##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K





|  |  |                                                                                       
|- |  | --------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the fiscal year ended December 31, 2004                                           
| 
|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)





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)


þ o


o


o þ














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TABLE OF CONTENTS


|                                                      |  |                                                                                                                      |  |      |    | 
|----------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                      |  |                                                                                                                      |  | Page |   
|                                                      |  |                                                                                                                      |  |      |   
|PART I                                               
|Item 1.                                               |  | Business                                                                                                             |  |      | 2  | 
|Item 2.                                               |  | Properties                                                                                                           |  |      | 12 | 
|Item 3.                                               |  | Legal Proceedings                                                                                                    |  |      | 12 | 
|Item 4.                                               |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 12 | 
|PART II                                              
|Item 5.                                               |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 13 | 
|Item 6.                                               |  | Selected Financial Data                                                                                              |  |      | 13 | 
|Item 7.                                               |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 15 | 
|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                                                                                              |  |      | 35 | 
|Item 9B.                                              |  | Other Information                                                                                                    |  |      | 35 | 
|PART III                                             
|Item 10.                                              |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 36 | 
|Item 11.                                              |  | Executive Compensation                                                                                               |  |      | 39 | 
|Item 12.                                              |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 42 | 
|Item 13.                                              |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 43 | 
|Item 14.                                              |  | Principal Accounting Fees and Services                                                                               |  |      | 44 | 
|PART IV                                              
|Item 15.                                              |  | Exhibits and Financial Statement
    Schedules                                                                       |  |      | 45 | 
|EX-10.45 AMENDMENT TO EXTENSION AND TOLLING AGREEMENT
|EX-10.46 LETTER AGREEMENT / BRADLEY E. BARKS         
|EX-10.47 LETTER AGREEMENT / CARYL P. SHEPHERD        
|EX-10.48 LETTER AGREEMENT / EDWARD F. MCKERNAN       
|EX-23.1 CONSENT OF MARCUM & KLIEGMAN LLP             
|EX-23.2 CONSENT OF DELOITTE & TOUCHE LLP             
|EX-23.3 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 STATEMENT                        







---



##### Table of Contents






PART I







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

Overview








| |   |                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                                                  





| |   |                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



2



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##### Table of Contents







| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | Western Reserve Life Assurance Co. of Ohio, a subsidiary of
    AEGON USA, Inc. (Western Reserve);             
|
| |  | American Skandia Life Assurance Corporation, a subsidiary of
    Prudential Financial, Inc. (American Skandia);
|
| |  | Pacific Life Insurance Company (Pacific Life); and                                                             
|
| |  | Federal Kemper Life Assurance Company, a subsidiary of
    J.P. Morgan Chase & Co. (Kemper).                   







Sale of Global Preferred Re








3



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##### Table of Contents



Recent Developments






Life Insurance Overview






Variable Universal Life.


Variable Annuities.


Reinsurance Overview






| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | Reduced net liability on individual risks;                                              
|
| |  | Catastrophe protection from large events or an aggregation of
    multiple small claims;

4



---



##### Table of Contents





| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.







Types of Reinsurance




Industry 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 greater
    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.

5



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##### Table of Contents





| |                                                          
| | ---------------------------------------------------------
| | 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                      



Growth Strategy




Distribution Relationships






6



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##### Table of Contents





Reinsurance Relationships




| |                             
| | ----------------------------
| | Current Reinsurance Business





|                    |                         |                     |  |   |             |  |  |                      |  |  |  |   | 
|------------------- | ----------------------- | ------------------- |  | - | ----------- |  |  | -------------------- |  |  |  | - | 
|                    |                         | 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 |             |  |  |                      |  |  |  |   | 





7



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| |                      
| | ---------------------
| | First Right Agreement





| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Commence reinsurance of Freedom Elite Builder variable universal
    life insurance policies and riders issued from January 1,
    2002 through December 31, 2002 up to 20% on a coinsurance
    and modified coinsurance basis;                                                                                                               
|
| |  | Commence reinsurance of any single life variable universal life
    insurance policies and riders issued from January 1, 2003
    through March 31, 2006 up to 20% on a coinsurance and
    modified coinsurance basis. This contractual right is subject to
    certain premium production requirements;                                      
|
| |  | Prospectively reinsure all new single life variable universal
    life insurance policies up to 20% on a monthly renewable term
    basis at 105% of premium rates otherwise available from certain
    commercial reinsurers. This right extends through March 31,
    2006 and is subject to certain premium production
    requirements; and
|
| |  | Commence or increase reinsurance on certain variable annuity
    policies issued from January 1, 2003 through
    December 31, 2005 up to 40% on a coinsurance and modified
    coinsurance basis, subject to certain premium production
    requirements.                                                                                     









| |                               
| | ------------------------------
| | Directed Reinsurance Agreement



8



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##### Table of Contents





| |                                                               
| | --------------------------------------------------------------
| | Reinsurance of New Business with Other Insurance
    Companies



Investments






Underwriting and Policy Administration








Retention




9



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Regulation of Global Preferred Re




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







| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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).



Independent Approved Auditor.


Statutory Financial Statements.


10



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##### Table of Contents



Minimum Solvency Margin; Restrictions on Dividends.


Principal Representative.




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





Competition






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





11



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| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.







Employees











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








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








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



12



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PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities














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



13



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##### Table of Contents



|                                            |                                                            |                                               |   |           |        |   |   |           |        |   |      |           |        |      |   |           |        |   |   |           |        |  
|------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------- | - | --------- | ------ | - | - | --------- | ------ | - | ---- | --------- | ------ | ---- | - | --------- | ------ | - | - | --------- | ------ | -
|                                            |                                                            | Year Ended December 31,                       |  
|                                            |                                                            |                                               |  
|                                            |                                                            | 2000                                          |   |           | 2001   |   |   | 2002      |        |   | 2003 |           |        | 2004 |  
|                                            |                                                            |                                               |   |           |        |   |   |           |        |   |      |           |        |      |  
|                                            |                                                            | (Dollars in thousands, except per share data) |  
|Consolidated Statements of
    Income Data: |                                                            |                                               |   |           |        |   |   |           |        |   |      |           |        |      |   |           |        |   |   |          
|                                            | Premiums                                                   |                                               | $ | 16,618    |        |   | $ | 19,240    |        |   | $    | 17,985    |        |      | $ | 17,401    |        |   | $ | 17,109    |       
|                                            | Reinsured policy revenues                                  |                                               |   | 12,894    |        |   |   | 11,238    |        |   |      | 13,859    |        |      |   | 12,797    |        |   |   | 12,532    |       
|                                            | Net investment income                                      |                                               |   | 528       |        |   |   | 811       |        |   |      | 742       |        |      |   | 407       |        |   |   | 842       |       
|                                            | Net realized gain (loss) on fixed maturity investments     |                                               |   | 3         |        |   |   | 45        |        |   |      | 428       |        |      |   | 21        |        |   |   | (20       | )     
|                                            | Net unrealized gain on equity securities                   |                                               |   |          |        |   |   |          |        |   |      |          |        |      |   |          |        |   |   | 49        |       
|                                            | Other Income                                               |                                               |   |          |        |   |   |          |        |   |      |          |        |      |   | 63        |        |   |   | 16        |       
|                                            |                                                            |                                               |   |           |        |   |   |           |        |   |      |           |        |      |  
|                                            |                                                            | Total revenues                                |   |           | 30,043 |   |   |           | 31,334 |   |      |           | 33,014 |      |   |           | 30,689 |   |   |           | 30,528 |  
|                                            |                                                            |                                               |   |           |        |   |   |           |        |   |      |           |        |      |  
|                                            | Total benefits and expenses                                |                                               |   | 23,089    |        |   |   | 23,480    |        |   |      | 30,708    |        |      |   | 27,757    |        |   |   | 24,988    |       
|                                            |                                                            |                                               |   |           |        |   |   |           |        |   |      |           |        |      |  
|                                            |                                                            | Income before income tax                      |   |           | 6,954  |   |   |           | 7,854  |   |      |           | 2,306  |      |   |           | 2,932  |   |   |           | 5,540  |  
|                                            |                                                            | Income tax expense                            |   |           | (1,821 | ) |   |           | (2,392 | ) |      |           | (788   | )    |   |           | (998   | ) |   |           | (1,570 | )
|                                            |                                                            |                                               |   |           |        |   |   |           |        |   |      |           |        |      |  
|                                            |                                                            | Net income                                    |   |           | 5,133  |   |   |           | 5,462  |   |      |           | 1,518  |      |   |           | 1,934  |   |   |           | 3,970  |  
|                                            |                                                            | Preferred dividends                           |   |           | 155    |   |   |           | 267    |   |      |           |       |      |   |           |       |   |   |           |       |  
|                                            |                                                            |                                               |   |           |        |   |   |           |        |   |      |           |        |      |  
|                                            | Net income available to common stockholders                |                                               | $ | 4,978     |        |   | $ | 5,195     |        |   | $    | 1,518     |        |      | $ | 1,934     |        |   | $ | 3,970     |       
|                                            |                                                            |                                               |   |           |        |   |   |           |        |   |      |           |        |      |  
|                                            | Basic earnings per share                                   |                                               | $ | 1.33      |        |   | $ | 1.39      |        |   | $    | 0.37      |        |      | $ | 0.47      |        |   | $ | 0.96      |       
|                                            | Diluted earnings per share                                 |                                               | $ | 1.30      |        |   | $ | 1.32      |        |   | $    | 0.37      |        |      | $ | 0.47      |        |   | $ | 0.95      |       
|                                            | Weighted-average common shares                             |                                               |   | 3,742,610 |        |   |   | 3,742,610 |        |   |      | 4,141,684 |        |      |   | 4,141,684 |        |   |   | 4,141,684 |       
|                                            | Total weighted-average common and common equivalent shares |                                               |   | 3,943,897 |        |   |   | 4,141,684 |        |   |      | 4,141,684 |        |      |   | 4,141,684 |        |   |   | 4,157,539 |       

|                                 |                                                        |                        |   |           |      |  |   |           |  |  |      |           |  |      |   |           |  |  |   |           | 
|-------------------------------- | ------------------------------------------------------ | ---------------------- | - | --------- | ---- |  | - | --------- |  |  | ---- | --------- |  | ---- | - | --------- |  |  | - | --------- | 
|                                 |                                                        | December 31,           |  
|                                 |                                                        |                        |  
|                                 |                                                        | 2000                   |   |           | 2001 |  |   | 2002      |  |  | 2003 |           |  | 2004 |  
|                                 |                                                        |                        |   |           |      |  |   |           |  |  |      |           |  |      |  
|                                 |                                                        | (Dollars in thousands) |  
|Consolidated Balance Sheet Data: |                                                        |                        |   |           |      |  |   |           |  |  |      |           |  |      |   |           |  |  |   |          
|                                 | Cash and cash equivalents                              |                        | $ | 4,259     |      |  | $ | 8,062     |  |  | $    | 15,858    |  |      | $ | 11,580    |  |  | $ | 12,464    | 
|                                 | Fixed maturity and equity securities                   |                        |   | 5,912     |      |  |   | 12,214    |  |  |      | 2,798     |  |      |   | 17,768    |  |  |   | 20,620    | 
|                                 | Deferred acquisition costs                             |                        |   | 42,752    |      |  |   | 42,800    |  |  |      | 49,850    |  |      |   | 45,608    |  |  |   | 40,168    | 
|                                 | Total assets                                           |                        |   | 56,617    |      |  |   | 67,853    |  |  |      | 74,274    |  |      |   | 79,284    |  |  |   | 77,807    | 
|                                 | Debt                                                   |                        |   | 5,000     |      |  |   | 5,000     |  |  |      | 5,000     |  |      |   | 5,000     |  |  |   |          | 
|                                 | Total liabilities                                      |                        |   | 20,028    |      |  |   | 25,884    |  |  |      | 30,952    |  |      |   | 33,978    |  |  |   | 28,541    | 
|                                 | Stockholders equity                                   |                        |   | 36,589    |      |  |   | 41,969    |  |  |      | 43,322    |  |      |   | 45,305    |  |  |   | 49,266    | 
|                                
|Summary of Policies Reinsured:   |                                                        |                        |   |           |      |  |   |           |  |  |      |           |  |      |   |           |  |  |   |          
|                                 | Number of life insurance policies and riders reinsured |                        |   | 296,674   |      |  |   | 287,303   |  |  |      | 265,384   |  |      |   | 239,201   |  |  |   | 221,626   | 
|                                 | Number of annuity policies reinsured                   |                        |   | 43,819    |      |  |   | 48,007    |  |  |      | 48,889    |  |      |   | 48,285    |  |  |   | 44,886    | 
|                                 | Face value of life insurance reinsured                 |                        | $ | 9,378,075 |      |  | $ | 9,082,204 |  |  | $    | 8,451,310 |  |      | $ | 7,606,281 |  |  | $ | 7,035,027 | 
|                                 | Annuity policy benefits reinsured                      |                        | $ | 310,063   |      |  | $ | 266,305   |  |  | $    | 224,710   |  |      | $ | 252,180   |  |  | $ | 244,907   | 

14



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



Overview










| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | 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.                                         



Types of Reinsurance




Renewable Term.


15



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##### Table of Contents







Coinsurance.


Modified Coinsurance.


Critical Accounting Policies and Estimates






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

Reinsurance Revenues.


Reinsurance Expenses.


Net Income.


16



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##### Table of Contents







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

Deferred Acquisition Costs.








17



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##### Table of Contents



Accounting and Reporting by Insurance
Enterprises for Certain Nontraditional Long-Duration Contracts
and for Separate Accounts.


Future Policy Benefits.










Fair Value Disclosure


Investments.


18



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##### Table of Contents







Other Financial Assets and Liabilities.


Our Current Reinsurance Agreements




|                 |  |              |     |     |      |  |     |      |  |  |     |  
|---------------- |  | ------------ | --- | --- | ---- |  | --- | ---- |  |  | --- | -
|                 |  | Year Ended   |    
|                 |  | December 31, |    
|                 |  |              |    
|                 |  | 2002         |     |     | 2003 |  |     | 2004 | 
|                 |  |              |     |     |      |  |     |      | 
|Western Reserve  |  |              | 91  | %   |      |  | 92  | %    |  |  | 92  | %
|American Skandia |  |              | 8   | %   |      |  | 7   | %    |  |  | 6   | %
|Kemper           |  |              | 1   | %   |      |  | 1   | %    |  |  | 1   | %
|Pacific Life     |  |              |    | (1) |      |  |    | (1)  |  |  | 1   | %
|                 |  |              |     |     |      |  |     |      | 
|Total            |  |              | 100 | %   |      |  | 100 | %    |  |  | 100 | %
|                 |  |              |     |     |      |  |     |      | 






|    |              
|--- | -------------
|(1) | Less than 1%.

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##### Table of Contents





|                    |  |                           |  |         |     |  |             |  |          |              |  |                  |  |  |       | 
|------------------- |  | ------------------------- |  | ------- | --- |  | ----------- |  | -------- | ------------ |  | ---------------- |  |  | ----- | 
|                    |  |                           |  |         |     |  |             |  |          | Reinsurance  | 
|                    |  | Reinsured                 |  | Product |     |  | Reinsurance |  |          | Policy Issue |  | Commencement     | 
|Ceding Life Company |  | Product Name              |  | Type(1) |     |  | Type(2)     |  |          | 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    |  |  | 1/02  | 
|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.





20



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Results of Operations




|                                        |                                               |                     |     |    |      |  |     |      |   |  |     |    |  
|--------------------------------------- | --------------------------------------------- | ------------------- | --- | -- | ---- |  | --- | ---- | - |  | --- | -- | -
|                                        |                                               | Year Ended          |    
|                                        |                                               | December 31,        |    
|                                        |                                               |                     |    
|                                        |                                               | 2002                |     |    | 2003 |  |     | 2004 |  
|                                        |                                               |                     |     |    |      |  |     |      |  
|                                        |                                               | (As a percentage of |    
|                                        |                                               | total revenue)      |    
|Consolidated Statements of Income Data: |                                               |                     |     |    |      |  |     |      |   |  |     |   
|Revenues:                               |                                               |                     |     |    |      |  |     |      |   |  |     |   
|                                        | Premiums                                      |                     |     | 55 | %    |  |     | 57   | % |  |     | 56 | %
|                                        | Reinsured policy revenues                     |                     |     | 42 |      |  |     | 42   |   |  |     | 41 |  
|                                        | Net investment income                         |                     |     | 2  |      |  |     | 1    |   |  |     | 3  |  
|                                        | Net realized gain on fixed income investments |                     |     | 1  |      |  |     |     |   |  |     |   |  
|                                        | Net unrealized gain on equity securities      |                     |     |   |      |  |     |     |   |  |     |   |  
|                                        | Other income                                  |                     |     |   |      |  |     |     |   |  |     |   |  
|                                        |                                               |                     |     |    |      |  |     |      |  
|Total revenues                          |                                               |                     | 100 | %  |      |  | 100 | %    |   |  | 100 | % 
|                                        |                                               |                     |     |    |      |  |     |      |  
|Benefits and expenses:                  |                                               |                     |     |    |      |  |     |      |   |  |     |   
|                                        | Benefits, claims and settlement expenses      |                     |     | 26 |      |  |     | 30   |   |  |     | 23 |  
|                                        | Change in future policy benefits              |                     |     | 5  |      |  |     | 4    |   |  |     | 2  |  
|                                        | Reinsurance expense allowances, net           |                     |     | 26 |      |  |     | 27   |   |  |     | 25 |  
|                                        | Amortization of deferred acquisition costs    |                     |     | 21 |      |  |     | 18   |   |  |     | 20 |  
|                                        | Operating expenses                            |                     |     | 9  |      |  |     | 11   |   |  |     | 11 |  
|                                        | Interest expense                              |                     |     | 1  |      |  |     | 1    |   |  |     | 1  |  
|                                        | Costs of withdrawn offering                   |                     |     | 5  |      |  |     |     |   |  |     |   |  
|                                        |                                               |                     |     |    |      |  |     |      |  
|Total benefits and expenses             |                                               |                     | 93  |    |      |  | 91  |      |   |  | 82  |   
|                                        |                                               |                     |     |    |      |  |     |      |  
|Income before income tax                |                                               |                     | 7   |    |      |  | 9   |      |   |  | 18  |   
|                                        | Income tax expense                            |                     |     | (2 | )    |  |     | (3   | ) |  |     | (5 | )
|                                        |                                               |                     |     |    |      |  |     |      |  
|Net income                              |                                               |                     | 5   | %  |      |  | 6   | %    |   |  | 13  | % 
|                                        |                                               |                     |     |    |      |  |     |      |  



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003



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

Premiums.


Reinsured Policy Revenues.




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Net Investment Income.


Investment Purchases and Sales


|                                      |                |               |            |           |               |   |            |               |   |   |                |            |   |               |            |           |   |   |            |          |  
|------------------------------------- | -------------- | ------------- | ---------- | --------- | ------------- | - | ---------- | ------------- | - | - | -------------- | ---------- | - | ------------- | ---------- | --------- | - | - | ---------- | -------- | -
|                                      |                | Quarter Ended |           
|                                      |                |               |           
|                                      |                | Dec. 31, 2003 |            |           | Mar. 31, 2004 |   |            | June 30, 2004 |   |   | Sept. 30, 2004 |            |   | Dec. 31, 2004 |           
|                                      |                |               |            |           |               |   |            |               |   |   |                |            |   |               |           
|Fixed maturity and equity securities: |                |               |            |           |               |   |            |               |   |   |                |            |   |               |            |           |   |   |            |         
|Balance, beginning of quarter         |                | $             | 9,310,881  |           |               | $ | 17,767,668 |               |   | $ | 19,231,373     |            |   | $             | 20,311,334 |           |   | $ | 21,037,149 |         
|                                      | Purchases      |               |            | 9,208,384 |               |   |            | 1,511,000     |   |   |                | 3,743,030  |   |               |            | 1,000,000 |   |   |            | 500,000  |  
|                                      | Sales          |               |            | (421,282  | )             |   |            |              |   |   |                | (2,009,731 | ) |               |            | (529,185  | ) |   |            | (500,000 | )
|                                      | Other activity |               |            | (330,315  | )             |   |            | (47,295       | ) |   |                | (653,338   | ) |               |            | 255,000   |   |   |            | (416,705 | )
|                                      |                |               |            |           |               |   |            |               |   |   |                |            |   |               |           
|Balance, end of quarter               |                | $             | 17,767,668 |           |               | $ | 19,231,373 |               |   | $ | 20,311,334     |            |   | $             | 21,037,149 |           |   | $ | 20,620,444 |         
|                                      |                |               |            |           |               |   |            |               |   |   |                |            |   |               |           

Net Realized Gains & Loss on Investments.


Net Unrealized Gain on Investments.




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

Benefits, Claims and Settlement Expenses.


22



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Change in Future Policy Benefits.


Reinsurance Expense Allowances, Net.


Amortization of Deferred Acquisition Costs.




Operating Expenses.


Interest Expense.


Income Taxes.


Accounting for Income
Taxes,




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



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

Premiums.


23



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Reinsured Policy Revenues.


Net Investment Income and Net Realized Gain on
Investments.




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

Benefits, Claims and Settlement Expenses.


Change in Future Policy Benefits.


Reinsurance Expense Allowances, Net.


Amortization of Deferred Acquisition Costs.


Operating Expenses.


24



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Costs of Withdrawn Offering.


Interest Expense.


Income Taxes.


Accounting for
Income Taxes,


25



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##### Table of Contents



Quarterly Results of Operations




|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |       |       |   |       |       |       |   |       |       |       | 
|------------------------------------------ | ------------------------------------------------------ | ----------------------------------------------- | ----- | ----- | ------- | - | ----- | -------- | --- | - | ------- | ----- | --- | ------- | ----- | ----- | ------- | - | ----- | -------- | ----- | - | ------- | ----- | ----- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                           |                                                        | Quarter Ended                                   |      
|                                           |                                                        |                                                 |      
|                                           |                                                        | Mar. 31                                         |       |       | June 30 |   |       | Sept. 30 |     |   | Dec. 31 |       |     | Mar. 31 |       |       | June 30 |   |       | Sept. 30 |       |   | Dec. 31 |      
|                                           |                                                        | 2003                                            |       |       | 2003    |   |       | 2003     |     |   | 2003    |       |     | 2004    |       |       | 2004    |   |       | 2004     |       |   | 2004    |      
|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |      
|                                           |                                                        | (Dollars in thousands except per share amounts) |      
|Revenues:                                  |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |       |       |   |       |       |       |   |       |      
|                                           | Premiums                                               |                                                 | $     | 4,388 |         |   | $     | 4,364    |     |   | $       | 4,332 |     |         | $     | 4,318 |         |   | $     | 4,302    |       |   | $       | 4,271 |       |   | $     | 4,286 |       |   | $     | 4,250 |      
|                                           | Reinsurance policy revenues                            |                                                 |       | 3,232 |         |   |       | 3,258    |     |   |         | 3,200 |     |         |       | 3,106 |         |   |       | 3,199    |       |   |         | 3,112 |       |   |       | 3,191 |       |   |       | 3,031 |      
|                                           | Net investment income                                  |                                                 |       | 83    |         |   |       | 88       |     |   |         | 95    |     |         |       | 141   |         |   |       | 178      |       |   |         | 210   |       |   |       | 222   |       |   |       | 232   |      
|                                           | Net realized gain (loss) on fixed maturity investments |                                                 |       |      |         |   |       |         |     |   |         |      |     |         |       | 21    |         |   |       |         |       |   |         | (29   | )     |   |       | (2    | )     |   |       | 11    |      
|                                           | Net unrealized gain on equity investments              |                                                 |       |      |         |   |       |         |     |   |         |      |     |         |       |      |         |   |       |         |       |   |         |      |       |   |       | 41    |       |   |       | 7     |      
|                                           | Other income                                           |                                                 |       |      |         |   |       | 5        |     |   |         | 10    |     |         |       | 48    |         |   |       | 7        |       |   |         |      |       |   |       |      |       |   |       | 9     |      
|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |      
|Total revenues                             |                                                        |                                                 | 7,703 |       |         |   | 7,715 |          |     |   | 7,637   |       |     |         | 7,634 |       |         |   | 7,686 |          |       |   | 7,564   |       |       |   | 7,738 |       |       |   | 7,540 |      
|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |      
|Benefits and expenses:                     |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |       |       |   |       |       |       |   |       |      
|                                           | Benefits, claims and settlement expenses               |                                                 |       | 2,276 |         |   |       | 2,455    |     |   |         | 2,213 |     |         |       | 2,325 |         |   |       | 1,976    |       |   |         | 1,451 |       |   |       | 1,767 |       |   |       | 1,710 |      
|                                           | Change in future policy benefits                       |                                                 |       | 311   |         |   |       | 196      |     |   |         | 309   |     |         |       | 239   |         |   |       | 215      |       |   |         | 158   |       |   |       | 140   |       |   |       | 133   |      
|                                           | Reinsurance expense allowances, net                    |                                                 |       | 2,074 |         |   |       | 2,082    |     |   |         | 2,002 |     |         |       | 1,978 |         |   |       | 1,975    |       |   |         | 1,991 |       |   |       | 1,795 |       |   |       | 1,925 |      
|Amortization of deferred acquisition costs |                                                        |                                                 | 1,375 |       |         |   | 1,281 |          |     |   | 1,566   |       |     |         | 1,314 |       |         |   | 1,434 |          |       |   | 1,470   |       |       |   | 1,649 |       |       |   | 1,655 |      
|                                           | Operating expenses                                     |                                                 |       | 877   |         |   |       | 945      |     |   |         | 765   |     |         |       | 800   |         |   |       | 839      |       |   |         | 732   |       |   |       | 792   |       |   |       | 964   |      
|                                           | Interest expense                                       |                                                 |       | 92    |         |   |       | 94       |     |   |         | 95    |     |         |       | 94    |         |   |       | 93       |       |   |         | 93    |       |   |       | 30    |       |   |       |      |      
|                                           | Costs of withdrawn offering                            |                                                 |       |      |         |   |       |         |     |   |         |      |     |         |       |      |         |   |       |         |       |   |         |      |       |   |       |      |       |   |       |      |      
|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |      
|Total benefits and expenses                |                                                        |                                                 | 7,005 |       |         |   | 7,053 |          |     |   | 6,950   |       |     |         | 6,750 |       |         |   | 6,532 |          |       |   | 5,895   |       |       |   | 6,173 |       |       |   | 6,387 |      
|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |      
|                                           |                                                        | Income before income tax                        |       |       | 698     |   |       |          | 662 |   |         |       | 687 |         |       |       | 884     |   |       |          | 1,154 |   |         |       | 1,669 |   |       |       | 1,565 |   |       |       | 1,153 | 
|Income tax expense                         |                                                        |                                                 | (237  | )     |         |   | (225  | )        |     |   | (235    | )     |     |         | (301  | )     |         |   | (322  | )        |       |   | (542    | )     |       |   | (363  | )     |       |   | (343  | )    
|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |      
|Net income                                 |                                                        | $                                               | 461   |       |         | $ | 437   |          |     | $ | 452     |       |     | $       | 583   |       |         | $ | 832   |          |       | $ | 1,127   |       |       | $ | 1,202 |       |       | $ | 810   |      
|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |      
|Basic earnings per share                   |                                                        | $                                               | 0.11  |       |         | $ | 0.11  |          |     | $ | 0.11    |       |     | $       | 0.14  |       |         | $ | 0.20  |          |       | $ | 0.27    |       |       | $ | 0.29  |       |       | $ | 0.20  |      
|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |      
|Diluted earnings per share                 |                                                        | $                                               | 0.11  |       |         | $ | 0.11  |          |     | $ | 0.11    |       |     | $       | 0.14  |       |         | $ | 0.20  |          |       | $ | 0.27    |       |       | $ | 0.29  |       |       | $ | 0.19  |      
|                                           |                                                        |                                                 |       |       |         |   |       |          |     |   |         |       |     |         |       |       |         |   |       |          |       |   |         |      

26



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|                            |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |    |    |  |     |    |    |  |     |    |    | 
|--------------------------- | ------------------------------------------------------ | ---------------------------------- | --- | -- | ------- |  | --- | -------- | - |  | ------- | -- | - | ------- | --- | -- | ------- |  | --- | -------- | -- |  | ------- | -- | -- |  | --- | -- | -- |  | --- | -- | -- | 
|                            |                                                        | Quarter Ended                      |    
|                            |                                                        |                                    |    
|                            |                                                        | Mar. 31                            |     |    | June 30 |  |     | Sept. 30 |   |  | Dec. 31 |    |   | Mar. 31 |     |    | June 30 |  |     | Sept. 30 |    |  | Dec. 31 |   
|                            |                                                        | 2003                               |     |    | 2003    |  |     | 2003     |   |  | 2003    |    |   | 2004    |     |    | 2004    |  |     | 2004     |    |  | 2004    |   
|                            |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |   
|                            |                                                        | (As a percentage of total revenue) |    
|Revenues:                   |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |    |    |  |     |    |    |  |     |   
|                            | Premiums                                               |                                    |     | 57 | %       |  |     | 57       | % |  |         | 57 | % |         |     | 56 | %       |  |     | 56       | %  |  |         | 56 | %  |  |     | 55 | %  |  |     | 57 | % 
|                            | Reinsurance policy revenues                            |                                    |     | 42 |         |  |     | 42       |   |  |         | 42 |   |         |     | 41 |         |  |     | 42       |    |  |         | 41 |    |  |     | 41 |    |  |     | 40 |   
|                            | Net investment income                                  |                                    |     | 1  |         |  |     | 1        |   |  |         | 1  |   |         |     | 2  |         |  |     | 2        |    |  |         | 3  |    |  |     | 3  |    |  |     | 3  |   
|                            | Net realized gain (loss) on fixed maturity investments |                                    |     |   |         |  |     |         |   |  |         |   |   |         |     |   |         |  |     |         |    |  |         |   |    |  |     |   |    |  |     |   |   
|                            | Net unrealized gain on equity investments              |                                    |     |   |         |  |     |         |   |  |         |   |   |         |     |   |         |  |     |         |    |  |         |   |    |  |     | 1  |    |  |     |   |   
|                            | Other income                                           |                                    |     |   |         |  |     |         |   |  |         |   |   |         |     | 1  |         |  |     |         |    |  |         |   |    |  |     |   |    |  |     |   |   
|                            |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |   
|Total revenues              |                                                        |                                    | 100 | %  |         |  | 100 | %        |   |  | 100     | %  |   |         | 100 | %  |         |  | 100 | %        |    |  | 100     | %  |    |  | 100 | %  |    |  | 100 | % 
|                            |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |   
|Benefits and expenses:      |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |    |    |  |     |    |    |  |     |   
|                            | Benefits, claims and settlement expenses               |                                    |     | 30 |         |  |     | 32       |   |  |         | 29 |   |         |     | 30 |         |  |     | 26       |    |  |         | 19 |    |  |     | 23 |    |  |     | 23 |   
|                            | Change in future policy benefits                       |                                    |     | 4  |         |  |     | 2        |   |  |         | 4  |   |         |     | 3  |         |  |     | 3        |    |  |         | 2  |    |  |     | 2  |    |  |     | 2  |   
|                            | Reinsurance expense allowances, net                    |                                    |     | 27 |         |  |     | 27       |   |  |         | 26 |   |         |     | 26 |         |  |     | 26       |    |  |         | 26 |    |  |     | 23 |    |  |     | 25 |   
|                            | Amortization of deferred acquisition costs             |                                    |     | 18 |         |  |     | 17       |   |  |         | 21 |   |         |     | 17 |         |  |     | 18       |    |  |         | 20 |    |  |     | 21 |    |  |     | 22 |   
|                            | Operating expenses                                     |                                    |     | 11 |         |  |     | 12       |   |  |         | 10 |   |         |     | 11 |         |  |     | 11       |    |  |         | 10 |    |  |     | 10 |    |  |     | 13 |   
|                            | Interest expense                                       |                                    |     | 1  |         |  |     | 1        |   |  |         | 1  |   |         |     | 1  |         |  |     | 1        |    |  |         | 1  |    |  |     | 1  |    |  |     |   |   
|                            |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |   
|Total benefits and expenses |                                                        |                                    | 91  | %  |         |  | 91  | %        |   |  | 91      | %  |   |         | 88  | %  |         |  | 85  | %        |    |  | 78      | %  |    |  | 80  | %  |    |  | 85  | % 
|                            |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |   
|                            |                                                        | Income (loss) before income tax    |     |    | 9       |  |     |          | 9 |  |         |    | 9 |         |     |    | 12      |  |     |          | 15 |  |         |    | 22 |  |     |    | 20 |  |     |    | 15 | 
|Income tax expense          |                                                        |                                    | (3  | )  |         |  | (3  | )        |   |  | (3      | )  |   |         | (4  | )  |         |  | (4  | )        |    |  | (7      | )  |    |  | (4  | )  |    |  | (4  | ) 
|                            |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |   
|Net income                  |                                                        |                                    | 6   | %  |         |  | 6   | %        |   |  | 6       | %  |   |         | 8   | %  |         |  | 11  | %        |    |  | 15      | %  |    |  | 16  | %  |    |  | 11  | % 
|                            |                                                        |                                    |     |    |         |  |     |          |   |  |         |    |   |         |     |    |         |  |     |          |    |  |         |   



27



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Investments




|                          |                       |                 |            |            |      |   |            |            |  |   |            |            | 
|------------------------- | --------------------- | --------------- | ---------- | ---------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                          |                       | At December 31, |           
|                          |                       |                 |           
|                          |                       | 2002            |            |            | 2003 |   |            | 2004       | 
|                          |                       |                 |            |            |      |   |            |            | 
|Fixed maturity securities |                       | $               | 2,798,190  |            |      | $ | 15,267,477 |            |  | $ | 20,071,625 |           
|Equity securities         |                       |                 |           |            |      |   | 2,500,191  |            |  |   | 548,819    |           
|Cash and cash equivalents |                       |                 | 15,858,256 |            |      |   | 11,580,045 |            |  |   | 12,463,601 |           
|Reinsured policy loans    |                       |                 | 1,115,994  |            |      |   | 1,270,711  |            |  |   | 1,475,516  |           
|                          |                       |                 |            |            |      |   |            |            | 
|                          | Total invested assets |                 | $          | 19,772,440 |      |   | $          | 30,618,424 |  |   | $          | 34,559,561 | 
|                          |                       |                 |            |            |      |   |            |            | 





|                           |                                 |                 |            |            |      |   |            |            |  |   |            |            | 
|-------------------------- | ------------------------------- | --------------- | ---------- | ---------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                           |                                 | At December 31, |           
|                           |                                 |                 |           
|                           |                                 | 2002            |            |            | 2003 |   |            | 2004       | 
|                           |                                 |                 |            |            |      |   |            |            | 
|U.S. government agency     |                                 | $               |           |            |      | $ | 4,032,188  |            |  | $ | 6,230,801  |           
|Corporate                  |                                 |                 | 1,237,450  |            |      |   | 10,849,743 |            |  |   | 11,756,765 |           
|Asset-backed securities    |                                 |                 | 416,559    |            |      |   |           |            |  |   |           |           
|Mortgage-backed securities |                                 |                 | 1,144,181  |            |      |   | 385,546    |            |  |   | 2,084,059  |           
|                           |                                 |                 |            |            |      |   |            |            | 
|                           | Total fixed maturity securities |                 | $          | 2,798,190  |      |   | $          | 15,267,477 |  |   | $          | 20,071,625 | 
|Equity securities          |                                 |                 |           |            |      |   | 2,500,191  |            |  |   | 548,819    |           
|Cash and cash equivalents  |                                 |                 | 15,858,256 |            |      |   | 11,580,045 |            |  |   | 12,463,601 |           
|Reinsured policy loans     |                                 |                 | 1,115,994  |            |      |   | 1,270,711  |            |  |   | 1,475,516  |           
|                           |                                 |                 |            |            |      |   |            |            | 
|                           | Total invested assets           |                 | $          | 19,772,440 |      |   | $          | 30,618,424 |  |   | $          | 34,559,561 | 
|                           |                                 |                 |            |            |      |   |            |            | 



|                                 |       |                 |           |           |      |   |           |            |  |   |           |            | 
|-------------------------------- | ----- | --------------- | --------- | --------- | ---- | - | --------- | ---------- |  | - | --------- | ---------- | 
|                                 |       | At December 31, |          
|                                 |       |                 |          
|                                 |       | 2002            |           |           | 2003 |   |           | 2004       | 
|                                 |       |                 |           |           |      |   |           |            | 
|Due in less than one year        |       | $               | 611,784   |           |      | $ | 912,255   |            |  | $ | 6,832,379 |           
|Due after one through five years |       |                 | 625,666   |           |      |   | 8,891,136 |            |  |   | 6,060,040 |           
|Due after five through ten years |       |                 |          |           |      |   | 5,078,540 |            |  |   | 5,095,147 |           
|Asset-backed securities          |       |                 | 416,559   |           |      |   |          |            |  |   |          |           
|Mortgage-backed securities       |       |                 | 1,144,181 |           |      |   | 385,546   |            |  |   | 2,084,059 |           
|                                 |       |                 |           |           |      |   |           |            | 
|                                 | Total |                 | $         | 2,798,190 |      |   | $         | 15,267,477 |  |   | $         | 20,071,625 | 
|                                 |       |                 |           |           |      |   |           |            | 

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|                                |       |                 |    |     |      |  |    |      |   |  |    |     |  
|------------------------------- | ----- | --------------- | -- | --- | ---- |  | -- | ---- | - |  | -- | --- | -
|                                |       | At December 31, |   
|                                |       |                 |   
|                                |       | 2002            |    |     | 2003 |  |    | 2004 |  
|                                |       |                 |    |     |      |  |    |      |  
|Rating                          |       |                 |    |     |      |  |    |      |   |  |    |    
|AAA/ Aaa                        |       |                 | 56 | %   |      |  | 32 | %    |   |  | 44 | %  
|AA/ Aa2                         |       |                 | 15 |     |      |  | 18 |      |   |  | 3  |    
|A/ A2                           |       |                 | 29 |     |      |  | 50 |      |   |  | 46 |    
|BBB/ Baa2                       |       |                 |   |     |      |  |   |      |   |  | 7  |    
|BB/ Ba2                         |       |                 |   |     |      |  |   |      |   |  |   |    
|B/ B2                           |       |                 |   |     |      |  |   |      |   |  |   |    
|CCC/ Caa or lower, or not rated |       |                 |   |     |      |  |   |      |   |  |   |    
|                                |       |                 |    |     |      |  |    |      |  
|                                | Total |                 |    | 100 | %    |  |    | 100  | % |  |    | 100 | %
|                                |       |                 |    |     |      |  |    |      |  

Segment Reporting




Liquidity and Capital Resources








Operating Cash Flows.


29



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|              |  |                           |       |   |              |   |     |             |  |   |            |  |  |            |      |   |  |   |      |  
|------------- |  | ------------------------- | ----- | - | ------------ | - | --- | ----------- |  | - | ---------- |  |  | ---------- | ---- | - |  | - | ---- | -
|              |  | Operating Cash Flows from |       |   |              |   |    
|(In millions) |  |                           |       |   |              |   |    
|Calendar      |  | Co/ModCo                  |       |   | Co/ModCo     |   |     |             |  |   |            | 
|Year of       |  | Reinsurance               |       |   | Reinsurance  |   |     | Renewable   |  |   | Other      |  |  | Total      |     
|Reporting     |  | Assumed in                |       |   | Assumed      |   |     | Term        |  |   | Operating  |  |  | Operating  |     
|(CYR)         |  | CYR                       |       |   | Prior to CYR |   |     | Reinsurance |  |   | Cash Flows |  |  | Cash Flows |     
|              |  |                           |       |   |              |   |     |             |  |   |            |  |  |            |     
|2004          |  | $                         | (0.1  | ) |              | $ | 8.2 |             |  | $ | 6.0        |  |  | $          | (5.0 | ) |  | $ | 9.1  |  
|2003          |  |                           | (0.2  | ) |              |   | 7.8 |             |  |   | 4.2        |  |  |            | (1.0 | ) |  |   | 10.8 |  
|2002          |  |                           | (10.2 | ) |              |   | 9.5 |             |  |   | 5.3        |  |  |            | (4.9 | ) |  |   | (0.3 | )

Investment Cash Flows.


30



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Financing Cash Flows.


Restrictions.






31



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Contractual Obligations and Commitments




|                 |       |       |       |       |      |   |       |       |  |   |       |       |  |      |       |       |      |   |       |       |  |   |     |     | 
|---------------- | ----- | ----- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- |  | ---- | ----- | ----- | ---- | - | ----- | ----- |  | - | --- | --- | 
|(in 000s)        |       | Total |       |       | 2005 |   |       | 2006  |  |   | 2007  |       |  | 2008 |       |       | 2009 |  
|                 |       |       |       |       |      |   |       |       |  |   |       |       |  |      |       |       |      |  
|Office lease     |       | $     | 508.9 |       |      | $ | 100.1 |       |  | $ | 127.6 |       |  | $    | 136.0 |       |      | $ | 140.1 |       |  | $ | 5.1 |    
|Operating leases |       |       | 38.2  |       |      |   | 37.0  |       |  |   | 1.2   |       |  |      |      |       |      |   |      |       |  |   |    |    
|                 |       |       |       |       |      |   |       |       |  |   |       |       |  |      |       |       |      |  
|                 | Total |       | $     | 547.1 |      |   | $     | 137.1 |  |   | $     | 128.8 |  |      | $     | 136.0 |      |   | $     | 140.1 |  |   | $   | 5.1 | 
|                 |       |       |       |       |      |   |       |       |  |   |       |       |  |      |       |       |      |  

Currency




Inflation




Off Balance Sheet Arrangements




Recent Accounting Pronouncements




Forward-Looking Statements




32



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| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our inability to consummate the transactions contemplated in the
    Reorganization Agreement;                                                                                                                                    
|
| |  | A decrease in the level of demand for our reinsurance business,
    or increased competition in the industry;                                                                                                                     
|
| |  | Extent to which we are able to develop new reinsurance programs;                                                                                                                                                                  
|
| |  | Adverse reinsurance experience, including death claims and
    surrenders;                                                                                                                                                        
|
| |  | Estimates of reserves;                                                                                                                                                                                                            
|
| |  | Assumptions used in accounting for deferred acquisition costs;                                                                                                                                                                    
|
| |  | Negotiation of reinsurance agreements;                                                                                                                                                                                            
|
| |  | Our cash requirements;                                                                                                                                                                                                            
|
| |  | Our ability to compete successfully;                                                                                                                                                                                              
|
| |  | The passage of federal or state legislation subjecting our
    business to additional supervision or regulation, including
    additional tax regulation, in the United States or other
    jurisdictions in which we operate; and
|
| |  | Changes in economic conditions, including interest rate and
    equity market conditions, which could affect our investment
    portfolio and reinsured policy revenues.                                                          








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk





33



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





| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | Reports of Registered Independent Public Accounting Firms                                                                            
|
| |  | Consolidated Balance Sheets at December 31, 2003 and 2004                                                                            
|
| |  | Consolidated Statements of Income for the years ended
    December 31, 2002, 2003 and 2004                                           
|
| |  | Consolidated Statements of Stockholders Equity and
    Comprehensive Income for the years ended December 31, 2002,
    2003 and 2004
|
| |  | Consolidated Statements of Cash Flows for the years ended
    December 31, 2002, 2003 and 2004                                       
|
| |  | Notes to Consolidated Financial Statements for the years ended
    December 31, 2002, 2003 and 2004                                  






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









34



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|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures










|         |                  
|-------- | -----------------
|Item 9B. | Other Information



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PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



|                                 |  |     |    |  |          |                                                                                                                                                                    
|-------------------------------- |  | --- | -- |  | -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                             |  | Age |    |  | Position
|                                 |  |     |    |  |         
|Edward F. McKernan(3)(4)(5)      |  |     | 49 |  |          | Director, Chief Executive Officer and President; President,
    Chief Executive Officer and Chairman of Global Preferred Re                                        
|Bradley E. Barks                 |  |     | 45 |  |          | Chief Financial Officer, Interim Chief Accounting Officer and
    Senior Vice President of Finance; Senior Vice President of
    Finance of Global Preferred Re    
|Caryl P. Shepherd                |  |     | 35 |  |          | Chief Accounting Officer, Treasurer, Controller, Secretary and
    Vice President; Chief Financial Officer, Vice President and
    Treasurer of Global Preferred Re
|Joseph F. Barone(1)(2)(3)(4)     |  |     | 68 |  |          | Chairman of the Board of Directors                                                                                                                                 
|Thomas W. Montgomery(3)(4)(5)    |  |     | 56 |  |          | Director; Director of Global Preferred Re                                                                                                                          
|Milan M. Radonich(1)(2)(3)(4)(5) |  |     | 54 |  |          | Director                                                                                                                                                           
|C. Simon Scupham(1)(2)           |  |     | 51 |  |          | Director; Director of Global Preferred Re                                                                                                                          






|    |                                        
|--- | ---------------------------------------
|(1) | Member of the Audit Committee          
|   
|(2) | Member of the Compensation Committee   
|   
|(3) | Member of the Investment Committee     
|   
|(4) | Member of the Capital Finance Committee
|   
|(5) | Member of the Nomination Committee     



Edward F. McKernan


Bradley E. Barks


36



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Caryl P. Shepherd


Joseph F. Barone


Thomas W. Montgomery


Milan M. Radonich


C. Simon Scupham


37



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##### Table of Contents





Audit Committee and Audit Committee Financial Experts




Section 16(a) Beneficial Ownership Reporting
Compliance




Code of Ethics


www.gphre.com


38



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##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation



Summary Compensation Table


|                        |                                        |      |      |                     |        |              |            |         |            |           |              |         |  |         |        |        |  |  |   |   | 
|----------------------- | -------------------------------------- | ---- | ---- | ------------------- | ------ | ------------ | ---------- | ------- | ---------- | --------- | ------------ | ------- |  | ------- | ------ | ------ |  |  | - | - | 
|                        |                                        |      |      |                     |        |              |            |         |            | Long-Term |             
|                        |                                        |      |      |                     |        | Compensation |           
|                        |                                        |      |      | Annual Compensation |        |              |            |        
|                        |                                        |      |      |                     |        |              | Securities |        
|                        |                                        |      |      |                     |        | All Other    |            |         | Underlying |          
|Name and Principal      |                                        | Year |      |                     | Salary |              |            | Bonus   |            |           | Compensation |         |  | Options |       
|                        |                                        |      |      |                     |        |              |            |         |            |           |              |         |  |         |       
|Edward F. McKernan      |                                        |      | 2004 |                     |        | $            | 326,656    |         |            | $         | 80,000       |         |  |         |       |        |  |  |  |  
|                        | President and Chief Executive Officer  |      |      | 2003                |        |              |            | 326,794 |            |           |              | 35,000  |  |         |        |       |  |  |   |  | 
|                        |                                        |      |      | 2002                |        |              |            | 325,986 |            |           |              | 123,300 |  |         |        |       |  |  |   |  | 
|                       
|Bradley E.
    Barks(1) |                                        |      | 2004 |                     |        | $            | 250,000    |         |            | $         | 35,000       |         |  | $       | 16,027 |        |  |  |  |  
|                        | Chief Financial Officer, Interim Chief |      |      | 2003                |        |              |            | 250,000 |            |           |              | 15,000  |  |         |        |       |  |  |   |  | 
|                        | Accounting Officer and Senior          |      |      | 2002                |        |              |            | 201,923 |            |           |              | 9,200   |  |         |        | 44,833 |  |  |   |  | 
|                        | Vice President of Finance              |      |      |                     |        |              |            |         |            |           |              |         |  |         |        |        |  |  |   |   | 
|                       
|Caryl P. Shepherd       |                                        |      | 2004 |                     |        | $            | 113,923    |         |            | $         | 33,000       |         |  |         |       |        |  |  |  |  
|                        | Chief Accounting Officer, Vice         |      |      | 2003                |        |              |            | 100,000 |            |           |              | 15,000  |  |         |        |       |  |  |   |  | 
|                        | President, Treasurer, Controller and   |      |      | 2002                |        |              |            | 98,327  |            |           |              | 30,300  |  |         |        |       |  |  |   |  | 
|                        | Secretary                              |      |      |                     |        |              |            |         |            |           |              |         |  |         |        |        |  |  |   |   | 
|                       
|Thomas
    Bobowski(2)  |                                        |      | 2004 |                     |        | $            | 127,000    |         |            | $         | 15,000       |         |  |         |       |        |  |  |  |  
|                        | Vice President of Marketing            |      |      | 2003                |        |              |            | 122,000 |            |           |              | 15,000  |  |         |        |       |  |  |   |  | 
|                        |                                        |      |      | 2002                |        |              |            | 98,539  |            |           |              |        |  |         |        |       |  |  |   |  | 






|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | Mr. Barks joined Global Preferred in March 2002.                                                         
|   
|(2) | Mr. Bobowski joined Global Preferred in March 2002 and his
    employment terminated on February 4, 2005.

Aggregated Option Exercises in Last Fiscal Year and Year-End
Option Values




|                   |  |             |  |          |   |                            |  |  |                       |  |  |             |        |  |               |   |         |  |  |   |         | 
|------------------ |  | ----------- |  | -------- | - | -------------------------- |  |  | --------------------- |  |  | ----------- | ------ |  | ------------- | - | ------- |  |  | - | ------- | 
|                   |  |             |  |          |   | Number of Securities       |  |  | Value of Unexercised  | 
|                   |  | Shares      |  |          |   | Underlying Unexercised     |  |  | In-the-Money Options  | 
|                   |  | Acquired    |  | Value    |   | Options at Fiscal Year-End |  |  | at Fiscal Year-End(1) | 
|                   |  | on Exercise |  | Realized |   |                            |  |  |                       | 
|Name               |  | (#)         |  | ($)      |   | Exercisable                |  |  | Unexercisable         |  |  | Exercisable |        |  | Unexercisable |  
|                   |  |             |  |          |   |                            |  |  |                       |  |  |             |        |  |               |  
|Edward F. McKernan |  |            |  | $        |  |                            |  |  | 40,313                |  |  |             | 38,437 |  |               | $ | 118,923 |  |  | $ | 107,989 | 
|Bradley E. Barks   |  |            |  |          |  |                            |  |  | 7,500                 |  |  |             | 19,500 |  |               | $ | 22,125  |  |  | $ | 54,645  | 
|Caryl P. Shepherd  |  |            |  |          |  |                            |  |  | 16,500                |  |  |             | 18,000 |  |               | $ | 48,675  |  |  | $ | 50,220  | 
|Thomas Bobowski    |  |            |  |          |  |                            |  |  | 4,876                 |  |  |             | 13,500 |  |               | $ | 14,384  |  |  | $ | 37,665  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts disclosed in this column do not reflect amounts actually
    received by the Named Executive Officers but are calculated
    based on the difference between the fair market value on
    December 31, 2004 and the exercise price of the options.
    The Named Executive Officers will receive cash only if and when
    they sell the common stock issued upon exercise of the options,
    and the amount of cash received by such individuals is dependent
    on the price of the common stock at the time of such sale. The
    values are based on an estimated fair value of the common stock
    on December 31, 2004 of $13.41 per share, less the
    exercise price payable upon exercise of such options.

39



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##### Table of Contents



Option Grants in Last Fiscal Year




|                      |  |                   |        |  |               |  |      |           |  |   |            |  |            |          |         |  |  |   |       | 
|--------------------- |  | ----------------- | ------ |  | ------------- |  | ---- | --------- |  | - | ---------- |  | ---------- | -------- | ------- |  |  | - | ----- | 
|                      |  | Individual Grants |        |  |               |  |      |           | 
|                      |  |                   |        |  |               |  |      |           | 
|                      |  | Number of         |        |  | Percent of    |  |      |           |  |   |            | 
|                      |  | Securities        |        |  | Total Options |  |      | Exercise  |  |   |            |  |           
|                      |  | Underlying        |        |  | Granted to    |  |      | or Base   |  |   |            |  | Grant Date |         
|                      |  | Options           |        |  | Employees in  |  |      | Price Per |  |   | Expiration |  |            | Present  |        
|Name                  |  | Granted           |        |  | Fiscal Year   |  |      | Share(5)  |  |   | Date       |  |            | Value(6) |        
|                      |  |                   |        |  |               |  |      |           |  |   |            |  |            |          |        
|Edward F. McKernan(1) |  |                   | 11,250 |  |               |  | 29.4 | %         |  | $ | 10.94      |  |            |          | 5/26/14 |  |  | $ | 2,700 | 
|Bradley E. Barks(2)   |  |                   | 6,000  |  |               |  | 15.7 | %         |  |   | 10.94      |  |            |          | 5/26/14 |  |  |   | 1,440 | 
|Caryl P. Shepherd(3)  |  |                   | 6,000  |  |               |  | 15.7 | %         |  |   | 10.94      |  |            |          | 5/26/14 |  |  |   | 1,440 | 
|Thomas Bobowski(4)    |  |                   | 4,500  |  |               |  | 11.8 | %         |  |   | 10.94      |  |            |          | 5/26/14 |  |  |   | 1,080 | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Of these options, 11,250 shares become exercisable in equal
    installments beginning on the first anniversary of the date of
    grant and continuing for three years thereafter until fully
    vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(2) | Of these options, 6,000 shares become exercisable in equal
    installments beginning on the first anniversary of the date of
    grant and continuing for three years thereafter until fully
    vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) | Of these options, 6,000 shares become exercisable in equal
    installments beginning on the first anniversary of the date of
    grant and continuing for three years thereafter until fully
    vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(4) | Of these options, 4,500 shares become exercisable in equal
    installments beginning on the first anniversary of the date of
    grant and continuing for three years thereafter until fully
    vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(5) | The exercise price of the options granted was equal to fair
    market value of the underlying stock on the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(6) | The fair value of options granted in 2004 reported above
    was estimated at the date of grant using a binomial option
    valuation model and the following assumptions. The volatility
    used was 0%; the risk free interest rate was 3%; dividend yield
    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 $8.00 or higher. The weighted average
    estimated fair value at the grant date of the options reported
    above was $0.24.

Employment Agreements






40



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Director Compensation






41



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##### Table of Contents



Compensation Committee Interlocks and Insider
Participation









|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management

Equity Compensation Plan Information




|                                                           |  |                      |         |  |                   |                      |       |                           |  |  |           | 
|---------------------------------------------------------- |  | -------------------- | ------- |  | ----------------- | -------------------- | ----- | ------------------------- |  |  | --------- | 
|                                                           |  |                      |         |  |                   | Number of Securities |      
|                                                           |  | Number of Securities |         |  | Weighted-average  |                      |       | Remaining Available for   | 
|                                                           |  | to be Issued Upon    |         |  | Exercise Price of |                      |       | Future Issuance Under     | 
|                                                           |  | Exercise of          |         |  | Outstanding       |                      |       | Equity Compensation Plans | 
|                                                           |  | Outstanding Options, |         |  | Options, Warrants |                      |       | (Excluding Securities     | 
|Plan Category                                              |  | Warrants and Rights  |         |  | and Rights        |                      |       | Reflected in 1st Column)  | 
|                                                           |  |                      |         |  |                   |                      |       |                           | 
|Equity compensation plans approved by security holders     |  |                      | 281,877 |  |                   | $                    | 10.53 |                           |  |  | 1,498,123 | 
|Equity compensation plans not approved by security holders |  |                      | -0-     |  |                   |                      |       |                           |  |  | -0-       | 
|                                                           |  |                      |         |  |                   |                      |       |                           | 
|Total                                                      |  |                      | 281,877 |  |                   | $                    | 10.53 |                           |  |  | 1,498,123 | 

Security Ownership of Certain Beneficial Owners




|                                                                    |  |                  |         |  |                      |  |      |  
|------------------------------------------------------------------- |  | ---------------- | ------- |  | -------------------- |  | ---- | -
|                                                                    |  | Number of Shares |         |  |                     
|                                                                    |  | Beneficially     |         |  | Percentage of Shares | 
|Name                                                                |  | Owned(1)         |         |  | Outstanding          | 
|                                                                    |  |                  |         |  |                      | 
|S. Hubert Humphrey, Jr.(2)                                          |  |                  | 849,999 |  |                      |  | 20.5 | %
|Monte Holm(3)                                                       |  |                  | 327,125 |  |                      |  | 7.9  | %
|Richard L. Thawley(4)                                               |  |                  | 321,186 |  |                      |  | 7.8  | %
|Thomas W. Montgomery(5)                                             |  |                  | 44,362  |  |                      |  | 1.1  | %
|Joseph F. Barone(6)                                                 |  |                  | 24,500  |  |                      |  | *    |  
|C. Simon Scupham(7)                                                 |  |                  | 17,000  |  |                      |  | *    |  
|Milan M. Radonich(8)                                                |  |                  | 9,500   |  |                      |  | *    |  
|Edward F. McKernan(9)                                               |  |                  | 86,250  |  |                      |  | 2.1  | %
|Caryl P. Shepherd(10)                                               |  |                  | 34,500  |  |                      |  | *    |  
|Bradley E. Barks(11)                                                |  |                  | 27,000  |  |                      |  | *    |  
|All directors and executive officers as a group
    (7 persons)(12) |  |                  | 243,112 |  |                      |  | 5.9  | %






| |   |                       
| | - | ----------------------
| | * | Less than one percent.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | For purposes of calculating the percentage beneficially owned,
    the number of shares deemed outstanding as of March 14,
    2005 includes: (a) 4,141,684 shares of common stock
    outstanding as of March 14, 2005; and (b) shares
    issuable pursuant to options held by the respective person or
    group which may be exercised within 60 days following
    March 14, 2005 (Presently Exercisable Options).

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | Beneficial ownership is determined in accordance with the rules
    of the Securities and Exchange Commission that deem shares to be
    beneficially owned by any person or group who has or shares
    voting and investment power with respect to such shares.
    Presently Exercisable Options are deemed to be outstanding and
    beneficially owned by the person or group holding such options
    for the purpose of computing the percentage ownership of such
    person or group but are not treated as outstanding for the
    purpose of computing the percentage ownership of any other
    person or group.
|
| | (2) | Mr. Humphreys business address is 3975 Johns
    Creek Ct., Suite 100, Suwanee, Georgia 30024.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (3) | This number includes (a) options to
    purchase 1,406 shares of common stock exercisable
    within 60 days; (b) 60,000 shares held jointly
    with Mr. Holms wife; and (c) 165,000 shares
    held in seven trusts created by Mr. Holm and his wife.
    Mr. Holms business address is 219 Garnet Lane,
    Mesquite, Nevada 89027.                                                                                                                                                                                                                                                                                    
|
| | (4) | This number includes (a) 137,700 shares owned by two
    trusts for the benefit of Mr. Thawley and his wife, and
    (b) 30,000 shares owned by Mr. Thawleys
    children. Mr. Thawleys business address is 1110
    W. Kettleman Lane, Suite 24, Lodi,
    California 95240.                                                                                                                                                                                                                                                                                                                                             
|
| | (5) | This number includes Presently Exercisable Options to
    purchase 15,250 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (6) | This number includes Presently Exercisable Options to
    purchase 15,250 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (7) | This number includes Presently Exercisable Options to
    purchase 10,250 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (8) | This number includes Presently Exercisable Options to
    purchase 3,750 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (9) | This number includes Presently Exercisable Options to
    purchase 40,313 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



|     |                                                                                                   
|---- | --------------------------------------------------------------------------------------------------
|(10) | This number includes Presently Exercisable Options to
    purchase 16,500 shares of common stock. 
|    
|(11) | This number includes Presently Exercisable Options to
    purchase 7,500 shares of common stock.  
|    
|(12) | This number includes Presently Exercisable Options to
    purchase 108,813 shares of common stock.




Item 13.Certain
Relationships and Related Transactions




Agreements with AEGON, N.V. and its Affiliates










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Management Agreement









|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services

Audit Fees




Audit-Related Fees




Tax Fees




All Other Fees




Consideration of Non-Audit Services Provided by the
Independent Auditors




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##### Table of Contents






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. The audited consolidated financial statements of Global
    Preferred Holdings, Inc. and the related reports of independent
    registered public accounting firms 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.                                                                                 

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##### Table of Contents



SIGNATURES






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



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

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





|                                                     |  |                                                                                                                                                                      |  |                |  | 
|---------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                            |  | Title                                                                                                                                                                |  | Date          
|                                                     |  |                                                                                                                                                                      |  |               
|                                                    
|/s/ EDWARD F. MCKERNANEdward
    F. McKernan         |  | Chief Executive Officer, President and Director (Principal
    Executive Officer)                                                                                    |  | March 31, 2005
|                                                    
|/s/ BRADLEY E. BARKSBradley
    E. Barks             |  | Chief Financial Officer, Interim Chief Accounting Officer and
    Senior Vice President  Finance (Principal Financial
    Officer and Principal Accounting Officer) |  | March 31, 2005
|                                                    
|/s/ JOSEPH F. BARONEJoseph
    F. Barone             |  | Chairman of the Board of Directors and Director                                                                                                                      |  | March 31, 2005
|                                                    
|/s/ MILAN M. RADONICHMilan
    M. Radonich           |  | Director                                                                                                                                                             |  | March 31, 2005
|                                                    
|/s/ THOMAS W.
    MONTGOMERYThomas
    W. Montgomery |  | Director                                                                                                                                                             |  | March 31, 2005

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##### Table of Contents



INDEX TO EXHIBITS


|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1          |  | Agreement and Plan of Reorganization, dated as of
    December 30, 2004, by and among AEGON N.V., GPRE
    Acquisition Corp. and Global Preferred Holdings, Inc.
    (incorporated by reference to Exhibit 2.1 to
    Registrants Current Report on Form 8-K filed on
    January 4, 2005).                                                                               
|        | 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          |  | 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).                                                                                                                       
|        | 10 | .6          |  | 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 | .7          |  | 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).                                

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##### Table of Contents



|        |    |      |             |                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | ---- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |            
|Number  |    |      | Description
|        |    |      |            
|        | 10 | .8*  |             | 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 | .9*  |             | 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 | .10* |             | 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 | .11  |             | 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 | .12  |             | 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 | .13* |             | 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 | .14* |             | 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).                                                         
|        | 10 | .15  |             | 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 | .16  |             | 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 | .17  |             | 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 | .18  |             | 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 | .19* |             | 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 | .20  |             | 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 | .21  |             | 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).                                                       

48



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##### Table of Contents



|        |    |      |             |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | -- | ---- | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |            
|Number  |    |      | Description
|        |    |      |            
|        | 10 | .22  |             | 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 | .23  |             | 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 | .24  |             | 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 | .25  |             | 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 | .26  |             | 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 | .27  |             | 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 | .28  |             | 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 | .29* |             | 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 | .30  |             | 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 | .31  |             | 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 | .32  |             | 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 | .33  |             | 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 | .34  |             | 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 | .35  |             | 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 | .36  |             | 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 | .37  |             | 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).                                                                                                      

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|        |    |     |             |                                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | --- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |            
|Number  |    |     | Description
|        |    |     |            
|        | 10 | .38 |             | 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 | .39 |             | 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).
|        | 10 | .40 |             | Extension and Tolling Agreement between Registrant and Western
    Reserve, effective December 15, 2003 (incorporated by
    reference to Exhibit 10.48 to Registrants Annual Report on
    Form 10-K/A for the fiscal year ended December 31,
    2003).                                                                                                       
|        | 10 | .41 |             | Second Renewal of Employment Agreement by and between the
    Registrant and Bradley E. Barks, effective January 1,
    2004 (incorporated by reference to Exhibit 10.1 to
    Registrants Quarterly Report on Form 10-Q for the quarter
    ended March 31, 2004).                                                                                             
|        | 10 | .42 |             | Second Renewal of Employment Agreement by and between the
    Registrant and Caryl P. Shepherd, effective January 1,
    2004 (incorporated by reference to Exhibit 10.2 to
    Registrants Quarterly Report on Form 10-Q for the quarter
    ended March 31, 2004).                                                                                            
|        | 10 | .43 |             | Second Amendment to Employment Agreement by and between the
    Registrant and Edward F. McKernan, effective May 26,
    2004 (incorporated by reference to Exhibit 10.1 to
    Registrants Quarterly Report on Form 10-Q for the quarter
    ended June 30, 2004).                                                                                             
|        | 10 | .44 |             | Second Amendment to the Lease Agreement by and between the
    Registrant and Metropolitan Life Insurance Company effective
    June 14, 2004 (incorporated by reference to
    Exhibit 10.2 to Registrants Quarterly Report on Form 10-Q
    for the quarter ended June 30, 2004).                                                                              
|        | 10 | .45 |             | Amendment to Extension and Tolling Agreement between Registrant
    and Western Reserve, effective December 30, 2004.                                                                                                                                                                                                                                            
|        | 10 | .46 |             | Letter Agreement by and between Registrant and Bradley E.
    Barks, dated March 12, 2004.                                                                                                                                                                                                                                                                       
|        | 10 | .47 |             | Letter Agreement by and between Registrant and Caryl P.
    Shepherd, dated March 12, 2004.                                                                                                                                                                                                                                                                      
|        | 10 | .48 |             | Letter Agreement by and between Registrant and Edward F.
    McKernan, dated March 12, 2004.                                                                                                                                                                                                                                                                     
|        | 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).                                                                                                        
|        | 16 | .2  |             | Letter of Deloitte & Touche LLP to the Securities and
    Exchange Commission dated November 12, 2004 regarding
    change in certifying accountant (incorporated by reference to
    Exhibit 16.1 to the Registrants Current Report on
    Form 8-K filed on November 15, 2004).                                                                               
|        | 23 | .1  |             | Consent of Marcum & Kliegman LLP.                                                                                                                                                                                                                                                                                                                                
|        | 23 | .2  |             | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                
|        | 23 | .3  |             | 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.

50



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


INDEX TO FINANCIAL STATEMENTS


|                                                                                                                                      |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                      |  | Page |    
|                                                                                                                                      |  |      |    
|Financial Statements:                                                                                                                 |  |      |     | 
|Reports of Independent Registered Public
    Accounting Firms                                                                         |  |      | F-2 | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2004                                                                      |  |      | F-5 | 
|Consolidated Statements of Income for the
    Years Ended December 31, 2002, 2003 and 2004                                            |  |      | F-6 | 
|Consolidated Statements of
    Stockholders Equity and Comprehensive Income for the Years
    Ended December 31, 2002, 2003 and 2004 |  |      | F-7 | 
|Consolidated Statements of Cash Flows for
    the Years Ended December 31, 2002, 2003 and 2004                                        |  |      | F-8 | 
|Notes to Consolidated Financial
    Statements                                                                                        |  |      | F-9 | 

F-1



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                              
| | -----------------------------
| | /s/ Marcum &
    Kliegman LLP





F-2



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














| |                              
| | -----------------------------
| | /s/ Deloitte &
    Touche LLP





F-3



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














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





F-4



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                       |                                                                                          |              |                            |            |            |            |            |            |            |            | 
|-------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------ | -------------------------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | 
|                                                                                                                                       |                                                                                          | December 31, |                           
|                                                                                                                                       |                                                                                          |              |                           
|                                                                                                                                       |                                                                                          | 2003         |                            |            | 2004       |           
|                                                                                                                                       |                                                                                          |              |                            |            |            |           
|ASSETS                                                                                                                                
|Fixed maturity securities  available for sale
    (amortized cost of $15,057,808 and $19,885,253 for 2003 and
    2004, respectively) |                                                                                          | $            | 15,267,477                 |            |            | $          | 20,071,625 |           
|Equity securities  available for sale (cost of
    $2,009,360 for 2003)                                                               |                                                                                          |              | 1,998,932                  |            |            |            |           |           
|Other equity investments (cost of $500,000 for 2003 and 2004)                                                                          |                                                                                          |              | 501,259                    |            |            |            | 548,819    |           
|Cash and cash equivalents                                                                                                              |                                                                                          |              | 11,580,045                 |            |            |            | 12,463,601 |           
|Reinsured policy loans                                                                                                                 |                                                                                          |              | 1,270,711                  |            |            |            | 1,475,516  |           
|                                                                                                                                       |                                                                                          |              |                            |            |            |           
|                                                                                                                                       | Total invested assets                                                                    |              |                            | 30,618,424 |            |            |            | 34,559,561 |           
|Investment income due and accrued                                                                                                      |                                                                                          |              | 197,020                    |            |            |            | 234,220    |           
|Accounts receivable                                                                                                                    |                                                                                          |              | 44,588                     |            |            |            | 11,357     |           
|Reinsurance balances receivable                                                                                                        |                                                                                          |              | 2,112,462                  |            |            |            | 2,567,121  |           
|Deferred acquisition costs                                                                                                             |                                                                                          |              | 45,607,865                 |            |            |            | 40,167,670 |           
|Prepaid expenses                                                                                                                       |                                                                                          |              | 519,888                    |            |            |            | 223,973    |           
|Current income tax recoverable                                                                                                         |                                                                                          |              | 48,152                     |            |            |            |           |           
|Fixed assets (net of accumulated depreciation of $336,817 and
    $433,046 for 2003 and 2004, respectively)                            |                                                                                          |              | 135,495                    |            |            |            | 43,095     |           
|                                                                                                                                       |                                                                                          |              |                            |            |            |           
|                                                                                                                                       |                                                                                          | Total assets |                            | $          | 79,283,894 |            |            | $          | 77,806,997 |           
|                                                                                                                                       |                                                                                          |              |                            |            |            |           
|                                                                                                                                      
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                  
|                                                                                                                                      
|Liabilities:                                                                                                                           |                                                                                          |              |                            |            |            |            |            |           
|                                                                                                                                       | Future policy benefits                                                                   |              | $                          | 18,881,390 |            |            | $          | 19,401,495 |           
|                                                                                                                                       | Reinsurance balances payable                                                             |              |                            | 169,481    |            |            |            |           |           
|                                                                                                                                       | Accrued expenses and accounts payable                                                    |              |                            | 517,078    |            |            |            | 526,316    |           
|                                                                                                                                       | Accrued interest payable                                                                 |              |                            | 158,219    |            |            |            |           |           
|                                                                                                                                       | Current income tax payable                                                               |              |                            |           |            |            |            | 377,075    |           
|                                                                                                                                       | Current maturities of long-term debt                                                     |              |                            | 5,000,000  |            |            |            |           |           
|                                                                                                                                       | Deferred tax liability                                                                   |              |                            | 9,252,250  |            |            |            | 8,236,127  |           
|                                                                                                                                       |                                                                                          |              |                            |            |            |           
|                                                                                                                                       |                                                                                          |              | Total liabilities          |            |            | 33,978,418 |            |            |            | 28,541,013 | 
|                                                                                                                                       |                                                                                          |              |                            |            |            |           
|Commitments and contingencies (Note 10)                                                                                                |                                                                                          |              |                            |            |            |            |            |           
|Stockholders equity:                                                                                                                  |                                                                                          |              |                            |            |            |            |            |           
|                                                                                                                                       | Preferred stock, par value $.001, 2,000,000 shares
    authorized;
    no shares issued  |              |                            |           |            |            |            |           |           
|                                                                                                                                       | Common stock, par value $.001, 15,000,000 shares
    authorized; 4,149,074 shares issued |              |                            | 4,149      |            |            |            | 4,149      |           
|                                                                                                                                       | Additional paid-in capital                                                               |              |                            | 23,326,026 |            |            |            | 23,326,026 |           
|                                                                                                                                       | Accumulated other comprehensive income                                                   |              |                            | 132,331    |            |            |            | 123,007    |           
|                                                                                                                                       | Retained earnings                                                                        |              |                            | 21,892,237 |            |            |            | 25,862,069 |           
|                                                                                                                                       | Treasury stock, at cost (7,390 shares)                                                   |              |                            | (49,267    | )          |            |            | (49,267    | )         
|                                                                                                                                       |                                                                                          |              |                            |            |            |           
|                                                                                                                                       |                                                                                          |              | Total stockholders equity |            |            | 45,305,476 |            |            |            | 49,265,984 | 
|                                                                                                                                       |                                                                                          |              |                            |            |            |           
|Total liabilities and stockholders equity                                                                                             |                                                                                          | $            | 79,283,894                 |            |            | $          | 77,806,997 |           
|                                                                                                                                       |                                                                                          |              |                            |            |            |           



F-5



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.





CONSOLIDATED STATEMENTS OF INCOME


|                                                                           |                                            |                                             |           |            |            |   |           |            |            |   |           |            |            | 
|-------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------- | --------- | ---------- | ---------- | - | --------- | ---------- | ---------- | - | --------- | ---------- | ---------- | 
|                                                                           |                                            | Year Ended December 31,                     |          
|                                                                           |                                            |                                             |          
|                                                                           |                                            | 2002                                        |           |            | 2003       |   |           | 2004       |           
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|Revenues:                                                                  |                                            |                                             |           |            |            |   |           |            |            |   |           |           
|                                                                           | Premiums                                   |                                             | $         | 17,984,990 |            |   | $         | 17,401,266 |            |   | $         | 17,109,121 |           
|                                                                           | Reinsured policy revenues                  |                                             |           | 13,859,540 |            |   |           | 12,796,537 |            |   |           | 12,532,579 |           
|                                                                           | Net investment income                      |                                             |           | 741,691    |            |   |           | 406,993    |            |   |           | 849,233    |           
|                                                                           | Net realized gain (loss) on investments    |                                             |           | 427,823    |            |   |           | 21,476     |            |   |           | (27,364    | )         
|                                                                           | Net unrealized gain on trading investments |                                             |           |           |            |   |           |           |            |   |           | 48,819     |           
|                                                                           | Other income                               |                                             |           | 530        |            |   |           | 62,786     |            |   |           | 15,681     |           
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|                                                                           |                                            | Total revenues                              |           |            | 33,014,574 |   |           |            | 30,689,058 |   |           |            | 30,528,069 | 
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|Benefits and expenses:                                                     |                                            |                                             |           |            |            |   |           |            |            |   |           |           
|                                                                           | Benefits, claims and settlement expenses   |                                             |           | 8,428,898  |            |   |           | 9,268,559  |            |   |           | 6,903,934  |           
|                                                                           | Change in future policy benefits           |                                             |           | 1,525,570  |            |   |           | 1,054,256  |            |   |           | 645,436    |           
|                                                                           | Reinsurance expense allowances, net        |                                             |           | 8,517,836  |            |   |           | 8,135,785  |            |   |           | 7,685,870  |           
|                                                                           | Amortization of deferred acquisition costs |                                             |           | 7,023,815  |            |   |           | 5,536,839  |            |   |           | 6,208,647  |           
|                                                                           | Operating expenses                         |                                             |           | 3,119,932  |            |   |           | 3,386,942  |            |   |           | 3,327,312  |           
|                                                                           | Costs of withdrawn offering                |                                             |           | 1,712,000  |            |   |           |           |            |   |           |           |           
|                                                                           | Interest expense                           |                                             |           | 380,116    |            |   |           | 375,000    |            |   |           | 216,781    |           
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|                                                                           |                                            | Total benefits and expenses                 |           |            | 30,708,167 |   |           |            | 27,757,381 |   |           |            | 24,987,980 | 
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|                                                                           |                                            | Income before income tax                    |           |            | 2,306,407  |   |           |            | 2,931,677  |   |           |            | 5,540,089  | 
|                                                                           | Income tax expense                         |                                             |           | (788,730   | )          |   |           | (998,262   | )          |   |           | (1,570,257 | )         
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|                                                                           |                                            | Net income available to common stockholders |           | $          | 1,517,677  |   |           | $          | 1,933,415  |   |           | $          | 3,969,832  | 
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|Basic earnings per share                                                   |                                            | $                                           | 0.37      |            |            | $ | 0.47      |            |            | $ | 0.96      |           
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|Diluted earnings per share                                                 |                                            | $                                           | 0.37      |            |            | $ | 0.47      |            |            | $ | 0.95      |           
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|Weighted average common shares outstanding                                 |                                            |                                             | 4,141,684 |            |            |   | 4,141,684 |            |            |   | 4,141,684 |           
|                                                                           |                                            |                                             |           |            |            |   |           |            |           
|Total weighted average common and common equivalent shares
    outstanding |                                            |                                             | 4,141,684 |            |            |   | 4,141,684 |            |            |   | 4,157,539 |           
|                                                                           |                                            |                                             |           |            |            |   |           |            |           



F-6



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


AND COMPREHENSIVE INCOME


|                           |                            |                                              |          |             |           |   |           |        |  |  |           |            |  |         |               |  |        |   |            |          |  |   |          |  |          |               |            |           |  |               |         |   |  |   |            |           |          |   |  |   |           |          |  
|-------------------------- | -------------------------- | -------------------------------------------- | -------- | ----------- | --------- | - | --------- | ------ |  |  | --------- | ---------- |  | ------- | ------------- |  | ------ | - | ---------- | -------- |  | - | -------- |  | -------- | ------------- | ---------- | --------- |  | ------------- | ------- | - |  | - | ---------- | --------- | -------- | - |  | - | --------- | -------- | -
|                           |                            | Years Ended December 31, 2002, 2003 and 2004 |         
|                           |                            |                                              |          |             |           |   |          
|                           |                            |                                              |          | Accumulated |           |   |           |        |  | 
|                           |                            | Number                                       |          |             |           |   | Other     |        |  |  |           |            | 
|                           |                            | of                                           |          |             |           |   | Number of |        |  |  |           | Additional |  |         | Comprehensive |  |        |   |            | Total    |  |   |          | 
|                           |                            | Preferred                                    |          |             | Preferred |   |           | Common |  |  | Common    |            |  | Paid-In |               |  | Income |   |            | Retained |  |   | Treasury |  |          | Stockholders |            |           |  | Comprehensive |        
|                           |                            | Shares                                       |          |             | Stock     |   |           | Shares |  |  | Stock     |            |  | Capital |               |  | (Loss) |   |            | Earnings |  |   | Stock    |  |          | Equity        |            |           |  | Income        |        
|                           |                            |                                              |          |             |           |   |           |        |  |  |           |            |  |         |               |  |        |   |            |          |  |   |          |  |          |               |            |           |  |               |        
|Balance, January 1, 2002   |                            |                                              | 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 income, 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 loss, 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 |           |          |   |  |   |          
|                           | Comprehensive income       |                                              |          |             |           |   |           |        |  |  |           |            |  |         |               |  |        |   |            |          |  |   |          |  |          |               |            |           |  |               |         |   |  |   |            |           |          |   |  |   |           |         
|                           | Net income                 |                                              |          |             |           |   |           |        |  |  |           |            |  |         |               |  |        |   |            |          |  |   |          |  |          |               |            | 3,969,832 |  |               |         |   |  |   |            | 3,969,832 |          |   |  | $ | 3,969,832 |         
|                           |                            | Other comprehensive income, net of tax       |          |             |           |   |           |        |  |  |           |            |  |         |               |  |        |   |            |          |  |   |          |  | (9,324   | )             |            |           |  |               |         |   |  |   |            |           | (9,324   | ) |  |   |           | (9,324   | )
|                           |                            |                                              |          |             |           |   |           |        |  |  |           |            |  |         |               |  |        |   |            |          |  |   |          |  |          |               |            |           |  |               |        
|                           | Total comprehensive income |                                              |          |             |           |   |           |        |  |  |           |            |  |         |               |  |        |   |            |          |  |   |          |  |          |               |            |           |  |               |         |   |  |   |            |           |          |   |  | $ | 3,960,508 |         
|                           |                            |                                              |          |             |           |   |           |        |  |  |           |            |  |         |               |  |        |   |            |          |  |   |          |  |          |               |            |           |  |               |        
|Balance, December 31, 2004 |                            |                                              |         |             |           | $ |          |        |  |  | 4,149,074 |            |  | $       | 4,149         |  |        | $ | 23,326,026 |          |  | $ | 123,007  |  |          | $             | 25,862,069 |           |  | $             | (49,267 | ) |  | $ | 49,265,984 |           |          |   |  |   |          
|                           |                            |                                              |          |             |           |   |           |        |  |  |           |            |  |         |               |  |        |   |            |          |  |   |          |  |          |               |            |           |  |               |        



F-7



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |            |             |            |            |            |            |  
|------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------------------------------- | ---------- | ----------- | ---------- | ---------- | ----------- | ---------- | ----------- | ---------- | ---------- | ---------- | ---------- | -
|                                                  |                                                                                                     | Year Ended December 31,                    |                                                     
|                                                  |                                                                                                     |                                            |                                                     
|                                                  |                                                                                                     | 2002                                       |                                                      |            | 2003        |            |            | 2004        |           
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|Cash flows from operating activities:             |                                                                                                     |                                            |                                                      |            |             |            |            |             |            |             |            |           
|                                                  | Net income                                                                                          |                                            | $                                                    | 1,517,677  |             |            | $          | 1,933,415   |            |             | $          | 3,969,832  |           
|                                                  | Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:     |                                            |                                                      |            |             |            |            |             |            |             |            |            |           
|                                                  |                                                                                                     | Amortization and depreciation              |                                                      |            | 7,072,737   |            |            |             | 5,633,217  |             |            |            | 6,450,210  |           
|                                                  |                                                                                                     | Costs of withdrawn offering                |                                                      |            | 1,712,000   |            |            |             |           |             |            |            |           |           
|                                                  |                                                                                                     | Deferred tax expense (benefit)             |                                                      |            | 771,649     |            |            |             | 871,664    |             |            |            | (1,011,320 | )         
|                                                  |                                                                                                     | Net realized loss (gain) on investments    |                                                      |            | (427,823    | )          |            |             | (21,476    | )           |            |            | 27,364     |           
|                                                  |                                                                                                     | Net unrealized gain on trading investments |                                                      |            |            |            |            |             |           |             |            |            | (48,819    | )         
|                                                  | Change in:                                                                                          |                                            |                                                      |            |             |            |            |             |            |             |            |            |           
|                                                  |                                                                                                     | Investment income due and accrued          |                                                      |            | 91,173      |            |            |             | (116,138   | )           |            |            | (37,200    | )         
|                                                  |                                                                                                     | Accounts receivable                        |                                                      |            | (215,500    | )          |            |             | 170,912    |             |            |            | 33,231     |           
|                                                  |                                                                                                     | Reinsurance balances receivable            |                                                      |            | (236,041    | )          |            |             | 966,487    |             |            |            | (454,658   | )         
|                                                  |                                                                                                     | Deferred acquisition costs                 |                                                      |            | (14,073,855 | )          |            |             | (1,294,395 | )           |            |            | (768,452   | )         
|                                                  |                                                                                                     | Prepaid expenses                           |                                                      |            | (762,212    | )          |            |             | 368,774    |             |            |            | 295,915    |           
|                                                  |                                                                                                     | Current income tax recoverable             |                                                      |            | (172,500    | )          |            |             | 124,348    |             |            |            | 48,152     |           
|                                                  |                                                                                                     | Future policy benefits                     |                                                      |            | 5,012,243   |            |            |             | 1,957,615  |             |            |            | 520,105    |           
|                                                  |                                                                                                     | Reinsurance balances payable               |                                                      |            | (146,688    | )          |            |             | 127,351    |             |            |            | (169,481   | )         
|                                                  |                                                                                                     | Accrued expenses and accounts payable      |                                                      |            | (71,047     | )          |            |             | 43,442     |             |            |            | 9,237      |           
|                                                  |                                                                                                     | Accrued interest payable                   |                                                      |            |            |            |            |             |           |             |            |            | (158,219   | )         
|                                                  |                                                                                                     | Current income tax payable                 |                                                      |            | (413,299    | )          |            |             |           |             |            |            | 377,075    |           
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|                                                  |                                                                                                     |                                            | Net cash provided by (used in) operating activities  |            |             | (341,486   | )          |             |            | 10,765,216  |            |            |            | 9,082,972  |  
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|Cash flows from investing activities:             |                                                                                                     |                                            |                                                      |            |             |            |            |             |            |             |            |           
|                                                  | Proceeds from sale of available-for-sale securities                                                 |                                            |                                                      | 9,856,622  |             |            |            | 421,282     |            |             |            | 3,038,916  |           
|                                                  | Proceeds from principal payments on mortgage-backed securities
    of available-for-sale securities |                                            |                                                      | 1,096,204  |             |            |            | 738,085     |            |             |            | 324,330    |           
|                                                  | Proceeds from maturity of available-for-sale securities                                             |                                            |                                                      | 600,000    |             |            |            | 800,000     |            |             |            | 400,000    |           
|                                                  | Purchase of fixed maturity and equity securities                                                    |                                            |                                                      | (1,958,013 | )           |            |            | (16,831,299 | )          |             |            | (6,754,030 | )         
|                                                  | Change in reinsured policy loans                                                                    |                                            |                                                      | (102,365   | )           |            |            | (154,717    | )          |             |            | (204,805   | )         
|                                                  | Purchase of fixed assets                                                                            |                                            |                                                      | (219,928   | )           |            |            | (16,778     | )          |             |            | (3,828     | )         
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|                                                  |                                                                                                     |                                            | Net cash provided by (used in) investing activities  |            |             | 9,272,520  |            |             |            | (15,043,427 | )          |            |            | (3,199,417 | )
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|Cash flows from financing activities:             |                                                                                                     |                                            |                                                      |            |             |            |            |             |            |             |            |           
|                                                  | Repayment of short term debt                                                                        |                                            |                                                      |           |             |            |            |            |            |             |            | (5,000,000 | )         
|                                                  | Prepaid expenses  costs of withdrawn offering                                                      |                                            |                                                      | 577,112    |             |            |            |            |            |             |            |           |           
|                                                  | Costs of withdrawn offering                                                                         |                                            |                                                      | (1,712,000 | )           |            |            |            |            |             |            |           |           
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|                                                  |                                                                                                     |                                            | Net cash used in financing activities                |            |             | (1,134,888 | )          |             |            |            |            |            |            | (5,000,000 | )
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|                                                  |                                                                                                     |                                            | Net increase (decrease) in cash and cash equivalents |            |             | 7,796,146  |            |             |            | (4,278,211  | )          |            |            | 883,555    |  
|Cash and cash equivalents at beginning of period  |                                                                                                     |                                            | 8,062,110                                            |            |             |            | 15,858,256 |             |            |             | 11,580,045 |           
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|Cash and cash equivalents at end of period        |                                                                                                     | $                                          | 15,858,256                                           |            |             | $          | 11,580,045 |             |            | $           | 12,463,600 |           
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|Supplemental disclosure of cash flow information: |                                                                                                     |                                            |                                                      |            |             |            |            |             |            |             |            |           
|                                                  | Interest paid                                                                                       |                                            | $                                                    | 380,116    |             |            | $          | 375,000     |            |             | $          | 216,781    |           
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           
|                                                  | Income taxes paid                                                                                   |                                            | $                                                    | 602,880    |             |            | $          | 2,250       |            |             | $          | 2,156,350  |           
|                                                  |                                                                                                     |                                            |                                                      |            |             |            |            |             |           



F-8



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2002, 2003 and 2004




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













F-9



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

Consolidation and Basis of Presentation.




Investments.






Fair Value Disclosure.


Cash and Cash Equivalents.


Deferred Acquisition Costs.


F-10



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Reinsurance Expense Allowances.


Fixed Assets.


Future Policy Benefits.




F-11



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Income Taxes. Accounting for
Income Taxes


Recognition of Revenues and Related Expenses.


Reinsured Policy Revenues.


Earnings Per Share. Earnings Per Share.




Common Stock.


Stock Compensation Plan. Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation.




F-12



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting for Stock Issued to
Employees, Accounting for
Stock-Based Compensation,




|                                                                                                                            |  |                         |         |  |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                            |  | Year Ended December 31, |        
|                                                                                                                            |  |                         |        
|                                                                                                                            |  | 2002                    |         |  | 2003 |   |         | 2004 | 
|                                                                                                                            |  |                         |         |  |      |   |         |      | 
|                                                                                                                            |  | (In thousands, except   |        
|                                                                                                                            |  | per share amounts)      |        
|Net income, as reported                                                                                                     |  | $                       | 1,517.7 |  |      | $ | 1,933.4 |      |  | $ | 3,969.8 |  
|Less: Total stock-based employee compensation expense determined
    under the fair value method for all awards, net of tax |  |                         |        |  |      |   | (16.1   | )    |  |   | (16.9   | )
|                                                                                                                            |  |                         |         |  |      |   |         |      | 
|Pro-forma net income                                                                                                        |  | $                       | 1,517.7 |  |      | $ | 1,917.3 |      |  | $ | 3,952.9 |  
|                                                                                                                            |  |                         |         |  |      |   |         |      | 
|Reported basic earnings per common share                                                                                    |  | $                       | 0.37    |  |      | $ | 0.47    |      |  | $ | 0.96    |  
|                                                                                                                            |  |                         |         |  |      |   |         |      | 
|Reported diluted earnings per common share                                                                                  |  | $                       | 0.37    |  |      | $ | 0.47    |      |  | $ | 0.95    |  
|                                                                                                                            |  |                         |         |  |      |   |         |      | 
|Pro-forma basic earnings per common share                                                                                   |  | $                       | 0.37    |  |      | $ | 0.46    |      |  | $ | 0.95    |  
|                                                                                                                            |  |                         |         |  |      |   |         |      | 
|Pro-forma diluted earnings per common share                                                                                 |  | $                       | 0.37    |  |      | $ | 0.46    |      |  | $ | 0.95    |  
|                                                                                                                            |  |                         |         |  |      |   |         |      | 

Recent Accounting Pronouncements. Accounting for Derivative Instruments and Hedging
Activities, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities,


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,


Accounting
for Stock-Based Compensation-Transition and Disclosure.


Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.


F-13



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Accounting for Stock-Based
Compensation.


Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others Consolidation of Variable Interest Entities,


Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts.


The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments.


Reclassification.




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



|                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                      |  | Year Ended December 31, |        
|                                      |  |                         |        
|                                      |  | 2002                    |         |   | 2003 |   |         | 2004 | 
|                                      |  |                         |         |   |      |   |         |      | 
|Fixed maturity securities             |  | $                       | 716,165 |   |      | $ | 271,307 |      |  | $ | 764,119 |  
|Equity securities, available for sale |  |                         |        |   |      |   | 15,178  |      |  |   | 31,244  |  
|Cash and cash equivalents             |  |                         | 93,125  |   |      |   | 188,303 |      |  |   | 139,156 |  
|                                      |  |                         |         |   |      |   |         |      | 
|                                      |  |                         | 809,290 |   |      |   | 474,788 |      |  |   | 934,519 |  
|Investment expenses                   |  |                         | (67,599 | ) |      |   | (67,795 | )    |  |   | (85,286 | )
|                                      |  |                         |         |   |      |   |         |      | 
|Net investment income                 |  | $                       | 741,691 |   |      | $ | 406,993 |      |  | $ | 849,233 |  
|                                      |  |                         |         |   |      |   |         |      | 

F-14



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                               |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |            |            |            |            |           |           |           |           | 
|-------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ---------- | ---------- | ---------- | ---------- | ------- | ---------- | ------- | ------------- | ---------- | ------ | ------ | ---------- | ---------- | ---------- | ---------- | ---------- | --------- | --------- | --------- | --------- | 
|                                                               |                                           |                                                     |            |            |            |            |         |            |         | Fair Value of |           
|                                                               |                                           |                                                     |            |            |            |            |         |            |         | Securities    |           
|                                                               |                                           |                                                     |            |            |            |            |         |            |         | with          |           
|                                                               |                                           | Amortized                                           |            |            | Unrealized |            |         | Unrealized |         |               | Total Fair |        |        | Unrealized |           
|                                                               |                                           | Cost                                                |            |            | Gains      |            |         | Losses     |         |               | Value      |        |        | Losses     |           
|                                                               |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |           
|2003                                                           |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |            |            |            |            |           |          
|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 |            |            |           | 2,112,810 |          
|                                                               | Mortgage-backed securities                |                                                     |            | 363,698    |            |            |         | 21,848     |         |               |            |       |        |            |            | 385,546    |            |            |           |          |          
|                                                               |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |           
|                                                               |                                           |                                                     | Total      |            |            | 15,057,808 |         |            |         | 215,308       |            |        |        | 5,639      |            |            |            | 15,267,477 |           |           |           | 2,112,810 | 
|Equity securities                                              |                                           |                                                     | 2,009,360  |            |            |            | 19      |            |         |               | 10,447     |        |        |            | 1,998,932  |            |            |            | 1,998,932 |          
|                                                               |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |           
|Total fixed maturity and equity securities, available for sale |                                           | $                                                   | 17,067,168 |            |            | $          | 215,327 |            |         | $             | 16,086     |        |        | $          | 17,266,409 |            |            | $          | 4,111,742 |          
|                                                               |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |           
|2004                                                           |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |            |            |            |            |           |          
|Fixed maturity securities:                                     |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |            |            |            |            |           |          
|                                                               | U.S. government corporations and agencies |                                                     | $          | 6,232,387  |            |            | $       | 32,131     |         |               | $          | 33,717 |        |            | $          | 6,230,801  |            |            | $         | 3,471,879 |          
|                                                               | Corporate                                 |                                                     |            | 11,621,577 |            |            |         | 162,905    |         |               |            | 27,717 |        |            |            | 11,756,765 |            |            |           | 4,550,047 |          
|                                                               | Mortgage-backed securities                |                                                     |            | 2,031,289  |            |            |         | 52,770     |         |               |            |       |        |            |            | 2,084,059  |            |            |           |          |          
|                                                               |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |           
|                                                               |                                           | Total fixed maturity securities, available for sale |            | $          | 19,885,253 |            |         | $          | 247,806 |               |            | $      | 61,434 |            |            | $          | 20,071,625 |            |           | $         | 8,021,926 |          
|                                                               |                                           |                                                     |            |            |            |            |         |            |         |               |            |        |        |            |           



F-15



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                    |                                        |                |   |           |            |  |   |           |            | 
|------------------- | -------------------------------------- | -------------- | - | --------- | ---------- |  | - | --------- | ---------- | 
|                    |                                        | Amortized Cost |   |           | Fair value | 
|                    |                                        |                |   |           |            | 
|Available for sale: |                                        |                |   |           |            |  |   |          
|                    | Due in one year or less                |                | $ | 6,816,246 |            |  | $ | 6,832,379 |           
|                    | Due after one year through five years  |                |   | 6,063,000 |            |  |   | 6,060,040 |           
|                    | Due after five years through ten years |                |   | 4,974,719 |            |  |   | 5,095,147 |           
|                    | Mortgage-backed securities             |                |   | 2,031,288 |            |  |   | 2,084,059 |           
|                    |                                        |                |   |           |            | 
|                    |                                        | Total          |   | $         | 19,885,253 |  |   | $         | 20,071,625 | 
|                    |                                        |                |   |           |            | 





|                                               |                       |                                  |   |         |         |  |   |        |        |  |   |         |         |  
|---------------------------------------------- | --------------------- | -------------------------------- | - | ------- | ------- |  | - | ------ | ------ |  | - | ------- | ------- | -
|                                               |                       | 2002                             |   |         | 2003    |  |   | 2004   |       
|                                               |                       |                                  |   |         |         |  |   |        |       
|Fixed maturity securities, available for sale: |                       |                                  |   |         |         |  |   |        |        |  |   |        
|                                               | Gross realized gains  |                                  | $ | 450,724 |         |  | $ | 21,476 |        |  | $ | 3,831   |        
|                                               | Gross realized losses |                                  |   | (22,901 | )       |  |   |       |        |  |   | (31,195 | )      
|                                               |                       |                                  |   |         |         |  |   |        |       
|                                               |                       | Net realized gain on investments |   | $       | 427,823 |  |   | $      | 21,476 |  |   | $       | (27,364 | )
|                                               |                       |                                  |   |         |         |  |   |        |       





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



|                                                |                                        |                         |           |           |           |   |           |           |           |   |           |           |           | 
|----------------------------------------------- | -------------------------------------- | ----------------------- | --------- | --------- | --------- | - | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                |                                        | Year Ended December 31, |          
|                                                |                                        |                         |          
|                                                |                                        | 2002                    |           |           | 2003      |   |           | 2004      |          
|                                                |                                        |                         |           |           |           |   |           |           |          
|Unpaid life claims  January 1                  |                                        | $                       | 1,538,385 |           |           | $ | 1,645,065 |           |           | $ | 1,550,188 |          
|                                                |                                        |                         |           |           |           |   |           |           |          
|Add claims incurred during the year related to: |                                        |                         |           |           |           |   |           |           |           |   |           |          
|                                                | Current year                           |                         |           | 8,179,749 |           |   |           | 9,027,513 |           |   |           | 6,117,064 |          
|                                                | Prior years                            |                         |           | 249,149   |           |   |           | 241,046   |           |   |           | 786,870   |          
|                                                |                                        |                         |           |           |           |   |           |           |          
|                                                |                                        | Total incurred          |           |           | 8,428,898 |   |           |           | 9,268,559 |   |           |           | 6,903,934 | 
|                                                |                                        |                         |           |           |           |   |           |           |          
|Less claims paid during the year:               |                                        |                         |           |           |           |   |           |           |           |   |           |          
|                                                | On claims incurred during current year |                         |           | 7,511,575 |           |   |           | 8,519,602 |           |   |           | 5,625,696 |          
|                                                | On claims incurred during prior years  |                         |           | 810,643   |           |   |           | 843,834   |           |   |           | 844,747   |          
|                                                |                                        |                         |           |           |           |   |           |           |          
|                                                |                                        | Total paid              |           |           | 8,322,218 |   |           |           | 9,363,436 |   |           |           | 6,470,443 | 
|                                                |                                        |                         |           |           |           |   |           |           |          
|Unpaid life claims  December 31                |                                        | $                       | 1,645,065 |           |           | $ | 1,550,188 |           |           | $ | 1,983,679 |          
|                                                |                                        |                         |           |           |           |   |           |           |          



F-16



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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









| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | commence reinsurance of Freedom Elite Builder variable universal
    life insurance policies and riders issued from January 1,
    2002 through December 31, 2002 up to 20% on a coinsurance
    and modified coinsurance basis;                                                                                                               
|
| |  | commence reinsurance of any single life variable universal life
    insurance policies and riders issued from January 1, 2003
    through March 31, 2006 up to 20% on a coinsurance and
    modified coinsurance basis. This contractual right is subject to
    certain premium production requirements;                                      
|
| |  | prospectively reinsure all new single life variable universal
    life insurance policies up to 20% on a monthly renewable term
    basis at 105% of premium rates otherwise available from certain
    commercial reinsurers. This right extends through March 31,
    2006 and is subject to certain premium production
    requirements; and
|
| |  | commence or increase reinsurance on certain variable annuity
    policies issued from January 1, 2003 through
    December 31, 2005 up to 40% on a coinsurance and modified
    coinsurance basis, subject to certain premium production
    requirements.                                                                                     



F-17



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 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.                                                                                                



|                                 |  |                         |            |   |      |   |            |      |  |   |            |  
|-------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                 |  | Year Ended December 31, |           
|                                 |  |                         |           
|                                 |  | 2002                    |            |   | 2003 |   |            | 2004 | 
|                                 |  |                         |            |   |      |   |            |      | 
|Reinsurance assumed              |  | $                       | 32,318,207 |   |      | $ | 30,665,247 |      |  | $ | 30,066,493 |  
|Reinsurance ceded                |  |                         | (473,677   | ) |      |   | (467,444   | )    |  |   | (424,793   | )
|                                 |  |                         |            |   |      |   |            |      | 
|Net premiums and policy revenues |  | $                       | 31,844,530 |   |      | $ | 30,197,803 |      |  | $ | 29,641,700 |  
|                                 |  |                         |            |   |      |   |            |      | 



|                                             |  |                         |           |  |      |   |           |      |  |   |           |  
|-------------------------------------------- |  | ----------------------- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | -
|                                             |  | Year Ended December 31, |          
|                                             |  |                         |          
|                                             |  | 2002                    |           |  | 2003 |   |           | 2004 | 
|                                             |  |                         |           |  |      |   |           |      | 
|Reinsurance assumed                          |  | $                       | 8,368,898 |  |      | $ | 9,431,944 |      |  | $ | 7,187,936 |  
|Reinsurance ceded                            |  |                         | 60,000    |  |      |   | (163,385  | )    |  |   | (284,002  | )
|                                             |  |                         |           |  |      |   |           |      | 
|Net benefits, claims and settlement expenses |  | $                       | 8,428,898 |  |      | $ | 9,268,559 |      |  | $ | 6,903,934 |  
|                                             |  |                         |           |  |      |   |           |      | 

F-18



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |     |              |       |       |      |   |       |       |  |   |       |       | 
|----------------------- | --- | ------------ | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                        |     | December 31, |      
|                        |     |              |      
|Life insurance in force |     | 2002         |       |       | 2003 |   |       | 2004  | 
|                        |     |              |       |       |      |   |       |       | 
|Direct                  |     |              |      |       |      |   |      |       |  |   |      |      
|Assumed                 |     | $            | 8,451 |       |      | $ | 7,606 |       |  | $ | 7,035 |      
|Ceded                   |     |              | (155  | )     |      |   | (131  | )     |  |   | (116  | )    
|                        |     |              |       |       |      |   |       |       | 
|                        | Net |              | $     | 8,296 |      |   | $     | 7,475 |  |   | $     | 6,919 | 
|                        |     |              |       |       |      |   |       |       | 



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



|                  |             |                         |            |            |      |   |            |            |   |   |            |            |  
|----------------- | ----------- | ----------------------- | ---------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                  |             | Year Ended December 31, |           
|                  |             |                         |           
|                  |             | 2002                    |            |            | 2003 |   |            | 2004       |  
|                  |             |                         |            |            |      |   |            |            |  
|Beginning of year |             | $                       | 42,800,269 |            |      | $ | 49,850,309 |            |   | $ | 45,607,865 |           
|                  | Capitalized |                         |            | 14,073,855 |      |   |            | 1,294,395  |   |   |            | 768,452    |  
|                  | Amortized   |                         |            | (7,023,815 | )    |   |            | (5,536,839 | ) |   |            | (6,208,647 | )
|                  |             |                         |            |            |      |   |            |            |  
|End of year       |             | $                       | 49,850,309 |            |      | $ | 45,607,865 |            |   | $ | 40,167,670 |           
|                  |             |                         |            |            |      |   |            |            |  





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



Accounting for Income Taxes.




|                     |                                                            |                         |   |         |      |  |   |         |  |  |   |           |  
|-------------------- | ---------------------------------------------------------- | ----------------------- | - | ------- | ---- |  | - | ------- |  |  | - | --------- | -
|                     |                                                            | Year Ended December 31, |  
|                     |                                                            |                         |  
|                     |                                                            | 2002                    |   |         | 2003 |  |   | 2004    | 
|                     |                                                            |                         |   |         |      |  |   |         | 
|Tax attributable to: |                                                            |                         |   |         |      |  |   |         |  |  |   |          
|                     | Income from operations                                     |                         | $ | 788,730 |      |  | $ | 998,262 |  |  | $ | 1,570,257 |  
|                     |                                                            |                         |   |         |      |  |   |         | 
|                     | Unrealized gains (losses) on securities available for sale |                         | $ | (84,694 | )    |  | $ | 25,864  |  |  | $ | (4,803    | )
|                     |                                                            |                         |   |         |      |  |   |         | 

F-19



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |       |                         |         |         |      |   |         |         |  |   |            |           | 
|-------- | ----- | ----------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ---------- | --------- | 
|         |       | Year Ended December 31, |        
|         |       |                         |        
|         |       | 2002                    |         |         | 2003 |   |         | 2004    | 
|         |       |                         |         |         |      |   |         |         | 
|Current  |       | $                       | 17,081  |         |      | $ | 126,598 |         |  | $ | 2,581,577  |          
|Deferred |       |                         | 771,649 |         |      |   | 871,664 |         |  |   | (1,011,320 | )        
|         |       |                         |         |         |      |   |         |         | 
|         | Total |                         | $       | 788,730 |      |   | $       | 998,262 |  |   | $          | 1,570,257 | 
|         |       |                         |         |         |      |   |         |         | 



|                                       |       |                         |         |         |      |   |         |         |  |   |           |           | 
|-------------------------------------- | ----- | ----------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | --------- | --------- | 
|                                       |       | Year Ended December 31, |        
|                                       |       |                         |        
|                                       |       | 2002                    |         |         | 2003 |   |         | 2004    | 
|                                       |       |                         |         |         |      |   |         |         | 
|Computed expected tax expense          |       | $                       | 784,178 |         |      | $ | 996,770 |         |  | $ | 1,883,630 |          
|Small life insurance company deduction |       |                         |        |         |      |   |        |         |  |   | (314,951  | )        
|Other, net                             |       |                         | 4,552   |         |      |   | 1,492   |         |  |   | 1,578     |          
|                                       |       |                         |         |         |      |   |         |         | 
|                                       | Total |                         | $       | 788,730 |      |   | $       | 998,262 |  |   | $         | 1,570,257 | 
|                                       |       |                         |         |         |      |   |         |         | 





|                          |                                                  |                                |   |            |            |  |   |            |            | 
|------------------------- | ------------------------------------------------ | ------------------------------ | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                          |                                                  | December 31,                   |  
|                          |                                                  |                                |  
|                          |                                                  | 2003                           |   |            | 2004       | 
|                          |                                                  |                                |   |            |            | 
|Deferred tax assets:      |                                                  |                                |   |            |            |  |   |           
|                          | Alternative minimum tax credit                   |                                | $ | 133,811    |            |  | $ | 30,019     |           
|                          | Reserve differences                              |                                |   | 5,337,975  |            |  |   | 4,228,455  |           
|                          | Net operating loss carry-forward                 |                                |   | 819,552    |            |  |   | 441,539    |           
|                          | DAC tax capitalized                              |                                |   | 463,410    |            |  |   | 693,514    |           
|                          | Other                                            |                                |   | 124,297    |            |  |   | 128,267    |           
|                          |                                                  |                                |   |            |            | 
|                          |                                                  | Gross deferred tax assets      |   |            | 6,879,045  |  |   |            | 5,521,794  | 
|                          |                                                  |                                |   |            |            | 
|Deferred tax liabilities: |                                                  |                                |   |            |            |  |   |           
|                          | Policy benefit reserves                          |                                |   | 556,451    |            |  |   | 32,453     |           
|                          | Deferred acquisition costs                       |                                |   | 15,506,674 |            |  |   | 13,657,008 |           
|                          | Unrealized gain on securities available for sale |                                |   | 68,170     |            |  |   | 63,367     |           
|                          | Other                                            |                                |   |           |            |  |   | 5,093      |           
|                          |                                                  |                                |   |            |            | 
|                          |                                                  | Gross deferred tax liabilities |   |            | 16,131,295 |  |   |            | 13,757,921 | 
|                          |                                                  |                                |   |            |            | 
|                          |                                                  | Net deferred tax liabilities   |   | $          | 9,252,250  |  |   | $          | 8,236,127  | 
|                          |                                                  |                                |   |            |            | 



F-20



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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















F-21



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the terms of World Financial Groups selling agreements
    (including commission arrangements) and Global Preferreds
    reinsurance relationships with life insurance companies;
|
| |  | agreements among AEGON N.V., Global Preferred, World Financial
    Group, Western Reserve, 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.                                                                                                                                    







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





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 Bermuda Monetary
    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                                                                                                                                                                                                                                                                                                                                                     

F-22



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.







|    |                              
|--- | -----------------------------
|10. | Commitments and Contingencies







F-23



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |                |         | 
|------------------------ |  | -------------- | ------- | 
|Year Ending December 31, |  | Lease Payments |        
|                         |  |                |        
|2005                     |  | $              | 100,109 | 
|2006                     |  |                | 127,604 | 
|2007                     |  |                | 136,048 | 
|2008                     |  |                | 140,079 | 
|Thereafter               |  |                | 5,090   | 
|                         |  |                |        
|Total                    |  | $              | 508,930 | 
|                         |  |                |        

Accounting for Leases.






|                         |  |                |        | 
|------------------------ |  | -------------- | ------ | 
|Year Ending December 31, |  | Lease Payments |       
|                         |  |                |       
|2005                     |  | $              | 36,987 | 
|2006                     |  |                | 1,268  | 
|                         |  |                |       
|Total                    |  | $              | 38,255 | 
|                         |  |                |       





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



F-24



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                                                                        |  |            |          |     |           |   |          |            |  |   |          |  
|----------------------------------------------------------------------- |  | ---------- | -------- | --- | --------- | - | -------- | ---------- |  | - | -------- | -
|                                                                        |  |            |          | Tax |           |   |         
|                                                                        |  | Before-Tax |          |     | (Expense) |   |          | Net-of-Tax | 
|                                                                        |  | Amount     |          |     | Benefit   |   |          | Amount     | 
|                                                                        |  |            |          |     |           |   |          |            | 
|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   |  
|                                                                        |  |            |          |     |           |   |          |            | 
|2004                                                                    |  |            |          |     |           |   |          |            |  |   |          |  
|Net unrealized holding losses arising during period                     |  | $          | (41,491  | )   |           | $ | 14,107   |            |  | $ | (27,384  | )
|Less: reclassification adjustment for losses realized in net
    income |  |            | (27,364  | )   |           |   | 9,304    |            |  |   | (18,060  | )
|                                                                        |  |            |          |     |           |   |          |            | 
|Other comprehensive loss                                                |  | $          | (14,127  | )   |           | $ | 4,803    |            |  | $ | (9,324   | )
|                                                                        |  |            |          |     |           |   |          |            | 



|    |                  
|--- | -----------------
|13. | Segment Reporting

Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from
the Sale of Investments, Accounting and
Reporting by Insurance Enterprises.




F-25



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                  |  |                        |        |  |           |   |        |       |  |   |        |   |  |   |        | 
|------------------------------------------------- |  | ---------------------- | ------ |  | --------- | - | ------ | ----- |  | - | ------ | - |  | - | ------ | 
|                                                  |  | 2002                   |       
|                                                  |  |                        |       
|                                                  |  | Non-                   |        |  |          
|Segment Reporting                                 |  | Universal              |        |  | Universal |   |        |      
|Year Ended December 31                            |  | 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.

F-26



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                  |  |                        |        |  |           |   |        |       |  |   |        |   |  |   |        | 
|------------------------------------------------- |  | ---------------------- | ------ |  | --------- | - | ------ | ----- |  | - | ------ | - |  | - | ------ | 
|                                                  |  | 2003                   |       
|                                                  |  |                        |       
|                                                  |  | Non-                   |        |  |          
|Segment Reporting                                 |  | Universal              |        |  | Universal |   |        |      
|Year Ended December 31                            |  | 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.

|                                                  |  |                        |        |  |           |   |        |       |  |   |        |   |  |   |        |  
|------------------------------------------------- |  | ---------------------- | ------ |  | --------- | - | ------ | ----- |  | - | ------ | - |  | - | ------ | -
|                                                  |  | 2004                   |       
|                                                  |  |                        |       
|                                                  |  | Non-                   |        |  |          
|Segment Reporting                                 |  | Universal              |        |  | Universal |   |        |      
|Year Ended December 31                            |  | Life-Type              |        |  | Life-Type |   |        | Other |  |   | Total  |  
|                                                  |  |                        |        |  |           |   |        |       |  |   |        |  
|                                                  |  | (Dollars in thousands) |       
|Premiums                                          |  | $                      | 17,109 |  |           | $ |       |       |  | $ |       |   |  | $ | 17,109 |  
|Reinsured policy revenues                         |  |                        |       |  |           |   | 12,533 |       |  |   |       |   |  |   | 12,533 |  
|Benefits, claims and settlement expenses*         |  |                        | 6,370  |  |           |   | 1,180  |       |  |   |       |   |  |   | 7,550  |  
|Reinsurance expense allowances, net               |  |                        | 5,861  |  |           |   | 1,825  |       |  |   |       |   |  |   | 7,686  |  
|Amortization of deferred acquisition costs        |  |                        | 176    |  |           |   | 6,033  |       |  |   |       |   |  |   | 6,209  |  
|                                                  |  |                        |        |  |           |   |        |       |  |   |        |  
|Underwriting profit                               |  |                        | 4,702  |  |           |   | 3,495  |       |  |   |       |   |  |   | 8,197  |  
|Net investment income                             |  |                        | 41     |  |           |   | 120    |       |  |   | 688    |   |  |   | 849    |  
|Net realized loss on investments                  |  |                        |       |  |           |   |       |       |  |   | (27    | ) |  |   | (27    | )
|Net unrealized gain on trading investments        |  |                        |       |  |           |   |       |       |  |   | 49     |   |  |   | 49     |  
|Other income                                      |  |                        |       |  |           |   |       |       |  |   | 16     |   |  |   | 16     |  
|Other expenses                                    |  |                        | 162    |  |           |   | 370    |       |  |   | 3,012  |   |  |   | 3,544  |  
|                                                  |  |                        |        |  |           |   |        |       |  |   |        |  
|Segment operating income (loss) before income tax |  |                        | 4,581  |  |           |   | 3,245  |       |  |   | (2,286 | ) |  |   | 5,540  |  
|Income tax expense (benefit)                      |  |                        | 1,298  |  |           |   | 920    |       |  |   | (648   | ) |  |   | 1,570  |  
|                                                  |  |                        |        |  |           |   |        |       |  |   |        |  
|Segment net income (loss)                         |  | $                      | 3,283  |  |           | $ | 2,325  |       |  | $ | (1,638 | ) |  | $ | 3,970  |  
|                                                  |  |                        |        |  |           |   |        |       |  |   |        |  
|Segment assets                                    |  | $                      | 5,885  |  |           | $ | 43,258 |       |  | $ | 28,664 |   |  | $ | 77,807 |  
|                                                  |  |                        |        |  |           |   |        |       |  |   |        |  






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

F-27



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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







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





F-28



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








F-29



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##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |                   |                       |         |                     |           |  |       |                  |   |   |       |       | 
|----------------------- | ----------------- | --------------------- | ------- | ------------------- | --------- |  | ----- | ---------------- | - | - | ----- | ----- | 
|                        |                   |                       |         | 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 |      
|                        | Grants            |                       |         | (44.4               | )         |  |       | 44.4             |   |   | $     | 10.94 | 
|                        |                   |                       |         |                     |           |  | (6.8  | )                |   | $ | 10.46 |      
|                        | Cancellations     |                       |         |                     |           |  |       | (1.1             | ) |   | $     | 10.94 | 
|                        |                   |                       |         |                     |           |  |       |                  |  
|December 31, 2004       |                   |                       | 1,486.3 |                     |           |  | 238.6 |                  |   | $ | 10.46 |      
|                        |                   |                       |         |                     |           |  | 43.3  |                  |   | $ | 10.94 |      
|                        |                   |                       |         |                     |           |  |       |                  |  
|Options exercisable at: |                   |                       |         |                     |           |  |       |                  |   |   |       |      
|                        | December 31, 2002 |                       |         |                     |           |  |       |                 |   |   |       | N/A   | 
|                        | December 31, 2003 |                       |         |                     |           |  |       | 81.2             |   |   | $     | 10.46 | 
|                        |                   |                       |         |                     |           |  |      |                  |   | $ | 10.94 |      
|                        | December 31, 2004 |                       |         |                     |           |  |       | 128.0            |   |   | $     | 10.46 | 
|                        |                   |                       |         |                     |           |  |      |                  |   | $ | 10.94 |      







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



F-30



---



##### 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,                               |           
|                                                                                                                                   |                                                                                                            |                                            |           
|                                                                                                                                   |                                                                                                            | 2003                                       |            |            | 2004       |  
|                                                                                                                                   |                                                                                                            |                                            |            |            |            |  
|ASSETS                                                                                                                            
|Investment in common stock of subsidiaries(1)                                                                                      |                                                                                                            | $                                          | 38,722,535 |            |            | $ | 41,987,650 |           
|Fixed maturity securities  available for sale
    (amortized cost of $498,810 and $3,199,482 for 2003 and 2004,
    respectively) |                                                                                                            |                                            | 504,373    |            |            |   | 3,259,788  |           
|Cash and cash equivalents                                                                                                          |                                                                                                            |                                            | 3,545,374  |            |            |   | 2,595,461  |           
|Investment income due and accrued                                                                                                  |                                                                                                            |                                            | 3,509      |            |            |   | 27,344     |           
|Investment income due and accrued  intercompany(1)                                                                                |                                                                                                            |                                            | 189,344    |            |            |   |           |           
|Accounts receivable                                                                                                                |                                                                                                            |                                            |           |            |            |   | 32         |           
|Intercompany receivables(1)                                                                                                        |                                                                                                            |                                            | 1,484,708  |            |            |   | 1,099,064  |           
|Note receivable  intercompany(1)                                                                                                  |                                                                                                            |                                            | 5,000,000  |            |            |   |           |           
|Current income tax recoverable                                                                                                     |                                                                                                            |                                            |           |            |            |   | 1,144      |           
|Prepaid expenses                                                                                                                   |                                                                                                            |                                            | 516,182    |            |            |   | 220,308    |           
|Fixed assets (net of accumulated depreciation of $336,817 and
    $433,046 for 2003 and 2004, respectively)                        |                                                                                                            |                                            | 135,495    |            |            |   | 43,095     |           
|Deferred tax benefit                                                                                                               |                                                                                                            |                                            | 862,591    |            |            |   | 523,682    |           
|                                                                                                                                   |                                                                                                            |                                            |            |            |            |  
|                                                                                                                                   |                                                                                                            | Total assets                               |            | $          | 50,964,111 |   |            | $          | 49,757,568 | 
|                                                                                                                                   |                                                                                                            |                                            |            |            |            |  
|                                                                                                                                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                              
|Liabilities:                                                                                                                       |                                                                                                            |                                            |            |            |            |   |            |           
|                                                                                                                                   | Accrued expenses and accounts payable                                                                      |                                            | $          | 498,351    |            |   | $          | 491,584    |           
|                                                                                                                                   | Accrued interest payable                                                                                   |                                            |            | 158,219    |            |   |            |           |           
|                                                                                                                                   | Current maturities of long-term debt                                                                       |                                            |            | 5,000,000  |            |   |            |           |           
|                                                                                                                                   | Current income tax payable                                                                                 |                                            |            | 2,065      |            |   |            |           |           
|                                                                                                                                   |                                                                                                            |                                            |            |            |            |  
|                                                                                                                                   |                                                                                                            | Total liabilities                          |            |            | 5,658,635  |   |            |            | 491,584    | 
|                                                                                                                                   |                                                                                                            |                                            |            |            |            |  
|Stockholders equity:                                                                                                              |                                                                                                            |                                            |            |            |            |   |            |           
|                                                                                                                                   | Preferred stock, par value $.001, 2,000,000 shares
    authorized; no shares issued                        |                                            |            |           |            |   |            |           |           
|                                                                                                                                   | Common stock, par value $.001, 15,000,000 shares
    authorized; 4,149,074 shares issued for 2003 and 2004 |                                            |            | 4,149      |            |   |            | 4,149      |           
|                                                                                                                                   | Additional paid-in capital                                                                                 |                                            |            | 23,326,026 |            |   |            | 23,326,026 |           
|                                                                                                                                   | Accumulated other comprehensive income                                                                     |                                            |            | 132,331    |            |   |            | 123,007    |           
|                                                                                                                                   | Retained earnings                                                                                          |                                            |            | 21,892,237 |            |   |            | 25,862,069 |           
|                                                                                                                                   | Treasury stock, at cost (7,390 shares)                                                                     |                                            |            | (49,267    | )          |   |            | (49,267    | )         
|                                                                                                                                   |                                                                                                            |                                            |            |            |            |  
|                                                                                                                                   |                                                                                                            | Total stockholders equity                 |            |            | 45,305,476 |   |            |            | 49,265,984 | 
|                                                                                                                                   |                                                                                                            |                                            |            |            |            |  
|                                                                                                                                   |                                                                                                            | Total liabilities and stockholders equity |            | $          | 50,964,111 |   |            | $          | 49,757,568 | 
|                                                                                                                                   |                                                                                                            |                                            |            |            |            |  






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

F-31



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Statements of Income


(Parent Company Only)


|                       |                                             |                                                                                     |   |           |         |  |   |           |         |  |   |           |          |  
|---------------------- | ------------------------------------------- | ----------------------------------------------------------------------------------- | - | --------- | ------- |  | - | --------- | ------- |  | - | --------- | -------- | -
|                       |                                             | Year Ended December 31,                                                             |  
|                       |                                             |                                                                                     |  
|                       |                                             | 2002                                                                                |   |           | 2003    |  |   | 2004      |        
|                       |                                             |                                                                                     |   |           |         |  |   |           |        
|Revenues:              |                                             |                                                                                     |   |           |         |  |   |           |         |  |   |          
|                       | Net investment income                       |                                                                                     | $ | 100,339   |         |  | $ | 24,626    |         |  | $ | 121,643   |         
|                       | Net realized gain on investments            |                                                                                     |   | 56,088    |         |  |   |          |         |  |   |          |         
|                       | Intercompany interest income(1)             |                                                                                     |   | 473,822   |         |  |   | 450,000   |         |  |   | 259,426   |         
|                       |                                             |                                                                                     |   |           |         |  |   |           |        
|                       |                                             | Total revenue                                                                       |   |           | 630,249 |  |   |           | 474,626 |  |   |           | 381,069  |  
|                       |                                             |                                                                                     |   |           |         |  |   |           |        
|Benefits and expenses: |                                             |                                                                                     |   |           |         |  |   |           |         |  |   |          
|                       | Operating expenses                          |                                                                                     |   | (548,568  | )       |  |   | (137,929  | )       |  |   | (833,761  | )       
|                       | Costs of withdrawn offering                 |                                                                                     |   | 439,487   |         |  |   |          |         |  |   |          |         
|                       | Interest expense                            |                                                                                     |   | 375,000   |         |  |   | 375,000   |         |  |   | 216,781   |         
|                       |                                             |                                                                                     |   |           |         |  |   |           |        
|                       |                                             | Total benefits and expenses                                                         |   |           | 265,919 |  |   |           | 237,071 |  |   |           | (616,980 | )
|                       |                                             |                                                                                     |   |           |         |  |   |           |        
|                       |                                             | Income before income tax and equity in undistributed net income
    of subsidiaries |   |           | 364,330 |  |   |           | 237,555 |  |   |           | 998,049  |  
|                       | Income tax expense                          |                                                                                     |   | (125,877  | )       |  |   | (80,403   | )       |  |   | (338,787  | )       
|                       |                                             |                                                                                     |   |           |         |  |   |           |        
|                       |                                             | Income before equity in undistributed net income of subsidiaries                    |   |           | 238,453 |  |   |           | 157,152 |  |   |           | 659,262  |  
|                       | Equity in earnings of subsidiaries          |                                                                                     |   | 1,279,224 |         |  |   | 1,776,263 |         |  |   | 3,310,570 |         
|                       |                                             |                                                                                     |   |           |         |  |   |           |        
|                       | Net income available to common stockholders |                                                                                     | $ | 1,517,677 |         |  | $ | 1,933,415 |         |  | $ | 3,969,832 |         
|                       |                                             |                                                                                     |   |           |         |  |   |           |        






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

F-32



---



##### Table of Contents



GLOBAL PREFERRED HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Statements of Cash Flows


(Parent Company Only)


|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |            |         |           |        |            |           |            |  
|----------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ---------- | ---------- | ---------- | ------ | ---------- | ------- | --------- | ------ | ---------- | --------- | ---------- | -
|                                                                                                |                                                                                                     | Year Ended December 31,                                          |                                                    
|                                                                                                |                                                                                                     |                                                                  |                                                    
|                                                                                                |                                                                                                     | 2002                                                             |                                                     |                                                     | 2003       |            |            | 2004   |           
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           
|Cash flows from operating activities:                                                           |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |            |         |           |       
|                                                                                                |                                                                                                     | Net income                                                       |                                                     | $                                                   | 1,517,677  |            |            | $      | 1,933,415  |         |           | $      | 3,969,832  |          
|                                                                                                |                                                                                                     | Less equity in earnings of subsidiaries                          |                                                     |                                                     | (1,279,224 | )          |            |        | (1,776,263 | )       |           |        | (3,310,570 | )        
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           
|                                                                                                |                                                                                                     | Income before equity in undistributed net income of subsidiaries |                                                     | $                                                   | 238,453    |            |            | $      | 157,152    |         |           | $      | 659,262    |          
|Adjustments to reconcile net income to net cash provided by
    (used in) operating activities: |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |            |         |           |       
|                                                                                                |                                                                                                     | Amortization and depreciation                                    |                                                     |                                                     | 48,922     |            |            |        | 96,378     |         |           |        | 94,513     |          
|                                                                                                |                                                                                                     | Costs of withdrawn offering                                      |                                                     |                                                     | 439,487    |            |            |        |           |         |           |        |           |          
|                                                                                                |                                                                                                     | Deferred tax expense                                             |                                                     |                                                     | 125,877    |            |            |        | 76,088     |         |           |        | 320,296    |          
|                                                                                                |                                                                                                     | Net realized gain on investments                                 |                                                     |                                                     | (56,088    | )          |            |        |           |         |           |        |           |          
|                                                                                                |                                                                                                     | Change in:                                                       |                                                     |                                                     |            |            |            |        |            |         |           |        |            |          
|                                                                                                |                                                                                                     |                                                                  | Investment income due and accrued                   |                                                     |            | 40,873     |            |        |            | (2,190  | )         |        |            | (23,835   | )         
|                                                                                                |                                                                                                     |                                                                  | Investment income due and accrued  intercompany(1) |                                                     |            | 11,875     |            |        |            |        |           |        |            |          |           
|                                                                                                |                                                                                                     |                                                                  | Accounts receivable                                 |                                                     |            | (215,500   | )          |        |            | 215,500 |           |        |            | (32       | )         
|                                                                                                |                                                                                                     |                                                                  | Intercompany receivables(1)                         |                                                     |            | (1,997,411 | )          |        |            | 667,822 |           |        |            | 5,385,644 |           
|                                                                                                |                                                                                                     |                                                                  | Prepaid expenses                                    |                                                     |            | (751,036   | )          |        |            | 356,466 |           |        |            | 295,874   |           
|                                                                                                |                                                                                                     |                                                                  | Accrued expenses and accounts payable               |                                                     |            | (76,591    | )          |        |            | 44,062  |           |        |            | (6,767    | )         
|                                                                                                |                                                                                                     |                                                                  | Accrued interest                                    |                                                     |            |           |            |        |            |        |           |        |            | 31,125    |           
|                                                                                                |                                                                                                     |                                                                  | Current income tax recoverable                      |                                                     |            |           |            |        |            |        |           |        |            | (1,144    | )         
|                                                                                                |                                                                                                     |                                                                  | Current income tax payable                          |                                                     |            | 1,875      |            |        |            | 2,065   |           |        |            | (2,065    | )         
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           
|                                                                                                |                                                                                                     |                                                                  |                                                     | Net cash provided by (used in) operating activities |            |            | (2,189,264 | )      |            |         | 1,613,343 |        |            |           | 6,752,871  |  
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           
|Cash flows from investing activities:                                                           |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |            |         |           |       
|                                                                                                | Proceeds from sale of available-for-sale securities                                                 |                                                                  |                                                     | 2,174,208                                           |            |            |            |       |            |         |           |       |           
|                                                                                                | Proceeds from principal payments on mortgage-backed securities
    of available-for-sale securities |                                                                  |                                                     | 110,891                                             |            |            |            | 12,522 |            |         |           | 30,040 |           
|                                                                                                |                                                                                                     | Purchase of available-for-sale securities                        |                                                     |                                                     |           |            |            |        | (498,810   | )       |           |        | (2,728,996 | )        
|                                                                                                |                                                                                                     | Purchase of fixed assets                                         |                                                     |                                                     | (219,928   | )          |            |        | (16,779    | )       |           |        | (3,828     | )        
|                                                                                                |                                                                                                     | Purchase of equity securities                                    |                                                     |                                                     |           |            |            |        | (40,000    | )       |           |        |           |          
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           
|                                                                                                |                                                                                                     |                                                                  |                                                     | Net cash provided by (used in) investing activities |            |            | 2,065,171  |        |            |         | (543,067  | )      |            |           | (2,702,784 | )
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           
|Cash flows from financing activities:                                                           |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |            |         |           |       
|                                                                                                |                                                                                                     | Issuance of notes receivable  intercompany(1)                   |                                                     |                                                     | 1,087,550  |            |            |        |           |         |           |        | (5,000,000 | )        
|                                                                                                |                                                                                                     | Prepaid expenses  costs of withdrawn offering                   |                                                     |                                                     | 577,112    |            |            |        |           |         |           |        |           |          
|                                                                                                |                                                                                                     | Costs of withdrawn offering                                      |                                                     |                                                     | (439,487   | )          |            |        |           |         |           |        |           |          
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           
|                                                                                                |                                                                                                     |                                                                  |                                                     | Net cash provided by (used in) financing activities |            |            | 1,225,175  |        |            |         |          |        |            |           | (5,000,000 | )
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           
|                                                                                                |                                                                                                     |                                                                  |                                                     | Net increase in cash and cash equivalents           |            |            | 1,101,082  |        |            |         | 1,070,276 |        |            |           | (949,913   | )
|Cash and cash equivalents at beginning of period                                                |                                                                                                     |                                                                  | 1,374,016                                           |                                                     |            |            | 2,475,098  |        |            |         | 3,545,374 |       
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           
|Cash and cash equivalents at end of period                                                      |                                                                                                     | $                                                                | 2,475,098                                           |                                                     |            | $          | 3,545,374  |        |            | $       | 2,595,461 |       
|                                                                                                |                                                                                                     |                                                                  |                                                     |                                                     |            |            |            |        |           






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

F-33