quality of that business.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Helps Alleviate Downward Margin
    Pressure.By complementing commission
    dollars with the other financial incentives we provide,
    distributors should be less inclined to seek continual
    commission increases from insurers, resulting in measurable
    improvements in the insurers margins. Further, insurers
    should realize expense savings otherwise expended to maintain
    stability and growth in sales. As insurers recognize the
    long-term benefits we are creating for them with the
    distribution channels and improved margins, those insurers will
    be more likely to choose us for reinsurance to help assure
    continued long-term distribution relationships.
|
| |  | Focuses Distribution System on Specific
    Products.Since the financial
    incentives paid by us will be linked to the sale of specific
    products, distributors will place an emphasis on selling those
    products in order to receive the additional financial benefits.                                                                                                                                                                                                                                                                                                                                                                                                                           

In addition to collaborative reinsurance
relationships, through our subsidiaries we offer life insurance
management and actuarial advisory services, and administrative
services to both IMOs and insurers engaged in reinsurance or
related activities. Our independence and objectivity, coupled
with depth of experience and expertise associated with
distribution systems and insurers, offers value added business
solutions from a single source entity that can be essential in
todays environment. By providing these benefits to both
the IMO and the insurer, we are able to develop long-term
relationships with both parties, thereby contributing to our
growth opportunities.

Growth Strategy

Our objectives are to build strong financial
performance, loyal independent marketing organization
relationships, and stockholder value. We aim to achieve these
objectives through the following growth strategies:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Broadening Existing
    Relationships.We will seek to grow
    our business by (1) broadening the pool of products that we
    reinsure for the ceding life companies with which we have
    existing reinsurance arrangements and (2) establishing new
    reinsurance arrangements with other life insurance companies
    that sell products through our existing IMO relationships.                                                                                                                                                                              
|
| |  | Forming New Relationships with Other IMOs and
    Ceding Life Companies.We intend to
    form new relationships with other IMOs and ceding life companies
    by: (1) marketing directly to IMOs and life insurance
    companies; (2) leveraging our existing IMO relationship to
    gain access to other ceding life companies and IMOs; and
    (3) utilizing our relationships with our ceding life
    companies to establish relationships with additional IMOs.                                                                                              
|
| |  | Continuing to Expand Reinsurance Coverage of
    Current Business and New Business Under Existing
    Agreements.We have contractual rights
    under our existing agreements with Western Reserve to:
    (1) expand the scope of our reinsurance coverage on certain
    existing policies and (2) subject to certain minimum sales
    volume thresholds, increase our reinsurance participation of new
    policies and expand our reinsurance to include new products
    offered by Western Reserve that are sold through a leading IMO
    of the AEGON Group.

Distribution Relationships and Sales
Strategies

Our strategy is to generate reinsurance business
through strong, incentive-based relationships with IMOs that
have the desire and ability to establish long-term reinsurance
relationships with the life insurance companies whose products
they sell. Further, through our new subsidiaries, we offer
advisory and

7



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management services to IMOs that desire to
establish a reinsurance structure, or may have an existing
reinsurance structure.


We believe that IMOs that develop long-term
relationships have a greater incentive to place profitable and
persistent business with those life insurers that reinsure
through their reinsurance partner. This three-party relationship
creates positive economic opportunities for each party, as the
IMO may benefit above and beyond commissions, and we and the
life insurance company benefit through increased sales and
incremental profitability of the business.

All of the policies we currently reinsure have
resulted from the marketing efforts of the independent agents
who have been associated with World Financial Group, Inc.,
a subsidiary of the AEGON Group, and its predecessor, World
Marketing Alliance, Inc. (WMA Agency). Our
relationship with World Financial Group was formed in June 2001,
when certain assets of WMA Agency were sold to World Financial
Group. As a result of the asset acquisition, substantially all
of the agents of WMA Agency became associated with World
Financial Group. Our relationship with WMA Agency dates back to
our founding in 1995, when we were principally formed to provide
an opportunity for its agents to participate indirectly in the
reinsurance of the business they produced. Many of those
individual agents purchased an equity ownership in our company
through a private sale of common stock in 1995 and a subsequent
sale of preferred stock in 2000. Many of these agents still own
a significant portion of the outstanding common stock of Global
Preferred.

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 agents of the IMO 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.

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 Reinsurance
|                    |                         |                    
|Ceding Life Company |                         | Renewable Term      |  | Coinsurance |  | Modified Coinsurance
|                    |                         |                     |  |             |  |                     
|Western Reserve     |                         |                     |  |             |  |                      |  |   |  |  |  |  
|                    | Variable universal life |                     |  | ü           |  |                      |  | ü |  |  |  | ü | 
|                    | Variable annuity        |                     |  |             |  |                      |  | ü |  |  |  | ü | 
|American Skandia    |                         |                     |  |             |  |                      |  |   |  |  |  |  
|                    | Variable annuity        |                     |  |             |  |                      |  |   |  |  |  | ü | 
|Pacific Life        |                         |                     |  |             |  |                      |  |   |  |  |  |  
|                    | Variable universal life |                     |  | ü           |  |                      |  |   |  |  |  |   | 
|Kemper              |                         |                     |  |             |  |                      |  |   |  |  |  |  
|                    | Variable 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 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

8



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##### Table of Contents



Pacific Life was signed on June 25, 2001 and
covers policies on a variable universal life product issued on
or after January 1, 2001, sold by those agents.


Effective May 29, 2003, Kemper Investors
Life Insurance Company (Kemper Investors), Federal
Kemper Life Assurance Company (Federal Kemper) and
Global Preferred Re Limited entered into a Novation Agreement,
whereby Federal Kemper became a party to our Kemper reinsurance
agreement replacing Kemper Investors. The Novation Agreement
substitutes Federal Kemper for Kemper Investors, binds Federal
Kemper by all of the terms and conditions, allows Federal Kemper
enjoy all of Kemper Investors rights and instructs Federal
Kemper to perform all of Kemper Investors duties,
obligations and liabilities under the above referenced Kemper
agreement. Concurrent with the novation, Federal Kemper was
acquired by, and became a business unit of, Bank One Corporation.

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 strong
relationship with the agents associated with World Financial
Group. 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

Following World Financial Groups purchase
of certain assets of WMA Agency in June 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, 2005 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
|
| |  | Commence or increase reinsurance on certain
    variable annuity policies issued from January 1, 2003
    through December 31, 2004 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. 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, through informal reports, 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.

9



---



##### Table of Contents



Global Preferreds decision to reinsure
these products 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 intend 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 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 intend to enter into agreements with other IMOs
similar to our directed reinsurance agreement with World
Financial Group.

Investments

Our investments are selected with the objective
of achieving favorable investment returns consistent with
appropriate credit, diversification, tax and regulatory
considerations, while providing sufficient liquidity to enable
us to meet our obligations as a reinsurance company on a timely
basis. We have developed specific investment guidelines that
stress diversification of risk, conservation of principal, and
liquidity. Our investments, however, will be subject to market
risks and fluctuations, as well as to the risks inherent in
particular securities. Our board of directors has established an
Investment Committee to periodically review the guidelines and
investment portfolio and to make recommendations to the board of
directors regarding any changes. The board of directors reviews
the guidelines annually. For additional information pertaining
to our investment portfolio, refer to Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations  Investments.

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. The
Investment Committee of the board of directors periodically
reviews the performance of, and the fees paid to, Conning. We
are not aware of any affiliation by us with Conning other than
through our pool retrocession agreement with Swiss Re
Life & Health America, Inc. The fees paid to
Conning for services rendered during 2003 totaled $63,747.

Underwriting and Policy
Administration

As an automatic reinsurer, we rely upon the
underwriting of the ceding life companies on policies we
reinsure. We review and monitor the underwriting standards and
procedures of the ceding life companies, including rules for
policy continuations, changes, re-entries, reinstatements, and
conversions.

The ceding life companies administer policies we
reinsure and provide us with all information necessary for
processing the reinsurance. We have conducted only a limited
review of the administrative practices of our ceding life
companies. Therefore, we may not have sufficient information to
properly evaluate the administration of the business we reinsure
or the accuracy of the information provided by the ceding life
companies.

10



---



##### Table of Contents



Our reinsurance agreements give us the right to
periodically audit the books and records of the ceding life
companies to ensure that all business is being properly ceded
and administered. Management also communicates frequently with
the ceding life companies regarding the administration of the
business, business policies and practices, underwriting
procedures, quality of business considerations, and reinsured
policy experience.

Retention

Our profitability depends, in part, on the volume
and amount of death claims incurred. While death claims are
reasonably predictable over a period of many years, claims
become less predictable over shorter periods and are subject to
fluctuation from period to period. Actual mortality experience
in a particular period may be greater than expected mortality
experience and, consequently, may adversely affect our operating
results for such period.

As a partial hedge against the unpredictability
of claims experience, we have entered into a pool retrocession
agreement covering certain life insurance policies we reinsure.
Under the pool retrocession agreement, multiple reinsurers
participate in the risks ceded by us. Standard mortality risks
in excess of our life insurance retention limit of
$100,000 per life are retroceded to pool participants,
which include: ERC Life Reinsurance Corporation, Swiss Re
Life & Health America, Inc., The Lincoln National
Life Insurance Company, and Transamerica Occidental Life
Insurance Company.

If equity markets decline sufficiently, we may
incur a claim expense on certain annuity policies in excess of
our life insurance retention limit of $100,000 per life.
Currently, eight annuity policies, or 0.02%, of our annuity
policies in force exceed our life insurance retention limit by
an aggregate exposure of approximately $264,000 with an average
excess exposure of approximately $33,000 per life.
Increases in the equity market may result in fewer annuity
policies exceeding our life insurance retention limit while
decreases in the equity market may result in more annuity
policies exceeding our life insurance retention limit.

Regulation of Global Preferred Re



| |        
| | -------
| | Bermuda

The Insurance Act 1978 and related regulations of
Bermuda (the Insurance Act), which regulates the
insurance business of Global Preferred Re, provides that no
person shall carry on any insurance business in or from within
Bermuda unless registered as an insurer under the Insurance Act
by the Bermuda Monetary Authority (the Authority).
Under the Insurance Act, insurance business includes reinsurance
business.

The Insurance Act imposes solvency and liquidity
standards and auditing and reporting requirements and grants to
the Authority powers to:



| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | grant and revoke registration;                                                                                                                                                                                                                                                 
|
| |  | require statutory financial statements;                                                                                                                                                                                                                                        
|
| |  | limit the amount of dividends and other payments;                                                                                                                                                                                                                              
|
| |  | regulate transfer of business and
    winding-up; and                                                                                                                                                                                                                          
|
| |  | supervise, investigate (as well as assist on
    investigations by certain foreign regulatory authorities),
    requisition information and intervene in the affairs of Bermuda
    insurance companies (including limitations on new business and
    regulating investments).

The Authority may appoint an inspector with
extensive powers to investigate the affairs of an insurer if the
Authority believes that an investigation is required in the
interest of the insurers policyholders or persons who may
become policyholders. Further, Global Preferred Re, as a
long-term insurer registered under the Insurance Act, may only
be wound-up or liquidated by order of the applicable Bermuda
court.

11



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##### Table of Contents



Independent Approved
Auditor.Every registered insurer must
appoint an independent auditor who will annually audit and
report on the statutory financial statements and the statutory
financial return of the insurer, both of which, in the case of
Global Preferred Re, are required to be filed annually with the
Authority. The independent auditor of the insurer must be
approved by the Authority and may be the same person or firm
that audits the insurers financial statements and reports
for presentation to its shareholders. Global Preferred Res
independent auditor is Deloitte & Touche.

Statutory Financial
Statements.An insurer must prepare
annual statutory financial statements. The Insurance Act
prescribes rules for the preparation and substance of such
statutory financial statements, which include, in statutory
form, a balance sheet, an income statement, a statement of
capital and surplus and notes thereto. The insurer is required
to give detailed information and analyses regarding premiums,
claims, reinsurance, and investments. Global Preferred Re, as a
long-term insurer, is required to submit to the Authority the
annual statutory financial statements as part of its annual
statutory financial return.

Minimum Solvency Margin; Restrictions on
Dividends.The Insurance Act also
regulates the payment of dividends and the minimum solvency
margin. For additional information, refer to Note 9 to the
Consolidated Financial Statements.

Principal
Representative.An insurer is required
to maintain a principal office in Bermuda and to appoint and
maintain a principal representative in Bermuda. For the purpose
of the Insurance Act, Global Preferred Res principal
representative is International Advisory Services, Ltd.
(IAS) and its principal office is located at 44
Church Street, 3rd Floor, Hamilton HM 12, Bermuda.
Without a reason acceptable to the Authority, Global Preferred
Re may not terminate the appointment of its principal
representative, and the principal representative may not cease
to act as such, unless 30 days notice in writing to
the Authority is given of the intention to do so. It is the duty
of IAS, as Global Preferred Res principal representative,
within 30 days of reaching the view that there is a
likelihood of it becoming insolvent or that a reportable event
has, to the principal representatives knowledge, occurred
or is believed to have occurred, to make a report in writing to
the Authority setting out all the particulars of the case that
are available to the principal representative.



| |              
| | -------------
| | United States

In general, reinsurers domiciled outside the
United States (referred to as alien reinsurers) are
not subject to substantial direct regulation in the United
States. The insurance laws of each state of the United States
generally do not regulate the sale of reinsurance within their
jurisdictions by non-U.S. insurers. However, alien
reinsurers, such as Global Preferred Re, that provide
reinsurance to insurance companies domiciled or licensed in
United States jurisdictions are indirectly regulated by state
credit for reinsurance laws. These laws operate to
deny statutory financial statement credit to ceding insurers
unless the unauthorized alien reinsurer posts acceptable
security for ceded liabilities and agrees to certain contract
provisions.

The state insurance laws in the United States
restricting the investments of insurance companies are not
applicable to Global Preferred Re. Unlike insurance regulations
in the United States, Bermuda law does not limit or regulate
investments of Global Preferred Re as a long-term insurer
provided that such investments are made for its potential
benefit and the minimum solvency ratios prescribed under the
Insurance Act are not breached.

Competition

Reinsurance and insurance companies compete based
on many factors, including:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | Premium charges;                                                                        
|
| |  | Ability to structure innovative terms and
    conditions in product offerings;          
|
| |  | The general reputation and perceived financial
    strength of the reinsurer or insurer;
|
| |  | Relationships with reinsurance and insurance
    intermediaries;                        

12



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##### Table of Contents





| |   |                                                               
| | - | --------------------------------------------------------------
| |  | Ratings assigned by independent rating agencies;              
|
| |  | Speed of claims payment and administrative
    activities; and
|
| |  | Experience in the particular risk to be
    underwritten.     

While we compete with numerous national and
international reinsurance companies, primary insurance
companies, underwriting syndicates and other financial services
providers, many of which are well established, have significant
operating histories and substantially greater underwriting,
marketing and administrative resources than we do, we believe
that our focus on building relationships with IMOs can be a
distinguishing feature.

Distinguishing us from other companies in our
industry, our growth strategy includes the expansion of our
relationships with IMOs through the formation of reinsurance
structures specific to their business or through the use of
financial incentives, which may include stock, warrants and
other forms of equity in our company. We believe our core
strengths and expertise will result in:



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Fee income associated with administrative
    services and from actuarial and management advisory services;                                                                                       
|
| |  | Reinsurance revenues resulting from favorable
    agreements with IMO reinsurance structures; and                                                                                                 
|
| |  | Reinsurance revenues resulting from favorable
    agreements with ceding life companies, benefiting IMOs that are
    financially motivated to influence ceding company relationships
    with us.

Our ability to compete with other potential
reinsurers in this market will depend upon our ability to
successfully develop and maintain strong relationships with
IMOs. In addition to our continuing focus on our current
independent agent relationships, we commenced implementing
marketing programs in late 2002 to develop new IMO relationships.

Direct insurance companies who are licensed to
underwrite insurance are also licensed to underwrite
reinsurance, making commercial access into the reinsurance
business relatively uncomplicated. In addition, over the last
several years, capital markets participants, including exchanges
and financial intermediaries, have developed financial products
intended to compete with traditional reinsurance. We are unable
to predict the extent to which new, proposed or potential
initiatives may affect the demand for our products. Barriers to
entry to the reinsurance industry for non-insurers are chiefly
the time, capital, and talent necessary to attract, underwrite,
and manage the business.

We cannot assure you that we will be able to
compete successfully, and the inability to do so could have a
material adverse effect upon our ability to implement our
strategies.

Employees

As of December 31, 2003, we had ten
full-time employees. None of our employees are covered by a
collective bargaining agreement. We consider our relations with
our employees to be good.

We believe our future success will depend in
large part on our ability to recruit and retain qualified
employees experienced in insurance and underwriting. The
competition for such personnel is intense, and there can be no
assurance that we will be successful in retaining or recruiting
key personnel.






|        |           
|------- | ----------
|Item 2. | Properties

In October 2002, we entered into a lease
agreement for office space in Duluth, Georgia. The initial lease
term, as amended, is twenty-four months, with the option to
extend the term an additional thirty-nine months, expiring in
January 2008. Payments under this lease are $122,177 annually
through October 2004. The lease payments are subject to an
annual increase of approximately 3%. We do not own or lease any
other properties.

13



---



##### Table of Contents








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are not a party to any material legal
proceedings.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

During the fourth quarter of 2003, no matters
were submitted to our security holders for a vote.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

No public trading market existed for our common
stock during 2003.

At March 15, 2004, we had
4,141,684 shares of common stock outstanding and
approximately 850 stockholders.

We have not declared or paid any cash dividends
on our common stock during 2002 or 2003 and our board of
directors does not anticipate declaring or paying any cash
dividends in the foreseeable future. We anticipate that all of
our earnings and other cash resources, if any, will be retained
for the purpose of financing Global Preferred Res
reinsurance business and will be available for other strategic
opportunities that may develop. Future dividend policy will be
subject to the discretion of our board of directors, and will be
contingent upon our results of operations, financial position
and capital requirements, general business conditions,
restrictions imposed by financing arrangements, if any, legal
and regulatory restrictions on the payment of dividends and
other factors that our board of directors deems relevant.

As a holding company with no direct operations,
the payment of dividends by us in the future will be largely
dependent on our receipt of dividends from Global Preferred Re.
For a discussion of restrictions on the payment of dividends by
Global Preferred Re, refer to Note 9 to the Consolidated
Financial Statements.

14



---



##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following table sets forth selected financial
data and other operating information. The selected financial
data have been derived from our consolidated financial
statements and should be read in conjunction with our
consolidated financial statements and accompanying notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations including elsewhere
herein.

|                                            |                                                                |                                               |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |        |  
|------------------------------------------- | -------------------------------------------------------------- | --------------------------------------------- | - | --------- | ------ | ---- | - | --------- | ------ | ---- | - | --------- | ------ | - | - | --------- | ------ | - | - | --------- | ------ | -
|                                            |                                                                |                                              
|                                            |                                                                | Year Ended December 31,                      
|                                            |                                                                |                                              
|                                            |                                                                | 1999                                          |   | 2000      |        | 2001 |   | 2002      |        | 2003
|                                            |                                                                |                                               |   |           |        |      |   |           |        |     
|                                            |                                                                |                                              
|                                            |                                                                | (Dollars in thousands, except per share data)
|Consolidated Statements of Income
    Data: |                                                                |                                               |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                            | Premiums                                                       |                                               | $ | 9,692     |        |      | $ | 16,618    |        |      | $ | 19,240    |        |   | $ | 17,985    |        |   | $ | 17,401    |       
|                                            | Reinsured policy revenues                                      |                                               |   | 13,506    |        |      |   | 12,894    |        |      |   | 11,238    |        |   |   | 13,859    |        |   |   | 12,797    |       
|                                            | Net investment income                                          |                                               |   | 350       |        |      |   | 528       |        |      |   | 811       |        |   |   | 742       |        |   |   | 407       |       
|                                            | Net realized gain (loss) on investments                        |                                               |   | (66       | )      |      |   | 3         |        |      |   | 45        |        |   |   | 428       |        |   |   | 21        |       
|                                            | Other Income                                                   |                                               |   |          |        |      |   |          |        |      |   |          |        |   |   |          |        |   |   | 63        |       
|                                            | Loss on recapture of business                                  |                                               |   | (823      | )      |      |   |          |        |      |   |          |        |   |   |          |        |   |   |          |       
|                                            |                                                                |                                               |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                            |                                                                | Total revenues                                |   |           | 22,659 |      |   |           | 30,043 |      |   |           | 31,334 |   |   |           | 33,014 |   |   |           | 30,689 |  
|                                            |                                                                |                                               |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                            | Total benefits and expenses                                    |                                               |   | 16,114    |        |      |   | 23,089    |        |      |   | 23,480    |        |   |   | 30,708    |        |   |   | 27,757    |       
|                                            |                                                                |                                               |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                            |                                                                | Income before income tax                      |   |           | 6,545  |      |   |           | 6,954  |      |   |           | 7,854  |   |   |           | 2,306  |   |   |           | 2,932  |  
|                                            |                                                                | Income tax expense                            |   |           | (2,225 | )    |   |           | (1,821 | )    |   |           | (2,392 | ) |   |           | (788   | ) |   |           | (998   | )
|                                            |                                                                |                                               |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                            |                                                                | Net income                                    |   |           | 4,320  |      |   |           | 5,133  |      |   |           | 5,462  |   |   |           | 1,518  |   |   |           | 1,934  |  
|                                            |                                                                | Preferred dividends                           |   |           |       |      |   |           | 155    |      |   |           | 267    |   |   |           |       |   |   |           |       |  
|                                            |                                                                |                                               |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                            | Net income available to common stockholders                    |                                               | $ | 4,320     |        |      | $ | 4,978     |        |      | $ | 5,195     |        |   | $ | 1,518     |        |   | $ | 1,934     |       
|                                            |                                                                |                                               |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                            | Basic earnings per share                                       |                                               | $ | 1.15      |        |      | $ | 1.33      |        |      | $ | 1.39      |        |   | $ | 0.37      |        |   | $ | 0.47      |       
|                                            | Diluted earnings per share                                     |                                               | $ | 1.15      |        |      | $ | 1.30      |        |      | $ | 1.32      |        |   | $ | 0.37      |        |   | $ | 0.47      |       
|                                            | Weighted-average common shares                                 |                                               |   | 3,742,610 |        |      |   | 3,742,610 |        |      |   | 3,742,610 |        |   |   | 4,141,684 |        |   |   | 4,141,684 |       
|                                            | Total weighted-average common and common
    equivalent shares |                                               |   | 3,742,610 |        |      |   | 3,943,897 |        |      |   | 4,141,684 |        |   |   | 4,141,684 |        |   |   | 4,141,684 |       

|                                 |                                      |                        |   |        |  |      |   |        |  |      |   |        |  |  |   |        |  |  |   |        | 
|-------------------------------- | ------------------------------------ | ---------------------- | - | ------ |  | ---- | - | ------ |  | ---- | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                 |                                      |                       
|                                 |                                      | December 31,          
|                                 |                                      |                       
|                                 |                                      | 1999                   |   | 2000   |  | 2001 |   | 2002   |  | 2003
|                                 |                                      |                        |   |        |  |      |   |        |  |     
|                                 |                                      |                       
|                                 |                                      | (Dollars in thousands)
|Consolidated Balance Sheet Data: |                                      |                        |   |        |  |      |   |        |  |      |   |        |  |  |   |        |  |  |   |       
|                                 | Cash and cash equivalents            |                        | $ | 3,476  |  |      | $ | 4,259  |  |      | $ | 8,062  |  |  | $ | 15,858 |  |  | $ | 11,580 | 
|                                 | Fixed maturity and equity securities |                        |   | 2,054  |  |      |   | 5,912  |  |      |   | 12,214 |  |  |   | 2,798  |  |  |   | 17,768 | 
|                                 | Deferred acquisition costs           |                        |   | 39,750 |  |      |   | 42,752 |  |      |   | 42,800 |  |  |   | 49,850 |  |  |   | 45,608 | 
|                                 | Total assets                         |                        |   | 49,008 |  |      |   | 56,617 |  |      |   | 67,853 |  |  |   | 74,274 |  |  |   | 79,284 | 
|                                 | Debt                                 |                        |   | 9,179  |  |      |   | 5,000  |  |      |   | 5,000  |  |  |   | 5,000  |  |  |   | 5,000  | 
|                                 | Total liabilities                    |                        |   | 20,600 |  |      |   | 20,028 |  |      |   | 25,884 |  |  |   | 30,952 |  |  |   | 33,978 | 
|                                 | Stockholders equity                 |                        |   | 28,408 |  |      |   | 36,589 |  |      |   | 41,969 |  |  |   | 43,322 |  |  |   | 45,305 | 

15



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|                               |                                                            |                        |   |           |  |      |   |           |  |      |   |           |  |  |   |           |  |  |   |           | 
|------------------------------ | ---------------------------------------------------------- | ---------------------- | - | --------- |  | ---- | - | --------- |  | ---- | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|                               |                                                            |                       
|                               |                                                            | December 31,          
|                               |                                                            |                       
|                               |                                                            | 1999                   |   | 2000      |  | 2001 |   | 2002      |  | 2003
|                               |                                                            |                        |   |           |  |      |   |           |  |     
|                               |                                                            |                       
|                               |                                                            | (Dollars in thousands)
|Summary of Policies Reinsured: |                                                            |                        |   |           |  |      |   |           |  |      |   |           |  |  |   |           |  |  |   |          
|                               | Number of life insurance policies and riders
    reinsured |                        |   | 260,356   |  |      |   | 296,674   |  |      |   | 287,303   |  |  |   | 265,384   |  |  |   | 239,201   | 
|                               | Number of annuity policies reinsured                       |                        |   | 24,483    |  |      |   | 43,819    |  |      |   | 48,007    |  |  |   | 48,889    |  |  |   | 48,285    | 
|                               | Face value of life insurance reinsured                     |                        | $ | 8,030,219 |  |      | $ | 9,378,075 |  |      | $ | 9,082,204 |  |  | $ | 8,451,310 |  |  | $ | 7,606,281 | 
|                               | Annuity policy benefits reinsured                          |                        | $ | 324,827   |  |      | $ | 310,063   |  |      | $ | 266,305   |  |  | $ | 224,710   |  |  | $ | 252,180   | 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following analysis of our consolidated
financial condition and results of operations should be read in
conjunction with Selected Financial Data and the
consolidated financial statements and accompanying notes
included elsewhere in this report.

Overview

Global Preferred provides reinsurance solutions
for the life insurance and annuity industry. Our principal
business objective is to align the long-term interests between
independent marketing organizations and life insurance
companies. Through these collaborative relationships, we believe
both the IMOs and insurers benefit from mutually rewarding
relationships based on parallel interests, a dedication to
quality business, and a focus on managing insurance and
distribution risk for long-term economic rewards.

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 strength of our current
reinsurance business is based on our historical relationship
with the independent agents of World Financial Group, which is
an indirect subsidiary of AEGON USA, Inc. and an IMO that
markets the products we currently reinsure.

Under a reinsurance agreement, 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

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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.


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 at risk we reinsure. The net amount at 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.

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 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. A
summary of significant accounting policies is included in
Note 2 to the Consolidated Financial Statements.



| |                 
| | ----------------
| | Income Statement

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

17



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policies. These revenues represent the policy
mortality and expense charges, asset-based allowances and
deferred sales charges that have been assessed against the
reinsured policy account balances.


Upon election to convert certain reinsured
policies from a renewable term basis to a coinsurance or
modified coinsurance basis, the associated premium revenues for
those policies will discontinue, and our proportionate share of
the associated mortality and expense charges, asset based
allowances and deferred sales charges will be recorded as
reinsured policy revenues.

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, prolonged deterioration in the equity
markets will result in a decrease in our current and future
income.



| |              
| | -------------
| | Balance Sheet

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.

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 anticipated future gross
profits. During each accounting period, assumptions used in
calculating the amortization of the deferred acquisition expense
reflect actual experience for the then current accounting
period. We also review, on a periodic basis, our evolving
experience with regard to our assumptions concerning future
experience as to mortality, persistency, investment yields, and
expenses in determining our estimate of anticipated future 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

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change in assumptions used with regard to future
experience, the amortization of the deferred acquisition cost
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 fund value 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. We utilize a credibility
approach to account for the differences between long-term
and short-term volatility. Under this approach, the estimates of
future expected gross profits are revised 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 a return of
premium or the highest level the fund values had accumulated
over certain prescribed periods under the annuity policy. Upon
the death of an annuity policyholder, we will incur a claims
expense equal to the excess, if any, of the amount guaranteed
under this provision over the then current policy fund value.
This expense increases when equity markets decline and decreases
as equity markets increase. We utilize an implicit approach to
account for the expense associated with these guaranteed minimum
death benefits. Under this approach, future expected gross
profits are decreased to account for future expected claims
expenses. The short-term volatility of the policy fund value
will result in significant volatility in the expected claims
expense if no recognition is made to acknowledge differences
between long-term yields and short-term volatility. Our implicit
approach recognizes the effect of long-term versus short-term
volatility when accounting for guaranteed minimum death
benefits. In conjunction with the implementation of Statement of
Position (SOP) 03-1, (refer to Note 2 to the
Consolidated Financial Statements), we will be converting from
an implicit approach to an explicit approach in first quarter
2004. We do not expect these changes to have a material impact
on our financial statements.

Future Policy
Benefits.Liabilities for future
benefits on life insurance 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 consolidated balance
sheet.

Liabilities for future policy benefits under the
renewable term agreements include provisions for claims in the
course of settlement, claims incurred but not reported, and
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 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 reflected
in the consolidated financial statements are based on
information provided to us by the ceding life companies.
Reserves established by us with respect to

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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,
with readily determinable fair values, 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 are classified
as available for sale 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. 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. 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.

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:

|                 |  |                         |     |      |  |      |     |   |  |  |     |  
|---------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                 |  |                        
|                 |  | Year Ended December 31,
|                 |  |                        
|                 |  | 2001                    |     | 2002 |  | 2003
|                 |  |                         |     |      |  |     
|Western Reserve  |  |                         | 89  | %    |  |      | 91  | % |  |  | 92  | %
|American Skandia |  |                         | 9   | %    |  |      | 8   | % |  |  | 7   | %
|Kemper           |  |                         | 2   | %    |  |      | 1   | % |  |  | 1   | %
|Pacific Life(1)  |  |                         | (2 | )    |  |      | (2 | ) |  |  | (2 | )
|                 |  |                         |     |      |  |      |     |   |  |  |     |  
|Total            |  |                         | 100 | %    |  |      | 100 | % |  |  | 100 | %
|                 |  |                         |     |      |  |      |     |   |  |  |     |  



---



|    |                                                        
|--- | -------------------------------------------------------
|(1) | This agreement was effective as of
    January 1, 2001.
|   
|(2) | Less than 1%.                                          

20



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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.

|                    |                  |                        |  |         |                           |             |  |                    |     |              |  |  |          |  |  |  |                  |  |  |  |       | 
|------------------- | ---------------- | ---------------------- |  | ------- | ------------------------- | ----------- |  | ------------------ | --- | ------------ |  |  | -------- |  |  |  | ---------------- |  |  |  | ----- | 
|                    |                  |                        |  |         |                           |             |  |                    |     | Reinsurance 
|                    |                  |                        |  | Product |                           | Reinsurance |  |                    |     | Commencement
|Ceding Life Company |                  | Reinsured Product Name |  | Type(1) |                           | Type(2)     |  | Policy Issue Dates |     | Date        
|                    |                  |                        |  |         |                           |             |  |                    |     |             
|                    | Western Reserve  |                        |  |         | Freedom Equity Protector  |             |  |                    | VUL |              |  |  | MRT      |  |  |  | 1/92 to 12/99    |  |  |  | 7/96  | 
|                    | Western Reserve  |                        |  |         | Financial Freedom Builder |             |  |                    | VUL |              |  |  | MRT      |  |  |  | 7/97 to 3/98     |  |  |  | 7/97  | 
|                    | Western Reserve  |                        |  |         | Financial Freedom Builder |             |  |                    | VUL |              |  |  | Co/Modco |  |  |  | 4/98 to 12/98    |  |  |  | 4/98  | 
|                    | Western Reserve  |                        |  |         | Financial Freedom Builder |             |  |                    | VUL |              |  |  | MRT      |  |  |  | 1/99 to 3/01     |  |  |  | 10/99 | 
|                    | Western Reserve  |                        |  |         | Financial Freedom Builder |             |  |                    | VUL |              |  |  | Co/Modco |  |  |  | 4/01 to 12/01    |  |  |  | 01/02 | 
|                    | Western Reserve  |                        |  |         | Financial Freedom Builder |             |  |                    | VUL |              |  |  | MRT      |  |  |  | 1/02 to 12/02    |  |  |  | 10/99 | 
|                    | Western Reserve  |                        |  |         | Freedom Elite Builder     |             |  |                    | VUL |              |  |  | Co/Modco |  |  |  | 7/01 to 12/01    |  |  |  | 1/02  | 
|                    | Kemper           |                        |  |         | Power VUL                 |             |  |                    | VUL |              |  |  | MRT      |  |  |  | 9/96 to 3/01     |  |  |  | 9/96  | 
|                    | Pacific Life     |                        |  |         | Select Exec II            |             |  |                    | VUL |              |  |  | YRT      |  |  |  | 1/01 to present  |  |  |  | 1/01  | 
|                    | American Skandia |                        |  |         | Imperium                  |             |  |                    | VA  |              |  |  | Modco    |  |  |  | 1/97 to 12/02    |  |  |  | 1/97  | 
|                    | Western Reserve  |                        |  |         | Freedom Wealth Creator    |             |  |                    | VA  |              |  |  | Co/Modco |  |  |  | 1/98 to 12/01    |  |  |  | 1/98  | 
|                    | Western Reserve  |                        |  |         | Freedom Premier           |             |  |                    | VA  |              |  |  | Co/Modco |  |  |  | 10/00 to present |  |  |  | 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 58% of our
reinsurance revenues for the year ended December 31, 2003.
The policies we reinsure on a coinsurance and modified
coinsurance basis represented 42% of our reinsurance revenues
for the same period. Of the 42%, 25% relates to variable life
insurance policies and 17% relates to variable annuity policies.

Following World Financial Groups purchase
of certain assets of WMA Agency in June 2001, we entered into
certain agreements 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. Concurrently, we entered into a best
efforts agreement with World Financial Group in July 2001 to
help us attain the opportunity to reinsure all insurance
products sold by its agents for insurance companies other than
Western Reserve and Western Reserves affiliates. Refer to
Note 5 to the Consolidated Financial Statements for further
discussion.

21



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Results of Operations

The following table sets forth certain operating
data as a percentage of total revenue for the periods indicated:

|                                            |                                            |                     |     |      |   |      |     |    |   |  |     |    |  
|------------------------------------------- | ------------------------------------------ | ------------------- | --- | ---- | - | ---- | --- | -- | - |  | --- | -- | -
|                                            |                                            |                    
|                                            |                                            | Year Ended         
|                                            |                                            | December 31,       
|                                            |                                            |                    
|                                            |                                            | 2001                |     | 2002 |   | 2003
|                                            |                                            |                     |     |      |   |     
|                                            |                                            |                    
|                                            |                                            | (As a percentage of
|                                            |                                            | total revenue)     
|Consolidated Statements of Income
    Data: |                                            |                     |     |      |   |      |     |    |   |  |     |   
|Revenues:                                   |                                            |                     |     |      |   |      |     |    |   |  |     |   
|                                            | Premiums                                   |                     |     | 61   | % |      |     | 55 | % |  |     | 57 | %
|                                            | Reinsured policy revenues                  |                     |     | 36   |   |      |     | 42 |   |  |     | 42 |  
|                                            | Net investment income                      |                     |     | 3    |   |      |     | 2  |   |  |     | 1  |  
|                                            | Net realized gain on investments           |                     |     |     |   |      |     | 1  |   |  |     |   |  
|                                            | Other income                               |                     |     |     |   |      |     |   |   |  |     |   |  
|                                            |                                            |                     |     |      |   |      |     |    |   |  |     |   
|Total revenues                              |                                            |                     | 100 | %    |   |      | 100 | %  |   |  | 100 | % 
|                                            |                                            |                     |     |      |   |      |     |    |   |  |     |   
|Benefits and expenses:                      |                                            |                     |     |      |   |      |     |    |   |  |     |   
|                                            | Benefits, claims and settlement expenses   |                     |     | 20   |   |      |     | 26 |   |  |     | 30 |  
|                                            | Change in future policy benefits           |                     |     | 8    |   |      |     | 5  |   |  |     | 4  |  
|                                            | Reinsurance expense allowances, net        |                     |     | 27   |   |      |     | 26 |   |  |     | 27 |  
|                                            | Amortization of deferred acquisition costs |                     |     | 13   |   |      |     | 21 |   |  |     | 18 |  
|                                            | Operating expenses                         |                     |     | 6    |   |      |     | 9  |   |  |     | 11 |  
|                                            | Interest expense                           |                     |     | 1    |   |      |     | 1  |   |  |     | 1  |  
|                                            | Costs of withdrawn offering                |                     |     |     |   |      |     | 5  |   |  |     |   |  
|                                            |                                            |                     |     |      |   |      |     |    |   |  |     |   
|Total benefits and expenses                 |                                            |                     | 75  |      |   |      | 93  |    |   |  | 91  |   
|                                            |                                            |                     |     |      |   |      |     |    |   |  |     |   
|Income before income tax                    |                                            |                     | 25  |      |   |      | 7   |    |   |  | 9   |   
|                                            | Income tax expense                         |                     |     | (8   | ) |      |     | (2 | ) |  |     | (3 | )
|                                            |                                            |                     |     |      |   |      |     |    |   |  |     |   
|Net income                                  |                                            |                     | 17  | %    |   |      | 5   | %  |   |  | 6   | % 
|                                            |                                            |                     |     |      |   |      |     |    |   |  |     |   



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared
    to Year Ended December 31, 2002



| |         
| | --------
| | Revenues

Premiums.Premiums
decreased $584,000, or 3%, from $18.0 million for the year
ended December 31, 2002 to $17.4 million for the same
period in 2003. 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 the insured grows older.

Reinsured Policy
Revenues.Reinsured policy revenues
decreased $1.1 million, or 8%, from $13.9 million for
the year ended December 31, 2002 to $12.8 million for
the same period in 2003. This decrease was primarily
attributable to a decline in mortality and expense charges and
asset-based allowances resulting from a decline in average
account balances in 2003 as compared to the same periods in 2002
and the effect of policy surrender activity for our variable
annuity business.

Net Investment Income and Net Realized Gain on
Investments.Net investment income
decreased $335,000, or 45%, from $742,000 for the year ended
December 31, 2002 to $407,000 for the same period in 2003,
primarily due to the decreased size of our fixed maturity
securities portfolio during 2003 as compared to 2002. The
decrease in our fixed maturity securities portfolio resulted
from the sale of

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$9.9 million of fixed maturity securities in
2002, with $8.5 million of such amount being sold in
December 2002. The proceeds from these sales were predominantly
held in cash and cash equivalents during 2003. The purchases and
sales activities by quarter are shown in the table below:


Investment Purchases and Sales

|                                      |                |               |            |               |   |               |           |                |   |               |           |           |   |   |           |           |   |   |            |           |  
|------------------------------------- | -------------- | ------------- | ---------- | ------------- | - | ------------- | --------- | -------------- | - | ------------- | --------- | --------- | - | - | --------- | --------- | - | - | ---------- | --------- | -
|                                      |                |              
|                                      |                | Quarter Ended
|                                      |                |              
|                                      |                | Dec. 31, 2002 |            | Mar. 31, 2003 |   | June 30, 2003 |           | Sept. 30, 2003 |   | Dec. 31, 2003
|                                      |                |               |            |               |   |               |           |                |   |              
|Fixed maturity and equity securities: |                |               |            |               |   |               |           |                |   |               |           |           |   |   |           |           |   |   |            |          
|Balance, beginning of quarter         |                | $             | 11,731,349 |               |   | $             | 2,798,190 |                |   | $             | 2,325,836 |           |   | $ | 3,196,467 |           |   | $ | 9,310,881  |          
|                                      | Purchases      |               |            | 499,550       |   |               |           |               |   |               |           | 1,054,615 |   |   |           | 6,568,300 |   |   |            | 9,208,384 |  
|                                      | Sales          |               |            | (8,484,338    | ) |               |           |               |   |               |           |          |   |   |           |          |   |   |            | (421,282  | )
|                                      | Other activity |               |            | (948,371      | ) |               |           | (472,354       | ) |               |           | (183,984  | ) |   |           | (453,886  | ) |   |            | (330,315  | )
|                                      |                |               |            |               |   |               |           |                |   |               |           |           |   |   |           |           |   |   |            |          
|Balance, end of quarter               |                | $             | 2,798,190  |               |   | $             | 2,325,836 |                |   | $             | 3,196,467 |           |   | $ | 9,310,881 |           |   | $ | 17,767,668 |          
|                                      |                |               |            |               |   |               |           |                |   |               |           |           |   |   |           |           |   |   |            |          

Net realized gain on investments decreased
$406,000, from $428,000 for the year ended December 31,
2002 to $21,000 for the same period in 2003. The decrease was
due to the sale of $9.9 million of fixed maturity
securities in 2002 as compared to sales of only $421,000 of
securities in 2003. Net realized gains are caused by a decline
in market yields, which resulted in an increase in the fair
value of the fixed maturity securities in our portfolio.



| |                      
| | ---------------------
| | Benefits and Expenses

Benefits, Claims and Settlement
Expenses.Benefits, claims, and
settlement expenses increased $840,000, or 10%, from
$8.4 million for the year ended December 31, 2002 to
$9.3 million for the same period in 2003. The increase was
primarily associated with a lower incidence of life insurance
death claims in 2002 compared to the incidence of death claims
in 2003, an increase in the average death claim size, and the
increasing age of the policies reinsured, partially offset by a
decline in the aggregate face value of insurance. The aggregate
face value of insurance underlying the polices we reinsured at
December 31, 2002 was $8.5 billion compared to
$7.6 billion at December 31, 2003.

Change in Future Policy
Benefits.Change in future policy
benefits decreased $471,000, or 31%, from $1.5 million for
the year ended December 31, 2002 to $1.1 million for
the same period in 2003. The decrease resulted from the aging of
the policies and the decrease in business in force reinsured on
a monthly renewable term basis.

Reinsurance Expense Allowances,
Net.Net reinsurance expense
allowances decreased $382,000, or 4%, from $8.5 million for
the year ended December 31, 2002 to $8.1 million for
the same period in 2003. These amounts reflect the decrease in
business in force due to policy lapse and surrender activity.
The decrease was also due to lower average account balances in
2003 as compared to the same periods in 2002 because of equity
market performance.

Amortization of Deferred Acquisition
Costs.Amortization of deferred
acquisition costs decreased $1.5 million, or 21%, from
$7.0 million for the year ended December 31, 2002 to
$5.5 million for the same period in 2003. The decrease in
amortization primarily resulted from additional amortization in
2002 due to the then higher than expected surrender experience,
including unlocking our near term surrender
assumptions to reflect the increase in our surrender experience
(akin to industry-wide surrender experience).

Under current assumptions, and all else being
equal, we do not expect that there would be increased
amortization in 2004 from unlocking due to lower
than expected equity market performance unless separate account
fund yields were to decline by 20% or more in 2004.

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##### Table of Contents



Operating Expenses.Operating expenses increased $267,000, or 9%, from
$3.1 million for the year ended December 31, 2002 to
$3.4 million for the same period in 2003. These expenses
include salaries and benefits, professional fees for legal,
actuarial and accounting fees and other operating expenses. The
majority of the increase was attributable to an increase of
$572,000 resulting from directors and officers
insurance premiums, office operating expenses, professional
fees, marketing expenses, taxes and licenses, and shareholder
communications. These increases were partially offset by a
$301,000 decrease in salaries, bonuses and recruiting expenses
due to the reductions in staffing and employee bonuses.

Costs of Withdrawn
Offering.During October 2002, we
withdrew the registration statement for our proposed initial
public offering of 9.5 million shares of common stock.
Offering costs related to our withdrawn offering were
$1.7 million for the year ended December 31, 2002.
These costs, which consisted primarily of legal, printing,
accounting, and actuarial fees, were expensed during the quarter
ended September 30, 2002. We did not incur any similar
expenses in 2003.

Interest Expense.Interest expense decreased $5,000, or 1%, from $380,000, for the
year ended December 31, 2002 to $375,000 for the comparable
period in 2003. The decrease was due to the interest associated
with the $7.2 million settlement paid to Western Reserve on
April 2, 2002 to fund the reinsurance amendments that were
effective January 1, 2002.

Income Taxes.Due to
higher levels of income before income taxes, income taxes
increased $209,000, or 26%, from $789,000 for the year ended
December 31, 2002 to $998,000 for the same period in 2003.
Income before income taxes is comprised of income subject to
taxes that is recognized and due in the current period and
income subject to taxes that is recognized during the current
period but is due in future periods. 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. For the years ended December 31,
2002 and 2003, we had no current taxable income and, as a
result, we were unable to take advantage of any of the small
life insurance company deduction. For 2003, however, we were
subject to alternative minimum tax. Our effective tax rate was
34% in both 2002 and 2003.

In accordance with Statements of Financial
Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, we have $2.4 million of
net operating loss carryforwards, which begin to expire in 2018.
These net operating loss carryforwards at a 34% effective tax
rate are included as an offset to the deferred tax liability. It
is our belief that it is more likely than not that the deferred
tax assets will be realized 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.



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    to Year Ended December 31, 2001



| |         
| | --------
| | Revenues

Premiums.Premiums
decreased $1.2 million, or 6%, from $19.2 million for
the year ended December 31, 2001 to $18.0 million for
the comparable period in 2002. The majority of this decrease was
due to the conversion of all Western Reserve Financial Freedom
Builder variable universal life policies and riders, issued from
April 1, 2001 through December 31, 2001, which had
been reinsured by us on a monthly renewable term basis, to a
coinsurance and modified coinsurance basis, effective
January 1, 2002.

Reinsured Policy
Revenues.Reinsured policy revenues
increased $2.7 million, or 24%, from $11.2 million for
the year ended December 31, 2001 to $13.9 million for
the same period in 2002. This increase was due to: (1) the
conversion of certain Financial Freedom Builder variable
universal life policies and riders, as described above;
(2) the reinsurance, at a quota share rate of 20%, of the
Western Reserve Freedom Elite Builder variable universal life
policies sold by the agents associated with World Financial
Group and issued from July 1, 2001 through
December 31, 2001; (3) the increase in our reinsurance
on a coinsurance and modified coinsurance basis, from a 10%
quota share rate to a 14% quota share rate, of all Western
Reserve variable annuity policies sold by those agents and
issued from January 1, 1999 through December 31, 2001;
and (4) an increase in revenues from surrender charges in

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##### Table of Contents



2002 compared to 2001. These increases were
partially offset by a decrease in mortality and expense charges
and asset-based allowances resulting from the decline in
variable annuity separate account balances.


Net Investment Income and Net Realized Gain on
Investments.Net investment income
decreased $69,000, or 8%, from $811,000 for the year ended
December 31, 2001 to $742,000 for the same period in 2002,
primarily due to the decreased size of our investment portfolio.
The decrease in our investment portfolio resulted from the
$7.2 million reinsurance expense allowance payment to
Western Reserve in April 2002, relating to the amendments of our
reinsurance agreements effective January 1, 2002, and a
greater portion of our assets being invested in cash and cash
equivalents in 2002. Net realized gain on investments increased
$383,000, from $45,000 for the year ended December 31, 2001
to $428,000 for the same period in 2002. The increase was due to
the sale of fixed maturity securities during fourth quarter
2002. We sold $9.9 million of securities in 2002 compared
to $1.7 million of securities in 2001. These gains were
caused by a decline in market yields, which resulted in an
increase in the fair value of the fixed maturity securities in
our portfolio.



| |                      
| | ---------------------
| | Benefits and Expenses

Benefits, Claims and Settlement
Expenses.Benefits, claims, and
settlement expenses increased $2.1 million, or 33%, from
$6.3 million for the year ended December 31, 2001 to
$8.4 million for the same period in 2002. The increase was
primarily associated with a lower incidence of life insurance
death claims in 2001 compared to the incidence of death claims
in 2002, the increasing age of the policies reinsured and an
increase in variable annuity death claims. The aggregate face
value of insurance underlying the polices we reinsured at
December 31, 2001 was $9.1 billion compared to
$8.5 billion at December 31, 2002.

Change in Future Policy
Benefits.Change in future policy
benefits decreased $886,000, or 37%, from $2.4 million for
the year ended December 31, 2001 to $1.5 million for
the same period in 2002. The majority of this decrease was due
to the conversion of all Western Reserve Financial Freedom
Builder variable universal life policies and riders, issued from
April 1, 2001 through December 31, 2001, which had
been reinsured by us on a monthly renewable term basis, to a
coinsurance and modified coinsurance basis, effective
January 1, 2002.

Reinsurance Expense Allowances,
Net.Net reinsurance expense
allowances increased $17,000, or less than 1%, for the year
ended December 31, 2001 compared to the same period in
2002. These amounts are reflective of the increase in business
in force primarily attributable to the amendments to our
reinsurance agreements effective January 1, 2002, offset by
the decrease in business in force due to lapse and surrender
activity.

Amortization of Deferred Acquisition
Costs.Amortization of deferred
acquisition costs increased $3.1 million, or 79%, from
$3.9 million for the year ended December 31, 2001 to
$7.0 million for the same period in 2002. Higher than
expected surrender experience, including unlocking
our near term surrender assumptions to reflect the increase in
our surrender experience (akin to industry-wide surrender
experience), and lower than expected equity market performance
of the separate account balances contributed to
$2.8 million of the increase in amortization for the year
ended December 31, 2002, as compared to the same period in
2001. In addition, amortization increased due to new business
reinsured, including the amendments to our reinsurance
agreements with Western Reserve effective January 1, 2002.

Under current assumptions, and all else being
equal, if separate account fund yields exceed 5% for 2003, we do
not expect that there would be increased amortization in 2003
from unlocking due to lower than expected equity
market performance. If separate account fund yields are 0% for
2003 we would expect additional amortization of approximately
$500,000 for 2003 from unlocking due to lower than
expected equity market performance.

Operating Expenses.Operating expenses increased $1.1 million, or 60%, from
$2.0 million for the year ended December 31, 2001 to
$3.1 million for the same period in 2002. These expenses
include salaries and benefits, professional fees for legal,
actuarial and accounting expenses and other operating

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##### Table of Contents



expenses. The majority of the increase for the
year ended December 31, 2002 was attributable to a $752,000
increase in salaries, bonuses, benefits and recruiting expenses
due to the employment of additional staff, a $221,000 increase
in our directors and officers insurance premiums,
and a $128,000 increase in legal fees.


Interest Expense.Interest expense increased $2,000, or less than 1%, from
$378,000, for the year ended December 31, 2001 to $380,000
for the comparable period in 2002. The increase was due to the
interest associated with the $7.2 million settlement paid
to Western Reserve on April 2, 2002 to fund the reinsurance
amendments that were effective January 1, 2002.

Costs of Withdrawn
Offering.During October 2002, we
withdrew the registration statement for our proposed initial
public offering of 9.5 million shares of common stock.
Offering costs related to our withdrawn offering were
$1.7 million for the year ended December 31, 2002.
These costs, which consisted primarily of legal, printing,
accounting, and actuarial fees, were expensed during the quarter
ended September 30, 2002. We did not incur any similar
expenses in 2001.

Income Taxes.Due to
lower levels of income before income taxes, income taxes
decreased $1.6 million, or 67%, from $2.4 million for
the year ended December 31, 2001 to $789,000 for the same
period in 2002. Income before income taxes is comprised of
income subject to taxes that is recognized and due in the
current period and income subject to taxes that is recognized
during the current period but is due in future periods. 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. For the year ended
December 31, 2002, we had no current taxable income and, as
a result, we were unable to take advantage of any of the small
life insurance company deduction. During 2001 our effective tax
rate was 30%, as compared to 34% in 2002.

In accordance with SFAS No. 109,
Accounting for Income Taxes, we have $8.4 million of
net operating loss carryforwards, which begin to expire in 2018.
These net operating loss carryforwards at a 34% effective tax
rate are included as an offset to the deferred tax liability. It
is our belief that it is more likely than not that the deferred
tax assets will be realized 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.

26



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##### Table of Contents



Quarterly Results of Operations

The following table presents certain unaudited
quarterly consolidated statements of income data for the
eight-quarter period ended December 31, 2003, as well as
the percentage of total revenue represented by each item. The
information has been derived from the unaudited consolidated
financial statements. The unaudited consolidated financial
statements have been prepared on substantially the same basis as
the audited consolidated financial statements contained herein
and all adjustments, consisting only of normal recurring
adjustments, which we consider to be necessary to present fairly
this information when read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere
herein. The results of operations for any quarter are not
necessarily indicative of the results to be expected for any
future period.

|                                           |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |         |     |   |       |       |     |   |       |       |     |   |       |       |     |   |       |       |     | 
|------------------------------------------ | ---------------------------------------- | ------------------------------- | ----- | ------- | ----- | -------- | ----- | ------- | ----- | ------- | ------ | ------- | ------ | -------- | ----- | ------- | --- | - | ----- | ----- | --- | - | ----- | ----- | --- | - | ----- | ----- | --- | - | ----- | ----- | --- | 
|                                           |                                          |                                
|                                           |                                          | Quarter Ended                  
|                                           |                                          |                                
|                                           |                                          | Mar. 31                         |       | June 30 |       | Sept. 30 |       | Dec. 31 |       | Mar. 31 |        | June 30 |        | Sept. 30 |       | Dec. 31
|                                           |                                          | 2002                            |       | 2002    |       | 2002     |       | 2002    |       | 2003    |        | 2003    |        | 2003     |       | 2003   
|                                           |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |        
|                                           |                                          |                                
|                                           |                                          | (Dollars in thousands)         
|Revenues:                                  |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |         |     |   |       |       |     |   |       |       |     |   |       |       |     |   |       |      
|                                           | Premiums                                 |                                 | $     | 4,557   |       |          | $     | 4,533   |       |         | $      | 4,485   |        |          | $     | 4,410   |     |   | $     | 4,388 |     |   | $     | 4,364 |     |   | $     | 4,332 |     |   | $     | 4,318 |    
|                                           | Reinsurance policy revenues              |                                 |       | 3,596   |       |          |       | 3,559   |       |         |        | 3,442   |        |          |       | 3,263   |     |   |       | 3,232 |     |   |       | 3,258 |     |   |       | 3,200 |     |   |       | 3,106 |    
|                                           | Net investment income                    |                                 |       | 214     |       |          |       | 188     |       |         |        | 168     |        |          |       | 172     |     |   |       | 83    |     |   |       | 88    |     |   |       | 95    |     |   |       | 141   |    
|                                           | Net realized gain (loss) on investments  |                                 |       | 8       |       |          |       | (1      | )     |         |        |        |        |          |       | 420     |     |   |       |      |     |   |       |      |     |   |       |      |     |   |       | 21    |    
|                                           | Other income                             |                                 |       |        |       |          |       |        |       |         |        |        |        |          |       |        |     |   |       |      |     |   |       | 5     |     |   |       | 10    |     |   |       | 48    |    
|                                           |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |         |     |   |       |       |     |   |       |       |     |   |       |       |     |   |       |      
|Total revenues                             |                                          |                                 | 8,375 |         |       |          | 8,279 |         |       |         | 8,095  |         |        |          | 8,265 |         |     |   | 7,703 |       |     |   | 7,715 |       |     |   | 7,637 |       |     |   | 7,634 |      
|                                           |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |         |     |   |       |       |     |   |       |       |     |   |       |       |     |   |       |      
|Benefits and expenses:                     |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |         |     |   |       |       |     |   |       |       |     |   |       |       |     |   |       |      
|                                           | Benefits, claims and settlement expenses |                                 |       | 2,034   |       |          |       | 2,638   |       |         |        | 2,135   |        |          |       | 1,622   |     |   |       | 2,276 |     |   |       | 2,455 |     |   |       | 2,213 |     |   |       | 2,325 |    
|                                           | Change in future policy benefits         |                                 |       | 447     |       |          |       | 411     |       |         |        | 353     |        |          |       | 315     |     |   |       | 311   |     |   |       | 196   |     |   |       | 309   |     |   |       | 239   |    
|                                           | Reinsurance expense allowances, net      |                                 |       | 2,209   |       |          |       | 2,125   |       |         |        | 2,101   |        |          |       | 2,082   |     |   |       | 2,074 |     |   |       | 2,082 |     |   |       | 2,002 |     |   |       | 1,978 |    
|Amortization of deferred acquisition costs |                                          |                                 | 1,119 |         |       |          | 1,072 |         |       |         | 2,484  |         |        |          | 2,349 |         |     |   | 1,375 |       |     |   | 1,281 |       |     |   | 1,566 |       |     |   | 1,314 |      
|                                           | Operating expenses                       |                                 |       | 727     |       |          |       | 694     |       |         |        | 813     |        |          |       | 884     |     |   |       | 877   |     |   |       | 945   |     |   |       | 765   |     |   |       | 800   |    
|                                           | Interest expense                         |                                 |       | 94      |       |          |       | 97      |       |         |        | 95      |        |          |       | 95      |     |   |       | 92    |     |   |       | 94    |     |   |       | 95    |     |   |       | 94    |    
|                                           | Costs of withdrawn offering              |                                 |       |        |       |          |       |        |       |         |        | 1,712   |        |          |       |        |     |   |       |      |     |   |       |      |     |   |       |      |     |   |       |      |    
|                                           |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |         |     |   |       |       |     |   |       |       |     |   |       |       |     |   |       |      
|Total benefits and expenses                |                                          |                                 | 6,630 |         |       |          | 7,037 |         |       |         | 9,693  |         |        |          | 7,347 |         |     |   | 7,005 |       |     |   | 7,053 |       |     |   | 6,950 |       |     |   | 6,750 |      
|                                           |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |         |     |   |       |       |     |   |       |       |     |   |       |       |     |   |       |      
|                                           |                                          | Income (loss) before income tax |       |         | 1,745 |          |       |         | 1,242 |         |        |         | (1,598 | )        |       |         | 918 |   |       |       | 698 |   |       |       | 662 |   |       |       | 687 |   |       |       | 884 | 
|Income tax (expense) benefit               |                                          |                                 | (593  | )       |       |          | (419  | )       |       |         | 535    |         |        |          | (312  | )       |     |   | (237  | )     |     |   | (225  | )     |     |   | (235  | )     |     |   | (301  | )    
|                                           |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |         |     |   |       |       |     |   |       |       |     |   |       |       |     |   |       |      
|Net income (loss)                          |                                          | $                               | 1,152 |         |       | $        | 823   |         |       | $       | (1,063 | )       |        | $        | 606   |         |     | $ | 461   |       |     | $ | 437   |       |     | $ | 452   |       |     | $ | 583   |      
|                                           |                                          |                                 |       |         |       |          |       |         |       |         |        |         |        |          |       |         |     |   |       |       |     |   |       |       |     |   |       |       |     |   |       |      

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##### Table of Contents



The following table sets forth, as a percentage
of total revenue, certain line items in the consolidated
statements of income for the periods indicated:

|                             |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |         |    |  |     |    |   |  |     |    |   |  |     |    |   |  |     |    |    | 
|---------------------------- | ------------------------------------------ | ---------------------------------- | --- | ------- | -- | -------- | --- | ------- | -- | ------- | --- | ------- | --- | -------- | --- | ------- | -- |  | --- | -- | - |  | --- | -- | - |  | --- | -- | - |  | --- | -- | -- | 
|                             |                                            |                                   
|                             |                                            | Quarter Ended                     
|                             |                                            |                                   
|                             |                                            | Mar. 31                            |     | June 30 |    | Sept. 30 |     | Dec. 31 |    | Mar. 31 |     | June 30 |     | Sept. 30 |     | Dec. 31
|                             |                                            | 2002                               |     | 2002    |    | 2002     |     | 2002    |    | 2003    |     | 2003    |     | 2003     |     | 2003   
|                             |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |        
|                             |                                            |                                   
|                             |                                            | (As a percentage of total revenue)
|Revenues:                    |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |         |    |  |     |    |   |  |     |    |   |  |     |    |   |  |     |   
|                             | Premiums                                   |                                    |     | 54      | %  |          |     | 55      | %  |         |     | 55      | %   |          |     | 53      | %  |  |     | 57 | % |  |     | 57 | % |  |     | 57 | % |  |     | 56 | % 
|                             | Reinsurance policy revenues                |                                    |     | 43      |    |          |     | 43      |    |         |     | 43      |     |          |     | 40      |    |  |     | 42 |   |  |     | 42 |   |  |     | 42 |   |  |     | 41 |   
|                             | Net investment income                      |                                    |     | 3       |    |          |     | 2       |    |         |     | 2       |     |          |     | 2       |    |  |     | 1  |   |  |     | 1  |   |  |     | 1  |   |  |     | 2  |   
|                             | Net realized gain on investments           |                                    |     | 0       |    |          |     | 0       |    |         |     | 0       |     |          |     | 5       |    |  |     | 0  |   |  |     | 0  |   |  |     | 0  |   |  |     | 0  |   
|                             | Other income                               |                                    |     |        |    |          |     |        |    |         |     |        |     |          |     |        |    |  |     |   |   |  |     |   |   |  |     |   |   |  |     | 1  |   
|                             |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |         |    |  |     |    |   |  |     |    |   |  |     |    |   |  |     |   
|Total revenues               |                                            |                                    | 100 | %       |    |          | 100 | %       |    |         | 100 | %       |     |          | 100 | %       |    |  | 100 | %  |   |  | 100 | %  |   |  | 100 | %  |   |  | 100 | % 
|                             |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |         |    |  |     |    |   |  |     |    |   |  |     |    |   |  |     |   
|Benefits and expenses:       |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |         |    |  |     |    |   |  |     |    |   |  |     |    |   |  |     |   
|                             | Benefits, claims and settlement expenses   |                                    |     | 24      |    |          |     | 32      |    |         |     | 26      |     |          |     | 20      |    |  |     | 30 |   |  |     | 32 |   |  |     | 29 |   |  |     | 30 |   
|                             | Change in future policy benefits           |                                    |     | 5       |    |          |     | 5       |    |         |     | 5       |     |          |     | 4       |    |  |     | 4  |   |  |     | 2  |   |  |     | 4  |   |  |     | 3  |   
|                             | Reinsurance expense allowances, net        |                                    |     | 27      |    |          |     | 26      |    |         |     | 26      |     |          |     | 25      |    |  |     | 27 |   |  |     | 27 |   |  |     | 26 |   |  |     | 26 |   
|                             | Amortization of deferred acquisition costs |                                    |     | 13      |    |          |     | 13      |    |         |     | 31      |     |          |     | 28      |    |  |     | 18 |   |  |     | 17 |   |  |     | 21 |   |  |     | 17 |   
|                             | Operating expenses                         |                                    |     | 9       |    |          |     | 8       |    |         |     | 10      |     |          |     | 11      |    |  |     | 11 |   |  |     | 12 |   |  |     | 10 |   |  |     | 11 |   
|                             | Interest expense                           |                                    |     | 1       |    |          |     | 1       |    |         |     | 1       |     |          |     | 1       |    |  |     | 1  |   |  |     | 1  |   |  |     | 1  |   |  |     | 1  |   
|                             | Costs of withdrawn offering                |                                    |     | 0       |    |          |     | 0       |    |         |     | 21      |     |          |     | 0       |    |  |     | 0  |   |  |     | 0  |   |  |     | 0  |   |  |     | 0  |   
|                             |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |         |    |  |     |    |   |  |     |    |   |  |     |    |   |  |     |   
|Total benefits and expenses  |                                            |                                    | 79  | %       |    |          | 85  | %       |    |         | 120 | %       |     |          | 89  | %       |    |  | 91  | %  |   |  | 91  | %  |   |  | 91  | %  |   |  | 88  | % 
|                             |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |         |    |  |     |    |   |  |     |    |   |  |     |    |   |  |     |   
|                             |                                            | Income (loss) before income tax    |     |         | 21 |          |     |         | 15 |         |     |         | (20 | )        |     |         | 11 |  |     |    | 9 |  |     |    | 9 |  |     |    | 9 |  |     |    | 12 | 
|Income tax (expense) benefit |                                            |                                    | (7  | )       |    |          | (5  | )       |    |         | 7   |         |     |          | (4  | )       |    |  | (3  | )  |   |  | (3  | )  |   |  | (3  | )  |   |  | (4  | ) 
|                             |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |         |    |  |     |    |   |  |     |    |   |  |     |    |   |  |     |   
|Net income (loss)            |                                            |                                    | 14  | %       |    |          | 10  | %       |    |         | (13 | )%      |     |          | 7   | %       |    |  | 6   | %  |   |  | 6   | %  |   |  | 6   | %  |   |  | 8   | % 
|                             |                                            |                                    |     |         |    |          |     |         |    |         |     |         |     |          |     |         |    |  |     |    |   |  |     |    |   |  |     |    |   |  |     |   

Historically, our operations and related revenues
and operating results have varied substantially from quarter to
quarter, and we expect variations to continue. Our quarterly
operating results will continue to vary significantly depending
on a number of factors, including fluctuations in demand for
reinsurance products and variable life insurance and annuity
products, as well as the sales price and resulting gross margin
for specific reinsurance contracts. A high percentage of our
operating expenses, particularly personnel, marketing and rent
are relatively fixed in advance of any particular quarter.

Investments

As of December 31, 2003, we had invested
assets totaling $30.6 million with an unrealized gain of
$132,331, net of taxes. The table below shows the aggregate
amounts of fixed maturity securities, equity securities, cash
and cash equivalents, and reinsured policy loans comprising our
portfolio of invested assets:

|                          |                       |                 |            |            |  |      |            |            |  |   |            |            | 
|------------------------- | --------------------- | --------------- | ---------- | ---------- |  | ---- | ---------- | ---------- |  | - | ---------- | ---------- | 
|                          |                       |                
|                          |                       | At December 31,
|                          |                       |                
|                          |                       | 2001            |            | 2002       |  | 2003
|                          |                       |                 |            |            |  |     
|Fixed maturity securities |                       | $               | 12,214,279 |            |  | $    | 2,798,190  |            |  | $ | 15,267,477 |           
|Equity securities         |                       |                 |           |            |  |      |           |            |  |   | 2,500,191  |           
|Cash and cash equivalents |                       |                 | 8,062,110  |            |  |      | 15,858,256 |            |  |   | 11,580,045 |           
|Reinsured policy loans    |                       |                 | 1,013,629  |            |  |      | 1,115,994  |            |  |   | 1,270,711  |           
|                          |                       |                 |            |            |  |      |            |            |  |   |            |           
|                          | Total invested assets |                 | $          | 21,290,018 |  |      | $          | 19,772,440 |  |   | $          | 30,618,424 | 
|                          |                       |                 |            |            |  |      |            |            |  |   |            |           

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As of December 31, 2003, the fixed maturity
portion of our invested asset portfolio had a dollar weighted
average Moodys rating of Aa3, an average duration of
3.3 years and an average yield to maturity of 4.0% before
investment expenses.

The following table summarizes the fair value of
our invested assets at the dates indicated.

|                           |                                 |                 |           |            |  |      |            |            |  |   |            |            | 
|-------------------------- | ------------------------------- | --------------- | --------- | ---------- |  | ---- | ---------- | ---------- |  | - | ---------- | ---------- | 
|                           |                                 |                
|                           |                                 | At December 31,
|                           |                                 |                
|                           |                                 | 2001            |           | 2002       |  | 2003
|                           |                                 |                 |           |            |  |     
|U.S. government agency     |                                 | $               | 216,308   |            |  | $    |           |            |  | $ | 4,032,188  |           
|Corporate                  |                                 |                 | 7,434,498 |            |  |      | 1,237,450  |            |  |   | 10,849,743 |           
|Asset-backed securities    |                                 |                 | 1,661,456 |            |  |      | 416,559    |            |  |   |           |           
|Mortgage-backed securities |                                 |                 | 2,902,017 |            |  |      | 1,144,181  |            |  |   | 385,546    |           
|                           |                                 |                 |           |            |  |      |            |            |  |   |            |           
|                           | Total fixed maturity securities |                 | $         | 12,214,279 |  |      | $          | 2,798,190  |  |   | $          | 15,267,477 | 
|Equity securities          |                                 |                 |          |            |  |      |           |            |  |   | 2,500,191  |           
|Cash and cash equivalents  |                                 |                 | 8,062,110 |            |  |      | 15,858,256 |            |  |   | 11,580,045 |           
|Reinsured policy loans     |                                 |                 | 1,013,629 |            |  |      | 1,115,994  |            |  |   | 1,270,711  |           
|                           |                                 |                 |           |            |  |      |            |            |  |   |            |           
|                           | Total invested assets           |                 | $         | 21,290,018 |  |      | $          | 19,772,440 |  |   | $          | 30,618,424 | 
|                           |                                 |                 |           |            |  |      |            |            |  |   |            |           

The following table summarizes the fair value by
contractual maturities of our fixed maturity securities
portfolio at the dates indicated.

|                                 |       |                 |           |            |  |      |           |           |  |   |           |            | 
|-------------------------------- | ----- | --------------- | --------- | ---------- |  | ---- | --------- | --------- |  | - | --------- | ---------- | 
|                                 |       |                
|                                 |       | At December 31,
|                                 |       |                
|                                 |       | 2001            |           | 2002       |  | 2003
|                                 |       |                 |           |            |  |     
|Due in less than one year        |       | $               | 615,406   |            |  | $    | 611,784   |           |  | $ | 912,255   |           
|Due after one through five years |       |                 | 6,825,383 |            |  |      | 625,666   |           |  |   | 8,891,136 |           
|Due after five through ten years |       |                 | 210,017   |            |  |      |          |           |  |   | 5,078,540 |           
|Asset-backed securities          |       |                 | 1,661,456 |            |  |      | 416,559   |           |  |   |          |           
|Mortgage-backed securities       |       |                 | 2,902,017 |            |  |      | 1,144,181 |           |  |   | 385,546   |           
|                                 |       |                 |           |            |  |      |           |           |  |   |           |           
|                                 | Total |                 | $         | 12,214,279 |  |      | $         | 2,798,190 |  |   | $         | 15,267,477 | 
|                                 |       |                 |           |            |  |      |           |           |  |   |           |           

The following table summarizes the composition of
the fair value of our fixed maturity securities portfolio at the
dates indicated by rating as assigned by S&P or
Moodys, using the higher of these ratings for any security
where there is a split rating.

|                                |       |                 |    |      |   |      |    |     |   |  |    |     |  
|------------------------------- | ----- | --------------- | -- | ---- | - | ---- | -- | --- | - |  | -- | --- | -
|                                |       |                
|                                |       | At December 31,
|                                |       |                
|Rating                          |       | 2001            |    | 2002 |   | 2003
|                                |       |                 |    |      |   |     
|AAA/ Aaa                        |       |                 | 43 | %    |   |      | 56 | %   |   |  | 32 | %  
|AA/ Aa2                         |       |                 | 17 |      |   |      | 15 |     |   |  | 18 |    
|A/ A2                           |       |                 | 39 |      |   |      | 29 |     |   |  | 50 |    
|BBB/ Baa2                       |       |                 | 1  |      |   |      |   |     |   |  |   |    
|BB/ Ba2                         |       |                 |   |      |   |      |   |     |   |  |   |    
|B/ B2                           |       |                 |   |      |   |      |   |     |   |  |   |    
|CCC/ Caa or lower, or not rated |       |                 |   |      |   |      |   |     |   |  |   |    
|                                |       |                 |    |      |   |      |    |     |   |  |    |    
|                                | Total |                 |    | 100  | % |      |    | 100 | % |  |    | 100 | %
|                                |       |                 |    |      |   |      |    |     |   |  |    |    

Segment Reporting

We have defined our reportable segments based on
the nature of our reinsurance agreements and the accounting
treatment used for the various reinsurance agreements. For
definitions of these segments and associated financial
information, refer to Note 13 of the Consolidated Financial
Statements.

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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 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 financing activities we undertake to increase our
capital position and through activities associated with our
invested assets.

Our primary sources of liquidity were
$15.3 million in fixed maturity securities available for
sale, $11.6 million in consolidated cash and cash
equivalents, and $2.5 million of equity securities at
December 31, 2003. The effective duration of our fixed
maturity portfolio is 3.3 years with 100% of the fixed
maturity securities having an effective maturity of less than
10 years. Our fixed maturity portfolio represents 50% of
our total invested assets, and has an average Moodys
quality rating of Aa3. We have gross unrealized losses of
$16,000 and gross unrealized gains of $217,000 on our fixed
maturity and equity securities as of December 31, 2003. For
additional information pertaining to our investments, refer to
Note 3 to the Consolidated Financial Statements.

Our capital structure consists of short-term debt
and equity. Our short-term debt is comprised of a
$5 million, five-year convertible term note to Money
Services, Inc. due on July 29, 2004. Money Services is
a subsidiary of AEGON USA, Inc. Proceeds of this note were
used to reduce a portion of the outstanding principal balance on
a line of credit with Money Services. Interest is payable on the
note at 7.5% per annum (except in the event of redemption),
on the 29th of each succeeding January and July through and
including July 29, 2004. Money Services has the right to
convert the outstanding principal balance of this note into
common stock at any time. Upon conversion, Money Services would
receive 6.255 shares of common stock for each $100 of the
outstanding principal amount of the note, for a total of
312,750 shares, which reflects our three-for-two stock
split in 2001. We have the option to redeem the note, in whole
or in part, before maturity. To redeem the note before maturity,
we must pay all principal, plus interest accrued from the date
of the note through the redemption date at a higher effective
interest rate of 9% per annum. As of December 31, 2002
and 2003, we had an outstanding principal balance on the term
note of $5 million and accrued interest of $158,000.

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 allowances are significantly lower.

Net cash flows provided by (used in) operating
activities were $11.1 million, ($341,000) and
$10.8 million for the years ended December 31, 2001,
2002 and 2003, respectively. Cash flows provided by operations
in 2003 relating to new policies reinsured under coinsurance and
modified coinsurance reflected net payments of $156,000 to
Western Reserve to reinsure policies issued in 2003, and cash
flows provided

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by operations for policies previously in force
under coinsurance and modified coinsurance and by all policies
reinsured under renewable term reinsurance of
$12.0 million. Other cash flows used in operating
activities of $1.0 million in 2003 were the result of cash
payments for operating expenses and interest expenses.


Cash flows used in operating activities in 2002
relating to new policies reinsured under coinsurance and
modified coinsurance were $10.2 million and were primarily
the result of the $7.2 million settlement paid to Western
Reserve in April 2002 to increase the amount of business we
reinsure as a result of the reinsurance amendments, settlements
paid to reinsure policies issued in 2002 as a result of those
amendments, and settlements paid to American Skandia to reinsure
policies issued in 2002. These were offset by $14.8 million
of cash flows provided by policies reinsured under coinsurance
and modified coinsurance prior to 2002 and by all policies
reinsured under renewable term reinsurance. Other cash flows
used in operating activities of $4.9 million in 2002 were
the result of cash payments for operating expenses, income taxes
and interest expenses.

Cash flows provided by operations in 2001
relating to new policies reinsured under coinsurance and
modified coinsurance reflected payments of $2.0 million to
Western Reserve and American Skandia to reinsure policies issued
in 2001, and cash flows provided by operations for policies
previously in force under coinsurance and modified coinsurance
and by all policies reinsured under renewable term reinsurance
of $15.1 million. Other cash flows used in operating
activities of $2.0 million 2001 were the result of cash
payments for operating expenses, income taxes and interest
expenses. The following table summarizes the components of
operating cash flows.

|                                 |  |                           |       |              |  |             |     |            |  |            |     |  |  |   |      |   |  |   |      |  
|-------------------------------- |  | ------------------------- | ----- | ------------ |  | ----------- | --- | ---------- |  | ---------- | --- |  |  | - | ---- | - |  | - | ---- | -
|                                 |  |                           |       |              |  |            
|                                 |  | Operating Cash Flows from |       |              |  |            
|                                 |  |                           |       |              |  |            
|                                 |  | Co/ModCo                  |       | Co/ModCo     |  |             |     |            |  |           
|                                 |  | Reinsurance               |       | Reinsurance  |  | Renewable   |     | Other      |  | Total     
|                                 |  | Assumed in                |       | Assumed      |  | Term        |     | Operating  |  | Operating 
|Calendar Year of Reporting (CYR) |  | CYR                       |       | Prior to CYR |  | Reinsurance |     | Cash Flows |  | Cash Flows
|                                 |  |                           |       |              |  |             |     |            |  |           
|                                
|(In millions)                   
|2003                             |  | $                         | (0.2  | )            |  | $           | 7.8 |            |  | $          | 4.2 |  |  | $ | (1.0 | ) |  | $ | 10.8 |  
|2002                             |  |                           | (10.2 | )            |  |             | 9.5 |            |  |            | 5.3 |  |  |   | (4.9 | ) |  |   | (0.3 | )
|2001                             |  |                           | (2.0  | )            |  |             | 8.7 |            |  |            | 6.4 |  |  |   | (2.0 | ) |  |   | 11.1 |  

At this time we are exploring financing
strategies to fund transactions. The amount, timing, receipt and
cost of additional capital may determine the extent we choose to
take advantage of the rights we have under our agreements or to
enter into new reinsurance transactions.

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 provided by (used in) investing
activities were ($6.2 million), $9.3 million and
($15.0 million) for the years ended December 31, 2001,
2002 and 2003, respectively. The cash flows used in investing
activities of $15.0 million in 2003 primarily related to
our purchase of $14.3 million of fixed maturity securities
and $2.5 million of equity securities. The cash flows
provided by investing activities of $9.3 million in 2002
were the primarily the result of $10.5 million of proceeds
generated from the sale and maturity of available for sale
securities. The cash flows used in investing activities of
$6.2 million in 2001 primarily related to our purchase of
$8.1 million of fixed maturity securities. We have incurred
no significant capital expenditures during 2003.

Financing Cash
Flows.Financing cash flows relate
primarily to activities associated with our capital position.
Net cash flows used in financing activities were
$1.1 million, $1.1 million and zero for the years
ended December 31, 2001, 2002 and 2003, respectively. There
were no cash flows provided by or used in financing operations
in 2003. Cash flows used in financing activities in 2002 related
to the withdrawal of the registration statement in October 2002
for our proposed initial public offering of 9.5 million
shares of

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common stock. The registration statement was
withdrawn due to unfavorable market conditions. Cash flows used
in financing activities resulted in $1.7 million of
deferred offering costs expenses in 2002, offset by $577,000 of
cash paid for deferred offering costs in 2001, which had been
previously recorded as prepaid expenses on the consolidated
balance sheet. Cash flows used in financing activities in 2001
related to principal payments on the Money Services line of
credit, dividends paid on our preferred stock and cash paid for
deferred offering costs which had been recorded as prepaid
expenses.


Restrictions.Global
Preferred Holdings, Inc. is a holding company with no
direct operations, and whose principal assets are the capital
stock of its subsidiaries and $4.0 million of cash and
invested assets, as of December 31, 2003. Global Preferred
Holdings, Inc. relies primarily on funds retained at the
holding company level, debt service on amounts loaned to Global
Preferred Re, 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 Holdings is subject to, among
other things, regulatory restrictions under the insurance laws
of Bermuda, which are discussed in Note 9 to the
Consolidated Financial Statements. As of December 31, 2003,
Global Preferred Re had total statutory capital and surplus of
$22.6 million, which includes up to $7.4 million
available to distribute in dividends without seeking regulatory
approval. During the year ended December 31, 2003, Global
Preferred Re paid no dividends to Global Preferred
Holdings, Inc.

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.

Contractual Obligations and
Commitments

The following table shows our contractual
obligations and commitments including our payments due by
period. Refer to Note 10 to the Consolidated Financial
Statements for further details.

|                 |       |           |         |         |  |      |         |         |  |      |       |       |  |   |       |       |  |   |       |       | 
|---------------- | ----- | --------- | ------- | ------- |  | ---- | ------- | ------- |  | ---- | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                 |       | Total     |         | 2004    |  | 2005 |         | 2006    |  | 2007
|                 |       |           |         |         |  |      |         |         |  |     
|                 |       |          
|                 |       | (In 000s)
|Short-term debt  |       | $         | 5,375.0 |         |  | $    | 5,375.0 |         |  | $    |      |       |  | $ |      |       |  | $ |      |      
|Office lease     |       |           | 489.7   |         |  |      | 97.6    |         |  |      | 123.9 |       |  |   | 132.1 |       |  |   | 136.1 |      
|Operating leases |       |           | 75.2    |         |  |      | 37.0    |         |  |      | 37.0  |       |  |   | 1.2   |       |  |   |      |      
|                 |       |           |         |         |  |      |         |         |  |      |       |       |  |   |       |       |  |   |       |      
|                 | Total |           | $       | 5,939.9 |  |      | $       | 5,509.6 |  |      | $     | 160.9 |  |   | $     | 133.3 |  |   | $     | 136.1 | 
|                 |       |           |         |         |  |      |         |         |  |      |       |       |  |   |       |       |  |   |       |      

Currency

At December 31, 2003, we had written all of
our reinsurance business in U.S. dollars. If, in the
future, we write business in currencies other than the
U.S. dollar, we intend to invest a portion of the premiums
collected on the reinsurance contract in securities denominated
in the same foreign currency as the premium received. We also
intend to consider and evaluate our foreign currency exchange
risk and hedge our exposure.

Inflation

The effects of inflation have not had a material
impact on our operations or the conduct of our business.
Inflationary trends are typically countered by a tightening
monetary policy by the U.S. Federal Reserve, resulting in
increases in interest rates. Rapid and severe interest rate
increases could have a significant and negative impact on the
value of our fixed income portfolio.

32



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Off Balance Sheet Arrangements

We have no obligations, assets or liabilities
other than those disclosed in our financial statements, no
trading activities involving non-exchange traded contracts
accounted for at fair value, and no relationships and
transactions with persons or entities that derive benefits from
their non-independent relationship with us or our related
parties.

Recent Accounting Pronouncements

For a discussion of certain recently issued
accounting pronouncements, refer to Note 2 to the
Consolidated Financial Statements.

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 amount, timing, receipt, and cost of
    additional capital to fund our exercise of the rights to
    increase our reinsurance business with Western Reserve;                                                                 
|
| |  | 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;                                                                                                                                                                                                            
|
| |  | Availability of capital on acceptable terms;                                                                                                                                                                                      
|
| |  | 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.                                                          

33



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##### Table of Contents



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. 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.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | 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 investment 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 1.7%, or
approximately $468,000, on a portfolio valued at approximately
$26.8 million at December 31, 2003. 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 1.7%, or
approximately $465,000. The foregoing reflects the use of an
immediate time horizon. Credit spreads are assumed to remain
constant in these hypothetical examples.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The following financial statements are attached
hereto commencing on page F-1.



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | Independent Auditors Reports                                                                                                        
|
| |  | Consolidated Balance Sheets at December 31,
    2002 and 2003                                                                        
|
| |  | Consolidated Statements of Income for the years
    ended December 31, 2001, 2002 and 2003                                           
|
| |  | Consolidated Statements of Stockholders
    Equity and Comprehensive Income for the years ended
    December 31, 2001, 2002 and 2003

34



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##### Table of Contents





| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | Consolidated Statements of Cash Flows for the
    years ended December 31, 2001, 2002 and 2003     
|
| |  | Notes to Consolidated Financial Statements for
    the years ended December 31, 2001, 2002 and 2003






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

On June 19, 2003, we dismissed KPMG LLP as
our principal accountant. The decision to dismiss KPMG LLP was
made by the Audit Committee of the Board of Directors in
consultation with management after soliciting proposals from
KPMG LLP and other auditors. The audit reports of KPMG LLP on
our consolidated financial statements as of and for the years
ended December 31, 2001 and 2002, did not contain any
adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or
accounting principles.

In connection with the audits of our two fiscal
years ended December 31, 2002 and the subsequent interim
period through June 19, 2003, there were no disagreements
with KPMG LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to KPMG
LLPs satisfaction, would have caused KPMG LLP to refer to
the subject matter of the disagreements in connection with their
report.

On June 19, 2003, the Audit Committee
engaged Deloitte & Touche LLP as our certifying
accountants for the fiscal year ended December 31, 2003.
During the two most recent fiscal years and through the date of
engagement, neither we nor anyone engaged on our behalf has
consulted with Deloitte & Touche LLP on items regarding
either: (1) the application of accounting principles to a
specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on the Registrants
financial statements; or (2) any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv)
of Regulation S-K) with our former auditor or reportable
event (as defined in Item 304(a)(1)(v) of
Regulation S-K).






|         |                        
|-------- | -----------------------
|Item 9A. | 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 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
not significant deficiencies or material weaknesses identified
in the evaluation and, therefore, no corrective actions were
taken.




PART III

The information required by Items 10, 11,
12, 13 and 14 of Part III is incorporated by reference to
the information contained in our Proxy Statement for the Annual
Meeting of Stockholders expected to be filed with the Commission
on or prior to April 29, 2004 or such information will be
included by amendment to this report to be filed within
30 days from the date hereof.

35



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##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) The following documents are filed or
incorporated by reference as part of this Form 10-K.



| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. The audited consolidated financial
    statements of Global Preferred Holdings, Inc. and the
    related auditors reports listed in the Index to Financial
    Statements appearing on page F-1.
|
| | 2. The exhibits filed as part of this report
    as required by Item 601 of Regulation S-K are included
    in the Index to Exhibits appearing on page E-1.                                         

(b) Reports on Form 8-K.

A Current Report on Form 8-K was filed with
the Securities and Exchange Commission on November 17, 2003
to disclose the earnings press release of the third quarter
results.

36



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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.



| |                                
| | -------------------------------
| | GLOBAL PREFERRED HOLDINGS, INC.



| |     |                       
| | --- | ----------------------
| | By: | /s/ EDWARD F. MCKERNAN

| |                                          
| | -----------------------------------------
| |                                          
| | Edward F. McKernan                       
| | Chief Executive Officer and
    President

Date: March 30, 2004

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|                                             |  |                                                                                                                   |  |                |  | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                             |  |                                                                                                                   |  |               
|Signature                                    |  | Title                                                                                                             |  | Date          
|                                             |  |                                                                                                                   |  |               
|                                            
|/s/ EDWARD F. MCKERNANEdward F. McKernan     |  | Chief Executive Officer, President and Director
    (Principal Executive Officer)                                 |  | March 30, 2004
|                                            
|/s/ BRADLEY E. BARKSBradley E. Barks         |  | Chief Financial Officer and Senior Vice
    President  Finance (Principal Financial Officer)                     |  | March 30, 2004
|                                            
|/s/ CARYL P. SHEPHERDCaryl P. Shepherd       |  | Chief Accounting Officer, Treasurer, Controller,
    Secretary, and Vice President (Principal Accounting Officer) |  | March 30, 2004
|                                            
|/s/ JOSEPH F. BARONEJoseph F. Barone         |  | Chairman of the Board of Directors and Director                                                                   |  | March 30, 2004
|                                            
|/s/ MILAN M. RADONICHMilan M. Radonich       |  | Director                                                                                                          |  | March 30, 2004
|                                            
|/s/ THOMAS W. MONTGOMERYThomas W. Montgomery |  | Director                                                                                                          |  | March 30, 2004

37



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##### Table of Contents



INDEX TO EXHIBITS

|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Certificate of Incorporation of the Registrant,
    as amended (incorporated by reference to Exhibit 3.1 to
    Registrants Registration Statement on Form SB-2 filed
    on June 28, 1995).                                                                                                                                                                                  
|        | 3  | .1.1        |  | Amendment to Certificate of Incorporation of the
    Registrant, changing the name of the Company to The WMA
    Corporation (incorporated by reference to
    Exhibit 3.1.1 to Registrants Quarterly Report on
    Form 10-QSB for the quarter ended March 31, 1998,
    filed on May 15, 1998).                                                                           
|        | 3  | .1.2        |  | Amendment to Certificate of Incorporation of the
    Registrant, increasing the number of authorized shares of common
    stock and creating a new class of authorized shares of preferred
    stock (incorporated by reference to Exhibit 3.1.1 to
    Registrants Quarterly Report on Form 10-QSB for the
    quarter ended June 30, 1999, filed on August 16, 1999).       
|        | 3  | .1.3        |  | Certificate of Amendment to Certificate of
    Incorporation of the Registrant, changing the name of the
    Company to Global Preferred Holdings, Inc.
    (incorporated by reference to Exhibit 3.1 to
    Registrants Quarterly Report on Form 10-QSB for the
    quarter ended September 30, 2001, filed on
    November 14, 2001).                                     
|        | 3  | .1.4        |  | Amendment to Certificate of Incorporation of the
    Registrant, decreasing the number of authorized shares of common
    stock and preferred stock and reducing the par value of the
    preferred stock (incorporated by reference to Exhibit 3.1
    to Registrants Quarterly Report on Form 10-QSB for
    the quarter ended June 30, 2003, filed on August 14,
    2003).
|        | 3  | .2          |  | Amended and Restated Bylaws of the Registrant
    (incorporated by reference to Exhibit 3.2 to
    Registrants Registration Statement on Form S-1 filed
    on February 22, 2002).                                                                                                                                                                                            
|        | 4  | .1          |  | Revised Specimen Stock Certificate (incorporated
    by reference to Exhibit 4.1 to Registrants
    Registration Statement on Form S-1 filed on
    February 22, 2002).                                                                                                                                                                                                       
|        | 10 | .1          |  | Reinsurance Agreement No. 1 with Western
    Reserve Life Assurance Co. of Ohio, dated July 9, 1996
    (incorporated by reference to Exhibit 10.4 to
    Registrants Quarterly Report on Form 10-QSB for the
    quarter ended March 31, 1998, filed on May 15, 1998).                                                                                                       
|        | 10 | .2*         |  | Automatic Variable Annuity Reinsurance Agreement
    with Western Reserve Life Assurance Co. of Ohio, effective
    January 1, 1998 (incorporated by reference to
    Exhibit 10.5 to Registrants Quarterly Report on
    Form 10-QSB for the quarter ended June 30, 1998, filed
    on August 14, 1998).                                                                     
|        | 10 | .3*         |  | Automatic Flexible Premium Variable Life
    Reinsurance Agreement Number 2 with Western Reserve Life
    Assurance Co. of Ohio, effective April 1, 1998
    (incorporated by reference to Exhibit 10.6 to
    Registrants Quarterly Report on Form 10-QSB for the
    quarter ended June 30, 1998, filed on August 14, 1998).                                                
|        | 10 | .4          |  | Management Agreement dated August 2, 1995
    with CFM Insurance Managers, Ltd. (incorporated by reference to
    Exhibit 10.7 to Registrants Annual Report on
    Form 10-KSB/A for the year ended December 31, 1997,
    filed on October 1, 1998).                                                                                                                         
|        | 10 | .5          |  | Revolving Line of Credit Loan Agreement with
    Money Services, Inc., dated September 30, 1998
    (incorporated by reference to Exhibit 10.1 to
    Registrants Quarterly Report on Form 10-QSB for the
    quarter ended September 30, 1998, filed on
    November 16, 1998).                                                                                              
|        | 10 | .6          |  | Revolving Line of Credit Promissory Note issued
    on September 30, 1998 to Money Services, Inc. in the
    principal sum of $10,000,000 (incorporated by reference to
    Exhibit 10.2 to Registrants Quarterly Report on
    Form 10-QSB for the quarter ended September 30, 1998,
    filed on November 16, 1998).                                                        
|        | 10 | .7          |  | Directed Reinsurance Agreement with WMA Agency,
    dated June 8, 1998 (incorporated by reference to
    Exhibit 10.3 to Registrants Quarterly Report on
    Form 10-QSB for the quarter ended September 30, 1998,
    filed on November 16, 1998).                                                                                                                           

38



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .8          |  | First Amendment of Revolving Line of Credit
    Promissory Note with Money Services, Inc., dated
    January 29, 1999 (incorporated by reference to
    Exhibit 10.5 to Registrants Quarterly Report on
    Form 10-QSB for the quarter ended March 31, 1999,
    filed on May 17, 1999).                                                                            
|        | 10 | .9          |  | Amendment Number 1 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement Number 2 with
    Western Reserve Life Assurance Co. of Ohio, effective
    January 1, 1999 (incorporated by reference to
    Exhibit 10.1 to Registrants Quarterly Report on
    Form 10-QSB for the quarter ended September 30, 1999,
    filed on November 15, 1999).
|        | 10 | .10         |  | Amendment Number 1 to the Automatic Variable
    Annuity Reinsurance Agreement with Western Reserve Life
    Assurance Co. of Ohio, effective January 1, 1999
    (incorporated by reference to Exhibit 10.1 to
    Registrants Quarterly Report on Form 10-QSB for the
    quarter ended September 30, 1999, filed on
    November 15, 1999).                       
|        | 10 | .11         |  | Third Amendment of Revolving Line of Credit
    Promissory Note with Money Services, Inc., dated
    July 30, 1999 (incorporated by reference to
    Exhibit 10.2 to Registrants Quarterly Report on
    Form 10-QSB for the quarter ended September 30, 1999,
    filed on November 15, 1999).                                                                      
|        | 10 | .12         |  | Five Year Term Note issued to Money
    Services, Inc. on July 30, 1999 (incorporated by
    reference to Exhibit 10.3 to Registrants Quarterly
    Report on Form 10-QSB for the quarter ended
    September 30, 1999, filed on November 15, 1999).                                                                                                                 
|        | 10 | .13         |  | Fourth Amendment of Revolving Line of Credit
    Promissory Note with Money Services, Inc., effective
    December 31, 1999 (incorporated by reference to
    Exhibit 10.1 to Registrants Annual Report on
    Form 10-KSB for the year ended December 31, 1999,
    filed on March 20, 2000).                                                                       
|        | 10 | .14*        |  | Amendment Number 2 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement Number 2 with
    Western Reserve Life Assurance Co. of Ohio, effective
    October 1, 1999 (incorporated by reference to
    Exhibit 10.2 to Registrants Annual Report on
    Form 10-KSB/A for the year ended December 31, 1999,
    filed on March 30, 2000).        
|        | 10 | .15*        |  | Automatic Flexible Premium Variable Life
    Reinsurance Agreement Number 3 with Western Reserve Life
    Assurance Co. of Ohio, effective October 1, 1999
    (incorporated by reference to Exhibit 10.3 to
    Registrants Annual Report on Form 10-KSB/A for the
    year ended December 31, 1999, filed on March 30, 2000).                                      
|        | 10 | .16*        |  | Amendment Number 2 to the Automatic Variable
    Annuity Reinsurance Agreement with Western Reserve Life
    Assurance Co. of Ohio, effective October 1, 1999
    (incorporated by reference to Exhibit 10.4 to
    Registrants Annual Report on Form 10-KSB/A for the
    year ended December 31, 1999, filed on March 30, 2000).                                   
|        | 10 | .17         |  | Amendment Number 3 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement Number 2 with
    Western Reserve Life Assurance Co. of Ohio, effective
    February 1, 2000 (incorporated by reference to
    Exhibit 10.5 to Registrants Annual Report on
    Form 10-KSB/A for the year ended December 31, 1999,
    filed on March 30, 2000).       
|        | 10 | .18         |  | Amendment Number 3 to the Automatic Variable
    Annuity Reinsurance Agreement with Western Reserve Life
    Assurance Co. of Ohio, effective February 1, 2000
    (incorporated by reference to Exhibit 10.6 to
    Registrants Annual Report on Form 10-KSB/A for the
    year ended December 31, 1999, filed on March 30, 2000).                                  
|        | 10 | .19*        |  | Amendment Number 4 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement Number 2 with
    Western Reserve, effective January 1, 2000 (incorporated by
    reference to Exhibit 10.1 to Registrants Annual
    Report on Form 10-KSB for the year ended December 31,
    2000, filed on March 20, 2001).                                         
|        | 10 | .20*        |  | Amendment Number 5 to the Automatic Variable
    Annuity Reinsurance Agreement with Western Reserve, effective
    January 1, 2000 (incorporated by reference to
    Exhibit 10.2 to Registrants Annual Report on
    Form 10-KSB for the year ended December 31, 2000,
    filed on March 20, 2001).                                                                

39



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .21         |  | Third Amendment and Joinder to the Directed
    Reinsurance Agreement with World Marketing Alliance, Inc.
    and World Financial Group, Inc. dated July 12, 2001
    (incorporated by reference to Exhibit 10.1 to
    Registrants Quarterly Report on Form 10-QSB for the
    quarter ended June 30, 2001, filed on August 13, 2001).
|        | 10 | .22         |  | First Right Agreement with Western Reserve Life
    Assurance Co. of Ohio dated July 12, 2001 (incorporated by
    reference to Exhibit 10.2 to Registrants Quarterly
    Report on Form 10-QSB for the quarter ended June 30,
    2001, filed on August 13, 2001).                                                                    
|        | 10 | .23         |  | Amendment Number 3 to the Automatic
    Reinsurance Agreement with Western Reserve Life Assurance Co. of
    Ohio, effective as of September 18, 2001 (incorporated by
    reference to Exhibit 10.33 to Registrants
    Registration Statement on Form S-1, filed on
    February 22, 2002).                                          
|        | 10 | .24         |  | Amendment Number 5 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement Number 2 with
    Western Reserve, effective September 18, 2001 (incorporated
    by reference to Exhibit 10.34 to Registrants
    Registration Statement on Form S-1, filed on
    February 22, 2002).                                   
|        | 10 | .25*        |  | Amendment Number 6 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement with Western Reserve
    Life Assurance Co. of Ohio, effective September 18,
    2001(incorporated by reference to Exhibit 10.35 to
    Registrants Registration Statement on Form S-1/A,
    filed on May 8, 2002).                      
|        | 10 | .26         |  | Amendment Number 2 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement Number 3 with
    Western Reserve Life Assurance Co. of Ohio, effective
    September 18, 2001 (incorporated by reference to
    Exhibit 10.36 to Registrants Registration Statement
    on Form S-1, filed on February 22, 2002).        
|        | 10 | .27         |  | Amendment Number 6 to the Automatic Variable
    Annuity Reinsurance Agreement with Western Reserve Life
    Assurance Co. of Ohio, effective September 18,
    2001(incorporated by reference to Exhibit 10.37 to
    Registrants Registration Statement on Form S-1, filed
    on February 22, 2002).                                
|        | 10 | .28         |  | Global Preferred Holdings, Inc. Stock
    Incentive Plan and Form of Stock Option Grant Certificate
    (incorporated by reference to Exhibit 10.38 to
    Registrants Registration Statement on Form S-1, filed
    on February 22, 2002).                                                                                            
|        | 10 | .29         |  | Global Preferred Holdings, Inc. Directors
    Stock Option Plan and Form of Stock Option Grant Certificate
    (incorporated by reference to Exhibit 10.39 to
    Registrants Registration Statement on Form S-1, filed
    on February 22, 2002).                                                                                     
|        | 10 | .30         |  | Form of Officer and Director Indemnification
    Agreement (incorporated by reference to Exhibit 10.40 to
    Registrants Registration Statement on Form S-1, filed
    on February 22, 2002).                                                                                                                                         
|        | 10 | .31         |  | Employment Agreement by and between the
    Registrant and Edward F. McKernan, effective January 1,
    2002 (incorporated by reference to Exhibit 10.41 to
    Registrants Registration Statement on Form S-1, filed
    on February 22, 2002).                                                                                       
|        | 10 | .32         |  | Employment Agreement by and between the
    Registrant and Caryl P. Shepherd, effective February 1,
    2002 (incorporated by reference to Exhibit 10.42 to
    Registrants Registration Statement on Form S-1/A,
    filed on March 29, 2002).                                                                                        
|        | 10 | .33         |  | Form of Stock Option Grant Certificate for S.
    Hubert Humphrey, Jr. (incorporated by reference to
    Exhibit 10.2 to Registrants Form 8-K, filed on
    February 22, 2002).                                                                                                                                                        
|        | 10 | .34         |  | Employment Agreement by and between the
    Registrant and Bradley E. Barks, effective March 4, 2002
    (incorporated by reference to Exhibit 10.45 to
    Registrants Registration Statement on Form S-1/A,
    filed on March 29, 2002).                                                                                            
|        | 10 | .35         |  | Employment Agreement by and between the
    Registrant and Thomas Bobowski, effective March 4, 2002
    (incorporated by reference to Exhibit 10.46 to
    Registrants Registration Statement on Form S-1/A,
    filed on March 29, 2002).                                                                                             

40



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .36*        |  | Automatic Pool Reinsurance Agreement, effective
    April 1, 1998, with American Phoenix Life and Reinsurance
    Company, Swiss Re Life & Health America, Inc., The
    Lincoln National Life Insurance Company and Transamerica
    Occidental Life Insurance Company (incorporated by reference to
    Exhibit 10.47 to Registrants Registration Statement
    on Form S-1/A, filed on May 8, 2002).
|        | 10 | .37         |  | Amendment Number 7 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement with Western Reserve
    Life Assurance Co. of Ohio, effective January 1, 2002
    (incorporated by reference to Exhibit 10.48 to
    Registrants Registration Statement on Form S-1/A,
    filed on April 19, 2002).                                                                                     
|        | 10 | .38         |  | Amendment Number 3 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement Number 3 with
    Western Reserve Life Assurance Co. of Ohio, effective
    January 1, 2002 (incorporated by reference to
    Exhibit 10.49 to Registrants Registration Statement
    on Form S-1/A, filed on April 19, 2002).                                                                            
|        | 10 | .39         |  | Amendment Number 7 to the Automatic Variable
    Annuity Reinsurance Agreement with Western Reserve Life
    Assurance Co. of Ohio, effective January 1, 2002
    (incorporated by reference to Exhibit 10.50 to
    Registrants Registration Statement on Form S-1/A,
    filed on April 19, 2002).                                                                                                   
|        | 10 | .40         |  | First Amendment to Employment Agreement by and
    between the Registrant and Bradley E. Barks, effective
    July 30, 2002 (incorporated by reference to
    Exhibit 10.1 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2002,
    filed on November 14, 2002).                                                                                                 
|        | 10 | .41         |  | Lease Agreement by and between the Registrant and
    Metropolitan Life Insurance Company effective September 12,
    2002 (incorporated by reference to Exhibit 10.2 to
    Registrants Quarterly Report on Form 10-Q/A for the
    quarter ended September 30, 2002, filed on
    November 20, 2002).                                                                                                
|        | 10 | .42         |  | Renewal of the Employment Agreement by and
    between the Registrant and Bradley E. Barks, effective
    March 1, 2003 (incorporated by reference to
    Exhibit 10.1 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2003, filed
    on May 15, 2003).                                                                                                              
|        | 10 | .43         |  | Renewal of the Employment Agreement by and
    between the Registrant and Caryl P. Shepherd, effective
    February 1, 2003 (incorporated by reference to
    Exhibit 10.2 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2003, filed
    on May 15, 2003).                                                                                                          
|        | 10 | .44         |  | Renewal of the Employment Agreement by and
    between the Registrant and Thomas J. Bobowski, effective
    March 4, 2003 (incorporated by reference to
    Exhibit 10.3 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2003, filed
    on May 15, 2003).                                                                                                            
|        | 10 | .45         |  | First Amendment to the Employment Agreement by
    and between the Registrant and Edward F. McKernan, effective
    April 1, 2003 (incorporated by reference to
    Exhibit 10.1 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2003, filed
    on August 14, 2003).                                                                                                  
|        | 10 | .46         |  | First Amendment to the Lease Agreement by and
    between the Registrant and Metropolitan Life Insurance Company
    effective July 14, 2003 (incorporated by reference to
    Exhibit 10.1 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2003,
    filed on November 14, 2003).                                                                                
|        | 10 | .47         |  | Amendment No. 4 to the Automatic Flexible
    Premium Variable Life Reinsurance Agreement Number 3
    Between Western Reserve and Global Preferred Re Limited
    effective July 1, 2003 (incorporated by reference to
    Exhibit 10.1 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2003,
    filed on November 14, 2003).                                   

41



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                          
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 16 | .1          |  | Letter of KPMG LLP to the Securities and Exchange
    Commission dated June 26, 2003 regarding change in
    certifying accountant (incorporated by reference to
    Exhibit 16.1 to Registrants Current Report on
    Form 8-K filed on June 26, 2003).
|        | 23 | .1          |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                         
|        | 23 | .2          |  | Consent of KPMG LLP                                                                                                                                                                                                                                      
|        | 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.                                                                        
|        | 99 | .1          |  | Safe Harbor Compliance Statement For
    Forward-Looking Statements.                                                                                                                                                                                     



---



|  |                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Confidential Treatment has been requested with
    respect to portions of these documents. The omitted portions of
    these documents were filed separately with the Securities and
    Exchange Commission.

42



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.

INDEX TO FINANCIAL STATEMENTS


|                                                                                                                                      |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                      |  | Page
|                                                                                                                                      |  |     
|Financial Statements:                                                                                                                 |  |      |     | 
|Independent Auditors
    Reports                                                                                                     |  |      | F-2 | 
|Consolidated Balance Sheets
    as of December 31, 2002 and 2003                                                                      |  |      | F-4 | 
|Consolidated Statements of
    Income for the Years Ended December 31, 2001, 2002 and
    2003                                        |  |      | F-5 | 
|Consolidated Statements of
    Stockholders Equity and Comprehensive Income for the Years
    Ended December 31, 2001, 2002 and 2003 |  |      | F-6 | 
|Consolidated Statements of
    Cash Flows for the Years Ended December 31, 2001, 2002 and
    2003                                    |  |      | F-7 | 
|Notes to Consolidated
    Financial Statements                                                                                        |  |      | F-8 | 

F-1



---



##### Table of Contents






INDEPENDENT AUDITORS REPORTS

The Board of Directors

Global Preferred Holdings, Inc.:


We have audited the accompanying consolidated
balance sheet of Global Preferred Holdings, Inc. and
subsidiaries (Global Preferred) as of
December 31, 2003, and the related statements of income,
stockholders equity and comprehensive income and cash
flows for the year ended December 31, 2003. These
consolidated financial statements are the responsibility of
Global Preferreds management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audit.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the 2003 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Global Preferred
Holdings, Inc. and subsidiaries as of December 31,
2003, and the results of their operations and their cash flows
for the year ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of
America.



| |                          
| | -------------------------
| | /S/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

March 29, 2004


F-2



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##### Table of Contents



The Board of Directors

Global Preferred Holdings, Inc.:


We have audited the accompanying consolidated
balance sheet of Global Preferred Holdings, Inc. and
subsidiaries (Global Preferred) as of
December 31, 2002, and the related consolidated statements
of income, stockholders equity and comprehensive income
and cash flows for each of the years in the two-year period
ended December 31, 2002. These consolidated financial
statements are the responsibility of Global Preferreds
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Global Preferred
Holdings, Inc. and subsidiaries as of December 31,
2002, and the results of their operations and their cash flows
for each of the years in the two-year period ended
December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.



| |             
| | ------------
| | /s/ KPMG LLP

Atlanta, Georgia

March 14, 2003


F-3



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.



CONSOLIDATED BALANCE SHEETS


|                                                                                                                                      |                                                                                                                                                                          |                            |            |            |            |   |            |            |            | 
|------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                                                                                                                      |                                                                                                                                                                          |                           
|                                                                                                                                      |                                                                                                                                                                          | Years Ended December 31,  
|                                                                                                                                      |                                                                                                                                                                          |                           
|                                                                                                                                      |                                                                                                                                                                          | 2002                       |            | 2003      
|                                                                                                                                      |                                                                                                                                                                          |                            |            |           
|ASSETS                                                                                                                               
|Fixed maturity securities  available
    for sale (amortized cost of $2,673,762 and $15,057,808 for 2002
    and 2003, respectively) |                                                                                                                                                                          | $                          | 2,798,190  |            |            | $ | 15,267,477 |           
|Equity securities  available for sale
    (cost of $2,009,360 for 2003)                                                              |                                                                                                                                                                          |                            |           |            |            |   | 1,998,932  |           
|Other equity investments (cost of $500,000 for
    2003)                                                                              |                                                                                                                                                                          |                            |           |            |            |   | 501,259    |           
|Cash and cash equivalents                                                                                                             |                                                                                                                                                                          |                            | 15,858,256 |            |            |   | 11,580,045 |           
|Reinsured policy loans                                                                                                                |                                                                                                                                                                          |                            | 1,115,994  |            |            |   | 1,270,711  |           
|                                                                                                                                      |                                                                                                                                                                          |                            |            |            |            |   |            |           
|                                                                                                                                      | Total invested assets                                                                                                                                                    |                            |            | 19,772,440 |            |   |            | 30,618,424 |           
|Investment income due and accrued                                                                                                     |                                                                                                                                                                          |                            | 80,882     |            |            |   | 197,020    |           
|Accounts receivable                                                                                                                   |                                                                                                                                                                          |                            | 215,500    |            |            |   | 44,588     |           
|Reinsurance balances receivable                                                                                                       |                                                                                                                                                                          |                            | 3,078,949  |            |            |   | 2,112,462  |           
|Deferred acquisition costs                                                                                                            |                                                                                                                                                                          |                            | 49,850,309 |            |            |   | 45,607,865 |           
|Prepaid expenses                                                                                                                      |                                                                                                                                                                          |                            | 888,662    |            |            |   | 519,888    |           
|Current income tax recoverable                                                                                                        |                                                                                                                                                                          |                            | 172,500    |            |            |   | 48,152     |           
|Fixed assets (net of accumulated depreciation of
    $240,439 and $336,817 for 2002 and 2003, respectively)                           |                                                                                                                                                                          |                            | 215,095    |            |            |   | 135,495    |           
|                                                                                                                                      |                                                                                                                                                                          |                            |            |            |            |   |            |           
|                                                                                                                                      |                                                                                                                                                                          | Total assets               |            | $          | 74,274,337 |   |            | $          | 79,283,894 | 
|                                                                                                                                      |                                                                                                                                                                          |                            |            |            |            |   |            |           
|                                                                                                                                     
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                             
|                                                                                                                                     
|Liabilities:                                                                                                                          |                                                                                                                                                                          |                            |            |            |            |   |            |           
|                                                                                                                                      | Future policy benefits                                                                                                                                                   |                            | $          | 16,923,775 |            |   | $          | 18,881,390 |           
|                                                                                                                                      | Reinsurance balances payable                                                                                                                                             |                            |            | 42,130     |            |   |            | 169,481    |           
|                                                                                                                                      | Accrued expenses and accounts payable                                                                                                                                    |                            |            | 473,636    |            |   |            | 517,078    |           
|                                                                                                                                      | Accrued interest payable                                                                                                                                                 |                            |            | 158,219    |            |   |            | 158,219    |           
|                                                                                                                                      | Current maturities of long-term debt                                                                                                                                     |                            |            |           |            |   |            | 5,000,000  |           
|                                                                                                                                      | Long-term debt                                                                                                                                                           |                            |            | 5,000,000  |            |   |            |           |           
|                                                                                                                                      | Deferred tax liability                                                                                                                                                   |                            |            | 8,354,722  |            |   |            | 9,252,250  |           
|                                                                                                                                      |                                                                                                                                                                          |                            |            |            |            |   |            |           
|                                                                                                                                      |                                                                                                                                                                          | Total liabilities          |            |            | 30,952,482 |   |            |            | 33,978,418 | 
|                                                                                                                                      |                                                                                                                                                                          |                            |            |            |            |   |            |           
|Commitments and contingencies (Note 10)                                                                                               |                                                                                                                                                                          |                            |            |            |            |   |            |           
|Stockholders equity:                                                                                                                 |                                                                                                                                                                          |                            |            |            |            |   |            |           
|                                                                                                                                      | Common stock, par value $.001,
    50,000,000 shares and 15,000,000 shares authorized for
    2002 and 2003, respectively; 4,149,074 shares issued for
    2002 and 2003 |                            |            | 4,149      |            |   |            | 4,149      |           
|                                                                                                                                      | Additional paid-in capital                                                                                                                                               |                            |            | 23,326,026 |            |   |            | 23,326,026 |           
|                                                                                                                                      | Accumulated other comprehensive income                                                                                                                                   |                            |            | 82,125     |            |   |            | 132,331    |           
|                                                                                                                                      | Retained earnings                                                                                                                                                        |                            |            | 19,958,822 |            |   |            | 21,892,237 |           
|                                                                                                                                      | Treasury stock, at cost (7,390 shares)                                                                                                                                   |                            |            | (49,267    | )          |   |            | (49,267    | )         
|                                                                                                                                      |                                                                                                                                                                          |                            |            |            |            |   |            |           
|                                                                                                                                      |                                                                                                                                                                          | Total stockholders equity |            |            | 43,321,855 |   |            |            | 45,305,476 | 
|                                                                                                                                      |                                                                                                                                                                          |                            |            |            |            |   |            |           
|Total liabilities and stockholders equity                                                                                            |                                                                                                                                                                          | $                          | 74,274,337 |            |            | $ | 79,283,894 |           
|                                                                                                                                      |                                                                                                                                                                          |                            |            |            |            |   |            |           

See accompanying notes to consolidated financial
statements.

F-4



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.



CONSOLIDATED STATEMENTS OF INCOME


|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |            |            | 
|-------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------- | --------- | ---------- | ---------- | ---- | --------- | ---------- | ---------- | - | --------- | ---------- | ---------- | 
|                                                                           |                                            |                                            
|                                                                           |                                            | Years Ended December 31,                   
|                                                                           |                                            |                                            
|                                                                           |                                            | 2001                                        |           | 2002       |            | 2003
|                                                                           |                                            |                                             |           |            |            |     
|Revenues:                                                                  |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|                                                                           | Premiums                                   |                                             | $         | 19,240,551 |            |      | $         | 17,984,990 |            |   | $         | 17,401,266 |           
|                                                                           | Reinsured policy revenues                  |                                             |           | 11,237,610 |            |      |           | 13,859,540 |            |   |           | 12,796,537 |           
|                                                                           | Net investment income                      |                                             |           | 810,544    |            |      |           | 741,691    |            |   |           | 406,993    |           
|                                                                           | Net realized gain on investments           |                                             |           | 44,807     |            |      |           | 427,823    |            |   |           | 21,476     |           
|                                                                           | Other income                               |                                             |           |           |            |      |           | 530        |            |   |           | 62,786     |           
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|                                                                           |                                            | Total revenues                              |           |            | 31,333,512 |      |           |            | 33,014,574 |   |           |            | 30,689,058 | 
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|Benefits and expenses:                                                     |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|                                                                           | Benefits, claims and settlement expenses   |                                             |           | 6,292,392  |            |      |           | 8,428,898  |            |   |           | 9,268,559  |           
|                                                                           | Change in future policy benefits           |                                             |           | 2,411,335  |            |      |           | 1,525,570  |            |   |           | 1,054,256  |           
|                                                                           | Reinsurance expense allowances, net        |                                             |           | 8,501,197  |            |      |           | 8,517,836  |            |   |           | 8,135,785  |           
|                                                                           | Amortization of deferred acquisition costs |                                             |           | 3,944,660  |            |      |           | 7,023,815  |            |   |           | 5,536,839  |           
|                                                                           | Operating expenses                         |                                             |           | 1,951,634  |            |      |           | 3,119,932  |            |   |           | 3,386,942  |           
|                                                                           | Costs of withdrawn offering                |                                             |           |           |            |      |           | 1,712,000  |            |   |           |           |           
|                                                                           | Interest expense                           |                                             |           | 378,145    |            |      |           | 380,116    |            |   |           | 375,000    |           
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|                                                                           |                                            | Total benefits and expenses                 |           |            | 23,479,363 |      |           |            | 30,708,167 |   |           |            | 27,757,381 | 
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|                                                                           |                                            | Income before income tax                    |           |            | 7,854,149  |      |           |            | 2,306,407  |   |           |            | 2,931,677  | 
|                                                                           | Income tax expense                         |                                             |           | (2,391,568 | )          |      |           | (788,730   | )          |   |           | (998,262   | )         
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|                                                                           |                                            | Net income                                  |           | $          | 5,462,581  |      |           | $          | 1,517,677  |   |           | $          | 1,933,415  | 
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|                                                                           | Preferred dividends                        |                                             |           | 267,104    |            |      |           |           |            |   |           |           |           
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|                                                                           |                                            | Net income available to common stockholders |           | $          | 5,195,477  |      |           | $          | 1,517,677  |   |           | $          | 1,933,415  | 
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|Basic earnings per share                                                   |                                            | $                                           | 1.39      |            |            | $    | 0.37      |            |            | $ | 0.47      |           
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|Diluted earnings per share                                                 |                                            | $                                           | 1.32      |            |            | $    | 0.37      |            |            | $ | 0.47      |           
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|Weighted average common shares outstanding                                 |                                            |                                             | 3,742,610 |            |            |      | 4,141,684 |            |            |   | 4,141,684 |           
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           
|Total weighted average common and common
    equivalent shares outstanding |                                            |                                             | 4,141,684 |            |            |      | 4,141,684 |            |            |   | 4,141,684 |           
|                                                                           |                                            |                                             |           |            |            |      |           |            |            |   |           |           

See accompanying notes to consolidated financial
statements.

F-5



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


AND COMPREHENSIVE INCOME


|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |           |           |  
|-------------------------- | ----------------------------------- | -------------------------------------------- | -------- | --------- |  | ----------- | -------- | ------ |  | ---------- | --------- | ------------- |  | -------- | ----- | -------- |  | ------------- | ---------- | ------------- |  | - | ------- | - | -------- | - | ---------- | ---- | --------- | - | ------- | --- |  | - | ---------- | - | --------- | - | - | --------- | --------- | -
|                           |                                     |                                             
|                           |                                     | Years Ended December 31, 2001, 2002 and 2003
|                           |                                     |                                             
|                           |                                     | Number                                       |          |           |  | Accumulated |          |       
|                           |                                     | of                                           |          |           |  | Number of   |          |        |  | Additional |           | other         |  |          |       | Total    |  |              
|                           |                                     | preferred                                    |          | Preferred |  | common      |          | Common |  | paid-in    |           | comprehensive |  | Retained |       | Treasury |  | stockholders |            | Comprehensive
|                           |                                     | shares                                       |          | stock     |  | shares      |          | stock  |  | capital    |           | income (loss) |  | earnings |       | stock    |  | equity        |            | income       
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |              
|Balance, January 1, 2001   |                                     |                                              | 266,047  |           |  | $           | 532,094  |        |  |            | 2,500,000 |               |  | $        | 2,500 |          |  | $             | 22,795,581 |               |  | $ | 62,357  |   |          | $ | 13,246,301 |      |           | $ | (49,900 | )   |  | $ | 36,588,933 |   |           |   |   |          
|                           | Comprehensive income                |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |           |          
|                           |                                     | Net income                                   |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      | 5,462,581 |   |         |     |  |   |            |   | 5,462,581 |   |   | $         | 5,462,581 |  
|                           |                                     | Other comprehensive income, net of tax       |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   | 184,174  |   |            |      |           |   |         |     |  |   |            |   | 184,174   |   |   |           | 184,174   |  
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          
|                           | Total comprehensive income          |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   | $ | 5,646,755 |          
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          
|Three-for-two stock split  |                                     |                                              |          |           |  |             |          |        |  |            | 1,250,000 |               |  |          | 1,250 |          |  |               | (1,250     | )             |  |   |         |   |          |   | (267,104   | )    |           |   |         |     |  |   | (267,104   | ) |           |   |   |          
|Preferred dividends        |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          
|                           | Treasury stock reissued (95 shares) |                                              |          |          |  |             |          |       |  |            |           |              |  |          |       |         |  |               |            |              |  |   |         |  |          |   |            | (633 | )         |   |         | 633 |  |   |            |  |           |   |   |           |          
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          
|Balance, December 31, 2001 |                                     |                                              | 266,047  |           |  |             | 532,094  |        |  |            | 3,750,000 |               |  |          | 3,750 |          |  |               | 22,794,331 |               |  |   | 246,531 |   |          |   | 18,441,145 |      |           |   | (49,267 | )   |  |   | 41,968,584 |   |           |   |   |          
|                           | Comprehensive income                |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |           |          
|                           |                                     | Net income                                   |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      | 1,517,677 |   |         |     |  |   |            |   | 1,517,677 |   |   | $         | 1,517,677 |  
|                           |                                     | Other comprehensive loss, net of tax         |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   | (164,406 | ) |            |      |           |   |         |     |  |   |            |   | (164,406  | ) |   |           | (164,406  | )
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          
|                           | Total comprehensive income          |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   | $ | 1,353,271 |          
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          
|Preferred stock conversion |                                     |                                              | (266,047 | )         |  |             | (532,094 | )      |  |            | 399,074   |               |  |          | 399   |          |  |               | 531,695    |               |  |   |        |   |          |   |           |      |           |   |        |     |  |   |           |   |           |   |   |          
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          
|Balance, December 31, 2002 |                                     |                                              |         |           |  |             |         |        |  |            | 4,149,074 |               |  |          | 4,149 |          |  |               | 23,326,026 |               |  |   | 82,125  |   |          |   | 19,958,822 |      |           |   | (49,267 | )   |  |   | 43,321,855 |   |           |   |   |          
|                           | Comprehensive income                |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |           |          
|                           |                                     | Net income                                   |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      | 1,933,415 |   |         |     |  |   |            |   | 1,933,415 |   |   | $         | 1,933,415 |  
|                           |                                     | Other comprehensive income, net of tax       |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   | 50,206   |   |            |      |           |   |         |     |  |   |            |   | 50,206    |   |   |           | 50,206    |  
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          
|                           | Total comprehensive income          |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   | $ | 1,983,621 |          
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          
|Balance, December 31, 2003 |                                     |                                              |         |           |  | $           |         |        |  |            | 4,149,074 |               |  | $        | 4,149 |          |  | $             | 23,326,026 |               |  | $ | 132,331 |   |          | $ | 21,892,237 |      |           | $ | (49,267 | )   |  | $ | 45,305,476 |   |           |   |   |          
|                           |                                     |                                              |          |           |  |             |          |        |  |            |           |               |  |          |       |          |  |               |            |               |  |   |         |   |          |   |            |      |           |   |         |     |  |   |            |   |           |   |   |          

See accompanying notes to consolidated financial
statements.

F-6



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.



CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |             |            |             |  
|------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | -------------------------------------------------------- | ---------- | ---------- | ---------- | ---------- | ---------- | ----------- | ---------- | ---------- | ----------- | ---------- | ----------- | -
|                                                  |                                                                                                     |                                                             
|                                                  |                                                                                                     | Years Ended December 31,                                    
|                                                  |                                                                                                     |                                                             
|                                                  |                                                                                                     | 2001                                                         |                                                          | 2002       |            | 2003      
|                                                  |                                                                                                     |                                                              |                                                          |            |            |           
|Cash flows from operating activities:             |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  | Net income                                                                                          |                                                              | $                                                        | 5,462,581  |            |            | $          | 1,517,677  |             |            | $          | 1,933,415   |           
|                                                  | Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:     |                                                              |                                                          |            |            |            |            |            |             |            |            |             |           
|                                                  |                                                                                                     | Amortization and depreciation                                |                                                          |            | 3,989,418  |            |            |            | 7,072,737   |            |            |             | 5,633,217  |            
|                                                  |                                                                                                     | Costs of withdrawn offering                                  |                                                          |            |           |            |            |            | 1,712,000   |            |            |             |           |            
|                                                  |                                                                                                     | Deferred tax expense                                         |                                                          |            | 1,954,605  |            |            |            | 771,649     |            |            |             | 871,664    |            
|                                                  |                                                                                                     | Net realized gain on investments                             |                                                          |            | (44,807    | )          |            |            | (427,823    | )          |            |             | (21,476    | )          
|                                                  | Change in:                                                                                          |                                                              |                                                          |            |            |            |            |            |             |            |            |             |           
|                                                  |                                                                                                     | Investment income due and accrued                            |                                                          |            | (58,497    | )          |            |            | 91,173      |            |            |             | (116,138   | )          
|                                                  |                                                                                                     | Accounts receivable                                          |                                                          |            |           |            |            |            | (215,500    | )          |            |             | 170,912    |            
|                                                  |                                                                                                     | Reinsurance balances receivable                              |                                                          |            | (209,959   | )          |            |            | (236,041    | )          |            |             | 966,487    |            
|                                                  |                                                                                                     | Deferred acquisition costs                                   |                                                          |            | (3,992,590 | )          |            |            | (14,073,855 | )          |            |             | (1,294,395 | )          
|                                                  |                                                                                                     | Prepaid expenses                                             |                                                          |            | (51,216    | )          |            |            | (762,212    | )          |            |             | 368,774    |            
|                                                  |                                                                                                     | Current income tax recoverable                               |                                                          |            |           |            |            |            | (172,500    | )          |            |             | 124,348    |            
|                                                  |                                                                                                     | Future policy benefits                                       |                                                          |            | 3,885,784  |            |            |            | 5,012,243   |            |            |             | 1,957,615  |            
|                                                  |                                                                                                     | Reinsurance balances payable                                 |                                                          |            | (199,198   | )          |            |            | (146,688    | )          |            |             | 127,351    |            
|                                                  |                                                                                                     | Accrued expenses and accounts payable                        |                                                          |            | 404,565    |            |            |            | (71,047     | )          |            |             | 43,442     |            
|                                                  |                                                                                                     | Accrued interest payable                                     |                                                          |            | (3,137     | )          |            |            |            |            |            |             |           |            
|                                                  |                                                                                                     | Current income tax payable                                   |                                                          |            | 7,868      |            |            |            | (413,299    | )          |            |             |           |            
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  |                                                                                                     |                                                              | Net cash provided by (used in) operating
    activities  |            |            | 11,145,417 |            |            |             | (341,486   | )          |             |            | 10,765,216  |  
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|Cash flows from investing activities:             |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  | Proceeds from sale of available-for-sale
    securities                                             |                                                              |                                                          | 1,674,272  |            |            |            | 9,856,622  |             |            |            | 421,282     |           
|                                                  | Proceeds from principal payments on
    mortgage-backed securities of available-for-sale securities |                                                              |                                                          | 474,925    |            |            |            | 1,096,204  |             |            |            | 738,085     |           
|                                                  | Proceeds from maturity of available-for-sale
    securities                                         |                                                              |                                                          |           |            |            |            | 600,000    |             |            |            | 800,000     |           
|                                                  | Purchase of fixed maturity and equity securities                                                    |                                                              |                                                          | (8,127,239 | )          |            |            | (1,958,013 | )           |            |            | (16,831,299 | )         
|                                                  | Change in reinsured policy loans                                                                    |                                                              |                                                          | (146,606   | )          |            |            | (102,365   | )           |            |            | (154,717    | )         
|                                                  | Purchase of fixed assets                                                                            |                                                              |                                                          | (84,066    | )          |            |            | (219,928   | )           |            |            | (16,778     | )         
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  |                                                                                                     |                                                              | Net cash provided by (used in) investing
    activities  |            |            | (6,208,714 | )          |            |             | 9,272,520  |            |             |            | (15,043,427 | )
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|Cash flows from financing activities:             |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  | Preferred dividends                                                                                 |                                                              |                                                          | (279,349   | )          |            |            |           |             |            |            |            |           
|                                                  | Proceeds from short term debt                                                                       |                                                              |                                                          | (277,285   | )          |            |            |           |             |            |            |            |           
|                                                  | Prepaid expenses  costs of withdrawn
    offering                                                  |                                                              |                                                          | (577,112   | )          |            |            | 577,112    |             |            |            |            |           
|                                                  | Costs of withdrawn offering                                                                         |                                                              |                                                          |           |            |            |            | (1,712,000 | )           |            |            |            |           
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  |                                                                                                     |                                                              | Net cash used in financing activities                    |            |            | (1,133,746 | )          |            |             | (1,134,888 | )          |             |            |            |  
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  |                                                                                                     |                                                              | Net increase (decrease) in cash and cash
    equivalents |            |            | 3,802,957  |            |            |             | 7,796,146  |            |             |            | (4,278,211  | )
|Cash and cash equivalents at beginning of period  |                                                                                                     |                                                              | 4,259,153                                                |            |            |            | 8,062,110  |            |             |            | 15,858,256 |            
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|Cash and cash equivalents at end of period        |                                                                                                     | $                                                            | 8,062,110                                                |            |            | $          | 15,858,256 |            |             | $          | 11,580,045 |            
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|Supplemental disclosure of cash flow information: |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  | Interest paid                                                                                       |                                                              | $                                                        | 381,282    |            |            | $          | 380,116    |             |            | $          | 375,000     |           
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  | Income taxes paid                                                                                   |                                                              | $                                                        | 429,095    |            |            | $          | 602,880    |             |            | $          | 2,250       |           
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  | Change in preferred dividend accrual                                                                |                                                              | $                                                        | (12,245    | )          |            | $          |           |             |            | $          |            |           
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            
|                                                  | Non-cash financing activities:                                                                      |                                                              |                                                          |            |            |            |            |            |             |            |            |             |           
|                                                  |                                                                                                     | Treasury shares issued for stock split fractional
    shares |                                                          |            | 95         |            |            |            |            |            |            |             |           |            
|                                                  |                                                                                                     |                                                              |                                                          |            |            |            |            |            |             |            |            |            

See accompanying notes to consolidated financial
statements.

F-7



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


December 31, 2001, 2002 and
2003




|   |             
|-- | ------------
|1. | Organization

Global Preferred Holdings, Inc. was formed
March 9, 1995 as an insurance holding company.

The consolidated financial statements include the
assets, liabilities, and results of operations of Global
Preferred Holdings, Inc. (Global Preferred) and
its wholly owned subsidiaries, Global Preferred Re Limited,
Global Preferred Solutions, Inc., Global Preferred
Resources, Inc. and Preferred Advantage Insurance
Services, Inc. Global Preferred Re is a Bermuda company
registered as a long-term insurer under the Bermuda Insurance
Act 1978. Global Preferred together with its subsidiaries are
referred to collectively as Global Preferred unless
the context otherwise requires or otherwise as expressly stated.

Global Preferred was formed principally to
provide an opportunity for independent agents associated with an
independent marketing organization to participate indirectly in
the reinsurance of the policies they sell. Global
Preferreds core business consists of providing reinsurance
facilities and services necessary to establish, manage and
maintain reinsurance relationships between independent marketing
organizations (IMO) and life insurance companies. An
IMO is an independent organization that contracts with one or
more insurance companies to distribute and market securities and
insurance products. Many of the individual agents that purchased
equity in Global Preferred are currently associated with World
Financial Group, Inc., an affiliate of AEGON
USA, Inc., and collectively own a significant portion of
the outstanding common stock of Global Preferred. To date, the
agents associated with World Financial Group, and its
predecessor, have sold all life insurance and annuity policies
reinsured by Global Preferred.

Reinsurance is an arrangement under which an
insurance company (the reinsurer) agrees to
indemnify another insurance company (the ceding life
company) for all or a portion of the insurance risks
underwritten by the ceding life company. The reinsurer assumes a
portion of the underwritten risk in exchange for a portion of
the premium collected. Global Preferred currently assumes
portions of mortality and other risks relating to life insurance
and annuity policies in order to share in the net profits
generated through the sale of such policies by the independent
agents associated with independent marketing organizations.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies

Consolidation and Basis of
Presentation.The consolidated
financial statements of Global Preferred have been prepared in
accordance with accounting principles generally accepted in the
United States of America (GAAP). The preparation of
financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of
revenues and expenses during the reporting period. Accounts that
Global Preferred deems to be sensitive to changes in estimates
include deferred acquisition costs and future policy benefits.
In all instances, actual results could differ from estimates.

The accompanying financial statements consolidate
the accounts of Global Preferred and its subsidiaries. All
significant inter-company balances and transactions have been
eliminated.

Investments.Global
Preferred classifies all fixed maturity securities and equity
securities, with readily determinable fair values, 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 Global
Preferred to execute its investment philosophy and appropriately
match investment results to operating and liquidity needs.
Equity securities are classified as available for sale because
Global Preferred does not intend to actively trade these
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.

F-8



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Global Preferreds policy is to reflect an
other-than-temporary impairment in securities when the fair
value of these securities is lower than the cost basis for an
extended period of time. Any such impairment identified would
result in a write-down of the cost basis of the individual
security to its fair value to establish a new cost basis and to
reflect a realized capital loss in the consolidated statements
of income. No impairments in value have occurred which would
require Global Preferred to make such an adjustment.

Investment income is recognized as it accrues or
is legally due. Income on mortgage-backed securities includes
amortization and accretion of purchase premiums and discounts
using a method that approximates a level yield, taking into
consideration assumed prepayment patterns. The retrospective
adjustment method is used to adjust for prepayment activity.
Realized gains and losses on investments using the specific
identification method are included in income.

Fair Value
Disclosure.The carrying values of
cash and cash equivalents, reinsurance receivables and payables,
accounts receivables and payables, accrued expenses and
short-term debt approximate their fair values due to the
short-term nature of these accounts. Taking into consideration
the basis of reinsurance under the reinsurance agreements, the
carrying value of future policy benefits approximates its fair
value. See Note 3 for fair value information covering
Global Preferreds investment portfolio.

Cash and Cash
Equivalents.Cash and cash equivalents
include cash on hand and on deposit purchased with an original
maturity of three months or less. Cash and cash equivalents may
also include cash in transit from the sale of securities at
year-end.

Deferred Acquisition
Costs.Costs of acquiring new
business, which vary with and are primarily related to the
production of new business, have been deferred to the extent
that such costs are deemed recoverable from future revenues.
Such costs include reinsurance expense allowances paid to ceding
life companies, and may include certain other underwriting
costs, such as actuarial, legal and accounting fees. Deferred
acquisition costs are amortized over the lives of the underlying
policies with regard to the terms of the reinsurance agreement.

On those policies reinsured under a renewable
term agreement, 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.

For policies reinsured under a coinsurance or
modified coinsurance agreement, deferred acquisition costs are
amortized in proportion to expected gross profits associated
with mortality margins, investment margins, surrender charges
and expense margins reinsured. Management periodically reviews
Global Preferreds assumptions concerning future experience
with regard to mortality, persistency, investment yields and
expenses in determining its estimates of future gross profits.
Upon adoption of any change in assumptions used with regard to
future experience, the amortization of Global Preferreds
deferred acquisition cost will be recalculated and will be
reflected during the then current accounting period.

Reinsurance Expense
Allowances.Allowances generally
represent a percentage of each reinsurance premium that is paid
or allowed by Global Preferred to the ceding life company for
each policy reinsured in recognition of commissions and other
expenses associated with the reinsured policies. These other
expenses relate to costs associated with underwriting,
marketing, policy issue and maintenance. The reinsurance expense
allowances represent Global Preferreds share of
acquisition and maintenance expenses

F-9



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

incurred by the ceding life company that are
attributable to the risks reinsured. Allowances are shown net of
amounts deferred as policy acquisition costs.

Fixed Assets.Fixed
assets are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line basis over the
estimated useful lives of the related assets, which range from
three to seven years.

Future Policy
Benefits.Liabilities for future
benefits on life insurance policies are established in an amount
believed to be adequate to meet the estimated future obligations
on policies in force. Liabilities for future policy benefits
under long-term life insurance policies have been computed based
on estimates of investment yields, mortality and withdrawal
rates expected at the time the policies are reinsured, and other
assumptions including estimates for incurred but not reported
claims. These assumptions include a margin for adverse deviation
and vary with the characteristics of the plan of insurance, year
of issue, age of insured and other appropriate factors. The
assumptions for estimated investment yields are based upon
various factors including then current yields on Global
Preferreds investment portfolio and market rates for new
investments. Interest rates used in estimating future policy
benefits ranged from 5.5% to 7.0% at the time the policies in
force were reinsured. The mortality and withdrawal assumptions
are based on Global Preferreds experience, industry
experience and industry standards. Policy and contract reserves
are included in the liability for future policy benefits on the
consolidated balance sheets.

Liabilities for future policy benefits under the
coinsurance and modified coinsurance agreements equal reinsured
policy account balances on the underlying life insurance
policies and annuity contracts. With regard to the separate
account benefits reinsured on a modified coinsurance basis,
Global Preferred records such liabilities as an offset to
related assets as its 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 policies or variable
annuity contracts do not permit Global Preferred to reinsure
those benefits on a coinsurance basis. Global Preferred
reinsures the fixed account portion of annuity contracts and
life insurance polices only on a coinsurance basis and,
accordingly, the liabilities for that portion of the reinsurance
are recorded as future policy benefits.

Income 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 tax rate of 34%. Statement of
Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxesspecifically 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 December 31, 2003.

Recognition of Revenues and Related
Expenses.Reinsurance premiums
received under the renewable term agreements are recognized as
revenue over the premium paying periods of the reinsured
policies. Benefits and expenses are associated with earned
premiums so that profits are recognized over the life of the
related contract. This association is accomplished through the
provision for future policy benefits and the amortization of
deferred acquisition costs. Other revenue consists of
non-recurring items other than reinsurance premiums or
investment earnings and is recognized upon completion of the
related earnings process.

Reinsured Policy
Revenues.Reinsured policy revenues
are recognized as earned and represent the policy mortality and
expense charges, cost of insurance charges net of retrocession
reinsurance premiums,

F-10



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

policy administration charges, asset-based
allowances and deferred sales charges that have been assessed
against the reinsured policy account balances under the
coinsurance and modified coinsurance agreements.

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 are computed based on
the total weighted-average number of common and common
equivalent shares outstanding during the period. Outstanding
stock options, all of which were granted in 2003, were
anti-dilutive for the year ended December 31, 2003.

The shares used in the computation of Global
Preferreds basic and diluted earnings per common share are
as follows:

|                                                                  |                                                                  |                          |         |       |  |      |         |   |  |  |         |   | 
|----------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------ | ------- | ----- |  | ---- | ------- | - |  |  | ------- | - | 
|                                                                  |                                                                  |                         
|                                                                  |                                                                  | Years Ended December 31,
|                                                                  |                                                                  |                         
|                                                                  |                                                                  | 2001                     |         | 2002  |  | 2003
|                                                                  |                                                                  |                          |         |       |  |     
|                                                                  |                                                                  |                         
|                                                                  |                                                                  | (Shares in thousands)   
|Weighted-average common shares outstanding                        |                                                                  |                          | 3,742.6 |       |  |      | 4,141.7 |   |  |  | 4,141.7 |  
|                                                                  | Dilutive effect of preferred stock and
    convertible debenture |                          |         | 711.8 |  |      |         |  |  |  |         |  | 
|                                                                  |                                                                  |                          |         |       |  |      |         |   |  |  |         |  
|Weighted-average common shares outstanding,
    assuming dilution |                                                                  |                          | 4,454.4 |       |  |      | 4,141.7 |   |  |  | 4,141.7 |  
|                                                                  |                                                                  |                          |         |       |  |      |         |   |  |  |         |  

For the year ended December 31, 2001,
weighted-average common shares outstanding, assuming dilution,
include the incremental shares that would be issued upon the
conversion of the convertible note issued to Money
Services, Inc. and the conversion of the preferred stock.
The conversion price of the note is $15.99 per common share
based on the maturity value of the convertible note. For the
years ended December 31, 2002 and 2003, the incremental
shares issued and the income impact upon the conversion of the
convertible note were excluded because they would have been
anti-dilutive. The outstanding stock options along with the
convertible note could be dilutive in the future.

The income available to common shareholders used
in the computation of Global Preferreds basic and diluted
earnings per common share are as follows:

|                                                                    |                                                                                      |                          |         |       |  |      |         |   |  |   |         |   | 
|------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------ | ------- | ----- |  | ---- | ------- | - |  | - | ------- | - | 
|                                                                    |                                                                                      |                         
|                                                                    |                                                                                      | Years Ended December 31,
|                                                                    |                                                                                      |                         
|                                                                    |                                                                                      | 2001                     |         | 2002  |  | 2003
|                                                                    |                                                                                      |                          |         |       |  |     
|                                                                    |                                                                                      |                         
|                                                                    |                                                                                      | (Dollars in thousands)  
|Income available to common shareholders                             |                                                                                      | $                        | 5,195.5 |       |  | $    | 1,517.7 |   |  | $ | 1,933.4 |  
|                                                                    | Income impact of assumed conversion of preferred
    stock and convertible debenture |                          |         | 530.0 |  |      |         |  |  |   |         |  | 
|                                                                    |                                                                                      |                          |         |       |  |      |         |   |  |   |         |  
|Income available to common shareholders with
    assumed conversion |                                                                                      | $                        | 5,725.5 |       |  | $    | 1,517.7 |   |  | $ | 1,933.4 |  
|                                                                    |                                                                                      |                          |         |       |  |      |         |   |  |   |         |  

Common Stock.On
July 12, 2001, the board of directors declared a
three-for-two stock split in the form of a stock dividend,
consisting of 1.25 million shares, payable to stockholders
of record at the close of business on August 24, 2001. The
stock split was distributed on September 7, 2001.
Fractional shares were adjusted up to the next share using
shares of treasury stock. Ninety-five treasury shares were
issued for the fractional shares. Share and per-share amounts
have been retroactively adjusted to reflect the stock split on
the consolidated statements of income. Shares of convertible
preferred stock issued in June and July 2000 were converted to
common stock on January 1, 2002. No other changes to our
common stock occurred during 2002 or 2003.

Stock Compensation
Plan.Global Preferred applies
Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations, in accounting for stock-based compensation
plans. Global Preferred has adopted the disclosure-only
provisions of SFAS No. 123, Accounting for
Stock-Based Compensation.

F-11



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 APB Opinion
No. 25, Accounting for Stock Issued to Employees,
and related Interpretations. As the exercise price of all
options granted under the stock option plans was not less than
the fair value of the underlying common stock on the grant date,
no stock-based employee compensation cost is recognized in net
income. 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.

|                                                                                                                                |  |                          |         |      |  |      |         |  |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | -
|                                                                                                                                |  |                         
|                                                                                                                                |  | Years Ended December 31,
|                                                                                                                                |  |                         
|                                                                                                                                |  | 2001                     |         | 2002 |  | 2003
|                                                                                                                                |  |                          |         |      |  |     
|                                                                                                                                |  |                         
|                                                                                                                                |  | (In thousands  except  
|                                                                                                                                |  | per share amounts)      
|Net income, as reported                                                                                                         |  | $                        | 5,195.5 |      |  | $    | 1,517.7 |  |  | $ | 1,933.4 |  
|Less: Total stock-based employee compensation
    expense determined under the fair value method for all awards,
    net of tax |  |                          |        |      |  |      |        |  |  |   | (16.1   | )
|                                                                                                                                |  |                          |         |      |  |      |         |  |  |   |         |  
|Pro-forma net income                                                                                                            |  | $                        | 5,195.5 |      |  | $    | 1,517.7 |  |  | $ | 1,917.3 |  
|                                                                                                                                |  |                          |         |      |  |      |         |  |  |   |         |  
|Reported basic earnings per common share                                                                                        |  | $                        | 1.39    |      |  | $    | 0.37    |  |  | $ | 0.47    |  
|                                                                                                                                |  |                          |         |      |  |      |         |  |  |   |         |  
|Reported diluted earnings per common share                                                                                      |  | $                        | 1.32    |      |  | $    | 0.37    |  |  | $ | 0.47    |  
|                                                                                                                                |  |                          |         |      |  |      |         |  |  |   |         |  
|Pro-forma basic earnings per common share                                                                                       |  | $                        | 1.39    |      |  | $    | 0.37    |  |  | $ | 0.46    |  
|                                                                                                                                |  |                          |         |      |  |      |         |  |  |   |         |  
|Pro-forma diluted earnings per common share                                                                                     |  | $                        | 1.32    |      |  | $    | 0.37    |  |  | $ | 0.46    |  
|                                                                                                                                |  |                          |         |      |  |      |         |  |  |   |         |  

Recent Accounting Pronouncements.
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended and interpreted,
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that
an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments
at fair value. The accounting for changes in the fair value of a
derivative will be included in either earnings or other
comprehensive income depending on the intended use of the
derivative instrument. The provisions of SFAS No. 133
do not have a material impact on Global Preferreds
financial statements. In 2003, SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities,was issued. This statement amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts and for hedging activities under
SFAS No. 133. The provisions of SFAS No. 149
did not have a material impact on Global Preferreds
financial statements.

In April 2003, the Financial Accounting Standards
Board (FASB) cleared Statement 133 Implementation
Issue No. B36, Embedded Derivatives: Modified
Coinsurance Arrangements and Debt Instruments That Incorporate
Credit Risk Exposures That Are Unrelated or Only Partially
Related to the Creditworthiness of the Obligor Under Those
Instruments, which includes guidance with respect to
modified coinsurance arrangements involving fixed account
products. Global Preferred does not reinsure the fixed account
of any product on a modified coinsurance basis and therefore
this issue did not have a material impact on Global
Preferreds financial statements.

F-12



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based Compensation-Transition and
Disclosure. Global Preferred has implemented the disclosure
requirement of this standard in conjunction with its reporting
of employee stock compensation.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. The provisions of this statement provide guidelines
on how companies recognize certain financial instruments with
characteristics of both liabilities and equity. It requires
certain financial instruments, which were previously treated as
equity, to be classified as a liability. The provisions of this
statement are effective for financial statements issued on or
after June 15, 2003, with the exception of certain
mandatorily redeemable non-controlling interests. The adoption
of this statement did not have a material impact on Global
Preferreds financial statements.

In November 2002, FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others and in January 2003, FASB issued
Interpretation No. 46, Consolidation of Variable
Interest Entities, as revised by Interpretation 46R, issued
in December 2003. The issuance of Interpretation No. 45 did
not have a material impact on Global Preferreds financial
statements. The issuance of Interpretation No. 46 is not
expected to have a material impact on Global Preferreds
financial statements.

In July 2003, the Accounting Standards Executive
Committee issued Statement of Position (SOP) 03-1,
Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate
Accounts. The provisions of this SOP are effective for
financial statements for fiscal years beginning after
December 15, 2003 and require, among other things, that
liabilities be established for guaranteed minimum death benefits
for certain variable annuity policies. The guaranteed minimum
death benefit liability is established with the change in the
liability included in gross profits used to determine the
amortization of the deferred acquisition costs. This change may
result in an increase in the liability for future policy
benefits and an offsetting increase in deferred acquisition
costs. Global Preferred does not expect these changes to have a
material impact on its financial statements.

Reclassification.Global Preferred has reclassified the presentation of certain
2001 and 2002 information to conform to the 2003 presentation.



|   |            
|-- | -----------
|3. | Investments

Major categories of net investment income consist
of the following:

|                          |  |                          |         |      |  |      |         |   |  |   |         |  
|------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                          |  |                         
|                          |  | Years Ended December 31,
|                          |  |                         
|                          |  | 2001                     |         | 2002 |  | 2003
|                          |  |                          |         |      |  |     
|Fixed maturity securities |  | $                        | 718,583 |      |  | $    | 716,165 |   |  | $ | 271,307 |  
|Equity securities         |  |                          |        |      |  |      |        |   |  |   | 15,178  |  
|Cash and cash equivalents |  |                          | 147,447 |      |  |      | 93,125  |   |  |   | 188,303 |  
|                          |  |                          |         |      |  |      |         |   |  |   |         |  
|                          |  |                          | 866,030 |      |  |      | 809,290 |   |  |   | 474,788 |  
|Investment expenses       |  |                          | (55,486 | )    |  |      | (67,599 | ) |  |   | (67,795 | )
|                          |  |                          |         |      |  |      |         |   |  |   |         |  
|Net investment income     |  | $                        | 810,544 |      |  | $    | 741,691 |   |  | $ | 406,993 |  
|                          |  |                          |         |      |  |      |         |   |  |   |         |  

F-13



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The amortized cost, unrealized gains and losses,
and estimated fair values of fixed maturity and equity
securities at December 31, 2002 and 2003 are as follows:

|                                               |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |            |            |            | 
|---------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------- | ----- | ---------- | ---------- | ---------- | - | ---------- | ------- | ------- | - | ------ | ----- | ----- | - | ---------- | ---------- | ---------- | 
|                                               |                                                                    | Amortized                                 |       | Unrealized |            | Unrealized |   |           
|                                               |                                                                    | Cost                                      |       | Gains      |            | Losses     |   | Fair Value
|                                               |                                                                    |                                           |       |            |            |            |   |           
|2002                                           |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |           
|Fixed maturity securities, available for sale: |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |           
|                                               | Corporate                                                          |                                           | $     | 1,191,270  |            |            | $ | 46,180     |         |         | $ |       |       |       | $ | 1,237,450  |           
|                                               | Asset-backed securities                                            |                                           |       | 398,442    |            |            |   | 18,117     |         |         |   |       |       |       |   | 416,559    |           
|                                               | Mortgage-backed securities                                         |                                           |       | 1,084,050  |            |            |   | 60,131     |         |         |   |       |       |       |   | 1,144,181  |           
|                                               |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |           
|                                               |                                                                    |                                           | Total |            | $          | 2,673,762  |   |            | $       | 124,428 |   |        | $     |      |   |            | $          | 2,798,190  | 
|                                               |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |           
|2003                                           |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |           
|Available for sale:                            |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |           
|                                               | Fixed maturity securities:                                         |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |            |           
|                                               |                                                                    | U.S. government corporations and agencies |       | $          | 3,993,105  |            |   | $          | 39,083  |         |   | $      |      |       |   | $          | 4,032,188  |           
|                                               |                                                                    | Corporate                                 |       |            | 10,701,005 |            |   |            | 154,377 |         |   |        | 5,639 |       |   |            | 10,849,743 |           
|                                               |                                                                    | Mortgage-backed securities                |       |            | 363,698    |            |   |            | 21,848  |         |   |        |      |       |   |            | 385,546    |           
|                                               |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |           
|                                               |                                                                    |                                           | Total |            |            | 15,057,808 |   |            |         | 215,308 |   |        |       | 5,639 |   |            |            | 15,267,477 | 
|                                               | Equity securities                                                  |                                           |       | 2,009,360  |            |            |   | 19         |         |         |   | 10,447 |       |       |   | 1,998,932  |           
|                                               |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |           
|                                               | Total fixed maturity and equity securities,
    available for sale |                                           | $     | 17,067,168 |            |            | $ | 215,327    |         |         | $ | 16,086 |       |       | $ | 17,266,409 |           
|                                               |                                                                    |                                           |       |            |            |            |   |            |         |         |   |        |       |       |   |           

There were no investments in any entity in excess
of 10% of stockholders equity at December 31, 2002
and 2003. Fixed maturity securities are valued based upon quoted
market prices.

At December 31, 2003, the contractual
maturities of investments in fixed maturity securities were as
follows:

|                    |                                        |                |   |            |            |  |   |           |            | 
|------------------- | -------------------------------------- | -------------- | - | ---------- | ---------- |  | - | --------- | ---------- | 
|                    |                                        | Amortized Cost |   | Fair Value
|                    |                                        |                |   |           
|Available for sale: |                                        |                |   |            |            |  |   |          
|                    | Due in one year or less                |                | $ | 893,726    |            |  | $ | 912,255   |           
|                    | Due after one year through five years  |                |   | 8,808,822  |            |  |   | 8,891,136 |           
|                    | Due after five years through ten years |                |   | 4,991,562  |            |  |   | 5,078,540 |           
|                    | Mortgage-backed securities             |                |   | 363,698    |            |  |   | 385,546   |           
|                    |                                        |                |   |            |            |  |   |          
|                    |                                        | Total          |   | $          | 15,057,808 |  |   | $         | 15,267,477 | 
|                    |                                        |                |   |            |            |  |   |          

Expected maturities will differ from contractual
maturities because some issuers have the right to call or prepay
obligations with or without call or prepayment penalties.

Proceeds from sales of fixed maturity securities
available for sale for the years ended December 31, 2001,
2002 and 2003, were $1,674,272, $9,856,622 and $421,282
respectively. No sales of equity securities

F-14



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

occurred in 2001, 2002 or 2003. Components of
realized gains and losses are summarized in the following table:

|                                               |                       |                                  |   |        |        |      |   |         |         |  |   |        |        | 
|---------------------------------------------- | --------------------- | -------------------------------- | - | ------ | ------ | ---- | - | ------- | ------- |  | - | ------ | ------ | 
|                                               |                       | 2001                             |   | 2002   |        | 2003
|                                               |                       |                                  |   |        |        |     
|Fixed maturity securities, available for sale: |                       |                                  |   |        |        |      |   |         |         |  |   |       
|                                               | Gross realized gains  |                                  | $ | 47,180 |        |      | $ | 450,724 |         |  | $ | 21,476 |       
|                                               | Gross realized losses |                                  |   | (2,373 | )      |      |   | (22,901 | )       |  |   |       |       
|                                               |                       |                                  |   |        |        |      |   |         |         |  |   |       
|                                               |                       | Net realized gain on investments |   | $      | 44,807 |      |   | $       | 427,823 |  |   | $      | 21,476 | 
|                                               |                       |                                  |   |        |        |      |   |         |         |  |   |       

Changes in net unrealized gains (losses) were
$279,051, ($249,100) and $76,070 for the years ended
December 31, 2001, 2002 and 2003, respectively.



|   |                   
|-- | ------------------
|4. | Policy Liabilities

Changes in the liability for unpaid policy claims
are summarized as follows:

|                                                |                                        |                          |           |           |           |      |           |           |           |   |           |           |           | 
|----------------------------------------------- | -------------------------------------- | ------------------------ | --------- | --------- | --------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                |                                        |                         
|                                                |                                        | Years Ended December 31,
|                                                |                                        |                         
|                                                |                                        | 2001                     |           | 2002      |           | 2003
|                                                |                                        |                          |           |           |           |     
|Unpaid life claims  January 1                  |                                        | $                        | 2,119,151 |           |           | $    | 1,538,385 |           |           | $ | 1,645,065 |          
|                                                |                                        |                          |           |           |           |      |           |           |           |   |           |          
|Add claims incurred during the year related to: |                                        |                          |           |           |           |      |           |           |           |   |           |          
|                                                | Current year                           |                          |           | 6,577,441 |           |      |           | 8,179,749 |           |   |           | 9,027,513 |          
|                                                | Prior years                            |                          |           | 32,000    |           |      |           | 249,149   |           |   |           | 241,046   |          
|                                                |                                        |                          |           |           |           |      |           |           |           |   |           |          
|                                                |                                        | Total incurred(1)        |           |           | 6,609,441 |      |           |           | 8,428,898 |   |           |           | 9,268,559 | 
|                                                |                                        |                          |           |           |           |      |           |           |           |   |           |          
|Less claims paid during the year:               |                                        |                          |           |           |           |      |           |           |           |   |           |          
|                                                | On claims incurred during current year |                          |           | 6,068,109 |           |      |           | 7,511,575 |           |   |           | 8,519,602 |          
|                                                | On claims incurred during prior years  |                          |           | 1,122,098 |           |      |           | 810,643   |           |   |           | 843,834   |          
|                                                |                                        |                          |           |           |           |      |           |           |           |   |           |          
|                                                |                                        | Total paid               |           |           | 7,190,207 |      |           |           | 8,322,218 |   |           |           | 9,363,436 | 
|                                                |                                        |                          |           |           |           |      |           |           |           |   |           |          
|Unpaid life claims  December 31                |                                        | $                        | 1,538,385 |           |           | $    | 1,645,065 |           |           | $ | 1,550,188 |          
|                                                |                                        |                          |           |           |           |      |           |           |           |   |           |          



---



|    |                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Total incurred plus the change in the experience
    refund for the year equals the amount shown on the consolidated
    statements of income on line titled Benefits, claims and
    settlement expenses. Change in the experience refund for
    the years ended December 31, 2001, 2002 and 2003, were
    $317,049, $0 and $0, respectively.

The amount of claims incurred during the year
related to the prior year are primarily the result of the number
of deaths that occur late in the prior year, usually December,
which are then reported early in the following year, usually
January. This represents the normal lag associated with when a
death occurs and when Global Preferred is notified of the death
and varies depending on the number of deaths occurring late in
any given year. These unpaid policy claims are included in the
liability for future policy benefits on the consolidated balance
sheets.



|   |            
|-- | -----------
|5. | Reinsurance

As of December 31, 2003, Global Preferred
has seven reinsurance contracts and one retrocession agreement.
All policies reinsured under the reinsurance agreements are
self-administered by the ceding life companies. The ceding life
companies provide Global Preferred with all information
necessary for processing the reinsurance, including claims.

F-15



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In July 2001, Global Preferred and World
Financial Group entered into an amended directed reinsurance
agreement, whereby World Financial Group will, for a period
extending through June 8, 2008, use commercially reasonable
best efforts to assist Global Preferred in attaining the
opportunity to reinsure all insurance products sold by its
agents for insurance companies with which World Financial Group
has selling agreements, other than Western Reserve Life
Assurance Co. of Ohio (Western Reserve) and Western
Reserves affiliates. Additionally, the agreement provides
that World Financial Group will use commercially reasonable best
efforts to cooperate with Global Preferred in its negotiations
to establish reinsurance relationships with life insurance
companies and provide certain benefits to the companies that
reinsure their business through Global Preferred.

Also in July 2001, Global Preferred entered into
the First Right Agreement with Western Reserve that provides
Global Preferred Re 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.
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. Under this agreement, Global Preferred possesses the
following 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, 2005 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
|
| |  | commence or increase reinsurance on certain
    variable annuity policies issued from January 1, 2003
    through December 31, 2004 up to 40% on a coinsurance and
    modified coinsurance basis, subject to certain premium
    production requirements.                                                                                     

In order to exercise its contractual rights under
the Western Reserve agreements, (a) certain volumes of
direct written variable annuity premiums or variable universal
life premiums issued by Western Reserve or its
U.S. affiliates must be achieved in the previous calendar
year and (b) Global Preferred must demonstrate
sufficient capacity, which is defined as having
unassigned invested securities and anticipated cash flows in a
sufficient amount to meet expected reinsurance settlements for
the ensuing two calendar years with regard to the increased
reinsurance. Global Preferreds decision to exercise its
contractual rights will be based on a number of relevant
factors, including the attractiveness of the reinsurance rates
prescribed by the agreement, the volume of business and Global
Preferreds available capital. Certain of Global
Preferreds contractual 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. Western Reserve has indicated
to Global Preferred, through informal reports, 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.

Effective January 2002, Global Preferred amended
certain of its reinsurance agreements with Western Reserve to:



| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increase its reinsurance quota share percentage
    on variable annuity policies, which were issued from
    January 1, 1999 through December 31, 2001, from 10% to
    14%. The amendments also provided

F-16



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | that Global Preferred reinsure 14% of certain new
    variable annuity policies issued from January 1, 2002;                                                                                                                                                  
|
| |  | Convert its reinsurance of Financial Freedom
    Builder variable universal life insurance policies, issued from
    April 1, 2001 through December 31, 2001, from a
    monthly renewable term basis to a coinsurance and modified
    coinsurance basis; and
|
| |  | Begin reinsuring certain newly issued Freedom
    Elite Builder variable universal life insurance policies issued
    from July 1, 2001 through December 31, 2001 on a
    coinsurance and modified coinsurance basis.                                        

The net effect of all reinsurance agreements on
premiums and policy revenues is as follows:

|                                 |  |                          |            |      |  |      |            |   |  |   |            |  
|-------------------------------- |  | ------------------------ | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                 |  |                         
|                                 |  | Years Ended December 31,
|                                 |  |                         
|                                 |  | 2001                     |            | 2002 |  | 2003
|                                 |  |                          |            |      |  |     
|Reinsurance assumed              |  | $                        | 30,993,041 |      |  | $    | 32,318,207 |   |  | $ | 30,665,247 |  
|Reinsurance ceded                |  |                          | (514,880   | )    |  |      | (473,677   | ) |  |   | (467,444   | )
|                                 |  |                          |            |      |  |      |            |   |  |   |            |  
|Net premiums and policy revenues |  | $                        | 30,478,161 |      |  | $    | 31,844,530 |   |  | $ | 30,197,803 |  
|                                 |  |                          |            |      |  |      |            |   |  |   |            |  

The net effect of all reinsurance agreements on
benefits, claims and settlement expenses is as follows:

|                                             |  |                          |           |      |  |      |           |  |  |   |           |  
|-------------------------------------------- |  | ------------------------ | --------- | ---- |  | ---- | --------- |  |  | - | --------- | -
|                                             |  |                         
|                                             |  | Years Ended December 31,
|                                             |  |                         
|                                             |  | 2001                     |           | 2002 |  | 2003
|                                             |  |                          |           |      |  |     
|Reinsurance assumed                          |  | $                        | 6,299,510 |      |  | $    | 8,368,898 |  |  | $ | 9,431,944 |  
|Reinsurance ceded                            |  |                          | (7,118    | )    |  |      | 60,000    |  |  |   | (163,385  | )
|                                             |  |                          |           |      |  |      |           |  |  |   |           |  
|Net benefits, claims and settlement expenses |  | $                        | 6,292,392 |      |  | $    | 8,428,898 |  |  | $ | 9,268,559 |  
|                                             |  |                          |           |      |  |      |           |  |  |   |           |  

The impact of reinsurance on life insurance in
force is as follows (in millions):

|                        |     |                          |       |       |  |      |       |       |  |   |       |       | 
|----------------------- | --- | ------------------------ | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                        |     |                         
|                        |     | Years Ended December 31,
|                        |     |                         
|Life insurance in force |     | 2001                     |       | 2002  |  | 2003
|                        |     |                          |       |       |  |     
|Direct                  |     |                          |      |       |  |      |      |       |  |   |      |      
|Assumed                 |     | $                        | 9,082 |       |  | $    | 8,451 |       |  | $ | 7,606 |      
|Ceded                   |     |                          | (156  | )     |  |      | (155  | )     |  |   | (131  | )    
|                        |     |                          |       |       |  |      |       |       |  |   |       |      
|                        | Net |                          | $     | 8,926 |  |      | $     | 8,296 |  |   | $     | 7,475 | 
|                        |     |                          |       |       |  |      |       |       |  |   |       |      



|   |                           
|-- | --------------------------
|6. | Deferred Acquisition Costs

The amount of policy acquisition costs deferred
and amortized is as follows:

|                  |             |                          |            |            |   |      |            |            |   |   |            |            |  
|----------------- | ----------- | ------------------------ | ---------- | ---------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | -
|                  |             |                         
|                  |             | Years Ended December 31,
|                  |             |                         
|                  |             | 2001                     |            | 2002       |   | 2003
|                  |             |                          |            |            |   |     
|Beginning of year |             | $                        | 42,752,339 |            |   | $    | 42,800,269 |            |   | $ | 49,850,309 |           
|                  | Capitalized |                          |            | 3,992,590  |   |      |            | 14,073,855 |   |   |            | 1,294,395  |  
|                  | Amortized   |                          |            | (3,944,660 | ) |      |            | (7,023,815 | ) |   |            | (5,536,839 | )
|                  |             |                          |            |            |   |      |            |            |   |   |            |           
|End of year       |             | $                        | 42,800,269 |            |   | $    | 49,850,309 |            |   | $ | 45,607,865 |           
|                  |             |                          |            |            |   |      |            |            |   |   |            |           

The amendment of certain reinsurance agreements
with Western Reserve effective January 1, 2002 resulted in
an increase in deferred acquisition costs capitalized of
$8,120,168 in 2002.

F-17



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |           
|-- | ----------
|7. | Income Tax

Under current Bermuda law, Global Preferred Re is
not required to pay any taxes in Bermuda on either income or
capital gains. Global Preferred Re has received an assurance
from the Minister of Finance in Bermuda under the Exempted
Undertaking Tax Protection Act 1966 of Bermuda that if any
legislation is enacted in Bermuda that would impose tax on
profits or income, or on any capital asset, gain or
appreciation, or any tax in the nature of estate duty or
inheritance tax, then the imposition of any such tax will not be
applicable to Global Preferred Re or to any of Global
Preferreds operations or shares, debentures or other
obligations until March 28, 2016.

Effective January 1, 1996, Global Preferred
Re made an irrevocable election to be treated as a domestic
insurance company for United States Federal income tax purposes
under section 953(d) of the Internal Revenue Code of 1986,
as amended (the Code). As a result of this
domestic election, Global Preferred Re is subject to
U.S. taxation on its worldwide income as if it were a
U.S. corporation. Global Preferred determines its income
tax expense and liability in accordance with
SFAS No. 109, Accounting for Income Taxes.

Total income tax expenses (benefit) for the years
ended December 31, 2001, 2002 and 2003 were allocated as
follows:

|                     |                                                                |                          |   |           |  |      |   |         |   |  |   |         | 
|-------------------- | -------------------------------------------------------------- | ------------------------ | - | --------- |  | ---- | - | ------- | - |  | - | ------- | 
|                     |                                                                |                         
|                     |                                                                | Years Ended December 31,
|                     |                                                                |                         
|                     |                                                                | 2001                     |   | 2002      |  | 2003
|                     |                                                                |                          |   |           |  |     
|Tax attributable to: |                                                                |                          |   |           |  |      |   |         |   |  |   |        
|                     | Income from continuing operations                              |                          | $ | 2,391,568 |  |      | $ | 788,730 |   |  | $ | 998,262 | 
|                     |                                                                |                          |   |           |  |      |   |         |   |  |   |        
|                     | Unrealized gains (losses) on securities available
    for sale |                          | $ | 94,877    |  |      | $ | (84,694 | ) |  | $ | 25,864  | 
|                     |                                                                |                          |   |           |  |      |   |         |   |  |   |        

The federal income tax expense from continuing
operations for the years ended December 31, 2001, 2002, and
2003 is as follows:

|         |       |                          |           |           |  |      |         |         |  |   |         |         | 
|-------- | ----- | ------------------------ | --------- | --------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|         |       |                         
|         |       | Years Ended December 31,
|         |       |                         
|         |       | 2001                     |           | 2002      |  | 2003
|         |       |                          |           |           |  |     
|Current  |       | $                        | 436,963   |           |  | $    | 17,081  |         |  | $ | 126,598 |        
|Deferred |       |                          | 1,954,605 |           |  |      | 771,649 |         |  |   | 871,664 |        
|         |       |                          |           |           |  |      |         |         |  |   |         |        
|         | Total |                          | $         | 2,391,568 |  |      | $       | 788,730 |  |   | $       | 998,262 | 
|         |       |                          |           |           |  |      |         |         |  |   |         |        

The income tax expense from continuing operations
for the years ended December 31, 2001, 2002 and 2003
differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to income before income
taxes as a result of the following:

|                                       |       |                          |           |           |  |      |         |         |  |   |         |         | 
|-------------------------------------- | ----- | ------------------------ | --------- | --------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                       |       |                         
|                                       |       | Years Ended December 31,
|                                       |       |                         
|                                       |       | 2001                     |           | 2002      |  | 2003
|                                       |       |                          |           |           |  |     
|Computed expected tax expense          |       | $                        | 2,670,411 |           |  | $    | 784,178 |         |  | $ | 996,770 |        
|Small life insurance company deduction |       |                          | (269,976  | )         |  |      |        |         |  |   |        |        
|Other, net                             |       |                          | (8,867    | )         |  |      | 4,552   |         |  |   | 1,492   |        
|                                       |       |                          |           |           |  |      |         |         |  |   |         |        
|                                       | Total |                          | $         | 2,391,568 |  |      | $       | 788,730 |  |   | $       | 998,262 | 
|                                       |       |                          |           |           |  |      |         |         |  |   |         |        

During 2001, Global Preferred was able to benefit
from the small life insurance company deduction
available under Section 806 of the Code at rates less than
34%.

F-18



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying values of assets
and liabilities for financial reporting purposes and federal
income tax purposes. The net deferred tax liability at
December 31, 2002 and 2003 is composed of the following
amounts:

|                          |                                                  |                                |   |            |            |  |   |            |            | 
|------------------------- | ------------------------------------------------ | ------------------------------ | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                          |                                                  | 2002                           |   | 2003      
|                          |                                                  |                                |   |           
|Deferred tax assets:      |                                                  |                                |   |            |            |  |   |           
|                          | Alternative minimum tax credit                   |                                | $ | 7,213      |            |  | $ | 133,811    |           
|                          | Capital losses realized in excess of gains       |                                |   |           |            |  |   |           |           
|                          | Reserve differences                              |                                |   | 6,235,403  |            |  |   | 5,337,975  |           
|                          | Net operating loss carry-forward                 |                                |   | 2,867,333  |            |  |   | 819,552    |           
|                          | DAC tax capitalized                              |                                |   | 450,453    |            |  |   | 463,410    |           
|                          | Other                                            |                                |   | 33,795     |            |  |   | 124,297    |           
|                          |                                                  |                                |   |            |            |  |   |           
|                          |                                                  | Gross deferred tax assets      |   |            | 9,594,197  |  |   |            | 6,879,045  | 
|                          |                                                  |                                |   |            |            |  |   |           
|Deferred tax liabilities: |                                                  |                                |   |            |            |  |   |           
|                          | Policy benefit reserves                          |                                |   | 957,508    |            |  |   | 556,451    |           
|                          | Deferred acquisition costs                       |                                |   | 16,949,105 |            |  |   | 15,506,674 |           
|                          | Unrealized gain on securities available for sale |                                |   | 42,306     |            |  |   | 68,170     |           
|                          |                                                  |                                |   |            |            |  |   |           
|                          |                                                  | Gross deferred tax liabilities |   |            | 17,948,919 |  |   |            | 16,131,295 | 
|                          |                                                  |                                |   |            |            |  |   |           
|                          |                                                  | Net deferred tax liabilities   |   | $          | 8,354,722  |  |   | $          | 9,252,250  | 
|                          |                                                  |                                |   |            |            |  |   |           

There were no valuation allowances for deferred
tax assets as of December 31, 2002 and 2003 since it is
managements belief that it is more likely than not that
the deferred tax assets will be realized. This assessment is
made based on the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies. At December 31, 2003, Global Preferred has net
operating loss carry-forwards for income tax purposes of
$2.4 million, which begin to expire in 2018.



|   |                           
|-- | --------------------------
|8. | Related Party Transactions

Global Preferred issued a $5.0 million
convertible note, due July 29, 2004, to Money
Services, Inc., a subsidiary of AEGON USA, Inc. The
note bears simple interest at a rate of 7.5% per year and
is currently convertible into 312,750 shares of Global
Preferred common stock. If Money Services were to convert the
note, it would own approximately 7% of Global Preferreds
outstanding common stock as of December 31, 2003. Global
Preferred has the option to redeem the note, in whole or in
part, until July 29, 2004. In order to redeem the note
before maturity, Global Preferred must pay all principal, plus
interest accrued from the date of the note through the
redemption date at a higher effective interest rate of
9% per annum. World Financial Group and Western Reserve are
subsidiaries of AEGON USA, Inc. and therefore are entities
related to Money Services due to the common ownership.

In July 2001, Global Preferred entered into an
agreement with World Financial Group, which requires that World
Financial Group will use its commercially reasonable efforts to
assist Global Preferred in attaining the opportunity to reinsure
all insurance products sold by its agents for insurance
companies with which World Financial Group has selling
agreements, other than Western Reserve and Western
Reserves affiliates.

Global Preferred has four separate reinsurance
agreements with Western Reserve that cover variable universal
life insurance and variable annuity policies issued by Western
Reserve on or after various dates after January 1, 1992
which were sold by the agents of World Financial Group and its
predecessor. Also in July 2001, Global Preferred entered into
the First Right Agreement with Western Reserve. The First

F-19



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Right Agreement provides Global Preferred the
right to reinsure certain policies issued by Western Reserve or
its U.S. affiliates which agents associated with World
Financial Group sell.

The life insurance companies for which Global
Preferred provides reinsurance, pay commissions to the agents of
World Financial Group for sales of life insurance and annuity
contracts reinsured by Global Preferred. As a result of such
relationships, the interests of World Financial Group may
conflict with Global Preferreds interests in negotiating
reinsurance agreements.

Global Preferred occupied office space in Duluth,
Georgia until October 2002 when Global Preferred moved to its
current location. Western Reserve was the landlord on the space
that Global Preferred previously occupied. Global
Preferreds monthly rent on the former space was $3,482,
plus its proportionate share of the taxes.

World Financial Group, and its predecessor,
provided corporate services to Global Preferred during 2001 and
2002. These services included computer network system
maintenance, facilities maintenance, security, mail services,
utilities, postage, telephone and copier service. Global
Preferred incurred $46,498 and $108,158 of costs for these
services from World Financial Group, and its predecessor, for
the years ended December 31, 2001 and 2002, respectively.
The majority of the increase in these costs in 2002 reflected
the set-up and maintenance of a stand-alone computer network
system for Global Preferred. Concurrent with Global
Preferreds move into its new office space, World Financial
Group ceased providing these services.

Due to the relationships among Global Preferred,
World Financial Group, Western Reserve, Money Services and AEGON
USA, conflicts of interest may arise with respect to existing
and future business dealings, including:



| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the terms of World Financial Groups selling
    agreements (including commission arrangements) and Global
    Preferreds reinsurance relationships with life insurance
    companies;
|
| |  | agreements among Global Preferred, World
    Financial Group, Western Reserve, Money Services, AEGON USA and
    their affiliates;                                                     
|
| |  | potential acquisitions of properties or
    businesses;                                                                                                                                
|
| |  | potential divestitures of properties or
    businesses; and                                                                                                                            
|
| |  | the issuance of securities by Global Preferred.                                                                                                                                        

In 1995, Global Preferred Re entered into an
agreement with International Advisory Services, Ltd.
(IAS), formerly CFM Insurance Managers, Ltd. and a
subsidiary of IAS Global Captive Group, Ltd., which provides
professional insurance management services to international
companies operating in Bermuda. C. Simon Scupham, a
director of Global Preferred and of Global Preferred Re, is a
director of IAS Global Captive Group. Pursuant to this
agreement, IAS acts as the managing agent and the Principal
Representative for Global Preferred Re in Bermuda. This
agreement is for an unlimited duration, but may be terminated by
either party upon three months prior written notice or upon
30 days prior written notice under specified circumstances.
Global Preferred paid $60,000 in fees during each of the years
ended December 31, 2001, 2002 and 2003 pursuant to the
agreement with IAS.

As of December 31, 2003, S. Hubert
Humphrey, Jr. was the beneficial owner of 20.5% of Global
Preferreds outstanding common stock. Effective
December 28, 2001, Mr. Humphrey retired from the board
of directors and all of the positions he held with Global
Preferred and with Global Preferred Re. Global Preferred agreed
to grant to Mr. Humphrey, upon successful completion of a
firm commitment, underwritten registered public offering on or
before December 31, 2003, options to purchase
100,000 shares of Global Preferred common stock. No such
offering was completed on or before December 31, 2003 and
Global Preferreds obligation to issue such options expired.

F-20



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Global Preferred has written employment
agreements with various executives. These agreements govern
employee conduct and Global Preferreds obligation to
compensate such key employees. The agreements expire
December 31, 2004 or December 31, 2005 and are
renewable by agreement of the parties for additional one-year
periods.



|   |                       
|-- | ----------------------
|9. | Statutory Restrictions

Global Preferred Re is a Bermuda company
registered as a long-term insurer under the Bermuda Insurance
Act 1978 (the Insurance Act) and as such is subject
to the restrictions of the Insurance Act. Statutory assets and
liabilities refer to those assets and liabilities recorded on
the statutory balance sheet required by the Insurance Act. Under
the Insurance Act, Global Preferred Re:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Must maintain the required minimum solvency
    margin (the value of its long-term business assets exceed the
    amount of its long-term business liabilities by at least
    $250,000) and is prohibited from declaring or paying any
    dividends during any financial year if it is in breach of its
    minimum solvency margin or if the declaration or payment of such
    dividends would cause it to fail to meet such margin;                                                                                                                                                                               
|
| |  | Is prohibited, without the approval of the
    Authority, from reducing its total statutory capital as set out
    in its previous years financial statements by 15% or more
    in a single financial year;                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Is required to establish and maintain a
    segregated long-term business fund; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Is prohibited from declaring or paying a dividend
    to any person other than a policyholder unless the value of the
    assets of its long-term business fund as certified by Global
    Preferred Res approved actuary, exceeds the extent (as so
    certified) of the liabilities of Global Preferred Res
    long-term business. The amount of any such dividend shall not
    exceed the aggregate of the excess referenced in the preceding
    sentence and other funds properly available for the payment of
    dividends, being funds arising out of its business, other than
    its long-term business.

Global Preferred Re must comply with the
provisions of the Companies Act 1981 (the Companies
Act) regulating the declaration and payment of dividends
and making distributions from contributed surplus and reductions
of capital. Global Preferred Re may not declare or pay a
dividend, or make a distribution out of contributed surplus, if
there are reasonable grounds for believing that: the company is,
or would after the payment be, unable to pay its liabilities as
they become due; or the realizable value of the companys
assets would thereby be less than the aggregate of its
liabilities and its issued share capital and share premium
accounts. The Companies Act further regulates the return of
capital, and repurchases and redemptions of shares by Global
Preferred Re.

Global Preferred relies, and will continue to
rely, primarily on funds retained at the holding company level,
dividends and other permitted payments, such as debt service
payments, from Global Preferred Re to meet ongoing cash
requirements. As of December 31, 2002 and 2003, Global
Preferred Re had total statutory capital and surplus of
$11.7 million and $22.6 million (estimated),
respectively. For the years ended December 31, 2001, 2002
and 2003, Global Preferred Re had statutory net income (loss) of
$496,000, ($6.1 million) and $10.5 million
(estimated), respectively. As of December 31, 2003, Global
Preferred Re had $7.4 million (estimated) available to
distribute in dividends without seeking regulatory approval.
During 2003, Global Preferred Re paid no dividends to Global
Preferred.



|    |                                           
|--- | ------------------------------------------
|10. | Commitments and Contingent
    Liabilities

From time to time Global Preferred may be subject
to litigation and arbitration in the normal course of business.
Management does not believe that Global Preferred is a party to
any such pending litigation or

F-21



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

arbitration that would have a material adverse
effect on its financial position, results of operations or cash
flows.

Global Preferred has obtained letters of credit
in favor of unaffiliated insurance companies with whom Global
Preferred has reinsurance agreements. The posting of a letter of
credit allows the ceding life company to take statutory reserve
credit for reinsurance ceded, which would otherwise not be
available as Global Preferred Re is not a licensed reinsurer by
the ceding life companys state of domicile. At
December 31, 2003, the outstanding letters of credit
totaled $5.85 million. The letters of credit were issued by
Global Preferreds custodian and secured by Global
Preferreds investments held by the custodian.

In October 2002, Global Preferred entered into a
lease agreement for office space in Duluth, Georgia. The initial
lease term, as amended, is twenty-four months, with the option
to extend the term an additional thirty-nine months, expiring in
January 2008. If Global Preferred exercises the right to extend
the lease, the first three months of the extended term will be
abated. Payments under this lease are $122,177 annually through
October 2004. The lease payments are subject to an annual
increase of approximately 3%. Total lease expense for the office
space for the year ended December 31, 2003 was $120,488.

The following is a schedule of future minimum
lease payments as of December 31, 2003:

|                         |  |                |         | 
|------------------------ |  | -------------- | ------- | 
|Year Ending December 31, |  | Lease Payments
|                         |  |               
|2004                     |  | $              | 97,583  | 
|2005                     |  |                | 123,937 | 
|2006                     |  |                | 132,134 | 
|2007                     |  |                | 136,048 | 
|Thereafter               |  |                | 4,946   | 

The monthly lease payments will be expensed on a
straight-line basis for the life of the lease in accordance with
SFAS No. 13, Accounting for Leases.

In October 2002, Global Preferred entered into an
operating lease with ePlus, Inc. The lease consists of
three schedules for the lease of office furniture, copier and
computer equipment, and telecommunications equipment. The term
of each schedule began either December 31, 2002 or
January 31, 2003 and expires 36 months thereafter on
either December 31, 2005 or January 31, 2006. Payments
under this lease are $36,987 annually through the end of the
lease. Total lease expense for the operating lease for year
ended December 31, 2003 was $39,883.

The following is a schedule of future minimum
lease payments as of December 31, 2003:

|                         |  |                |        | 
|------------------------ |  | -------------- | ------ | 
|Year Ending December 31, |  | Lease Payments
|                         |  |               
|2004                     |  | $              | 36,987 | 
|2005                     |  |                | 36,987 | 
|2006                     |  |                | 1,268  | 

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
totaled $245.2 million and $281.8 million as of
December 31, 2002 and 2003, respectively.

F-22



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                          
|--- | -----------------------------------------
|11. | Current Maturities and Long-Term
    Debt

At December 31, 2002 and 2003, amounts
payable for long-term debt were as follows, in summary:

|                                                                                                      |  |      |           |      |  |   |   | 
|----------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | - | 
|                                                                                                      |  | 2002 |           | 2003
|                                                                                                      |  |      |           |     
|Long-Term Debt Convertible Term Note 
    7.5% interest, principal and interest due at July 29, 2004 |  | $    | 5,000,000 |      |  | $ |  | 
|                                                                                                      |  |      |           |      |  |   |   | 

At December 31, 2002 and 2003, amounts
payable for current maturities of long-term debt were as
follows, in summary:

|                                     |                                                                                        |      |   |      |  |  |   |           | 
|------------------------------------ | -------------------------------------------------------------------------------------- | ---- | - | ---- |  |  | - | --------- | 
|                                     |                                                                                        | 2002 |   | 2003
|                                     |                                                                                        |      |   |     
|Current Maturities of Long-Term Debt |                                                                                        |      |   |      |  |  |   |          
|                                     | Convertible Term Note  7.5% interest,
    principal and interest due at July 29, 2004 |      | $ |     |  |  | $ | 5,000,000 | 
|                                     |                                                                                        |      |   |      |  |  |   |          

In July 1999, Global Preferred issued a
$5 million, five-year convertible term note to Money
Services, Inc. due on July 29, 2004. Money Services is
a subsidiary of AEGON USA, Inc. Proceeds of this note were
used to reduce a portion of the outstanding principal balance on
a line of credit with Money Services. Interest is payable at
7.5% per annum (except in the event of redemption), on the
29th of each succeeding January and July through and including
July 29, 2004. Money Services has the right to convert the
outstanding principal balance of this note into shares of Global
Preferreds common stock at any time. Upon conversion,
Money Services will receive 6,255 shares of common stock
for each $100 of the outstanding principal amount of the note,
which reflects the three-for-two stock split in 2001. Global
Preferred has the option to redeem the note, in whole or in
part, between July 29, 2002, and July 29, 2004. To
redeem the note before maturity, Global Preferred must pay all
principal, plus interest accrued from the date of the note
through the redemption date at a higher effective interest rate
of 9% per annum. As of December 31, 2002 and 2003,
Global Preferred had an outstanding principal balance on the
note of $5 million and accrued interest of $158,219.

F-23



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                     
|--- | --------------------
|12. | Comprehensive Income

The following table sets forth the amounts of
other comprehensive income (loss) along with the related tax
effects allocated to other comprehensive income (loss) for the
years ended December 31, 2001, 2002 and 2003:

|                                                                       |  |            |          |           |  |            |          |   |  |   |          |  
|---------------------------------------------------------------------- |  | ---------- | -------- | --------- |  | ---------- | -------- | - |  | - | -------- | -
|                                                                       |  |            |          | Tax       |  |           
|                                                                       |  | Before-Tax |          | (Expense) |  | Net-of-Tax
|                                                                       |  | Amount     |          | Benefit   |  | Amount    
|                                                                       |  |            |          |           |  |           
|2001                                                                   |  |            |          |           |  |            |          |   |  |   |          |  
|Net unrealized holding gains arising during period                     |  | $          | 323,858  |           |  | $          | (110,111 | ) |  | $ | 213,747  |  
|Less: reclassification adjustment for gains
    realized in net income |  |            | 44,807   |           |  |            | (15,234  | ) |  |   | 29,573   |  
|                                                                       |  |            |          |           |  |            |          |   |  |   |          |  
|Other comprehensive income                                             |  | $          | 279,051  |           |  | $          | (94,877  | ) |  | $ | 184,174  |  
|                                                                       |  |            |          |           |  |            |          |   |  |   |          |  
|2002                                                                   |  |            |          |           |  |            |          |   |  |   |          |  
|Net unrealized holding losses arising during
    period                |  | $          | (676,923 | )         |  | $          | 230,153  |   |  | $ | (446,770 | )
|Less: reclassification adjustment for gains
    realized in net income |  |            | 427,823  |           |  |            | (145,459 | ) |  |   | 282,364  |  
|                                                                       |  |            |          |           |  |            |          |   |  |   |          |  
|Other comprehensive loss                                               |  | $          | (249,100 | )         |  | $          | 84,694   |   |  | $ | (164,406 | )
|                                                                       |  |            |          |           |  |            |          |   |  |   |          |  
|2003                                                                   |  |            |          |           |  |            |          |   |  |   |          |  
|Net unrealized holding gains arising during period                     |  | $          | 97,546   |           |  | $          | (33,166  | ) |  | $ | 64,380   |  
|Less: reclassification adjustment for gains
    realized in net income |  |            | 21,476   |           |  |            | (7,302   | ) |  |   | 14,174   |  
|                                                                       |  |            |          |           |  |            |          |   |  |   |          |  
|Other comprehensive income                                             |  | $          | 76,070   |           |  | $          | (25,864  | ) |  | $ | 50,206   |  
|                                                                       |  |            |          |           |  |            |          |   |  |   |          |  



|    |                  
|--- | -----------------
|13. | 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,accounting principles. 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 accounting principles.

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

F-24



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

|                                                               |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|-------------------------------------------------------------- |  | ---------------------------- | ------ | --------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------ | 
|                                                               |  |                             
|                                                               |  | Year Ended December 31, 2001
|                                                               |  |                             
|                                                               |  | Non-                         |        |          
|                                                               |  | Universal                    |        | Universal |  |      
|Segment Reporting                                              |  | Life-Type                    |        | Life-Type |  | Other |        | Total
|                                                               |  |                              |        |           |  |       |        |      
|                                                               |  |                             
|                                                               |  | (Dollars in thousands)      
|Premiums                                                       |  | $                            | 19,240 |           |  | $     |       |       |  | $ |       |   |  | $ | 19,240 | 
|Reinsured policy revenues                                      |  |                              |       |           |  |       | 11,238 |       |  |   |       |   |  |   | 11,238 | 
|Benefits, claims and settlement expenses*                      |  |                              | 7,833  |           |  |       | 871    |       |  |   |       |   |  |   | 8,704  | 
|Reinsurance expense allowances, net                            |  |                              | 6,859  |           |  |       | 1,642  |       |  |   |       |   |  |   | 8,501  | 
|Amortization of deferred acquisition costs                     |  |                              | 197    |           |  |       | 3,748  |       |  |   |       |   |  |   | 3,945  | 
|                                                               |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Underwriting profit                                            |  |                              | 4,351  |           |  |       | 4,977  |       |  |   |       |   |  |   | 9,328  | 
|Net investment income                                          |  |                              | 215    |           |  |       | 230    |       |  |   | 366    |   |  |   | 811    | 
|Net realized gain on investments                               |  |                              |       |           |  |       |       |       |  |   | 45     |   |  |   | 45     | 
|Other expenses                                                 |  |                              | 123    |           |  |       | 216    |       |  |   | 1,991  |   |  |   | 2,330  | 
|                                                               |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment operating income (loss) before income tax              |  |                              | 4,443  |           |  |       | 4,991  |       |  |   | (1,580 | ) |  |   | 7,854  | 
|Income tax expense (benefit)                                   |  |                              | 1,353  |           |  |       | 1,520  |       |  |   | (481   | ) |  |   | 2,392  | 
|                                                               |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment net income (loss)                                      |  | $                            | 3,090  |           |  | $     | 3,471  |       |  | $ | (1,099 | ) |  | $ | 5,462  | 
|                                                               |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Preferred dividends                                            |  |                              |       |           |  |       |       |       |  |   | 267    |   |  |   | 267    | 
|                                                               |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment net income (loss) available to common
    stockholders |  | $                            | 3,090  |           |  | $     | 3,471  |       |  | $ | (1,366 | ) |  | $ | 5,195  | 
|                                                               |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment assets                                                 |  | $                            | 8,615  |           |  | $     | 46,748 |       |  | $ | 12,490 |   |  | $ | 67,853 | 
|                                                               |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 



---



|  |                                                                                       
|- | --------------------------------------------------------------------------------------
|* | Benefits, claims and settlement expenses include
    change in future policy benefits.

F-25



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|------------------------------------------------- |  | ---------------------------- | ------ | --------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------ | 
|                                                  |  |                             
|                                                  |  | Year Ended December 31, 2002
|                                                  |  |                             
|                                                  |  | Non-                         |        |          
|                                                  |  | Universal                    |        | Universal |  |      
|Segment Reporting                                 |  | Life-Type                    |        | Life-Type |  | Other |        | Total
|                                                  |  |                              |        |           |  |       |        |      
|                                                  |  |                             
|                                                  |  | (Dollars in thousands)      
|Premiums                                          |  | $                            | 17,985 |           |  | $     |       |       |  | $ |       |   |  | $ | 17,985 | 
|Reinsured policy revenues                         |  |                              |       |           |  |       | 13,860 |       |  |   |       |   |  |   | 13,860 | 
|Benefits, claims and settlement expenses*         |  |                              | 7,866  |           |  |       | 2,089  |       |  |   |       |   |  |   | 9,955  | 
|Reinsurance expense allowances, net               |  |                              | 6,319  |           |  |       | 2,199  |       |  |   |       |   |  |   | 8,518  | 
|Amortization of deferred acquisition costs        |  |                              | 232    |           |  |       | 6,792  |       |  |   |       |   |  |   | 7,024  | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Underwriting profit                               |  |                              | 3,568  |           |  |       | 2,780  |       |  |   |       |   |  |   | 6,348  | 
|Net investment income                             |  |                              | 124    |           |  |       | 276    |       |  |   | 342    |   |  |   | 742    | 
|Net realized gain on investments                  |  |                              |       |           |  |       |       |       |  |   | 428    |   |  |   | 428    | 
|Other expenses                                    |  |                              | 142    |           |  |       | 280    |       |  |   | 4,790  |   |  |   | 5,212  | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment operating income (loss) before income tax |  |                              | 3,550  |           |  |       | 2,776  |       |  |   | (4,020 | ) |  |   | 2,306  | 
|Income tax expense (benefit)                      |  |                              | 1,213  |           |  |       | 949    |       |  |   | (1,374 | ) |  |   | 788    | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment net income (loss)                         |  | $                            | 2,337  |           |  | $     | 1,827  |       |  | $ | (2,646 | ) |  | $ | 1,518  | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment assets                                    |  | $                            | 6,021  |           |  | $     | 52,248 |       |  | $ | 16,005 |   |  | $ | 74,274 | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 



---



|  |                                                                                       
|- | --------------------------------------------------------------------------------------
|* | Benefits, claims and settlement expenses include
    change in future policy benefits.

|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|------------------------------------------------- |  | ---------------------------- | ------ | --------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------ | 
|                                                  |  |                             
|                                                  |  | Year Ended December 31, 2003
|                                                  |  |                             
|                                                  |  | Non-                         |        |          
|                                                  |  | Universal                    |        | Universal |  |      
|Segment Reporting                                 |  | Life-Type                    |        | Life-Type |  | Other |        | Total
|                                                  |  |                              |        |           |  |       |        |      
|                                                  |  |                             
|                                                  |  | (Dollars in thousands)      
|Premiums                                          |  | $                            | 17,401 |           |  | $     |       |       |  | $ |       |   |  | $ | 17,401 | 
|Reinsured policy revenues                         |  |                              |        |           |  |       | 12,796 |       |  |   |        |   |  |   | 12,796 | 
|Benefits, claims and settlement expenses*         |  |                              | 8,147  |           |  |       | 2,176  |       |  |   |       |   |  |   | 10,323 | 
|Reinsurance expense allowances, net               |  |                              | 6,042  |           |  |       | 2,093  |       |  |   |       |   |  |   | 8,135  | 
|Amortization of deferred acquisition costs        |  |                              | 250    |           |  |       | 5,287  |       |  |   |       |   |  |   | 5,537  | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Underwriting profit                               |  |                              | 2,962  |           |  |       | 3,240  |       |  |   |       |   |  |   | 6,202  | 
|Net investment income                             |  |                              | 14     |           |  |       | 207    |       |  |   | 186    |   |  |   | 407    | 
|Net realized gain on investments                  |  |                              |       |           |  |       |       |       |  |   | 21     |   |  |   | 21     | 
|Other income                                      |  |                              |       |           |  |       |       |       |  |   | 63     |   |  |   | 63     | 
|Other expenses                                    |  |                              | 167    |           |  |       | 344    |       |  |   | 3,251  |   |  |   | 3,762  | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment operating income (loss) before income tax |  |                              | 2,809  |           |  |       | 3,103  |       |  |   | (2,981 | ) |  |   | 2,931  | 
|Income tax expense (benefit)                      |  |                              | 956    |           |  |       | 1,057  |       |  |   | (1,015 | ) |  |   | 998    | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment net income (loss)                         |  | $                            | 1,853  |           |  | $     | 2,046  |       |  | $ | (1,966 | ) |  | $ | 1,933  | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 
|Segment assets                                    |  | $                            | 5,601  |           |  | $     | 48,164 |       |  | $ | 25,519 |   |  | $ | 79,284 | 
|                                                  |  |                              |        |           |  |       |        |       |  |   |        |   |  |   |        | 



---



|  |                                                                                       
|- | --------------------------------------------------------------------------------------
|* | Benefits, claims and settlement expenses include
    change in future policy benefits.

F-26



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During 2001, 2002 and 2003, the percentages of
total premiums and reinsured policy revenues that relate to
Western Reserve were 89%, 91% and 92%, respectively. The
percentages of the total underwriting profit that relate to
Western Reserve for 2001, 2002 and 2003 were 86%, 96% and 95%,
respectively.

Global Preferred estimates that approximately 44%
of variable universal life premiums and 33% of variable annuity
premiums, written through Western Reserve and sold by agents
associated with World Financial Group, originated in California.



|    |                 
|--- | ----------------
|14. | Capital Infusion

In August 2000, Global Preferred closed its
offering of Series A Preferred Stock, which resulted in
approximately $4 million of gross proceeds to Global
Preferred. Global Preferred issued 266,047 shares of
Series A Preferred Stock in this offering. The net proceeds
were loaned to Global Preferred Re, which were applied toward
repayment of a line of credit with Money Services. The terms of
the Series A Preferred Stock provided for automatic
conversion into common stock upon the earlier of (i) the
closing of any Qualifying Sale of shares of common stock or
(ii) January 1, 2002. A Qualifying Sale was defined as
net proceeds to Global Preferred of at least $10 million
from the sale of its shares of common stock. On January 1,
2002, 266,047 shares of Series A Preferred Stock
issued were automatically converted into 399,074 shares of
common stock. The conversion reflected the 3-for-2 stock split
effective in September 2001.

In October 2002, Global Preferred withdrew the
registration statement for its proposed initial public offering
of 9.5 million shares of common stock due to unfavorable
market conditions. During the quarter ended September 30,
2002, Global Preferred expensed $1.7 million of deferred
offering costs that were to be offset against the proceeds of
the offering. The deferred offering costs paid in prior periods
were previously reported as an asset under prepaid
expenses on the consolidated balance sheet and the
expensing of those costs is currently shown as costs of
withdrawn offering on the consolidated income statement.



|    |              
|--- | -------------
|15. | Stock Options

In 2002, Global Preferred established the Global
Preferred Holdings, Inc. Stock Incentive Plan (the
Stock Incentive Plan). The aggregate number of
shares of common stock reserved for issuance under the Stock
Incentive Plan is 1.5 million shares. Awards granted under
the Stock Incentive Plan may be stock appreciation rights,
restricted stock, options intended to qualify as incentive
stock options or nonqualified stock options. The term of
the options, including vesting, exercise price and expiration
date, are determined by the Compensation Committee of the Board
of Directors at the date of the grant. No options may be granted
under the Stock Incentive Plan after July 30, 2012. The
purpose of the Stock Incentive Plan is to attract and retain
experienced, knowledgeable employees and to align the interests
of these employees with Global Preferreds stockholders.

Also in 2002, Global Preferred adopted and the
stockholders ratified the Global Preferred Holdings, Inc.
Directors Stock Option Plan (the Directors Option
Plan). This plan was subsequently amended and restated by
the Board of Directors, which amendment and restatement was
ratified by the stockholders in June 2003. The aggregate number
of shares of common stock reserved for issuance under the
Directors Option Plan is 280,000 shares. Options granted
under the Directors Option Plan generally vest over a 3 to
4 year period and the exercise price is not less than the
fair value of the shares of common stock subject to the options
granted as of the date of grant, as determined by the Board of
Directors. No options may be granted under the Directors Option
Plan after June 17, 2013. The purpose of the Directors
Option Plan is to attract and retain experienced, knowledgeable
directors and to align the interests of Global Preferreds
directors with the stockholders.

F-27



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

SFAS No. 123 requires the development
of an estimate of the fair value of options granted. While
Global Preferred believes that option pricing models, such as
binomial and Black-Scholes, provide the best estimate of the
fair value of the options granted, these valuation models have
limitations. In managements opinion, these models may not
necessarily provide a reliable single measure of the fair value
of Global Preferreds stock options, because
(i) Global Preferreds employee and director stock
options have characteristics significantly different from those
of traded options, (ii) there is no active trading market
in Global Preferreds capital stock and the stock therefore
does not have a readily ascertainable fair market value, and
(iii) changes in the subjective input assumptions can
materially affect the fair value estimate. In addition, options
give the option holder the right, but not the obligation, to buy
Global Preferreds common stock at a fixed price in the
future regardless of the fair value of the common stock at the
purchase date, therefore, there is no guarantee that the options
will ever have any tangible value. Global Preferred has used a
binomial option valuation model to determine fair value of its
employee and director stock options.

In May 2003, the Compensation Committee of the
Board of Directors granted options to purchase an aggregate of
170,688 shares of common stock to certain employees in
order to retain employees due to competitive market conditions
and to provide additional incentive to such persons to increase
the value of Global Preferreds stock. Following the
stockholders ratification of the amendment to the
Directors Option Plan, in June 2003, the non-employee directors
of Global Preferred were automatically granted options to
purchase 78,625 shares of Global Preferreds common
stock.

Options granted by the Company currently expire
no later than 10 years from the grant date and generally
vest within 4 years. As of December 31, 2003, 118,876
of the unvested options would automatically become fully vested
upon a change of control of the company. The exercise price of
all options outstanding as of December 31, 2003 is $10.46.
Additional information with respect to stock option plan
activity is as follows:

|                        |                   |                       |         |                     |   |                  |       |       |   |   |       |       | 
|----------------------- | ----------------- | --------------------- | ------- | ------------------- | - | ---------------- | ----- | ----- | - | - | ----- | ----- | 
|                        |                   |                       |         |                    
|                        |                   |                       |         | Outstanding Options
|                        |                   |                       |         |                    
|                        |                   | Shares Available      |         | Number of           |   | Weighted Average
|                        |                   | for Options           |         | Shares              |   | Exercise Price  
|                        |                   |                       |         |                     |   |                 
|                        |                   |                      
|                        |                   | (Shares in thousands)
|December 31, 2002       |                   |                       | 1,780.0 |                     |   |                  |      |       |   |   | N/A   |      
|                        | Grants            |                       |         | (249.3              | ) |                  |       | 249.3 |   |   | $     | 10.46 | 
|                        | Cancellations     |                       |         |                    |   |                  |       | (3.9  | ) |   | $     | 10.46 | 
|                        |                   |                       |         |                     |   |                  |       |       |   |   |       |      
|December 31, 2003       |                   |                       | 1,530.7 |                     |   |                  | 245.4 |       |   | $ | 10.46 |      
|                        |                   |                       |         |                     |   |                  |       |       |   |   |       |      
|Options exercisable at: |                   |                       |         |                     |   |                  |       |       |   |   |       |      
|                        | December 31, 2002 |                       |         |                    |   |                  |       |      |   |   |       | N/A   | 
|                        | December 31, 2003 |                       |         |                     |   |                  |       | 81.2  |   |   | $     | 10.46 | 

These options will expire if not exercised prior
to their expiration dates, the latest of which is May 2013. No
options have been exercised.

The fair value of options granted in 2003
reported above was estimated at the date of grant using a
binomial option valuation model. The following assumptions were
used in determining the SFAS No. 123 expense
associated with the stock option plans. The volatility used was
0%; the risk free interest rate was 3%; dividend yield was 0%;
the gross director termination rate was 0%; and the gross
employee termination rate was 20%. Options were assumed to be
exercised at varying rates depending upon the excess of the fair
value of Global Preferreds common stock modeled over the
strike price of the option. These rates varied from 0% where the
excess of the fair value of the common stock over the strike
price of the option was $0 to 34% per year when this excess
was $8 or higher. The weighted average estimated fair value of
employee

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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and director stock options granted during 2003
using SFAS No. 123 assumptions was $0.24 and zero,
respectively.



|    |                                   
|--- | ----------------------------------
|16. | Defined Contribution Pension Plans

Global Preferred sponsors a defined contribution
pension plan covering substantially all of its employees. In
2001 and 2002, contributions and costs were determined as 50% of
an employees contribution up to 6% of the employees
salary (not to exceed a salary base per employee of $170,000 in
2001 and $200,000 in 2002). In 2003, contributions and costs
were determined as 100% of an employees contribution up to
4% of the employees salary (not to exceed a salary base of
$200,000 per employee). The total costs were $8,938,
$12,329 and $39,401 in 2001, 2002, and 2003, respectively.

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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                     
|--- | ------------------------------------
|17. | Parent Company Financial Information

Balance Sheets

(Parent Company Only)


|                                                                                                                                |                                                                                                                                                                          |                                            |            |            |            |   |            |            |            | 
|------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                                                                                                                |                                                                                                                                                                          |                                           
|                                                                                                                                |                                                                                                                                                                          | December 31,                              
|                                                                                                                                |                                                                                                                                                                          |                                           
|                                                                                                                                |                                                                                                                                                                          | 2002                                       |            | 2003      
|                                                                                                                                |                                                                                                                                                                          |                                            |            |           
|ASSETS                                                                                                                         
|Investment in common stock of subsidiary(1)                                                                                     |                                                                                                                                                                          | $                                          | 36,859,470 |            |            | $ | 38,722,535 |           
|Fixed maturity securities  available
    for sale (amortized cost of $12,523 and $498,810 for 2002 and
    2003, respectively) |                                                                                                                                                                          |                                            | 12,927     |            |            |   | 504,373    |           
|Cash and cash equivalents                                                                                                       |                                                                                                                                                                          |                                            | 2,475,098  |            |            |   | 3,545,374  |           
|Investment income due and accrued                                                                                               |                                                                                                                                                                          |                                            | 1,319      |            |            |   | 3,509      |           
|Investment income due and accrued 
    intercompany(1)                                                                         |                                                                                                                                                                          |                                            | 189,344    |            |            |   | 189,344    |           
|Accounts receivable                                                                                                             |                                                                                                                                                                          |                                            | 215,500    |            |            |   |           |           
|Intercompany receivables(1)                                                                                                     |                                                                                                                                                                          |                                            | 2,152,529  |            |            |   | 1,484,708  |           
|Note receivable  intercompany(1)                                                                                               |                                                                                                                                                                          |                                            | 5,000,000  |            |            |   | 5,000,000  |           
|Prepaid expenses                                                                                                                |                                                                                                                                                                          |                                            | 872,648    |            |            |   | 516,182    |           
|Fixed assets (net of accumulated depreciation of
    $240,439 and $336,817 for 2002 and 2003, respectively)                     |                                                                                                                                                                          |                                            | 215,095    |            |            |   | 135,495    |           
|Deferred tax benefit                                                                                                            |                                                                                                                                                                          |                                            | 940,433    |            |            |   | 862,591    |           
|                                                                                                                                |                                                                                                                                                                          |                                            |            |            |            |   |            |           
|                                                                                                                                |                                                                                                                                                                          | Total assets                               |            | $          | 48,934,363 |   |            | $          | 50,964,111 | 
|                                                                                                                                |                                                                                                                                                                          |                                            |            |            |            |   |            |           
|                                                                                                                               
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                       
|Liabilities:                                                                                                                    |                                                                                                                                                                          |                                            |            |            |            |   |            |           
|                                                                                                                                | Accrued expenses and accounts payable                                                                                                                                    |                                            | $          | 454,289    |            |   | $          | 498,351    |           
|                                                                                                                                | Accrued interest payable                                                                                                                                                 |                                            |            | 158,219    |            |   |            | 158,219    |           
|                                                                                                                                | Current maturities of long-term debt                                                                                                                                     |                                            |            |           |            |   |            | 5,000,000  |           
|                                                                                                                                | Long term debt                                                                                                                                                           |                                            |            | 5,000,000  |            |   |            |           |           
|                                                                                                                                | Current income tax payable                                                                                                                                               |                                            |            |           |            |   |            | 2,065      |           
|                                                                                                                                |                                                                                                                                                                          |                                            |            |            |            |   |            |           
|                                                                                                                                |                                                                                                                                                                          | Total liabilities                          |            |            | 5,612,508  |   |            |            | 5,658,635  | 
|                                                                                                                                |                                                                                                                                                                          |                                            |            |            |            |   |            |           
|Stockholders equity:                                                                                                           |                                                                                                                                                                          |                                            |            |            |            |   |            |           
|                                                                                                                                | Common stock, par value $.001,
    50,000,000 shares and 15,000,000 shares authorized for
    2002 and 2003, respectively; 4,149,074 shares issued for
    2002 and 2003 |                                            |            | 4,149      |            |   |            | 4,149      |           
|                                                                                                                                | Additional paid-in capital                                                                                                                                               |                                            |            | 23,326,026 |            |   |            | 23,326,026 |           
|                                                                                                                                | Accumulated other comprehensive income                                                                                                                                   |                                            |            | 82,125     |            |   |            | 132,331    |           
|                                                                                                                                | Retained earnings                                                                                                                                                        |                                            |            | 19,958,822 |            |   |            | 21,892,237 |           
|                                                                                                                                | Treasury stock, at cost (7,390 shares for
    2002 and 2003, respectively)                                                                                               |                                            |            | (49,267    | )          |   |            | (49,267    | )         
|                                                                                                                                |                                                                                                                                                                          |                                            |            |            |            |   |            |           
|                                                                                                                                |                                                                                                                                                                          | Total stockholders equity                 |            |            | 43,321,855 |   |            |            | 45,305,476 | 
|                                                                                                                                |                                                                                                                                                                          |                                            |            |            |            |   |            |           
|                                                                                                                                |                                                                                                                                                                          | Total liabilities and stockholders equity |            | $          | 48,934,363 |   |            | $          | 50,964,111 | 
|                                                                                                                                |                                                                                                                                                                          |                                            |            |            |            |   |            |           



---



|    |                            
|--- | ---------------------------
|(1) | Eliminated on consolidation

F-30



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Statements of Income

(Parent Company Only)


|                       |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |           |         | 
|---------------------- | ------------------------------------------- | ------------------------------------------------------------------------------------------ | - | --------- | --------- | ---- | - | --------- | ------- |  | - | --------- | ------- | 
|                       |                                             |                                                                                           
|                       |                                             | Years Ended December 31,                                                                  
|                       |                                             |                                                                                           
|                       |                                             | 2001                                                                                       |   | 2002      |           | 2003
|                       |                                             |                                                                                            |   |           |           |     
|Revenues:              |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          
|                       | Net investment income                       |                                                                                            | $ | 133,575   |           |      | $ | 100,339   |         |  | $ | 24,626    |        
|                       | Net realized gain on investments            |                                                                                            |   | 4,904     |           |      |   | 56,088    |         |  |   |          |        
|                       | Intercompany interest income(1)             |                                                                                            |   | 674,298   |           |      |   | 473,822   |         |  |   | 450,000   |        
|                       |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          
|                       |                                             | Total revenue                                                                              |   |           | 812,777   |      |   |           | 630,249 |  |   |           | 474,626 | 
|                       |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          
|Benefits and expenses: |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          
|                       | Operating expenses                          |                                                                                            |   | 1,259,273 |           |      |   | (548,568  | )       |  |   | (137,929  | )      
|                       | Costs of withdrawn offering                 |                                                                                            |   |          |           |      |   | 439,487   |         |  |   |          |        
|                       | Interest expense                            |                                                                                            |   | 375,000   |           |      |   | 375,000   |         |  |   | 375,000   |        
|                       |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          
|                       |                                             | Total benefits and expenses                                                                |   |           | 1,634,273 |      |   |           | 265,919 |  |   |           | 237,071 | 
|                       |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          
|                       |                                             | Income (loss) before income tax and equity in
    undistributed net income of subsidiaries |   |           | (821,496  | )    |   |           | 364,330 |  |   |           | 237,555 | 
|                       | Income tax benefit (expense)                |                                                                                            |   | 274,269   |           |      |   | (125,877  | )       |  |   | (80,403   | )      
|                       |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          
|                       |                                             | Income (loss) before equity in undistributed net
    income of subsidiaries                |   |           | (547,227  | )    |   |           | 238,453 |  |   |           | 157,152 | 
|                       | Equity in earnings of subsidiaries          |                                                                                            |   | 6,009,808 |           |      |   | 1,279,224 |         |  |   | 1,776,263 |        
|                       |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          
|                       | Net income                                  |                                                                                            | $ | 5,462,581 |           |      | $ | 1,517,677 |         |  | $ | 1,933,415 |        
|                       | Preferred dividends                         |                                                                                            |   | 267,104   |           |      |   |          |         |  |   |          |        
|                       |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          
|                       | Net income available to common stockholders |                                                                                            | $ | 5,195,477 |           |      | $ | 1,517,677 |         |  | $ | 1,933,415 |        
|                       |                                             |                                                                                            |   |           |           |      |   |           |         |  |   |          



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|    |                            
|--- | ---------------------------
|(1) | Eliminated on consolidation

F-31



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Statements of Cash Flows

(Parent Company Only)


|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |            |         |           |  
|----------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------- | ---------- | --------- | ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ------- | --------- | -
|                                                                                                |                                                                                                     |                                                        
|                                                                                                |                                                                                                     | Years Ended December 31,                               
|                                                                                                |                                                                                                     |                                                        
|                                                                                                |                                                                                                     | 2001                                                    |                                                         | 2002       |           | 2003      
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |           
|Cash flows from operating activities:                                                           |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|                                                                                                | Net income                                                                                          |                                                         | $                                                       | 5,462,581  |           |            | $         | 1,517,677  |            |            | $         | 1,933,415  |        
|                                                                                                | Less equity in earnings of subsidiaries                                                             |                                                         |                                                         | (6,009,808 | )         |            |           | (1,279,224 | )          |            |           | (1,776,263 | )      
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|                                                                                                | Income (Loss) before equity in undistributed net
    income of subsidiaries                         |                                                         | $                                                       | (547,227   | )         |            | $         | 238,453    |            |            | $         | 157,152    |        
|Adjustments to reconcile net income to net cash
    provided by (used in) operating activities: |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|                                                                                                | Amortization and depreciation                                                                       |                                                         |                                                         | 44,757     |           |            |           | 48,922     |            |            |           | 96,378     |        
|                                                                                                | Costs of withdrawn offering                                                                         |                                                         |                                                         |           |           |            |           | 439,487    |            |            |           |           |        
|                                                                                                | Deferred tax expense (benefit)                                                                      |                                                         |                                                         | (274,176   | )         |            |           | 125,877    |            |            |           | 76,088     |        
|                                                                                                | Net realized (gain) loss on investments                                                             |                                                         |                                                         | (4,904     | )         |            |           | (56,088    | )          |            |           |           |        
|                                                                                                | Change in:                                                                                          |                                                         |                                                         |            |           |            |           |            |            |            |           |            |        
|                                                                                                |                                                                                                     | Investment income due and accrued                       |                                                         |            | (39,316   | )          |           |            | 40,873     |            |           |            | (2,190  | )        
|                                                                                                |                                                                                                     | Investment income due and accrued 
    intercompany(1) |                                                         |            | 104,111   |            |           |            | 11,875     |            |           |            |        |          
|                                                                                                |                                                                                                     | Accounts receivable                                     |                                                         |            |          |            |           |            | (215,500   | )          |           |            | 215,500 |          
|                                                                                                |                                                                                                     | Intercompany receivables(1)                             |                                                         |            | 2,418,689 |            |           |            | (1,997,411 | )          |           |            | 667,822 |          
|                                                                                                |                                                                                                     | Prepaid expenses                                        |                                                         |            | (49,115   | )          |           |            | (751,036   | )          |           |            | 356,466 |          
|                                                                                                |                                                                                                     | Accrued expenses and accounts payable                   |                                                         |            | 451,778   |            |           |            | (76,591    | )          |           |            | 44,062  |          
|                                                                                                |                                                                                                     | Current income tax payable                              |                                                         |            | (9,181    | )          |           |            | 1,875      |            |           |            | 2,065   |          
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|                                                                                                |                                                                                                     |                                                         | Net cash provided by (used in) operating
    activities |            |           | 2,095,416  |           |            |            | (2,189,264 | )         |            |         | 1,613,343 |  
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|Cash flows from investing activities:                                                           |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|                                                                                                | Proceeds from sale of available-for-sale
    securities                                             |                                                         |                                                         | 411,138    |           |            |           | 2,174,208  |            |            |           |           |        
|                                                                                                | Proceeds from principal payments on
    mortgage-backed securities of available-for-sale securities |                                                         |                                                         | 28,817     |           |            |           | 110,891    |            |            |           | 12,522     |        
|                                                                                                | Purchase of available-for-sale securities                                                           |                                                         |                                                         | (2,676,584 | )         |            |           |           |            |            |           | (498,810   | )      
|                                                                                                | Purchase of fixed assets                                                                            |                                                         |                                                         | (84,066    | )         |            |           | (219,928   | )          |            |           | (16,779    | )      
|                                                                                                | Purchase of common stock                                                                            |                                                         |                                                         |           |           |            |           |           |            |            |           | (40,000    | )      
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|                                                                                                |                                                                                                     |                                                         | Net cash provided by (used in) investing
    activities |            |           | (2,320,695 | )         |            |            | 2,065,171  |           |            |         | (543,067  | )
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|Cash flows from financing activities:                                                           |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|                                                                                                | Preferred dividends                                                                                 |                                                         |                                                         | (279,349   | )         |            |           |           |            |            |           |           |        
|                                                                                                | Issuance of notes receivable 
    intercompany(1)                                                  |                                                         |                                                         | 2,012,479  |           |            |           | 1,087,550  |            |            |           |           |        
|                                                                                                | Prepaid expenses  costs of withdrawn
    offering                                                  |                                                         |                                                         | (577,112   | )         |            |           | 577,112    |            |            |           |           |        
|                                                                                                | Costs of withdrawn offering                                                                         |                                                         |                                                         |           |           |            |           | (439,487   | )          |            |           |           |        
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|                                                                                                |                                                                                                     |                                                         | Net cash provided by financing activities               |            |           | 1,156,018  |           |            |            | 1,225,175  |           |            |         |          |  
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|                                                                                                |                                                                                                     |                                                         | Net increase in cash and cash equivalents               |            |           | 930,739    |           |            |            | 1,101,082  |           |            |         | 1,070,276 |  
|Cash and cash equivalents at beginning of period                                                |                                                                                                     |                                                         | 443,277                                                 |            |           |            | 1,374,016 |            |            |            | 2,475,098 |           
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           
|Cash and cash equivalents at end of period                                                      |                                                                                                     | $                                                       | 1,374,016                                               |            |           | $          | 2,475,098 |            |            | $          | 3,545,374 |           
|                                                                                                |                                                                                                     |                                                         |                                                         |            |           |            |           |            |            |            |           |           



---



|    |                            
|--- | ---------------------------
|(1) | Eliminated on consolidation

F-32