##### Table of Contents









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




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Form 10-K

þ




For the fiscal year ended December 31, 2003

or

o Transition Report
Pursuant to Section 13 or 15(d) of the



For the transition period from ____________ to

Commission File Number: 001-15166



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AmerUs Group Co.

(Exact name of Registrant as specified in its
charter)

|                                                                                |  |                                                   
|------------------------------------------------------------------------------- |  | --------------------------------------------------
|Iowa(State or other jurisdiction of
    incorporation or organization)          |  | 42-1458424(I.R.S. Employer Identification
    No.)
|699 Walnut Street, Des Moines, Iowa(Address of principal executive
    offices) |  | 50309-3948(Zip code)                              

Registrants telephone number, including
area code (515) 362-3600



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Securities registered pursuant to
Section 12(b) of the Act:

|                            |  |                        
|--------------------------- |  | -----------------------
|                            |  | Name of Each Exchange  
|Title of Each Class         |  | on Which Registered    
|                            |  |                        
|Common Stock (no par value) |  | New York Stock Exchange
|Income PRIDESSM             |  | New York Stock Exchange

Securities registered pursuant to
Section 12(g) of the Act: None

Indicate by check mark whether the Registrant
(1) has filed all reports to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days.     Yes x                 No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

Aggregate market value of voting stock held by
non-affiliates of the Registrant as of March 2, 2004:
$1,590,914,318

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act)     Yes x                 No o

Number of shares outstanding of each of the
Registrants classes of common stock on March 2, 2004
was as follows:

|             |  |                  
|------------ |  | -----------------
|Common Stock |  | 39,301,835 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants definitive
proxy statement for the annual meeting of shareholders to be
held May 13, 2004 are incorporated by reference into
Part III of this Form 10-K.





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TABLE OF CONTENTS

|                                                        |  |                                                                                                    |  |   
|------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --
|Part I                                                 
|Item 1.                                                 |  | Business                                                                                           |  | 2 
|Item 2.                                                 |  | Properties                                                                                         |  | 18
|Item 3.                                                 |  | Legal Proceedings                                                                                  |  | 18
|Item 4.                                                 |  | Submission of Matters to a
    Vote of Security Holders                                            |  | 18
|Part II                                                
|Item 5.                                                 |  | Market for Registrants
    Common Equity and Related Stockholder Matters                          |  | 18
|Item 6.                                                 |  | Selected Financial Data                                                                            |  | 22
|Item 7.                                                 |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operation           |  | 23
|Item 7A.                                                |  | Quantitative and Qualitative
    Disclosures About Market Risk                                     |  | 56
|Item 8.                                                 |  | Financial Statements and
    Supplementary Data                                                    |  | 58
|Item 9.                                                 |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure           |  | 59
|Item 9A.                                                |  | Controls and Procedures                                                                            |  | 59
|Part III                                               
|Item 10.                                                |  | Directors and Executive
    Officers of the Registrant                                             |  | 59
|Item 11.                                                |  | Executive Compensation                                                                             |  | 59
|Item 12.                                                |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |  | 59
|Item 13.                                                |  | Certain Relationships and Related Transactions                                                     |  | 59
|Item 14.                                                |  | Principal Accounting Fees and Services                                                             |  | 59
|Part IV                                                
|Item 15.                                                |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                               |  | 59
|Index to Exhibits                                       |  | 61                                                                                                
|Signatures                                              |  | 67                                                                                                
|Power of Attorney                                       |  | 67                                                                                                
|Index to Consolidated
    Financial Statements          |  | F-1                                                                                               
|Index to Consolidated
    Financial Statement Schedules |  | S-1                                                                                               
|Credit Agreement dated 12/8/03                         
|2003 Stock Incentive Plan as amended                   
|Computation of Ratios of Earnings to Fixed Charges     
|List of Subsidiaries                                   
|Consent of Ernst & Young LLP                           
|Certification of Chief Executive Officer               
|Certification of Chief Financial Officer               
|1350 Certification of Chief Executive Officer          
|1350 Certification of Chief Financial Officer          





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SAFE HARBOR STATEMENT

This Annual Report on Form 10-K, including the
Managements Discussion and Analysis of Financial Condition
and Results of Operations, contains statements which constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements
relating to trends in operations and financial results and the
business and the products of the Registrant and its
subsidiaries, as well as other statements including words such
as anticipate, believe,
plan, estimate, expect,
intend and other similar expressions.
Forward-looking statements are made based upon managements
current expectations and beliefs concerning future developments
and their potential effects on the Company. Such forward-looking
statements are not guarantees of future performance. Factors
that may cause our actual results to differ materially from
those contemplated by these forward-looking statements include,
among others, the following possibilities: (a) general
economic conditions and other factors, including prevailing
interest rate levels and stock and bond market performance,
which may affect our ability to sell our products, the market
value of our investments and the lapse rate and profitability of
our policies; (b) our ability to achieve anticipated levels
of operational efficiencies and cost-saving initiatives and to
meet cash requirements based upon projected liquidity sources;
(c) customer response to new products, distribution
channels and marketing initiatives; (d) mortality,
morbidity, and other factors which may affect the profitability
of our insurance products; (e) our ability to develop and
maintain effective risk management policies and procedures and
to maintain adequate reserves for future policy benefits and
claims; (f) changes in the federal income tax and other
federal laws, regulations and interpretations, including
currently proposed federal measures that may significantly
affect the insurance business including limitations on antitrust
immunity, minimum solvency requirements, and changes to the tax
advantages of life insurance and annuity products or programs
with which they are used; (g) increasing competition in the
sale of insurance and annuities and the recruitment of sales
representatives; (h) regulatory changes, interpretations or
pronouncements including those relating to the regulation of
insurance companies and the regulation and sale of their
products; (i) our ratings and those of our subsidiaries by
independent rating organizations which we believe are
particularly important to the sale of our products; (j) the
performance of our investment portfolios; (k) the impact of
changes in standards of accounting; (l) our ability to
integrate the business and operations of acquired entities;
(m) expected protection products and accumulation products
margins; (n) the impact of anticipated investment
transactions; and (o) unanticipated litigation or
regulatory investigations or examinations.

There can be no assurance that other factors not
currently anticipated by us will not materially and adversely
affect our results of operations. You are cautioned not to place
undue reliance on any forward-looking statements made by us or
on our behalf. Forward-looking statements speak only as of the
date the statement was made. We undertake no obligation to
update or revise any forward-looking statement.

1



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PART I






|        |         
|------- | --------
|ITEM 1. | Business

Web Access to Reports

We make our periodic and current reports filed or
furnished pursuant to section 13(a) or 15(d) of the
Securities Exchange Act of 1934, available, free of charge at
our website as soon as reasonably practicable after such reports
are filed electronically with or furnished to the
U.S. Securities and Exchange Commission. Our internet
website address to obtain such filings is www.amerus.com.

Definitions

When used in this document, the terms
AmerUs, we, our and
us refer to AmerUs Group Co. (including American
Mutual Holding Company and AmerUs Life Holdings, Inc. as
predecessor entities of AmerUs Group Co.), an Iowa corporation,
and our consolidated subsidiaries, unless otherwise specified or
indicated by the context.

General

We are a holding company whose subsidiaries are
primarily engaged in the business of marketing, underwriting and
distributing a broad range of individual life, annuity and
insurance deposit products to individuals and businesses in all
50 states, the District of Columbia and the
U.S. Virgin Islands. We have two reportable operating
segments: protection products and accumulation products. The
primary offerings of the protection products segment are
interest-sensitive whole life, term life, universal life and
equity-indexed life insurance policies. The primary offerings of
the accumulation products segment are individual deferred fixed
annuities, equity-indexed annuities and funding agreements.

We were founded in 1896 as the mutual insurer
Central Life Assurance Company. In 1996, we became the first
Mutual Holding Company, or MHC, a structure that allows mutuals
to access the public equity markets, which AmerUs did in 1997
with its initial public offering. In 2000, AmerUs reorganized
its MHC structure through a full demutualization and became a
100% public stock company.

We have had positive organic growth in our
businesses. We have also successfully executed a series of
strategic acquisitions that have helped generate sales growth,
as well as balance our product and geographic distribution. The
following is a summary of these acquisitions and the benefits
created:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 1994, Central Life Assurance Company and
    American Mutual Life Insurance Co. merged providing us with
    significant scale in our life insurance operations. The merger
    resulted in our becoming one of the 25 largest mutual insurers
    in America at that time.                                                                                                                        
|
| |  | In October 1997, the acquisition of Delta Life
    Corporation launched our annuity business. At the time of the
    acquisition, Delta Life had about $2.0 billion in assets
    and specialized in single-premium deferred annuity and
    equity-indexed annuity products.                                                                                                                         
|
| |  | In December 1997, we acquired AmVestors Financial
    Corporation, predecessor to AmerUs Annuity Group Co., which
    specialized in the sale of individual fixed annuity products.
    The acquisition further strengthened our presence in asset
    accumulation and retirement and savings markets.                                                                                               
|
| |  | In 2001, we acquired Indianapolis Life Insurance
    Company, an Indiana life insurance company, and its subsidiaries
    which had approximately $6 billion in consolidated assets
    at the time of the acquisition. The acquisition allowed us to
    strengthen our life insurance business and ultimately provided
    us with a better balance of annuity and life insurance product
    sales.

2



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Subsidiaries

We have four main direct subsidiaries: AmerUs
Life Insurance Company, or ALIC, an Iowa life insurance company;
AmerUs Annuity Group Co., or AAG, a Kansas corporation; AmerUs
Capital Management Group, Inc., or ACM, an Iowa
corporation; and ILICO Holdings, Inc., an Indiana
corporation.

AAG owns, directly or indirectly, two Kansas life
insurance companies: American Investors Life Insurance
Company, Inc., or American; and Financial Benefit Life
Insurance Company, or FBL. On December 31, 2002, Delta Life
and Annuity Company was merged into American.

ILICO Holdings, Inc., has one wholly-owned
subsidiary, Indianapolis Life Insurance Company, or ILIC,
an Indiana life insurance company. ILIC has two wholly-owned
subsidiaries: Bankers Life Insurance Company of New York,
or Bankers Life, a New York life insurance company; and IL
Securities, Inc., an Indiana corporation. When used in this
document, the term ILICO refers to ILICO
Holdings, Inc. and its consolidated subsidiaries. IL
Annuity and Insurance Company, or IL Annuity, was a wholly-owned
subsidiary of ILIC which was merged into ILIC effective
June 30, 2003. ILICO was owned by AmerUs Group Co. (92.2%)
and ALIC (7.8%). Effective September 30, 2003, ALIC
dividended its ownership interest in ILICO to AmerUs Group Co.
resulting in AmerUs Group Co. owning 100% of ILICO.

Organization as of December 31,
2003

(Organizational Chart)

Reorganization

We were formerly known as American Mutual Holding
Company, or AMHC and were a mutual insurance holding company,
with our principal asset being a 58% interest in AmerUs Life
Holdings, Inc., or ALHI. Public stockholders owned the
remaining 42% interest in ALHI with their interest referred to
as minority interest. ALHI was a holding company which directly
or indirectly owned ALIC and American, its principal life
insurance subsidiaries. On September 20, 2000, we converted
to stock form, changed our name to AmerUs Group Co. and acquired
the minority interest of ALHI by issuing our common stock in
exchange for the outstanding shares of ALHI held by the public.
The value of the stock exchange was approximately
$298 million and ALHI was merged into us simultaneously
with the stock exchange.

Prior to our conversion to a stock company, which
is referred to as a demutualization, we were owned by
individuals and entities who held insurance policies or annuity
contracts issued by ALIC. Such individuals and entities were
considered members. In connection with our demutualization, we
distributed cash, policy credits and our newly issued common
stock to those members in exchange for their membership
interests. The value of the distribution totaled approximately
$792 million.

The acquisition of the minority interest of ALHI
by us was accounted for as a purchase and 42% of the book value
of the assets and liabilities of ALHI was adjusted to market
value as of the acquisition date.

3



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Approximately 42% of the ALHI earnings for our
fiscal periods prior to the acquisition date are deducted from
our results of operations on the line titled minority
interest in our consolidated statements of income. From
the acquisition date forward, our results of operations include
100% of such earnings.


Closed Block

We have established two closed blocks of
policies: (a) the first on June 30, 1996 in connection
with the reorganization of ALIC from a mutual company to a stock
company, and (b) the second on March 31, 2000 in
connection with the reorganization of ILIC from a mutual company
to a stock company (collectively, the closed block). Insurance
policies which had a dividend scale in effect as of each closed
block establishment date were included in the closed block. The
closed block was designed to give reasonable assurance to owners
of insurance policies that, after the reorganizations of ALIC
and ILIC, assets would be available to maintain the dividend
scales and interest credits in effect prior to the
reorganization, if the experience underlying such scales and
crediting continued. The assets, including revenue therefrom,
allocated to the closed block will accrue solely to the benefit
of the owners of policies included in the closed block until the
closed block no longer exists. We will continue to pay
guaranteed benefits under all policies, including policies
included in the closed block, in accordance with their terms. In
the event that the closed blocks assets are insufficient
to meet the benefits of the closed blocks guaranteed
benefits, general assets would be utilized to meet the
contractual benefits of the closed blocks policyholders.

Acquisition

On May 18, 2001, we completed the
acquisition of ILICO for an amount of cash, policy credits and
shares of our common stock equal to the value of
9.3 million shares of our common stock. The purchase price
totaled a value of approximately $326 million. The
acquisition was accounted for as a purchase and the total
purchase price was allocated to the assets and liabilities of
ILICO based on the relative fair values as of the acquisition
date. See further discussion in note 15 to the consolidated
financial statements.

Dispositions

ILIC previously owned The Indianapolis Life Group
of Companies, Inc., or IL Group. IL Group owned Bankers
Life, IL Securities, Inc., IL Annuity, and
Western Security Life Insurance Company, or WSLIC, an Arizona
life insurance company. Effective on March 5, 2002, IL
Group was dissolved and its four wholly-owned subsidiaries
became direct subsidiaries of ILIC. In addition, on
March 29, 2002, WSLIC was sold with its insurance business
transferred to ILIC prior to the sale. The sale of the corporate
organization and insurance licenses resulted in a gain of
approximately $1.9 million which is included in realized
gains and losses on investments for the year ended
December 31, 2002. IL Annuity was merged into ILIC
effective June 30, 2003 as part of a restructuring plan.
See further discussion in note 16 to the consolidated
financial statements.

In November 2003, we entered into an agreement to
sell our residential financing operations. The assets,
liabilities and results of operations of the residential
financing operations have been classified as discontinued
operations. The sale was completed in January 2004, resulting in
an after-tax gain of approximately $3.9 million to be
recognized in 2004. See further discussion in note 20 to
the consolidated financial statements.

Financial Information

Our consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States, or GAAP. See note 1 to the
consolidated financial statements for additional information
about GAAP and our significant accounting policies.

We measure our profit or loss and total assets by
operating segments. We have two reportable operating segments:
protection products and accumulation products. See a further
discussion of our operating segments in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operation.

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Protection Products Segment

Products

Our protection products segment consists of
individual fixed life insurance premiums from traditional life
insurance products, universal life insurance products and
equity-indexed life insurance products. Sales are presented as
annualized premiums, which are measured in accordance with
industry practice, and represent the amount of new business sold
during the period. Sales are a non-GAAP financial measure for an
insurance company for which there is no comparable GAAP
financial measure. We use sales to measure the productivity of
our distribution network and as a basis for compensation of
sales and marketing employees and agents. Sales are also a
leading indicator of future revenue trends. However, revenues
are driven by prior period sales as well as current period sales
and therefore, a reconciliation of sales to revenues would not
be meaningful or determinable. The following table summarizes
sales by life insurance product:

|                                 |                               |                                  |         |        |         |      |         |        |         |  |        |        |        | 
|-------------------------------- | ----------------------------- | -------------------------------- | ------- | ------ | ------- | ---- | ------- | ------ | ------- |  | ------ | ------ | ------ | 
|                                 |                               |                                 
|                                 |                               | Sales Activity by Product       
|                                 |                               | For The Years Ended December 31,
|                                 |                               |                                 
|                                 |                               | 2003                             |         | 2002   |         | 2001
|                                 |                               |                                  |         |        |         |     
|                                 |                               |                                 
|                                 |                               | ($ in thousands)                
|Traditional life insurance:      |                               |                                  |         |        |         |      |         |        |         |  |        |       
|                                 | Whole life                    |                                  | $       | 236    |         |      | $       | 4,236  |         |  | $      | 6,842  |       
|                                 | Interest-sensitive whole life |                                  |         | 19,691 |         |      |         | 30,622 |         |  |        | 12,411 |       
|                                 | Term life                     |                                  |         | 14,588 |         |      |         | 16,390 |         |  |        | 7,763  |       
|Universal life                   |                               |                                  | 32,476  |        |         |      | 32,570  |        |         |  | 21,794 |       
|Equity-indexed life              |                               |                                  | 51,644  |        |         |      | 45,843  |        |         |  | 25,865 |       
|                                 |                               |                                  |         |        |         |      |         |        |         |  |        |       
|Direct                           |                               |                                  | 118,635 |        |         |      | 129,661 |        |         |  | 74,675 |       
|Private label term life premiums |                               |                                  | 4,206   |        |         |      | 8,970   |        |         |  | 6,637  |       
|                                 |                               |                                  |         |        |         |      |         |        |         |  |        |       
|                                 |                               | Total                            |         | $      | 122,841 |      |         | $      | 138,631 |  |        | $      | 81,312 | 
|                                 |                               |                                  |         |        |         |      |         |        |         |  |        |       

Traditional Life Insurance
Products.Traditional life insurance
products include whole life, interest-sensitive whole life and
term life insurance products.

Whole life insurance is designed to provide
benefits for the life of the insured. This product generally
provides for level premiums and a level death benefit and
requires payments in excess of the mortality cost in earlier
years to offset increasing mortality costs in later years. Sales
of whole life insurance decreased in 2003 and 2002, as compared
to each prior year, due in part to our increased marketing focus
on equity-indexed life products, which has resulted in a shift
in sales from whole life to equity-indexed. We ceased taking new
applications for sales of whole life insurance on
December 31, 2002.

Interest-sensitive whole life insurance also
provides benefits for the life of the insured. However, this
product has cash value accumulation that is interest sensitive
and responds to current interest and mortality rates. These
products are used in several markets, the largest of which is
the pension plan market. Lower interest-sensitive whole life
sales were experienced in 2003 due to uncertainty in government
tax policy and regulation. Interest-sensitive whole life
insurance sales increased in 2002 due to the acquisition of
ILICO in May 2001 since we owned ILICO for 12 months of
2002 as compared to just over six months in 2001.

Term life insurance provides life insurance
protection for a specific time period (which generally can be
renewed at an increased premium). Such policies are
mortality-based and offer no cash accumulation feature. Term
life insurance is a highly competitive and quickly changing
market. Term life insurance sales increased in 2002 due to the
acquisition of ILICO and have remained approximately 12% of our
total sales in 2003.

In prior years, ILIC had distributed term
products primarily through strategic alliances with private
label partners. Under private label arrangements, ILIC
manufactured products that were distributed through field forces
of other life insurance companies, its private label partners.
Following a strategic decision to exit the private label
business, ILIC reached agreement with its joint venture
partners to cease new business

5



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processing during 2003. In keeping with
contractual obligations, ILIC continues to service in-force
business for existing joint venture partners.


For the year ended December 31, 2003, sales
of interest-sensitive whole life and term life insurance
products represented 17% and 12%, respectively, of direct sales
for individual life insurance products sold.

Universal Life Insurance
Products.We offer universal life
insurance products, which provide flexible benefits for the
insured. Within product limits and state regulations,
policyowners may vary the amount and timing of premiums and the
amount of the death benefit of their policies and keep the
policies in force, as long as there are sufficient policy funds
available to cover all policy charges for the next coverage
period. Premiums, net of specified expenses, are credited to the
policy, as is interest, generally at a rate determined from time
to time by us. Specific charges are made against the policy for
the cost of insurance and for expenses. We invest the premiums
we receive from the sale of universal life insurance products in
our investment portfolio. Our gross margin from these products
is the yield we earn on our investment portfolio plus the
internal product charges less interest credited to policies and
less mortality and other expenses.

Sales of universal life were comparable between
2003 and 2002. In 2002, sales increased over 2001 primarily as a
result of the acquisition of ILICO. Excluding ILICO, universal
life sales decreased $1.9 million in 2002 due to the growth
in sales of equity-indexed life products. The weighted average
crediting rate for universal life insurance liabilities was
4.96% for the year 2003, 5.39% for the year 2002 and 5.63% for
the year 2001. The crediting rate has been lowered as a result
of reduced investment yields associated with the declining
interest rate environment. For the year ended December 31,
2003, sales of universal life insurance products represented 27%
of direct sales for individual life insurance products sold.

Equity-Indexed Life
Products.We also offer equity-indexed
life insurance products which are similar in structure to
universal life products but allow the policyowner to elect an
interest earnings strategy for a portion of the account value.
Earnings are credited based in part on increases in the
appropriate indices, primarily the Standard &
Poors 500 Composite Stock Index ® (collectively,
S&P 500 Index), excluding dividends. The earnings credit is
subject to a participation rate and an annual cap. Our gross
margin on our equity-indexed life products is similar to that of
our universal life insurance products. However, due to the
equity-indexed earnings strategies, we invest a portion of the
premiums we receive from the sale of these products in call
options. We may affect the cost of the call options by adjusting
interest crediting parameters that are provided for in the
policy. Our return on the call options is generally expected, in
a growing equity market, to correspond to the earnings we are
contractually bound to credit on the equity-indexed strategies.
The remainder of the premium is invested in our investment
portfolio to support the contractual minimum guarantees that may
come into effect if the equity index declines. The structure of
our product, together with the allocation of our equity-indexed
life product premiums between call options and our investment
portfolio, are intended to provide for a positive gross margin
in both increasing and decreasing equity markets.

Equity-indexed life insurance sales increased in
2003 and 2002 following our focus on product marketing beginning
in 2000. We are a leading writer of equity-indexed life products
in the United States. Sales of the equity-indexed life product,
as a percentage of direct sales, was approximately 44% in 2003.

6



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Collected premiums are measured in accordance
with industry practice, and represent the amount of premiums
received during the period. Collected premiums are a non-GAAP
financial measure for an insurance company for which there is no
comparable GAAP financial measure. We use collected premiums to
measure the productivity of our distribution network and as a
basis for compensation of sales and marketing employees and
agents. The following table sets forth our collected life
insurance premiums, including collected premiums associated with
the closed block, for the periods indicated:

|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |         |         |         | 
|----------------------------------------- | -------------------- | -------------------------------- | ------- | -------- | ------- | ------- | ------- | -------- | ------- | ------- | ------- | ------- | ------- | ------- | 
|                                          |                      |                                 
|                                          |                      | Collected Premiums by Product   
|                                          |                      | For The Years Ended December 31,
|                                          |                      |                                 
|                                          |                      | 2003                             |         | 2002     |         | 2001   
|                                          |                      |                                  |         |          |         |        
|                                          |                      |                                 
|                                          |                      | ($ in thousands)                
|Individual life premiums collected:       |                      |                                  |         |          |         |         |         |          |         |         |         |        
|                                          | Traditional life:    |                                  |         |          |         |         |         |          |         |         |         |         |        
|                                          |                      | First year and single            |         | $        | 116,252 |         |         | $        | 149,740 |         |         | $       | 113,126 |        
|                                          |                      | Renewal                          |         |          | 343,067 |         |         |          | 344,715 |         |         |         | 274,784 |        
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |        
|                                          |                      |                                  | Total   |          |         | 459,319 |         |          |         | 494,455 |         |         |         | 387,910 | 
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |        
|                                          | Universal life:      |                                  |         |          |         |         |         |          |         |         |         |         |        
|                                          |                      | First year and single            |         |          | 94,158  |         |         |          | 75,761  |         |         |         | 45,597  |        
|                                          |                      | Renewal                          |         |          | 132,833 |         |         |          | 128,869 |         |         |         | 109,485 |        
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |        
|                                          |                      |                                  | Total   |          |         | 226,991 |         |          |         | 204,630 |         |         |         | 155,082 | 
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |        
|                                          | Equity-indexed life: |                                  |         |          |         |         |         |          |         |         |         |         |        
|                                          |                      | First year and single            |         |          | 84,478  |         |         |          | 78,797  |         |         |         | 40,504  |        
|                                          |                      | Renewal                          |         |          | 35,344  |         |         |          | 14,526  |         |         |         | 4,212   |        
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |        
|                                          |                      |                                  | Total   |          |         | 119,822 |         |          |         | 93,323  |         |         |         | 44,716  | 
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |        
|Total individual life                     |                      |                                  | 806,132 |          |         |         | 792,408 |          |         |         | 587,708 |        
|                                          | Reinsurance assumed  |                                  |         | 49,706   |         |         |         | 48,664   |         |         |         | 30,740  |        
|                                          | Reinsurance ceded    |                                  |         | (187,860 | )       |         |         | (220,589 | )       |         |         | (74,152 | )      
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |        
|Total individual life, net of reinsurance |                      | $                                | 667,978 |          |         | $       | 620,483 |          |         | $       | 544,296 |        
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |        

Individual life insurance premiums collected
increased in 2003 as a result of increased universal life and
equity-indexed sales, which were partially offset by lower
traditional life collected premiums, and in 2002 due to the
additional premiums from the acquisition of ILICO.

Reinsurance assumed increased in 2002 due to the
ILICO acquisition. ILIC had distributed term products and
second-to-die products primarily through strategic alliances
with private label partners. Following a strategic decision to
exit the private label business, ILIC reached agreement
with its joint venture partners to cease new business processing
during 2003. In keeping with contractual obligations, ILIC
continues to service in-force business for certain existing
joint venture partners.

ALIC has reinsurance arrangements that have
reduced its retention to 10% of the net amount of risk on any
one policy not to exceed company retention limits for the
majority of policies issued from July 1, 1996 through
December 31, 1999, and for all new business commencing
January 1, 2000. ALICs retention limits on any one
life vary by age and rating table and are generally between
$150,000 and $500,000. ALIC also has a reinsurance agreement
covering approximately 90% of the closed block net amount at
risk not previously reinsured. In addition, ALIC entered into an
indemnity reinsurance agreement effective December 31, 2001
covering universal life policies of the open block issued prior
to July 1, 1996, that was subsequently replaced by another
indemnity reinsurance agreement effective October 1, 2002,
covering 90% of the net amount at risk not previously reinsured
of any one policy. ALIC entered into an 80% statutory modified
coinsurance quota share and coinsurance agreement covering
certain individual life policies of the closed block effective

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December 31, 2002. As a result of these
agreements, ceded reinsurance premium for ALIC was
$77.9 million in 2003, $127.3 million in 2002 and
$35.2 million in 2001.


ILIC entered into a statutory reinsurance
agreement to cover 100% quota share of retained net amounts at
risk for certain open block and closed block policies in force
at December 31, 2002, which was amended by an indemnity
reinsurance agreement effective July 1, 2003. Ceded premium
from ILICO amounted to $109.8 million in 2003,
$93.3 million in 2002 and $39.0 million in 2001.
ILICOs reinsurance agreements effectively reduce
ILICOs retention limit to between $150,000 and $500,000.

The following table sets forth information
regarding our life insurance in force for each date presented.
Protection products face amounts in force is a non-GAAP
financial measure utilized by investors, analysts and the
Company to assess the Companys position in the industry.
We do not believe there is a comparable GAAP financial measure.

|                     |                    |                                    |   |            |  |      |   |            |  |  |   |            | 
|-------------------- | ------------------ | ---------------------------------- | - | ---------- |  | ---- | - | ---------- |  |  | - | ---------- | 
|                     |                    |                                   
|                     |                    | Individual Life Insurance in Force
|                     |                    | As of December 31,                
|                     |                    |                                   
|                     |                    | 2003                               |   | 2002       |  | 2001
|                     |                    |                                    |   |            |  |     
|                     |                    |                                   
|                     |                    | ($ in thousands)                  
|Traditional life     |                    |                                    |   |            |  |      |   |            |  |  |   |           
|                     | Number of policies |                                    |   | 446,961    |  |      |   | 451,933    |  |  |   | 405,077    | 
|                     | GAAP life reserves |                                    | $ | 3,465,853  |  |      | $ | 3,236,223  |  |  | $ | 3,101,938  | 
|                     | Face amounts       |                                    | $ | 57,474,000 |  |      | $ | 56,883,000 |  |  | $ | 49,655,000 | 
|Universal life       |                    |                                    |   |            |  |      |   |            |  |  |   |           
|                     | Number of policies |                                    |   | 145,525    |  |      |   | 147,469    |  |  |   | 151,982    | 
|                     | GAAP life reserves |                                    | $ | 1,517,227  |  |      | $ | 1,425,746  |  |  | $ | 1,380,379  | 
|                     | Face amounts       |                                    | $ | 20,529,000 |  |      | $ | 19,095,000 |  |  | $ | 18,792,000 | 
|Equity-indexed life  |                    |                                    |   |            |  |      |   |            |  |  |   |           
|                     | Number of policies |                                    |   | 35,133     |  |      |   | 23,679     |  |  |   | 10,591     | 
|                     | GAAP life reserves |                                    | $ | 224,874    |  |      | $ | 126,821    |  |  | $ | 51,004     | 
|                     | Face amounts       |                                    | $ | 6,878,000  |  |      | $ | 4,574,000  |  |  | $ | 2,028,000  | 
|Total life insurance |                    |                                    |   |            |  |      |   |            |  |  |   |           
|                     | Number of policies |                                    |   | 627,619    |  |      |   | 623,081    |  |  |   | 567,650    | 
|                     | GAAP life reserves |                                    | $ | 5,207,954  |  |      | $ | 4,788,790  |  |  | $ | 4,533,321  | 
|                     | Face amounts       |                                    | $ | 84,881,000 |  |      | $ | 80,552,000 |  |  | $ | 70,475,000 | 

Distribution Systems

Our subsidiaries sell life insurance in all
50 states, the District of Columbia and the
U.S. Virgin Islands. The states with the highest geographic
concentration of sales, based on statutory premiums, are
California, Illinois, Iowa, Minnesota, New York,
Texas and Wisconsin in 2003. These states account for
approximately 51% of our statutory premiums.

Our target customers are individuals in the
middle and upper income brackets and small businesses. We market
our life insurance products on a national basis primarily
through a Preferred Producer general agency system, a Personal
Producing General Agent (PPGA) distribution system and
through Independent Marketing Organizations (IMOs). We currently
employ 20 regional vice presidents who are responsible for
supervising these distribution systems within their assigned
geographic regions.

Under the Preferred Producer general agency
system, a contractual arrangement is entered into with the
Preferred Producer general agent for the sale of insurance
products by the Preferred Producer general agents and brokers
assigned to the Preferred Producer general agents agency.
The Preferred Producer general agents are primarily compensated
by receiving a percentage of the first year commissions paid to
Preferred Producer general agents and brokers in the Preferred
Producer general agents agency and by renewal commissions
on

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premiums subsequently collected on that business.
In addition, the Preferred Producers receive certain benefits
and other allowances.


The Preferred Producer general agents are
independent contractors and are generally responsible for the
expenses of operating their agencies, including office and
overhead expenses and the recruiting, selection, contracting,
training and development of Preferred Producer general agents
and brokers in their agency. As of December 31, 2003, we
had 75 Preferred Producer general agents in 26 states,
through which approximately 1,200 Preferred Producer general
agents sell our products. While Preferred Producer general
agents in the Preferred Producer general agency system are
non-exclusive, most agents use our products for a majority of
their new business for the type of products offered by us.

Preferred Producer general agents are also
independent contractors and are primarily compensated by
commissions on first year and renewal premiums collected on
business written by them plus certain benefits and other
allowances. In addition, Preferred Producer general agents can
earn bonus commissions, graded by production and persistency on
their business.

Under the PPGA system, we contract primarily with
individuals who are experienced individual agents or who head a
small group of experienced individual agents. These individuals
are independent contractors and are responsible for all of their
own expenses. These individuals often sell products for other
insurance companies, and may offer selected products we offer
rather than our full line of insurance products. The PPGA system
is comprised of approximately 1,100 PPGAs, with approximately
3,700 agents.

PPGAs are compensated by commissions on first
year and renewal premiums collected on business written by
themselves and the agents in their units. In addition to a base
commission, PPGAs may earn bonus commissions on their business,
graded by production and persistency.

We have also developed programs to sell life
insurance through select IMOs. The customers targeted and the
products sold are similar to those of the Preferred Producer
agency system and the PPGA system.

Under the IMO system, a contractual arrangement
is entered into with an IMO to promote our insurance products to
their network of agents and brokers. The IMO receives a
commission and override commission on the business produced. We
currently have approximately 90 IMOs under contract.

No single distribution organization (Preferred
Producer general agency, PPGA, or IMO) accounted for more than
6% of total direct sales.

Accumulation Products Segment

Products

Our accumulation products segment primary
offerings consist of individual fixed annuities (comprised of
traditional fixed annuities and equity-indexed annuities) and
funding agreements. Annuities provide for the payment of
periodic benefits over a specified time period. Benefits may
commence immediately or may be deferred to a future date. Fixed
annuities generally are backed by a general investment account
and credited with a rate of return that is periodically reset.
Funding agreements are arrangements for which we receive deposit
funds and for which we agree to repay the deposit and a
contractual return for the duration of the contract.

Deposits are presented as collected premiums,
which are measured in accordance with industry practice, and
represent the amount of new business sold during the period.
Deposits are a non-GAAP financial measure for an insurance
company for which there is no comparable GAAP financial measure.
We use deposits to measure the productivity of our distribution
network and as a basis for compensation of sales and marketing
employees and agents. Our annuity deposits consisted of
approximately 25% from traditional annuity products and
approximately 75% from equity-indexed annuity products in 2003.
We ceased offering variable annuity products in 2002. We still
receive minimal premium additions to existing policies as shown
in the table below.

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Funding agreement deposits totaled
$875 million in 2002. The following table sets forth
deposits for the periods indicated:


|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |           |           | 
|---------------------------------- | ------------------------- | -------------------------------- | --------- | --------- | --------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                   |                           |                                 
|                                   |                           | Deposits by Product             
|                                   |                           | For The Years Ended December 31,
|                                   |                           |                                 
|                                   |                           | 2003                             |           | 2002      |           | 2001
|                                   |                           |                                  |           |           |           |     
|                                   |                           |                                 
|                                   |                           | ($ in thousands)                
|Annuities                          |                           |                                  |           |           |           |      |           |           |           |   |           |          
|                                   | Deferred fixed annuities: |                                  |           |           |           |      |           |           |           |   |           |           |          
|                                   |                           | Traditional annuities            |           | $         | 443,220   |      |           | $         | 1,099,872 |   |           | $         | 1,322,725 | 
|                                   |                           | Equity-indexed annuities         |           |           | 1,311,409 |      |           |           | 683,819   |   |           |           | 612,043   | 
|                                   | Variable annuities        |                                  |           | 3,254     |           |      |           | 6,230     |           |   |           | 27,483    |          
|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |          
|                                   | Total annuities           |                                  |           | 1,757,883 |           |      |           | 1,789,921 |           |   |           | 1,962,251 |          
|Funding agreements                 |                           |                                  |          |           |           |      | 875,000   |           |           |   |          |          
|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |          
|                                   |                           | Total                            |           |           | 1,757,883 |      |           |           | 2,664,921 |   |           |           | 1,962,251 | 
|Reinsurance assumed                |                           |                                  |          |           |           |      |          |           |           |   | 194,317   |          
|Reinsurance ceded                  |                           |                                  | (25,080   | )         |           |      | (60,916   | )         |           |   | (175,485  | )        
|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |          
|Total deposits, net of reinsurance |                           | $                                | 1,732,803 |           |           | $    | 2,604,005 |           |           | $ | 1,981,083 |          
|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |          

Traditional Annuity
Products.We offer a variety of
interest rate crediting strategies on our traditional annuity
products. At December 31, 2003, the account value of
traditional annuities totaled $7.0 billion of which
approximately 97% have minimum guarantee rates ranging from 3%
to 4%. For annuities with an account value of $5.0 billion,
the credited rate was equal to the minimum guarantee rate, and
as a result, the credited rate cannot be lowered. We also offer
an interest rate crediting strategy that credits the policy with
a return generally based upon the interest rates it earns on
assets supporting the respective policies less management fees.
Traditional annuities with an account value of $5.4 billion
had a one-year interest guarantee period while annuities with an
account value of $1.2 billion had a multi-year guarantee
for which the credited rate cannot be decreased until the end of
the multi-year period. At the end of the multi-year period, we
will have the ability to lower the crediting rate to the minimum
guaranteed rate by an average of approximately 300 basis
points. The remaining multi-year period is generally either one
or two years.

We invest the deposits we receive from
traditional annuity product sales in our investment portfolio.
We call the difference between the yield we earn on our
investment portfolio and the interest we credit on our
traditional annuities our product spread. The product spread is
a major driver of our profitability of our traditional annuity
products.

Traditional annuity deposits decreased
$656.7 million in 2003 compared to 2002 as we slowed
traditional annuity sales due to the low interest rate
environment and as we have focused on sales of higher margin
equity-indexed products. Traditional annuity deposits decreased
$222.9 million in 2002 compared to 2001 as a result of
deploying capital to funding agreements which are intended to
provide a higher return on equity.

We previously had a reinsurance agreement to cede
35% of certain fixed annuity production on a modified
coinsurance basis. Fixed annuity production ceded under this
agreement totaled approximately $160.3 million in 2001. In
the fourth quarter of 2001, the agreement was cancelled and the
previously ceded premiums were recaptured amounting to
$194.3 million.

Equity-Indexed
Annuities.We offer equity-indexed
annuity products that provide various interest crediting
strategies, including strategies linked to equity and investment
grade bond indices. For deposits allocated to indexed crediting
strategies, interest is credited to these products based in part
on the increases in the applicable indices, less any applicable
fees and subject to any applicable caps. Similar to our
traditional annuity products, we invest the deposits we receive
from equity-indexed annuity product sales in our investment
portfolio. At December 31, 2003, the GAAP reserves of
equity-indexed annuities totaled $4.4 billion which provide
guaranteed rates based on a cumulative floor over the term of
the product. In

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addition, for deposits allocated to
equity-indexed crediting strategies, we use a portion of the
deposits to purchase call options. We may affect the cost of the
call options by adjusting interest crediting parameters that are
provided for in the policy. Our return on the call options is
generally expected, in a growing equity market, to correspond to
the earnings we are contractually bound to credit on the
equity-indexed strategies. The remainder of the deposit is
invested in our investment portfolio to support the contractual
minimum guarantees that may come into effect if the equity index
declines. The product spread on deposits allocated to our
equity-indexed strategy is computed as:


Yield minus (cost of options and interest
credited) = product spread

The product spread is a major driver of
profitability of our equity-indexed annuity products. The
structure of our product, together with the allocation of our
equity-indexed strategy deposits between call options and our
investment portfolio, is intended to provide for a positive
product spread in both increasing and decreasing equity markets.

Equity-indexed annuity sales increased in 2003
and 2002 as compared to the prior year periods due to its
popularity with consumers and agents. In the third quarter of
2002, we entered into a new modified coinsurance reinsurance
agreement to cede 25% of certain equity-indexed annuity products
which amounted to $25.1 million and $56.2 million of
ceded premium in 2003 and 2002, respectively.

Variable Annuities.Through our acquisition of ILICO, we obtained a variable annuity
product line. In the first quarter of 2002, we ceased new sales
of these products, except for new policies issued as part of
existing employer-sponsored qualified plan contracts. All sales
were discontinued effective September 30, 2002. Our agents
are encouraged to make new sales of variable annuities through
the Ameritas Joint Venture. As these sales are through the joint
venture, they do not appear in our direct sales amounts. See the
discussion related to this joint venture in the Ameritas
Joint Venture section. The assets and liabilities related
to the direct variable annuities are shown on the consolidated
balance sheets as separate account assets and
separate account liabilities.

Funding Agreements.We placed primarily fixed rate funding agreements totaling
$875 million in 2002. Funding agreements are insurance
contracts for which we receive deposit funds and for which we
agree to repay the deposit and a contractual return for the
duration of the contract. In December 2003, a $250 million
funding agreement was terminated. Total funding agreements
outstanding as of December 31, 2003, amounted to
$875 million compared to $1.125 billion outstanding at
December 31, 2002.

The following table sets forth information
regarding fixed annuities in force for each date presented:

|                         |                       |                    |   |            |  |      |   |            |  |  |   |            | 
|------------------------ | --------------------- | ------------------ | - | ---------- |  | ---- | - | ---------- |  |  | - | ---------- | 
|                         |                       |                   
|                         |                       | Annuities in Force
|                         |                       | As of December 31,
|                         |                       |                   
|                         |                       | 2003               |   | 2002       |  | 2001
|                         |                       |                    |   |            |  |     
|                         |                       |                   
|                         |                       | ($ in thousands)  
|Deferred fixed annuities |                       |                    |   |            |  |      |   |            |  |  |   |           
|                         | Number of policies    |                    |   | 176,280    |  |      |   | 181,581    |  |  |   | 176,857    | 
|                         | GAAP annuity reserves |                    | $ | 7,257,387  |  |      | $ | 7,579,869  |  |  | $ | 6,909,793  | 
|Equity-indexed annuities |                       |                    |   |            |  |      |   |            |  |  |   |           
|                         | Number of policies    |                    |   | 91,550     |  |      |   | 76,863     |  |  |   | 73,921     | 
|                         | GAAP annuity reserves |                    | $ | 4,439,836  |  |      | $ | 3,724,598  |  |  | $ | 3,749,971  | 
|Total fixed annuities    |                       |                    |   |            |  |      |   |            |  |  |   |           
|                         | Number of policies    |                    |   | 267,830    |  |      |   | 258,444    |  |  |   | 250,778    | 
|                         | GAAP annuity reserves |                    | $ | 11,697,223 |  |      | $ | 11,304,467 |  |  | $ | 10,659,764 | 

Distribution Systems

We sell annuities in all 50 states, the
District of Columbia and the U.S. Virgin Islands. The
states with the highest geographic concentration of sales, based
on statutory premiums, are California, Florida, Iowa, Ohio,
Pennsylvania and Texas in 2003. These states account for
approximately 44% of our statutory premiums.

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We direct our marketing efforts towards the asset
accumulation, conservative savings and retirement markets. We
market our annuity products on a national basis primarily
through networks of independent agents. The independent agents
are supervised by regional vice presidents and regional
directors or IMOs. At December 31, 2003, we had
approximately 16,000 independent agents licensed to sell our
annuity products. In addition, the Preferred Producer agency and
PPGA systems discussed previously are utilized to market certain
annuity products.

Our IMOs consist of approximately 10 contracted
organizations, including five wholly-owned organizations and one
organization which principally sells our proprietary products.
The IMOs are responsible for recruiting, servicing and educating
agents in an effort to promote our products. The IMOs receive an
override commission based on the business produced by their
agents. Our wholly-owned and proprietary organizations accounted
for approximately 77% of our annuity sales in 2003. We do not
have exclusive agency agreements with our agents and we believe
most of these agents sell products similar to ours for other
insurance companies.

Ameritas Joint Venture

We participate in a joint venture, the Ameritas
Joint Venture, with Ameritas Life Insurance Corp. (or Ameritas)
through ALICs 34% ownership interest in AMAL Corporation,
a Nebraska corporation. AMAL Corporations operations are
conducted through Ameritas Variable Life Insurance Company, (or
AVLIC), Ameritas Investment Corp. (or AIC), and The Advisors
Group, Inc. (or TAG), its three wholly-owned subsidiaries.
AVLIC is licensed to conduct business in 47 states and the
District of Columbia. AIC and TAG are registered broker-dealers.
Our partner in the Ameritas Joint Venture, Ameritas, is a
Nebraska mutual life insurance company which has been in
existence for more than 100 years.

Our investment in the Ameritas Joint Venture
provides access to a line of existing variable life insurance
and annuity products while providing a lower-cost entry into an
established business, helping to eliminate significant start-up
costs and allowing for immediate potential earnings.

The Ameritas Joint Venture offers, through AVLIC,
fixed annuity products, flexible premium and single premium
variable universal life insurance products, and variable
annuities. Variable products provide for allocation of funds to
a general account or to one or more separate accounts under
which the owner bears the investment risk. Through AVLICs
fund managers, owners of variable annuities and life insurance
policies are able to choose from a range of investment funds
offered by each manager. Under the current terms of the joint
venture agreement, ALIC and Ameritas direct their new variable
annuities and variable life insurance through the Ameritas Joint
Venture.

The variable life insurance products and the
fixed and variable annuities offered by the Ameritas Joint
Venture are distributed through our Preferred Producer general
agency, PPGA systems and one IMO, as well as through the
distribution systems of Ameritas and AVLIC.

Under the terms of the joint venture agreement,
we purchased an additional 5% of AMAL Corporation in March 2001,
for $7.2 million as certain premium growth targets were met
which brought our total ownership in AMAL Corporation to 39%.
During 2002, Ameritas contributed additional investments,
certain in-force business and other assets to the Ameritas Joint
Venture which resulted in the reduction of our ownership from
39% to 34%. In addition, in December 2002, both Ameritas and
ALIC contributed additional cash, which amounted to
$5 million by ALIC, to maintain our 34% interest. ALIC and
Ameritas Life Insurance Company each have guaranteed the
policyholder obligations of AVLIC. The guarantee of each party
is joint and several, and will remain in effect until certain
conditions are met.

As of December 31, 2003, AMAL Corporation
had total consolidated assets of $170.1 million and total
consolidated shareholders equity of $158.5 million on
a GAAP basis. AVLIC had $3,253.0 million of insurance in
force and $97 million in surplus as of December 31,
2003, on a statutory basis.

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Competition

We operate in a highly competitive industry. We
compete with numerous life insurance companies and other
entities including banks and other financial institutions, many
of which have greater financial and other resources. We believe
that the principal competitive factors in the sale of insurance
products are product features, price, commission structure,
perceived stability of the insurer, financial strength ratings,
value-added service and name recognition. Many other companies
are capable of competing for sales in our target markets
(including companies that do not presently compete in such
markets). Our ability to compete for sales is dependent upon our
ability to successfully address the competitive factors.

We are the national leader in market share of
equity-indexed life production and are the fifteenth largest
fixed life company in the United States. We also rank second
nationally in equity-indexed annuity sales and sixth nationally
in fixed annuity sales through independent agents. The rankings
are based on industry information from Advantage Compendium
(formerly The Advantage Group) and Life Insurance Marketing
Research Associates.

In addition to competing for sales, we compete
for qualified agents and brokers to distribute products. Strong
competition exists among insurance companies for agents and
brokers with demonstrated ability. We believe that the bases of
competition for the services of such agents and brokers are
commission structure, support services, prior relationships and
the strength of an insurers products. Although we believe
that we have good relationships with our agents and brokers, our
ability to compete will depend on our continued ability to
attract and retain qualified persons.

Ratings

Ratings with respect to financial strength are an
increasingly important factor in establishing the competitive
position of insurance companies. The following are the ratings
as of March 2, 2004 for our major insurance subsidiaries
currently writing new business:

|             |  |                   |  |             |                              |        |  |  |               | 
|------------ |  | ----------------- |  | ----------- | ---------------------------- | ------ |  |  | ------------- | 
|Company      |  | Rating Service    |  | Rating Type |                              | Rating
|             |  |                   |  |             |                              |       
|American     |  | Standard & Poors |  |             | insurer financial strength   |        |  |  | A+ (strong)   | 
|American     |  | A. M. Best        |  |             | financial condition          |        |  |  | A (excellent) | 
|American     |  | Moodys           |  |             | insurance financial strength |        |  |  | A3 (good)     | 
|            
|ALIC         |  | Standard & Poors |  |             | insurer financial strength   |        |  |  | A+ (strong)   | 
|ALIC         |  | A. M. Best        |  |             | financial condition          |        |  |  | A (excellent) | 
|ALIC         |  | Moodys           |  |             | insurance financial strength |        |  |  | A3 (good)     | 
|            
|Bankers Life |  | Standard & Poors |  |             | insurer financial strength   |        |  |  | A+ (strong)   | 
|Bankers Life |  | A. M. Best        |  |             | financial condition          |        |  |  | A (excellent) | 
|            
|ILICO        |  | Standard & Poors |  |             | insurer financial strength   |        |  |  | A+ (strong)   | 
|ILICO        |  | A. M. Best        |  |             | financial condition          |        |  |  | A (excellent) | 
|ILICO        |  | Moodys           |  |             | insurance financial strength |        |  |  | A3 (good)     | 

One of our insurance subsidiaries, FBL, is not
currently writing new business. The ratings for FBL were a
Standard & Poors rating of BBB+ (good) and an
A.M. Best rating of B+ (very good).

Standard & Poors ratings for
insurance companies range from AAA to R.
Standard & Poors indicates that A+
ratings are assigned to companies that have demonstrated strong
financial security. A.M. Bests ratings for insurance
companies range from A++ to S. A.M. Best
indicates that an A rating is assigned to those
companies that in A.M. Bests opinion have achieved
superior performance when compared to the norms of the life
insurance industry and have demonstrated a strong ability to
meet their policyowner and other contractual obligations.
Moodys ratings for insurance companies range from
Aaa to C. Moodys indicates that
A3 ratings are assigned to companies that have
factors related to security of principal and interest which are
considered adequate; however, elements are present which may
suggest a susceptibility to impairment in the future. In
evaluating a companys financial and operating performance,

13



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these rating agencies review a companys
profitability, leverage and liquidity, book of business,
adequacy and soundness of reinsurance, quality and estimated
market value of assets, adequacy of policy reserves, experience
and competency of management and other factors. Such ratings are
neither a rating of securities nor a recommendation to buy, hold
or sell any security, including our common stock and they may be
subject to revision or withdrawal at any time by the relevant
rating agency. You should evaluate each rating independently of
any other rating.


On September 6, 2002, Moodys Investor
Services changed the rating outlook for all of our insurance
subsidiaries to negative from stable. Also, on May 22,
2003, A.M. Best Company changed the rating outlook for all of
our insurance subsidiaries to negative from stable. The changes
occurred as part of Moodys and A.M. Bests
assessments of their current life insurers ratings given
the current operating environment. A negative outlook indicates
that if certain trends continue or worsen, the rating agencies
believe the insurance subsidiaries ratings may have to be
adjusted downward. There have been no further changes from
either of these rating agencies.

Insurance Underwriting

We follow detailed, uniform underwriting
practices and procedures in our insurance business which are
designed to assess risks before issuing coverage to qualified
applicants. We have professional underwriters who evaluate
policy applications on the basis of information provided by
applicants and others.

Reinsurance

In accordance with industry practices, we
reinsure portions of our life insurance exposure with
unaffiliated insurance companies under traditional indemnity
reinsurance arrangements. Such reinsurance arrangements are in
accordance with standard reinsurance practices within the
industry. We enter into these arrangements to assist in
diversifying risks and to limit the maximum loss on risks that
exceed policy retention limits. Indemnity reinsurance does not
fully discharge our obligation to pay claims on business we
reinsure. As the ceding company, we remain responsible for
policy claims to the extent the reinsurer fails to pay such
claims. We continually monitor the creditworthiness of our
primary reinsurers, and have experienced no material reinsurance
recoverability problems in recent years.

For accounting purposes, premiums and expenses in
the income statement are reported net of reinsurance ceded.
Future life and annuity policy benefits, policyowner funds and
other related assets and liabilities are not reduced for
reinsurance ceded in the balance sheet, rather a reinsurance
receivable is established for such balance sheet items.

We reinsure mortality risk on individual life
insurance policies. Our retention is generally between $150,000
and $500,000 on any single life depending on the respective age
and rating table. We also reinsure certain annuity business
primarily on a modified coinsurance basis.

At December 31, 2003 and 2002, we ceded life
insurance with a face amount of $75.3 billion with 39
unaffiliated reinsurers and life insurance with a face amount of
$71.1 billion with 47 unaffiliated reinsurers,
respectively. The following is a summary of our principal life
reinsurers as of December 31, 2003:

|                                               |  |               |      |           |  |             |    |  |  |  |    |  
|---------------------------------------------- |  | ------------- | ---- | --------- |  | ----------- | -- |  |  |  | -- | -
|                                               |  |               |      |           |  | % of total 
|                                               |  | Face          |      | A.M. Best |  | face amount
|Reinsurer                                      |  | amount ceded  |      | rating    |  | reinsured  
|                                               |  |               |      |           |  |            
|                                               |  | (in billions) |      |           |  |            
|RGA Reinsurance Company                        |  | $             | 19.9 |           |  |             | A+ |  |  |  | 26 | %
|Swiss Re Life & Health America Inc.            |  |               | 14.4 |           |  |             | A+ |  |  |  | 19 |  
|Transamerica Occidental Life Insurance Company |  |               | 10.4 |           |  |             | A+ |  |  |  | 14 |  
|Reassure America Life Insurance Company        |  |               | 7.4  |           |  |             | A- |  |  |  | 10 |  
|Employers Reassurance Corporation              |  |               | 5.1  |           |  |             | A+ |  |  |  | 7  |  
|Allianz Life Insurance Company                 |  |               | 3.6  |           |  |             | A+ |  |  |  | 5  |  
|Businessmens Assurance Company                |  |               | 2.8  |           |  |             | A  |  |  |  | 4  |  

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At December 31, 2003 and 2002, we ceded
traditional and equity-indexed annuities having reserves of
$1.2 billion and $1.5 billion, respectively. The
following is a summary of our principal annuity reinsurers as of
December 31, 2003:

|                                               |  |               |     |           |  |             |    |  |  |  |    |  
|---------------------------------------------- |  | ------------- | --- | --------- |  | ----------- | -- |  |  |  | -- | -
|                                               |  |               |     |           |  | % of total 
|                                               |  | Face          |     | A.M. Best |  | face amount
|Reinsurer                                      |  | amount ceded  |     | rating    |  | reinsured  
|                                               |  |               |     |           |  |            
|                                               |  | (in billions) |     |           |  |            
|Transamerica Occidental Life Insurance Company |  | $             | 0.8 |           |  |             | A+ |  |  |  | 62 | %
|RGA Reinsurance Company                        |  |               | 0.4 |           |  |             | A+ |  |  |  | 33 |  

Employees

As of December 31, 2003, we had
1,113 full-time employees. None of these employees are
covered by a collective bargaining agreement and we believe that
our relations with our employees are satisfactory.

Government Regulation

We are subject to regulation by the states in
which our insurance subsidiaries are domiciled and/or transact
business. State insurance laws generally establish supervisory
agencies with broad administrative and supervisory powers
related to granting and revoking licenses, transacting business,
regulating the payment of dividends to stockholders,
establishing guaranty fund associations, licensing agents,
approving policy forms, regulating sales practices, regulating
premium rates for some lines of business, establishing reserve
requirements, prescribing the form and content of required
financial statements and reports, determining the reasonableness
and adequacy of statutory capital and surplus, and regulating
the type and amount of investments permitted.

Every state in which our insurance companies are
licensed administers a guaranty fund, which provides for
assessments of licensed insurers for the protection of
policyowners of insolvent insurance companies. Assessments can
be partially recovered through a reduction in future premium
taxes in some states.

Risk-based capital, or RBC, standards for life
insurance companies were adopted by the National Association of
Insurance Commissioners, known as the NAIC, and require
insurance companies to calculate and report for statutory basis
financial statements information under a risk-based capital
formula. The RBC requirements are intended to allow insurance
regulators to identify at an early stage inadequately
capitalized insurance companies based upon the types and
mixtures of risks inherent in such companies operations.
The formula includes components for asset risk, liability risk,
interest rate exposure and other factors. As of
December 31, 2003, each of our life insurance
companies RBC levels was in excess of authorized control
level RBC thresholds established by insurance regulators.

Although the federal government generally does
not directly regulate the insurance business, federal
initiatives and changes in federal law can often have a material
impact on the business in a variety of ways. Current and
proposed federal measures that may significantly affect the
insurance business include limitations on antitrust immunity,
minimum solvency requirements, changes to the tax advantages of
life insurance and annuity products or the programs with which
they are used, new savings and dividend proposals and the
removal of barriers restricting banks from engaging in the
insurance and mutual fund business.

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##### Table of Contents



Executive Officers of the Company

The following provides information about AmerUs
Group Co.s executive officers:

|                   |  |     |    |       |  |                                                                                                                                                                |  | 
|------------------ |  | --- | -- | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Name of Individual |  | Age |    | Title |  |                                                                                                                                                               
|                   |  |     |    |       |  |                                                                                                                                                               
|Roger K. Brooks    |  |     | 66 |       |  | Chairman of the Board of Directors and Chief
    Executive Officer of AmerUs Group Co.                                                                         |  | 
|Thomas C. Godlasky |  |     | 48 |       |  | Director and President and Chief Operating
    Officer of AmerUs Group Co.                                                                                     |  | 
|Gregory D. Boal    |  |     | 45 |       |  | Executive Vice President and Chief Investment
    Officer of AmerUs Group Co.                                                                                  |  | 
|Brian J. Clark     |  |     | 38 |       |  | Executive Vice President and Chief Product
    Officer of AmerUs Group Co.                                                                                     |  | 
|Victor N. Daley    |  |     | 60 |       |  | Executive Vice President, Chief Administration
    and Human Resources Officer of AmerUs Group Co.                                                             |  | 
|Mark V. Heitz      |  |     | 51 |       |  | President and Chief Executive Officer of AmerUs
    Annuity Group, American Investors Life Insurance Company, and
    Financial Benefit Life Insurance Company |  | 
|Gary R. McPhail    |  |     | 55 |       |  | President and Chief Executive Officer of AmerUs
    Life Insurance Company and Indianapolis Life Insurance Company                                             |  | 
|Melinda S. Urion   |  |     | 50 |       |  | Executive Vice President and Chief Financial
    Officer of AmerUs Group Co.                                                                                   |  | 

ROGER K. BROOKS  Des
Moines, Iowa.

Chairman and chief executive officer of AmerUs
Group Co. since May 1997, president from May 1997 to November
2003, and president and chief executive officer from its
formation in July 1996 to May 1997. Previously, Mr. Brooks
was the chief executive officer of predecessor or affiliated
companies since 1974. He is a director of AMAL. Mr. Brooks
has been a director of AmerUs Group Co. since its formation in
July 1996, and previously served as a director of predecessor or
affiliated companies since 1971. His current term expires in May
2004.

THOMAS C. GODLASKY  Des
Moines, Iowa.

President and chief operating officer of AmerUs
Group Co. since November 2003 and executive vice president and
chief investment officer of AmerUs Group Co. and predecessor or
affiliated companies from January 1995 to November 2003.
Mr. Godlasky had also been president of AmerUs Capital
Management from January 1998 to November 2003. From February
1988 to January 1995, he was manager of the Fixed Income and
Derivatives Department of Providian Corporation, Louisville,
Kentucky. He is a director of AMAL and AVLIC and AIC,
wholly-owned subsidiaries of AMAL. Mr. Godlasky has been a
director of AmerUs Group Co. since November 2003. His current
term expires in May 2004.

GREGORY D. BOAL  Des
Moines, Iowa.

Executive vice president of AmerUs Group Co. and
president and chief investment officer of AmerUs Capital
Management since November 2003 and executive vice president of
AmerUs Group Co. since June 2003. Prior to joining AmerUs Group
Co. in June 2003, he was managing director at Deutsche Bank
Asset Management in New York, New York beginning in
June 2002. From January 2000 to June 2002 Mr. Boal was
managing director at Zurich Scudder Investments in
Chicago, Illinois (following Zurich Scudder
Investments acquisition of ABN AMRO Asset Management
(USA)). From January 1997 to January 2000 Mr. Boal was
director of fixed investments at ABN AMRO Asset Management (USA).

16



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##### Table of Contents



BRIAN J. CLARK  Des
Moines, Iowa.

Executive vice president and chief product
officer of AmerUs Group Co. since November 2003 and senior vice
president and chief product officer from August 2001 to November
2003. Mr. Clark has been with AmerUs Group Co. since 1988
and has previously served ALIC as chief financial officer and as
senior vice president in various departments and functions,
including product development, product management and asset and
liability management.

VICTOR N. DALEY  Des
Moines, Iowa.

Executive vice president, chief administration
and human resources officer of AmerUs Group Co. since February
2000, and senior vice president, chief administration and human
resources officer of AmerUs Group Co. and predecessor or
affiliated companies since September 1995. From April 1989 to
September 1995, Mr. Daley was senior vice president and
chief administrative officer of Royal Insurance, Charlotte,
North Carolina.

MARK V. HEITZ  Topeka,
Kansas.

President and chief executive officer of AAG,
American and FBL, Topeka, Kansas since December 1997.
Previously, Mr. Heitz served as the president, general
counsel and director of AAG from December 1986 until December
1997. Mr. Heitz also served as president, general counsel
and director of American from October 1986 until December 1997.

GARY R. McPHAIL  Des
Moines, Iowa.

President and chief executive officer of ALIC
since May 1997 and president and chief executive officer of
ILICO since October 2001. Mr. McPhail was executive vice
president  marketing and individual operations of
New York Life Insurance Company, New York,
New York, from July 1995 to November 1996. From June 1990
to July 1995, he was president of Lincoln National Sales
Corporation, Fort Wayne, Indiana. Mr. McPhail is
a director of AMAL, AIC and AVLIC.

MELINDA S. URION  Des
Moines, Iowa.

Executive vice president and chief financial
officer of AmerUs Group Co. since March 2002. Prior to joining
AmerUs Group Co., she was senior vice president and chief
financial officer at Fortis Financial Group, Woodbury,
Minnesota, from December 1997 to April 2001. From July 1988 to
November 1997, Ms. Urion served in various accounting and
executive positions with American Express Financial Corp,
Minneapolis, Minnesota, including senior vice president of
finance and chief financial officer from November 1995 to
November 1997. Ms. Urion is a director of AVLIC.

Code of Ethics

We have adopted a Code of Ethics for Senior
Financial Officers (Ethics Code) which summarizes long-standing
principles of conduct applicable to our principal executive
officer, principal financial officer, and principal accounting
officer (collectively, Financial Officers), to ensure our
business is conducted with integrity and in compliance with the
law. A copy of our Ethics Code can be found on our website
located at www.amerus.com. Any change to, or waiver of,
this Ethics Code for Financial Officers must be disclosed
promptly to our shareholders by a Form 8-K filing or by
publishing a statement on our website.

17



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##### Table of Contents








|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

The following table summarizes the properties we
lease and own at December 31, 2003:

|                                             |                       |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                  
|-------------------------------------------- | --------------------- | ------------------------ |  | ------------ |  | -------- |  | ------------- |  | ----------- |  | ------------------------ |  |  |  | ------ |  |  |  | ------- |  | ------------------ | ---------------------------------
|                                             |                       |                          |  |              |  |         
|                                             |                       | Square Feet Occupied by: |  |              |  |         
|                                             |                       |                          |  |              |  |         
|                                             |                       | Protection               |  | Accumulation |  |          |  | Leased to     |  | Total       |  |                         
|Property Address                             |                       | Products                 |  | Products     |  | Other(1) |  | Third Parties |  | Square Feet |  | Use of Other Square Feet
|                                             |                       |                          |  |              |  |          |  |               |  |             |  |                         
|Properties leased from unaffiliated parties: |                       |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                   
|                                             | 699 Walnut Street     |                          |  |             |  |          |  |              |  |             |  | 53,000                   |  |  |  | 16,000 |  |  |  | 69,000  |  |                    | Executive offices and corporate  
|                                             | Des Moines, Iowa      |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    | operations                       
|                                            
|                                             | 611 Fifth Avenue      |                          |  | 62,000       |  |          |  | 2,000         |  |             |  | 56,000                   |  |  |  |       |  |  |  | 120,000 |  |                    | Technology, corporate opera-     
|                                             | Des Moines, Iowa      |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    | tions and cafeteria facilities   
|                                            
|                                             | 65 Froehlich Farms    |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                  
|                                             | Boulevard             |                          |  | 15,000       |  |          |  | 3,000         |  |             |  | 6,000                    |  |  |  |       |  |  |  | 24,000  |  |                    | Technology and cafeteria         
|                                             | Woodbury, New York    |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    | facilities                       
|                                            
|                                             | 9200 Keystone,        |                          |  | 15,000       |  |          |  |              |  |             |  |                         |  |  |  |       |  |  |  | 15,000  |  |                    |                                  
|                                             | Suite 800             |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                  
|                                             | Indianapolis, Indiana |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                  
|                                            
|                                             | Various               |                          |  |             |  |          |  |              |  |             |  | 33,000                   |  |  |  |       |  |  |  | 33,000  |  |                    | Corporate operations, records    
|                                             |                       |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  | and supply storage
|Properties owned:                            |                       |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                   
|                                             | 555 South Kansas      |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                  
|                                             | Avenue                |                          |  |             |  |          |  | 60,000        |  |             |  |                         |  |  |  | 45,000 |  |  |  | 105,000 |  |                    |                                  
|                                             | Topeka, Kansas        |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                  
|                                            
|                                             | 2960 North Meridian   |                          |  |             |  |          |  |              |  |             |  |                         |  |  |  | 14,000 |  |  |  | 267,000 |  |                    | Facility listed for sale or lease
|                                             | Indianapolis, Indiana |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                  






| |     |                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------
| | (1) | Other includes shared services that are utilized
    by both protection products and accumulation products segments.






|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS

In recent years, the life insurance industry,
including the Company and its subsidiaries, have been subject to
an increase in litigation pursued on behalf of purported classes
of insurance purchasers, questioning the conduct of insurers in
the marketing of their products. The Company is routinely
involved in litigation and other proceedings, including class
actions, reinsurance claims and regulatory proceedings, arising
in the ordinary course of its business. Some of these claims and
legal actions are in jurisdictions where juries are given
substantial latitude in assessing damages, including punitive
damages. Although no assurances can be given and no
determinations can be made at this time, the Company believes
that the ultimate liability, if any, with respect to these
claims and legal actions, would have no material effect on its
results of operations and financial position.






|        |                                                        
|------- | -------------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS

None.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND
    RELATED STOCKHOLDER MATTERS

Our common stock is listed and traded on the
New York Stock Exchange (NYSE) under the symbol
AMH. The following table sets forth, for the periods
indicated, the high and low sales prices per share of

18



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##### Table of Contents



AmerUs Group Co. common stock as quoted on the
NYSE and the dividends per share declared during such quarter.


|               |  |                     |       |     |  |           |       |  |  |   |      | 
|-------------- |  | ------------------- | ----- | --- |  | --------- | ----- |  |  | - | ---- | 
|               |  |                    
|               |  | AmerUs Common Stock
|               |  |                    
|               |  | High                |       | Low |  | Dividends
|               |  |                     |       |     |  |          
|2002           |  |                     |       |     |  |           |       |  |  |   |      | 
|First Quarter  |  | $                   | 39.50 |     |  | $         | 34.00 |  |  | $ | 0.00 | 
|Second Quarter |  | $                   | 39.90 |     |  | $         | 34.45 |  |  | $ | 0.00 | 
|Third Quarter  |  | $                   | 37.21 |     |  | $         | 28.21 |  |  | $ | 0.00 | 
|Fourth Quarter |  | $                   | 32.26 |     |  | $         | 25.87 |  |  | $ | 0.40 | 
|2003           |  |                     |       |     |  |           |       |  |  |   |      | 
|First Quarter  |  | $                   | 30.70 |     |  | $         | 22.94 |  |  | $ | 0.00 | 
|Second Quarter |  | $                   | 28.41 |     |  | $         | 24.44 |  |  | $ | 0.00 | 
|Third Quarter  |  | $                   | 35.89 |     |  | $         | 27.70 |  |  | $ | 0.00 | 
|Fourth Quarter |  | $                   | 38.00 |     |  | $         | 34.48 |  |  | $ | 0.40 | 

Holders

As of March 2, 2004, the number of holders
of record of each class of common equity was as follows:

|             |  |           |         | 
|------------ |  | --------- | ------- | 
|             |  | Number of
|             |  | Holders  
|             |  |          
|Common stock |  |           | 109,904 | 

Equity Compensation Plan Information

The following table sets forth information
regarding our equity compensation plans as of December 31,
2003:

|                                                                  |  |                         |           |                      |  |                          |       |  |  |  |           | 
|----------------------------------------------------------------- |  | ----------------------- | --------- | -------------------- |  | ------------------------ | ----- |  |  |  | --------- | 
|                                                                  |  |                         |           |                      |  | (c) Number of securities
|                                                                  |  | (a) Number of           |           |                      |  | remaining available for 
|                                                                  |  | securities              |           |                      |  | future issuance under   
|                                                                  |  | to be issued upon       |           | (b) Weighted average |  | equity compensation     
|                                                                  |  | exercise of outstanding |           | exercise price of    |  | plans (excluding        
|                                                                  |  | options, warrants and   |           | outstanding options, |  | securities reflected in 
|Plan Category                                                     |  | rights                  |           | warrants and rights  |  | column(a))              
|                                                                  |  |                         |           |                      |  |                         
|Equity compensation plans approved by security
    holders        |  |                         | 4,889,392 |                      |  | $                        | 27.43 |  |  |  | 1,697,248 | 
|Equity compensation plans not approved by
    security holders(1) |  |                         | 584,160   |                      |  |                          | 29.89 |  |  |  | 386,868   | 
|                                                                  |  |                         |           |                      |  |                          |       |  |  |  |           | 
|Total                                                             |  |                         | 5,473,552 |                      |  | $                        | 27.57 |  |  |  | 2,084,116 | 
|                                                                  |  |                         |           |                      |  |                          |       |  |  |  |           | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes stock units issued under the MIP
    Deferral Plan to senior executives and other management
    employees and stock appreciation rights under the Non-Employee
    Plan which may be paid in cash or Company common stock. Prior to
    2003, the Companys practice under the MIP Deferral Plan
    has been to pay participants at the end of the deferral period
    relative to stock units in cash only. In 2003, the Company
    instituted a policy of paying stock units in Company common
    stock at the end of the deferral period. With respect to stock
    appreciation rights under the Non-Employee Stock Option Plan,
    the Companys practice has been to pay such grants in cash
    on exercise thereof.

Equity Compensation Plans not Approved by
Security Holders

At the Companys annual meeting, our
shareholders are being asked to approve a provision in the
Companys MIP Deferral Plan pursuant to which we will issue
up to 180,000 shares of our common stock for grants of
Company matches made in stock during and after 2004.

The MIP Deferral Plan, which was begun in 1998,
allows management employees and officers, to elect to defer
receipt of a portion of their year end cash incentive payments
(Payment Amount) into stock units.

19



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##### Table of Contents



Under the MIP Deferral Plan, each stock unit is
purchased by participants at the fair market value of a share of
Company common stock on the date of purchase. The Company
matches a portion of participants deferrals (Match), up to
a certain specified limit, provided the employee remains
employed with the Company for a specified period. The human
resources and compensation committee of the board of directors
(Committee), which administers the MIP Deferral Plan, determines
each year the maximum portion of the Payment Amount that can be
deferred and the percentage Match of the Company. Following the
end of the deferral period, participants in the MIP Deferral
Plan had historically exchanged their stock units for cash. Last
year, the Committee instituted a new policy under which the
Company would pay Payment Amounts and Matches in Company common
stock.


For the current year, the Company matched up to
50 percent of the stock units purchased pursuant to the MIP
Deferral Plan up to a total of $10,000. On the third anniversary
of the employees deferral, the employee may elect to
re-defer the Payment amount and the Match for an additional
three years. If the employee elects not to re-defer, the Company
then pays the employee an amount in Company common stock equal
to the number of units purchased by the employee plus the number
of units in the Match, provided the employee continues to be
employed by the Company or one of its subsidiaries on that date.
The entire Match is forfeited if the employees employment
terminates prior to the third anniversary of the employees
deferral.

On February 12, 1999, the Company adopted
the AmerUs Group Co. Non-Employee Stock Option Plan
(Non-Employee Plan) to give agents of the Company and/or its
subsidiaries who make significant contributions to the success
of the Company and/or its subsidiaries an interest in the
Companys performance. Under the Non-Employee Plan,
participants may receive stock options and/or stock appreciation
rights. On exercise of stock appreciation rights, a participant
may be paid in cash or stock, at the discretion of the Company.

Dividends

We had declared and paid an annual dividend of
$0.40 per share of common stock in 2001 through 2003. The
declaration and payment of dividends in the future is subject to
the discretion of the Board of Directors and will be dependent
upon the financial condition, results of operations, cash
requirements, future prospects, regulatory restrictions on the
payment of dividends by the life insurance subsidiaries and
other factors deemed relevant by the Board of Directors.

Under our revolving credit agreement, we are
prohibited from paying dividends on common stock in excess of an
amount equal to 3% of the consolidated net worth as of the last
day of the preceding fiscal year.

In connection with the 8.85% Capital Securities,
Series A (the Capital Securities), issued in
1997 by AmerUs Capital I, a subsidiary trust, we have
agreed not to declare or pay any dividends on the Companys
capital stock (including the common stock) during any period for
which we elect to extend interest payments on our junior
subordinated debentures, except for stock dividends where the
dividend stock is the same stock as that on which the dividend
is being paid. Dividends on our capital stock cannot be paid
until all accrued interest on the Capital Securities has been
paid. The Capital Securities have an outstanding principal
balance of $50.8 million at December 31, 2003.

On March 6, 2002, we issued and sold in a
private placement $185 million aggregate original principal
amounts of optionally convertible equity-linked accreting notes
(OCEANs). The OCEANs are senior subordinated debt and were
issued and sold in an original principal amount of
$1,000 per OCEAN, with a principal amount at maturity of
$1,270 per OCEAN. The maturity date of the OCEANs is
March 6, 2032. The OCEANs will have aggregate principal
amount at maturity of $235 million. The notes are
convertible into shares of AmerUs Group Co.s common stock
at an initial conversion price (subject to adjustment) of
$37.60 per share only if the sale price of the common stock
exceeds $47.85 per share for at least 20 trading days in a
30-day trading period or in certain other limited circumstances.
In connection with the OCEANs, we have agreed, with certain
limited exceptions, not to declare or pay dividends on or make
distributions with respect to our capital stock during any
period in which we have deferred stated interest on the OCEANs.

20



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##### Table of Contents



On May 28, 2003, we issued $125 million
of PRIDESSM which were registered on Form S-3
filed with the Securities and Exchange Commission. On
June 5, 2003, the underwriters exercised their
over-allotment in full and the Company issued an additional
$18.8 million of PRIDES. The PRIDES initially consist of a
$25 senior note and a contract requiring the holder to purchase
the Companys common stock. The note has a minimum term of
4.75 years, which may be extended by the Company in certain
circumstances. Under the purchase contract, holders of each
contract are required to purchase the Companys common
stock on the settlement date of August 16, 2006 based on a
specified settlement rate, which will vary according to the
applicable market value of the Companys common stock at
the settlement date. The value of the common stock to be issued
upon settlement of each purchase contract will not exceed $25,
the stated value of the PRIDES, unless the applicable market
value of the Companys common stock (which is measured by
the common stock price over a 20-day trading day period)
increases to more than $33.80 per share. In connection with
the PRIDES, we have agreed, with certain limited exceptions, not
to declare or pay dividends on or make distributions with
respect to our capital stock during any period in which we have
deferred contract adjustment payments to holders of the PRIDES.

As a holding company, our principal assets
consist of all of the outstanding shares of the common stock of
our life insurance subsidiaries. Our ongoing ability to pay
dividends to shareholders and meet other obligations, including
operating expenses and any debt service, primarily depends upon
the receipt of sufficient funds from our life insurance
subsidiaries in the form of dividends or interest payments.

Based on statutory insurance regulations and 2002
results, our insurance subsidiaries could have paid
approximately $82 million in dividends in 2003 without
obtaining regulatory approval. Our subsidiaries paid to us
approximately $85 million in dividends in 2003 that
included dividends for which we obtained regulatory approval.
Based on 2003 results, our subsidiaries can pay an estimated
$78 million in dividends in 2004 without obtaining
regulatory approval.

21



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##### Table of Contents








|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

The following table sets forth certain financial
and operating data of the Company.

|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |       |       |         | 
|----------------------------------- | --------------------------------------------------------------- | ------------------------------------------------ | --------------------------- | ----- | ------- | -------- | - | ----- | ------- | ------- | - | ----- | ----- | ------- | - | ----- | ----- | ------- | - | ----- | ----- | ------- | 
|                                    |                                                                 |                                                 
|                                    |                                                                 | As of or for the Year ended December 31,        
|                                    |                                                                 |                                                 
|                                    |                                                                 | 2003                                             |                             | 2002  |         | 2001 (A) |   | 2000  |         | 1999   
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |        
|                                    |                                                                 |                                                 
|                                    |                                                                 | ($ in millions, except share data)              
|Consolidated Income Statement Data: |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    | Revenues:                                                       |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |       |      
|                                    |                                                                 | Insurance premiums                               |                             | $     | 297.2   |          |   | $     | 351.3   |         |   | $     | 305.9 |         |   | $     | 266.2 |         |   | $     | 268.6 |        
|                                    |                                                                 | Product charges                                  |                             |       | 181.4   |          |   |       | 144.5   |         |   |       | 146.1 |         |   |       | 99.9  |         |   |       | 90.8  |        
|                                    |                                                                 | Net investment income                            |                             |       | 1,001.9 |          |   |       | 1,001.3 |         |   |       | 873.2 |         |   |       | 699.5 |         |   |       | 665.4 |        
|                                    |                                                                 | Realized/unrealized gains (losses) on investment |                             |       | 131.3   |          |   |       | (149.9  | )       |   |       | (90.6 | )       |   |       | (29.0 | )       |   |       | (1.4  | )      
|                                    |                                                                 | Other income                                     |                             |       | 68.3    |          |   |       | 68.5    |         |   |       | 45.7  |         |   |       | 35.0  |         |   |       | 23.7  |        
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    |                                                                 |                                                  | Total revenues              |       |         | 1,680.1  |   |       |         | 1,415.7 |   |       |       | 1,280.3 |   |       |       | 1,071.6 |   |       |       | 1,047.1 | 
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    | Benefits and expenses:                                          |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |       |      
|                                    |                                                                 | Policyowner benefits                             |                             |       | 940.2   |          |   |       | 871.9   |         |   |       | 753.0 |         |   |       | 624.4 |         |   |       | 630.2 |        
|                                    |                                                                 | Total insurance and other expenses               |                             |       | 372.1   |          |   |       | 324.3   |         |   |       | 283.1 |         |   |       | 227.5 |         |   |       | 216.0 |        
|                                    |                                                                 | Dividends to policyowners                        |                             |       | 98.4    |          |   |       | 104.9   |         |   |       | 98.9  |         |   |       | 74.3  |         |   |       | 70.8  |        
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    |                                                                 |                                                  | Total benefits and expenses |       |         | 1,410.7  |   |       |         | 1,301.1 |   |       |       | 1,135.0 |   |       |       | 926.2   |   |       |       | 917.0   | 
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    | Income from continuing operations                               |                                                  |                             | 269.4 |         |          |   | 114.6 |         |         |   | 145.3 |       |         |   | 145.4 |       |         |   | 130.1 |      
|                                    | Interest expense                                                |                                                  |                             | 30.2  |         |          |   | 25.5  |         |         |   | 26.0  |       |         |   | 29.7  |       |         |   | 29.0  |      
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    | Income before tax expense and minority interest                 |                                                  |                             | 239.2 |         |          |   | 89.1  |         |         |   | 119.3 |       |         |   | 115.7 |       |         |   | 101.1 |      
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    | Income tax expense                                              |                                                  |                             | 78.6  |         |          |   | 28.3  |         |         |   | 39.5  |       |         |   | 42.5  |       |         |   | 33.7  |      
|                                    | Minority interest                                               |                                                  |                             |      |         |          |   |      |         |         |   |      |       |         |   | 21.7  |       |         |   | 28.1  |      
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    | Net income from continuing
    operations                       |                                                  |                             | 160.6 |         |          |   | 60.8  |         |         |   | 79.8  |       |         |   | 51.5  |       |         |   | 39.3  |      
|                                    | Discontinued operations (net of tax):                           |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |       |      
|                                    |                                                                 | Income (loss) from discontinued operations       |                             |       | 1.8     |          |   |       | 2.1     |         |   |       | 1.3   |         |   |       | 0.3   |         |   |       | (0.9  | )      
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    | Net income before cumulative effect of change in
    accounting |                                                  |                             | 162.4 |         |          |   | 62.9  |         |         |   | 81.1  |       |         |   | 51.8  |       |         |   | 38.4  |      
|                                    | Cumulative effect of change in accounting, net of
    tax       |                                                  |                             | (1.3  | )       |          |   |      |         |         |   | (8.2  | )     |         |   |      |       |         |   |      |      
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      
|                                    | Net income                                                      |                                                  | $                           | 161.1 |         |          | $ | 62.9  |         |         | $ | 72.9  |       |         | $ | 51.8  |       |         | $ | 38.4  |      
|                                    |                                                                 |                                                  |                             |       |         |          |   |       |         |         |   |       |       |         |   |       |       |         |   |      

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|                                 |                                                                      |                                          |   |          |      |          |   |          |      |      |   |          |      |  |   |          |      |  |   |          |      | 
|-------------------------------- | -------------------------------------------------------------------- | ---------------------------------------- | - | -------- | ---- | -------- | - | -------- | ---- | ---- | - | -------- | ---- |  | - | -------- | ---- |  | - | -------- | ---- | 
|                                 |                                                                      |                                         
|                                 |                                                                      | As of or for the Year ended December 31,
|                                 |                                                                      |                                         
|                                 |                                                                      | 2003                                     |   | 2002     |      | 2001 (A) |   | 2000     |      | 1999
|                                 |                                                                      |                                          |   |          |      |          |   |          |      |     
|                                 |                                                                      |                                         
|                                 |                                                                      | ($ in millions, except share data)      
|                                 | Net income from continuing operations per share
    (B):             |                                          |   |          |      |          |   |          |      |      |   |          |      |  |   |          |      |  |   |          |     
|                                 |                                                                      | Basic                                    |   | $        | 4.10 |          |   | $        | 1.52 |      |   | $        | 2.16 |  |   | $        | 2.46 |  |   | $        | 2.26 | 
|                                 |                                                                      | Diluted                                  |   | $        | 4.05 |          |   | $        | 1.50 |      |   | $        | 2.13 |  |   | $        | 2.44 |  |   | $        | 2.26 | 
|                                 | Weighted average number of shares outstanding (in
    millions) (B): |                                          |   |          |      |          |   |          |      |      |   |          |      |  |   |          |      |  |   |          |     
|                                 |                                                                      | Basic                                    |   |          | 39.2 |          |   |          | 40.0 |      |   |          | 36.9 |  |   |          | 20.9 |  |   |          | 17.4 | 
|                                 |                                                                      | Diluted                                  |   |          | 39.6 |          |   |          | 40.4 |      |   |          | 37.5 |  |   |          | 21.0 |  |   |          | 17.5 | 
|                                 | Dividends declared per common share (C)                              |                                          | $ | 0.40     |      |          | $ | 0.40     |      |      | $ | 0.40     |      |  | $ | 0.40     |      |  | $ |         |     
|Consolidated Balance Sheet Data: |                                                                      |                                          |   |          |      |          |   |          |      |      |   |          |      |  |   |          |      |  |   |         
|                                 | Total invested assets                                                |                                          | $ | 17,942.8 |      |          | $ | 16,932.5 |      |      | $ | 15,052.4 |      |  | $ | 9,606.8  |      |  | $ | 9,059.7  |     
|                                 | Total assets                                                         |                                          | $ | 21,542.2 |      |          | $ | 20,293.7 |      |      | $ | 18,299.2 |      |  | $ | 11,471.5 |      |  | $ | 11,091.9 |     
|                                 | Notes payable                                                        |                                          | $ | 596.1    |      |          | $ | 511.4    |      |      | $ | 384.6    |      |  | $ | 413.3    |      |  | $ | 387.9    |     
|                                 | Total liabilities                                                    |                                          | $ | 20,132.4 |      |          | $ | 19,030.7 |      |      | $ | 17,060.6 |      |  | $ | 10,643.5 |      |  | $ | 10,010.8 |     
|                                 | Minority interest                                                    |                                          | $ |         |      |          | $ |         |      |      | $ |         |      |  | $ |         |      |  | $ | 309.1    |     
|                                 | Total stockholders equity                                           |                                          | $ | 1,409.8  |      |          | $ | 1,262.9  |      |      | $ | 1,238.5  |      |  | $ | 828.0    |      |  | $ | 772.0    |     
|Other Operating Data:            |                                                                      |                                          |   |          |      |          |   |          |      |      |   |          |      |  |   |          |      |  |   |         
|                                 | Ratio of earnings to fixed charges (D)                               |                                          |   | 1.40     |      |          |   | 1.19     |      |      |   | 1.33     |      |  |   | 1.28     |      |  |   | 1.21     |     



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | Financial data for 2001 includes the results for
    ILICO, subsequent to the acquisition date of May 18, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(B) |  | Our predecessor, AMHC, was originally formed in
    1996 as a mutual holding company and therefore, had no shares of
    common stock outstanding until its demutualization on
    September 20, 2000. On September 20, 2000, we
    distributed 17.4 million shares of common stock to our
    former members and exchanged our common stock for the
    12.6 million shares of common stock held by the public in
    ALHI, our former subsidiary and another of our predecessor
    entities, on a one-for-one basis. Our operating income for 1999
    and 2000 presented above primarily reflects the operating income
    of ALHI. Therefore, net income from continuing operations per
    share was calculated based on the number of shares of stock we
    owned of ALHI through September 20, 2000. Since then, net
    income from continuing operations per share has been calculated
    based on the shares of our common stock actually outstanding.
|   
|(C) |  | We did not have common stock until our
    demutualization on September 20, 2000, therefore, there
    were no dividends to declare on common stock for the year 1999.
    ALHI, our predecessor to our company did declare dividends on
    its common stock of $0.40 per share for the year ended
    December 31, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(D) |  | For purposes of computing the ratio of earnings
    to fixed charges, earnings consist of income from
    operations before income taxes, fixed charges and pre-tax
    earnings required to cover preferred stock dividend
    requirements. Fixed charges consist of interest
    credited on annuity and universal life contracts and interest
    expense on debt, amortization of debt expense and preferred
    stock dividend requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATION

The following analysis of the consolidated
financial condition and results of operation of AmerUs Group Co.
should be read in conjunction with the Selected Financial Data
and Consolidated Financial Statements and related notes. We are
incorporating by reference Item 1. Business
information into Managements Discussion and Analysis of
Financial Condition and Results of Operations section.

23



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##### Table of Contents



Nature of Operations

See Item 1 Business for
information regarding the nature of our operations.

Financial Highlights

Our financial highlights are as follows:

|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |        |         | 
|--------------------------------- | --------------------- | -------------------------------------- | ---------- | ------- | ------- | ---- | ---------- | ------- | ------- | - | ---------- | ------ | ------- | 
|                                  |                       |                                       
|                                  |                       | For The Years Ended December 31,      
|                                  |                       |                                       
|                                  |                       | 2003                                   |            | 2002    |         | 2001
|                                  |                       |                                        |            |         |         |     
|                                  |                       |                                       
|                                  |                       | ($ in thousands, except share data)   
|Segment pre-tax operating income: |                       |                                        |            |         |         |      |            |         |         |   |            |       
|                                  | Protection Products   |                                        | $          | 128,290 |         |      | $          | 129,739 |         |   | $          | 95,955 |        
|                                  | Accumulation Products |                                        |            | 130,890 |         |      |            | 120,655 |         |   |            | 95,912 |        
|                                  | Other operations      |                                        |            | (7,725  | )       |      |            | (6,622  | )       |   |            | 6,138  |        
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |       
|                                  |                       | Total segment pre-tax operating income |            |         | 251,455 |      |            |         | 243,772 |   |            |        | 198,005 | 
|Non-segment expense, net (A)      |                       |                                        | 90,308     |         |         |      | 180,906    |         |         |   | 125,098    |       
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |       
|                                  | Net income            |                                        | $          | 161,147 |         |      | $          | 62,866  |         |   | $          | 72,907 |        
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |       
|Diluted earnings per share        |                       | $                                      | 4.07       |         |         | $    | 1.56       |         |         | $ | 1.95       |       
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |       
|Total assets                      |                       | $                                      | 21,542,242 |         |         | $    | 20,293,665 |         |         | $ | 18,299,152 |       
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |       
|Stockholders equity              |                       | $                                      | 1,409,811  |         |         | $    | 1,262,948  |         |         | $ | 1,238,517  |       
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |       




|    |                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Non-segment expense, net consists primarily of
    open block gains and losses, derivative related market value
    adjustments, non-insurance operations, reinsurance adjustments,
    restructuring costs, interest expense, income taxes,
    discontinued operations and cumulative effect of changes in
    accounting.

Operating segment income decreased for the
protection products segment in 2003 compared to 2002 primarily
as a result of lower net investment income and the continued
decrease in closed block operating income. The acquisition of
ILICO, combined with a slight growth in margins, increased
protection products segment operating income in 2002 compared to
2001. The increased volume of equity-indexed products and
additional income from funding agreements increased accumulation
products segment earnings in 2003 compared to 2002. Increased
IMO operating income and the discontinuation of goodwill
amortization in 2002 contributed to the growth in accumulation
products segment operating income in 2002 compared to 2001.

Net income increased in 2003 compared to 2002
primarily due to increased realized gains on open block
investments and increased net unrealized gains from market value
adjustments on trading securities, derivatives and
equity-indexed contracts. Net income decreased in 2002 compared
to 2001 primarily as a result of realized losses on investments,
unrealized losses from market value adjustments on derivatives
and increased restructuring charges. The 2002 reductions in net
income were partially offset by the higher income of our
protection and accumulation products segments.

Total assets increased $1.2 billion during
2003 primarily as a result of additional invested assets under
management resulting from additional life sales and annuity
deposits. Stockholders equity increased
$146.9 million during 2003 as a result of 2003 net
income of $161.1 million and the issuance of common stock
under various incentive plans of $11.1 million. The 2003
increase was partially offset by dividends declared in 2003 of
$15.7 million and fees, expenses and liabilities associated
with the issuance of PRIDES, which reduced equity
$7.3 million.

24



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##### Table of Contents



Segment Income

We use the same accounting policies and
procedures to measure operating segment income as we use to
measure consolidated income from operations with the exception
of the elimination of certain items which management believes
are not necessarily indicative of overall operating trends.
These items are shown between segment pre-tax operating income
and net income and are as follows:



| |                                                            
| | -----------------------------------------------------------
| | 1) Realized gains and losses on open block
    investments.



| |    |                                                                                                                                 
| | -- | --------------------------------------------------------------------------------------------------------------------------------
| | 2) | Market value changes and amortization of assets
    and liabilities associated with the accounting for derivatives,
    such as:



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Unrealized gains and losses on open block options
    and securities held for trading.                                                                                                               
|
| |  | Change in option value of equity-indexed products
    and market value adjustments on total return strategy annuities.                                                                               
|
| |  | Cash flow hedge amortization (amortization of a
    hedge of a forecasted transaction or of the variability of cash
    flows to be received or paid related to a recognized asset or
    liability).



| |    |                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3) | Amortization of deferred policy acquisition costs
    (DAC) and value of business acquired (VOBA) related to
    the realized gains and losses on the open block investments and
    the derivative adjustments.



| |                                                          
| | ---------------------------------------------------------
| | 4) Certain reinsurance adjustments.                      
|
| | 5) Demutualization costs.                                
|
| | 6) Restructuring costs.                                  
|
| | 7) Other income from non-insurance
    operations.       
|
| | 8) Discontinued operations.                              
|
| | 9) Cumulative effect of changes in
    accounting method.

These items will fluctuate from period to period
depending on the prevailing interest rate and economic
environment, or are not continuing in nature, or are not part of
the core insurance operations. As a result, management believes
they do not reflect the ongoing earnings capacity of our
operating segments.

Protection Products

Our protection products segment primarily
consists of interest-sensitive whole life, term life, universal
life and equity-indexed life insurance policies. These products
are marketed on a national basis primarily through a Preferred
Producer agency system, PPGA distribution system and IMOs.
Included in protection products segment is the closed block of
ALIC and the closed block of ILIC. Each closed block was
established when the companies reorganized from mutual companies
to stock companies. When protection products are sold, we invest
the premiums we receive in our investment portfolio and
establish a liability to the policyholder. We manage investment
spread by seeking to maximize the return on these invested
assets, consistent with our asset/liability and credit quality
needs. We enter into reinsurance arrangements in order to reduce
the effects of mortality risk and the statutory capital strain
from writing new business. All income statement line items are
presented net of reinsurance amounts. Protection products in
force totaled $84.9 billion at December 31, 2003,
$80.6 billion at December 31, 2002 and
$70.5 billion at December 31, 2001. Protection
products in force is a non-GAAP financial measure utilized by
investors, analysts and the Company to assess the Companys

25



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##### Table of Contents



position in the industry. We do not believe there
is a comparable GAAP financial measure. A summary of our
protection products segment operations follows:


|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |        |         |         | 
|---------------------------------------------------------- | ------------------------------------------------------------------------ | -------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------ | ------- | ------- | 
|                                                           |                                                                          |                                 
|                                                           |                                                                          | For The Years Ended December 31,
|                                                           |                                                                          |                                 
|                                                           |                                                                          | 2003                             |         | 2002    |         | 2001
|                                                           |                                                                          |                                  |         |         |         |     
|                                                           |                                                                          |                                 
|                                                           |                                                                          | ($ in thousands)                
|Revenues:                                                  |                                                                          |                                  |         |         |         |      |         |         |         |   |        |        
|                                                           | Insurance premiums                                                       |                                  | $       | 290,707 |         |      | $       | 341,602 |         |   | $      | 300,690 |        
|                                                           | Product charges                                                          |                                  |         | 138,215 |         |      |         | 103,145 |         |   |        | 110,403 |        
|                                                           | Net investment income                                                    |                                  |         | 321,532 |         |      |         | 335,111 |         |   |        | 283,330 |        
|                                                           | Realized gains (losses) on closed block
    investments                  |                                  |         | 9,326   |         |      |         | (2,400  | )       |   |        | 8,720   |        
|                                                           | Other income                                                             |                                  |         | 4,224   |         |      |         | 4,026   |         |   |        | 1,947   |        
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |        |        
|                                                           |                                                                          | Total revenues                   |         |         | 764,004 |      |         |         | 781,484 |   |        |         | 705,090 | 
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |        |        
|Benefits and expenses:                                     |                                                                          |                                  |         |         |         |      |         |         |         |   |        |        
|                                                           | Policyowner benefits                                                     |                                  |         | 387,068 |         |      |         | 403,293 |         |   |        | 384,159 |        
|                                                           | Underwriting, acquisition and other expenses                             |                                  |         | 76,042  |         |      |         | 80,319  |         |   |        | 69,035  |        
|                                                           | Amortization of DAC and VOBA, net of open block
    gain/loss adjustment |                                  |         | 74,211  |         |      |         | 63,267  |         |   |        | 56,996  |        
|                                                           | Dividends to policyowners                                                |                                  |         | 98,393  |         |      |         | 104,866 |         |   |        | 98,945  |        
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |        |        
|                                                           |                                                                          | Total benefits and expenses      |         |         | 635,714 |      |         |         | 651,745 |   |        |         | 609,135 | 
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |        |        
|Pre-tax operating income  Protection
    Products segment |                                                                          | $                                | 128,290 |         |         | $    | 129,739 |         |         | $ | 95,955 |        
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |        |        

Pre-tax operating income from our protection
products decreased 1% in 2003 and increased 35% in 2002 compared
to the respective prior years. Higher product margins increased
open block operating income $3.9 million in 2003; however,
operating income of the closed block decreased $5.3 million
in 2003 compared to 2002, as the closed block continues to
reflect the declining closed block glide path (see Dividends to
Policyowners for additional information). The increase in 2002
was due to a slight growth in product margins and the
acquisition of ILICO. The key drivers of our protection products
business include sales, persistency, net investment income,
mortality and expenses.

Sales, Premiums and Product
Charges.Sales are a key driver of our
business as they are a leading indicator of future revenue
trends to emerge in segment operating income. As shown in the
Sales Activity Product table presented in Item 1
Business  Protection Products Segment, direct
sales decreased 9% in 2003 compared to 2002 and increased 74% in
2002 compared to 2001. The decrease in 2003 resulted from lower
traditional and universal life insurance product sales as we
re-priced our products and discontinued our par whole life
product. In addition, interest-sensitive whole life sales were
lower due to uncertainty in government tax policy and
regulation. Interest-sensitive whole life insurance has cash
value accumulation that changes with current interest and
mortality rates. The lower traditional and universal sales were
partially offset by increased equity-indexed life sales as we
continue to focus our marketing efforts on those products. The
increase in 2002 was primarily due to the acquisition of ILICO
during the second quarter of 2001 and growth we experienced in
almost all our protection product lines in 2002, especially in
our equity-indexed life products. The equity-indexed life
product allows the policyowner to elect an earnings strategy for
a portion of the account value whereby earnings are credited
based primarily on increases in the S&P 500 Index, excluding
dividends. The earnings credit is subject to a participation
rate and an annual cap. Sales of equity-indexed life products
were $51.6 million in 2003 as compared to
$45.8 million in 2002 and $25.9 million in 2001. We
are a leading writer of equity-indexed life products in the
United States.

We recognize premiums on traditional life
insurance policies as revenues when the premiums are due.
Amounts received as payments for universal life and
equity-indexed life insurance policies are not recorded as
premium revenue, but are instead recorded as a policyholder
liability. Revenues from the universal life and equity-indexed
life policies consist of product charges for the cost of
insurance, policy administration and

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policy surrender. All revenue is reported net of
reinsurance ceded. Insurance premium revenue was lower in 2003
compared to 2002 due to lower sales of traditional products,
additional premiums ceded and a decline in closed block in force
business. Product charge revenue was higher in 2003 compared to
2002 due to the growth in the equity-indexed life block of
business and fluctuations in reinsurance premiums. Insurance
premium revenue increased in 2002 as compared to 2001 primarily
due to the acquisition of ILICO. Product charge revenue
decreased in 2002 as compared to 2001 primarily due to a new
reinsurance arrangement on universal life products.


Persistency.Persistency is a key driver of our business as it refers to the
policies which remain in our block of business and is measured
by the lapse rate. A low lapse rate reflects higher persistency
indicating more business is remaining in force to generate
future revenues. Annualized lapse rates were 6.5% in 2003
compared to 7.3% in 2002 and 7.7% in 2001. Our persistency
experience remained within our pricing assumptions. The lapse
rate in 2001 was higher due to the completion of ILICOs
demutualization payout in July 2001. Lapses tend to decline in
anticipation of a demutualization transaction as policyholders
want to remain policyholders so they will be eligible for the
demutualization payout. Following a demutualization, lapses tend
to increase for a period before they return to a more normal
level.

Net Investment
Income.Net investment income is a key
driver of our business as it reflects earnings on our invested
assets. Net investment income decreased in 2003 and increased in
2002 compared to the respective prior years. The decrease in net
investment income in 2003 was due to low interest rates and
increased prepayments of mortgage-backed securities. The 2002
increase in net investment income was primarily attributable to
the acquisition of ILICO. The earned rate of the investment
portfolio was 6.63% in 2003 compared to 7.22% in 2002 and 7.32%
in 2001. The decrease in rates in 2003 and 2002 was primarily a
result of the lower interest rate environment.

Mortality and Benefit
Expense.Mortality is a key driver of
our business as this item reflects benefit expense. For 2003 and
2002, we experienced favorable mortality. Total benefit expense
was higher in 2002 compared to 2001 due to the acquisition of
ILICO. Total policyowner benefits for ILICO increased
$59.5 million in 2002 compared to 2001. In addition, we had
increased reinsurance recoveries in 2003 and 2002, which reduce
benefit expense, as a result of additional reinsurance
arrangements.

Underwriting, Acquisition and Other
Expenses.Underwriting, acquisition
and other expenses are a key driver of our business as they
reflect costs of our operations. Expenses decreased in 2003
compared to 2002 primarily due to increased reimbursement from
reinsurers of non-deferrable commission and expense allowances,
as more policies are subject to reinsurance, and expense changes
resulting from the restructuring activities. Expenses increased
in 2002 compared to 2001 primarily due to the acquisition of
ILICO for a full year in 2002 compared to a partial year in
2001. ILICO expenses increased $10.6 million in 2002
compared to 2001.

Amortization of DAC and
VOBA.The amortization of DAC and VOBA
are expense items which increased in 2003 and 2002 as compared
to the respective prior years. DAC and VOBA are generally
amortized in proportion to policy gross margins which increased
in 2003, resulting in higher amortization expense. Amortization
expense increased in 2002 compared to 2001 primarily due to the
acquisition of ILICO.

Dividends to
Policyowners.Dividend expense
decreased in 2003 compared to 2002 and increased in 2002
compared to 2001. Dividend expense includes increases or
decreases to the closed block policyowner dividend obligation
liability carried on the consolidated balance sheet. To the
extent cumulative actual earnings of the closed block exceed the
cumulative expected earnings based on the actuarial calculation
at the time of formation of the closed block (which we refer to
as the closed block glide path), a policyowner dividend
obligation is recorded. The higher realized gains in 2003 as
compared to losses in 2002 increased closed block earnings,
which in turn, were added to the policyowner dividend obligation
liability. Lower investment income was experienced in the closed
block in 2003 which decreased dividend expense offsetting the
increase for realized gains. In addition, the reinsurance
adjustment related to the settlement activity of the closed
block in the second quarter of 2003, caused an increase in the
dividend expense and related policyowner dividend obligation
liability for 2003. See the Reinsurance Adjustments
section for additional information.

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The increased dividends in 2002 as compared to
2001 were primarily due to the acquisition of ILICO in 2001 and
the dividends associated with its closed block.


Outlook.We expect
to continue to shift our sales to higher return products, in
particular the equity-indexed life products. We also expect to
continue to realize operating efficiencies created by the
restructuring of the protection products operations and
centralization of our administrative functions as discussed
later in Restructuring Costs.

Accumulation Products

Our accumulation products segment primary
offerings consist of individual fixed annuities and funding
agreements. The fixed annuities are marketed on a national basis
primarily through IMOs and independent brokers. Similar to our
protection products segment, we invest the premiums we receive
from accumulation product deposits in our investment portfolio
and establish a liability representing our commitment to our
policyholder. We manage product spread by seeking to maximize
the return on our invested assets consistent with our
asset/liability management and credit quality needs. When
appropriate, we periodically reset the interest rates credited
to our policyholder liability. Accumulation products reserves
totaled $11.7 billion at December 31, 2003,
$11.3 billion at December 31, 2002 and
$10.7 billion at December 31, 2001. A summary of our
accumulation products segment operations follows:

|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------------------------------ | --------------------------------------------------------- | -------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                             |                                                           |                                 
|                                                             |                                                           | For The Years Ended December 31,
|                                                             |                                                           |                                 
|                                                             |                                                           | 2003                             |         | 2002    |         | 2001
|                                                             |                                                           |                                  |         |         |         |     
|                                                             |                                                           |                                 
|                                                             |                                                           | ($ in thousands)                
|Revenues:                                                    |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             | Immediate annuity and supplementary contract
    premiums |                                  | $       | 4,114   |         |      | $       | 8,702   |         |   | $       | 5,083   |        
|                                                             | Product charges                                           |                                  |         | 43,139  |         |      |         | 41,349  |         |   |         | 35,652  |        
|                                                             | Net investment income                                     |                                  |         | 672,141 |         |      |         | 660,470 |         |   |         | 577,913 |        
|                                                             | Other income                                              |                                  |         | 11,635  |         |      |         | 11,778  |         |   |         | 8,474   |        
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             |                                                           | Total revenues                   |         |         | 731,029 |      |         |         | 722,299 |   |         |         | 627,122 | 
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|Benefits and expenses:                                       |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|Policyowner benefits                                         |                                                           |                                  | 478,256 |         |         |      | 490,401 |         |         |   | 419,132 |        
|Underwriting, acquisition and other expenses                 |                                                           |                                  | 29,423  |         |         |      | 34,040  |         |         |   | 41,401  |        
|Amortization of DAC and VOBA                                 |                                                           |                                  | 102,872 |         |         |      | 91,300  |         |         |   | 78,891  |        
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             |                                                           | Total benefits and expenses      |         |         | 610,551 |      |         |         | 615,741 |   |         |         | 539,424 | 
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|IMO Operations:                                              |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             | Other income                                              |                                  |         | 50,214  |         |      |         | 48,642  |         |   |         | 27,724  |        
|                                                             | Other expenses                                            |                                  |         | 39,802  |         |      |         | 34,545  |         |   |         | 19,510  |        
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             |                                                           | Net IMO operating income         |         |         | 10,412  |      |         |         | 14,097  |   |         |         | 8,214   | 
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|Pre-tax operating income - Accumulation Products
    segment |                                                           | $                                | 130,890 |         |         | $    | 120,655 |         |         | $ | 95,912  |        
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        

Pre-tax operating income from our accumulation
products operations increased 8% in 2003 and 26% in 2002
compared to the respective prior years. The increased volume of
equity-indexed annuities and additional income from funding
agreements increased accumulation products earnings in 2003. The
increase was partially offset by reduced product margins and
lower contributions from IMO operations. The increase in 2002
was primarily due to increased IMO operating income and the
discontinuation of goodwill amortization. The drivers of
profitability in our accumulation products business are
deposits, persistency, product spread, expenses and IMO
operations.

Deposits.Deposits
are a key driver of our business as this is a measure which
represents collected premiums to be deposited to policyowner
accounts for which we will earn a future product spread.
Deposits are presented as collected premiums, which are measured
in accordance with industry practice, and represent the

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amount of new business sold during the period.
Deposits are a non-GAAP financial measure for an insurance
company for which there is no comparable GAAP financial measure.
We use deposits to measure the productivity of our distribution
network and as a basis for compensation of sales and marketing
employees and agents. As shown in the Deposits by Product table
presented in Item 1 Business  Accumulation
Products Segment, total annuity deposits decreased 2% in
2003 compared to 2002 and decreased 9% in 2002 as compared to
2001. The 2003 decrease was primarily a result of our slowing of
our traditional annuity sales due to the low interest rate
environment as we focused sales on our higher returning
equity-indexed products. The reduced traditional annuity sales
offset the increase in equity-indexed products. The 2002
decrease resulted from the deployment of capital to funding
agreements which provide a higher return on equity.


We placed fixed rate funding agreements totaling
$875 million in 2002. Funding agreements are insurance
contracts for which we receive deposit funds and for which we
agree to repay the deposit and a contractual return for the
duration of the contract. In December 2003, a $250 million
funding agreement originally placed in 1999 was terminated.
Total funding agreements outstanding as of December 31,
2003 amounted to $875 million compared to
$1.125 billion outstanding at December 31, 2002.

The deposits we receive on accumulation products
are not recorded as revenue but instead as a policyowner
liability. Surrender charges are recorded as revenue as a
product charge. Product charges increased in 2003 as compared to
2002 due to the growth in business and increased in 2002 as
compared to 2001 due to the acquisition of ILICO.

Persistency.Persistency is a key driver of our business as it refers to the
policies which remain in our block of business and is measured
by the withdrawal rate. A low withdrawal rate reflects higher
persistency indicating more business is remaining in force to
generate future revenues. Withdrawals represent funds taken out
of accumulation products by policyowners not including those due
to the death of policyowners. Annuity withdrawal rates without
internal replacements continued to improve in 2003 as compared
to 2002 and 2001 and amounted to 9.5%, 10.6% and 11.4%,
respectively. Annuity withdrawals without internal replacements
totaled $1,196.9 million in 2003, $1,288.2 million in
2002 and $1,324.9 million in 2001.

Our withdrawal experience remained within our
pricing assumptions. Withdrawal rates declined in 2003 and 2002
as compared to the respective prior years as our annuity
products provide a favorable investment return in this current
low interest rate environment.

Product Spread.Product spread is a key driver of our business as it measures
the difference between the income earned on our invested assets
and the rate which we credit to policyowners, the difference is
reflected as segment operating income. Asset earned rates and
liability crediting rates were as follows for annuity segment
products:

|                        |                |                                  |      |      |   |      |      |      |   |  |      |      |  
|----------------------- | -------------- | -------------------------------- | ---- | ---- | - | ---- | ---- | ---- | - |  | ---- | ---- | -
|                        |                |                                 
|                        |                | For The Years Ended December 31,
|                        |                |                                 
|                        |                | 2003                             |      | 2002 |   | 2001
|                        |                |                                  |      |      |   |     
|Asset earned rate       |                |                                  | 5.91 | %    |   |      | 6.58 | %    |   |  | 7.16 | %   
|Liability credited rate |                |                                  | 3.79 | %    |   |      | 4.43 | %    |   |  | 4.85 | %   
|                        |                |                                  |      |      |   |      |      |      |   |  |      |     
|                        | Product spread |                                  |      | 2.12 | % |      |      | 2.15 | % |  |      | 2.31 | %
|                        |                |                                  |      |      |   |      |      |      |   |  |      |     

The product spread decreased three basis points
to 212 basis points in 2003 compared to 2002. The product
spread decreased 16 basis points to 215 basis points
in 2002 compared to 2001. Liability crediting rates on
traditional annuities were lowered in the fourth quarter of 2001
and throughout 2002 to correspond with the decline in investment
yields caused by lower rates on new and reinvested funds. As
described in the Traditional Annuity Products and Equity-Indexed
Annuities sections presented in Item 1
Business  Accumulation Products Segment, the
annuity products have various differentials between the credited
rate and minimum guarantee rate, including some which have no
differential, and as such cannot be lowered. Additionally, some
traditional annuities have multi-year interest rate guarantees
for which the credited rate cannot be decreased until the end of
the multi-year period. Also, equity-indexed annuities provide
guaranteed rates based on a cumulative floor over the term of
the product. Due to these limitations on the ability to lower

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interest crediting rates and the potential for
credit defaults and lower reinvestment rates on investments, we
could experience additional spread compression in future periods.


Funding agreement income increased
$5.0 million in 2003 compared to 2002 and increased
$4.1 million in 2002 compared to 2001. The increase was due
to the $875 million of funding agreements placed throughout
2002.

Underwriting, Acquisition and Other
Expenses.Underwriting, acquisition
and other expenses are a key driver of our business as they
represent costs of our operations. Expenses in 2003 decreased as
compared to 2002 due primarily to lower fees associated with a
declining block of annuity business processed by a third party
administrator. Expenses decreased in 2002 compared to 2001
primarily due to goodwill no longer being amortized effective
January 1, 2002 with the adoption of SFAS 142,
Goodwill and Other Intangible Assets. Goodwill
amortization amounted to $7.6 million in 2001.

IMO Operations.IMO
operations are a key driver of our business as the earnings from
the IMOs are a significant component of the accumulation
products segment operating income. IMOs have contractual
arrangements to promote our insurance products in their networks
of agents and brokers. Additionally, they also contract with
third party insurance companies. We own five such IMOs. The
income from IMO operations primarily represents annuity
commissions received by our IMOs from those third party
insurance companies. Net IMO operating income decreased
$3.7 million in 2003 compared to 2002 due to increased
expenses and increased $5.9 million in 2002 compared to
2001 due to our acquisition of an IMO in 2002.

Outlook.We
anticipate increased product sales from our IMOs but decreased
product sales from other distribution as we manage our sales in
this current low interest rate environment. We also expect to
continue the shift of our product mix to higher return products,
in particular the equity-indexed annuity products. We will
continue to manage our spreads as we strive for our desired
profitability in this economic environment.

Other

The other segment is our non-core lines of
business outside of protection and accumulation products. These
lines of business include holding company revenues and expenses,
operations of our real estate management subsidiary, and
accident and health insurance. The other segment pre-tax
operating loss increased in 2003 and 2002 as compared to the
respective prior years primarily due to real estate investment
and management fee income which continues to decline as we
reduce these investment holdings. In addition, the operating
gain in 2001 included investment fee income for asset management
services provided to ILICO prior to the acquisition amounting to
$2.8 million. After the acquisition of ILICO, such fees are
eliminated in consolidation.

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Income Statement Reconciliation

A reconciliation of our segment pre-tax operating
income to net income as shown in our consolidated statements of
income follows:

|                                                          |                                                                       |                                                                                                                       |                                       |         |         |         |         |         |          |         |         |        |         |         | 
|--------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | ------- | ------- | ------- | ------- | -------- | ------- | ------- | ------ | ------- | ------- | 
|                                                          |                                                                       |                                                                                                                      
|                                                          |                                                                       | For The Years Ended December 31,                                                                                     
|                                                          |                                                                       |                                                                                                                      
|                                                          |                                                                       | 2003                                                                                                                  |                                       | 2002    |         | 2001   
|                                                          |                                                                       |                                                                                                                       |                                       |         |         |        
|                                                          |                                                                       |                                                                                                                      
|                                                          |                                                                       | ($ in thousands)                                                                                                     
|Segment pre-tax operating income:                         |                                                                       |                                                                                                                       |                                       |         |         |         |         |         |          |         |         |       
|                                                          | Protection Products                                                   |                                                                                                                       | $                                     | 128,290 |         |         | $       | 129,739 |          |         | $       | 95,955 |        
|                                                          | Accumulation Products                                                 |                                                                                                                       |                                       | 130,890 |         |         |         | 120,655 |          |         |         | 95,912 |        
|                                                          | Other operations                                                      |                                                                                                                       |                                       | (7,725  | )       |         |         | (6,622  | )        |         |         | 6,138  |        
|                                                          |                                                                       |                                                                                                                       |                                       |         |         |         |         |         |          |         |         |       
|                                                          |                                                                       | Total segment pre-tax operating income                                                                                |                                       |         | 251,455 |         |         |         | 243,772  |         |         |        | 198,005 |        
|Non-segment items  increases (decreases) to
    income:  |                                                                       |                                                                                                                       |                                       |         |         |         |         |         |          |         |         |       
|                                                          | Realized and unrealized gains (losses) on assets
    and liabilities: |                                                                                                                       |                                       |         |         |         |         |         |          |         |         |        |        
|                                                          |                                                                       | Realized gains (losses) on open block investments                                                                     |                                       |         | 32,196  |         |         |         | (102,310 | )       |         |        | (39,299 | )      
|                                                          |                                                                       | Unrealized gains (losses) on open block options
    and trading investments                                           |                                       |         | 89,769  |         |         |         | (45,209  | )       |         |        | (60,050 | )      
|                                                          |                                                                       | Change in option value of equity-indexed products
    and market value adjustments on total return strategy annuities |                                       |         | (65,741 | )       |         |         | 28,759   |         |         |        | 52,747  |        
|                                                          |                                                                       | Cash flow hedge amortization                                                                                          |                                       |         | (3,827  | )       |         |         | (4,351   | )       |         |        |        |        
|                                                          |                                                                       | Amortization of DAC & VOBA due to open block
    realized gains and losses                                            |                                       |         | (16,257 | )       |         |         | 15,002   |         |         |        | 2,988   |        
|                                                          | Reinsurance adjustments                                               |                                                                                                                       |                                       | 3,854   |         |         |         |        |          |         |         |       |        
|                                                          | Demutualization costs                                                 |                                                                                                                       |                                       |        |         |         |         | (1,186  | )        |         |         | (969   | )      
|                                                          | Restructuring costs                                                   |                                                                                                                       |                                       | (23,294 | )       |         |         | (21,225 | )        |         |         | (8,566 | )      
|                                                          | Other income from non-insurance operations                            |                                                                                                                       |                                       | 1,237   |         |         |         | 1,392   |          |         |         | 532    |        
|                                                          |                                                                       |                                                                                                                       |                                       |         |         |         |         |         |          |         |         |       
|                                                          |                                                                       |                                                                                                                       | Income from continuing operations     |         |         | 269,392 |         |         |          | 114,644 |         |        |         | 145,388 | 
|Interest expense                                          |                                                                       |                                                                                                                       | (30,154                               | )       |         |         | (25,487 | )       |          |         | (26,011 | )     
|Income tax expense                                        |                                                                       |                                                                                                                       | (78,610                               | )       |         |         | (28,375 | )       |          |         | (39,522 | )     
|                                                          |                                                                       |                                                                                                                       |                                       |         |         |         |         |         |          |         |         |       
|                                                          |                                                                       |                                                                                                                       | Net income from continuing operations |         |         | 160,628 |         |         |          | 60,782  |         |        |         | 79,855  | 
|Income from discontinued operations, net of tax           |                                                                       |                                                                                                                       | 1,815                                 |         |         |         | 2,084   |         |          |         | 1,288   |       
|Cumulative effect of change in accounting, net of
    tax |                                                                       |                                                                                                                       | (1,296                                | )       |         |         |        |         |          |         | (8,236  | )     
|                                                          |                                                                       |                                                                                                                       |                                       |         |         |         |         |         |          |         |         |       
|                                                          |                                                                       |                                                                                                                       | Net income                            |         | $       | 161,147 |         |         | $        | 62,866  |         |        | $       | 72,907  | 
|                                                          |                                                                       |                                                                                                                       |                                       |         |         |         |         |         |          |         |         |       

Realized and Unrealized Gains (Losses) on
Assets and Liabilities.Realized gains
(losses) on open block investments will fluctuate from period to
period depending on the prevailing interest rate, the economic
environment, the timing of investment sales and credit events.
Realized gains on open block investments in 2003 included
$12.1 million of gains on sales of investments previously
impaired and written-down in 2002 or 2003, primarily American
Airlines, Dynegy Holdings, Intermedia Communications and
NRG Northeast Generating. Realized gains (losses) on open block
investments in 2002 consisted primarily of realized losses and
writedowns on investments related to Dynegy Holdings, Green Tree
Financial, National Century, NRG Northeast Generating, Trenwick
Group, United Airlines, US Air and WorldCom Inc. The realized
losses in 2001 consisted primarily of writedowns on investments
mainly related to telecommunications and emerging markets
investments.

Unrealized gains (losses) on open block options
and trading investments also will fluctuate from period to
period depending on prevailing interest rates, the economic
environment, the timing of investment sales and credit events.
We use options to hedge our equity-indexed products. In
accounting for derivatives, we adjusted our options to market
value, which, due to the economic environment and stock market
conditions, resulted in

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an unrealized gain of $62.9 million in 2003
and an unrealized loss of $40.0 million in 2002 and an
unrealized loss of $54.2 million in 2001. In addition, we
also have trading securities that back our total return strategy
traditional annuity products. The market value adjustment on the
trading securities resulted in an unrealized gain of
$26.8 million in 2003, a loss of $5.2 million in 2002
and a loss of $5.9 million in 2001. Most of the unrealized
gains and losses on the options and trading securities are
offset by similar adjustments to the option portion of the
equity-indexed product reserves and to the total return strategy
annuity reserves. The reserve adjustments are reflected in
policyowner benefits expense in the consolidated statements of
income and are included in the fair value change as additional
expense of $65.7 million in 2003, reduced expense of
$28.8 million in 2002 and reduced expense of
$52.7 million in 2001 as explained in the following
paragraph.


The fair value change in options embedded within
our equity-indexed products and the fair value changes on our
total return strategy traditional annuity contracts are being
recorded at fair value. As previously discussed, these fair
value changes are offset by similar adjustments to unrealized
gains (losses) on investments related to the fair value changes
on the options that hedge the equity-indexed products and on the
trading securities that back the total return strategy products.
The reduction in such contract expense is less than the decline
in investment income primarily due to the inability to lower
crediting rates below minimum guaranteed interest rates.

Reinsurance
Adjustments.Reinsurance related
adjustments in 2003 consist of the release of a
$8.2 million liability in conjunction with the settlement
and amendment of a reinsurance arrangement and a
$4.3 million true-up of pre-2003 reinsurance settlements
under a reinsurance arrangement between ILICs open block
and closed block.

Demutualization
Costs.The 2001 demutualization costs
are associated with the demutualization of ILIC, which was
completed when we acquired ILICO in May 2001. As a requirement
of ILICs demutualization, we undertook a commission-free
program under which shareholders with less than one hundred
shares could redeem those shares for cash or purchase additional
shares, commission-free, to reach a holding of at least one
hundred shares. The 2002 costs are primarily for commissions,
postage and printing under this program. Since these costs are
not ongoing, they have been excluded from our segment results.

Restructuring Costs.Restructuring costs relate to our consolidation of various
functions in connection with a restructuring of our protection
products and accumulation products operations and investment
activities which began in the third quarter of 2001. The
objective of the restructuring plan was to eliminate duplicative
functions for all business units and to reduce on-going
operating costs. Corporate administrative functions were
transitioned so they are performed primarily in Des
Moines, Iowa. Protection products administration processes
were transitioned so they are performed in Des Moines; Woodbury,
New York; or outsourced. Accumulation products functions
were transitioned to Topeka, Kansas. Investment activities were
restructured to eliminate certain real estate management
services which have been outsourced.

We listed an office building located in
Indianapolis, Indiana, with a real estate broker in 2003,
and we vacated the location as a result of staff reductions. In
addition, those employees who are going to work in Indianapolis
moved to a new location. We determined that the plan of sale
criteria in SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, had been met.
Accordingly, the carrying value of the building was adjusted to
its fair value less costs to sell, amounting to
$15.5 million, which was based upon comparable properties
recently marketed in Indianapolis. The resulting
$7.7 million pre-tax impairment loss was recorded as
restructuring costs in the consolidated statement of income in
2003. The carrying value of the building that is held for sale
is included in the other assets line item of the consolidated
balance sheet.

During 2003, we initiated and executed a
restructuring plan to merge one of our subsidiaries, IL
Annuity, into its parent, ILIC. The merger was effective
June 30, 2003, and total restructuring costs associated
with this plan amounted to $2.5 million pre-tax, which
primarily consisted of legal, accounting, and printing costs and
the write-off of $2.2 million of insurance licenses.

The restructuring charges expensed in 2003
included pre-tax severance and termination benefits of
$3.0 million related to the termination of approximately
ten positions and for severance accrual adjustments and other
pre-tax costs of $20.3 million primarily related to the
impairment loss on the Indianapolis office

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building, expenses associated with the merger of
IL Annuity into ILIC, and systems conversion costs. The
restructuring charges expensed in 2002 included pre-tax
severance and termination benefits of $9.5 million related
to the elimination of approximately 240 positions and other
pre-tax costs of $11.7 million primarily related to systems
conversion and relocation of employees. The restructuring
charges expensed in 2001 included pre-tax severance and
termination benefits of $6.8 million related to the
elimination of approximately 80 positions and other pre-tax
costs of $1.8 million. An accrual for severance and
termination benefits not yet paid amounted to $4.0 million
at December 31, 2003. Charges for all restructuring
activities were completed in 2003.


Interest Expense.Interest expense increased in 2003 as compared to 2002 and 2001.
The increase was primarily due to interest associated with the
PRIDES securities of $143.8 million issued in the second
quarter of 2003.

Discontinued
Operations.In November 2003, we
entered into an agreement to sell our residential financing
operations. The results of the residential financing operations
have been classified as discontinued operations. The sale was
completed in January 2004, resulting in an after-tax gain of
approximately $3.9 million to be recognized in 2004.

Change in
Accounting.The Financial Accounting
Standards Boards Derivatives Implementation Group issued
SFAS 133 Implementation Issue No. B36, Embedded
Derivatives: Bifurcation of a Debt Instrument that Incorporates
both Interest Rate Risk and Credit Risk Exposures that are
Unrelated or Only Partially Related to the Creditworthiness of
the Issuer of that Instrument, or DIG Issue B36. DIG Issue
B36 applies to modified coinsurance and coinsurance with funds
withheld arrangements where interest is determined by reference
to a pool of fixed maturity assets or a total return debt index.
DIG Issue B36 considers the reinsurers receivable from the
ceding company to contain an embedded derivative that must be
bifurcated and accounted for separately under SFAS 133. We
adopted DIG Issue B36 on October 1, 2003, which included
the reclassification of certain securities supporting the
products being reinsured from available-for-sale to held for
trading. The net cumulative effect of the change in accounting
for DIG Issue B36 after income taxes was an expense of
$1.3 million in 2003.

We adopted SFAS 133 on January 1, 2001.
In accordance with the provisions of the statement, we recorded
the differences between the previous carrying amounts of our
derivative instruments and the fair value of our derivative
instruments, as of this initial application date, as the effect
of a change in accounting principle. The gross difference
between carrying amounts and fair value amounts of our
derivative instruments was a reduction of approximately
$11.3 million. The adjustment to the DAC and VOBA
amortization related to the impact from the derivative charge
was an expense of approximately $1.1 million and the income
tax benefit was $4.2 million, resulting in the net
cumulative effect of change in accounting for derivatives
expense of $8.2 million in 2001.

Liquidity and Capital Resources

AmerUs Group Co.

As a holding company, AmerUs Group Co.s
cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest from income on
loans and advances to subsidiaries (including a surplus note
issued to us by ALIC), investment income on our assets and fees
which we charge our subsidiaries, offset by the expenses
incurred for debt service, salaries and other expenses.

We intend to rely primarily on dividends and
interest income from our insurance subsidiaries in order to make
dividend payments to our shareholders. The payment of dividends
by our insurance subsidiaries is regulated under various state
laws. Generally, under the various state statutes, our insurance
subsidiaries dividends may be paid only from the earned
surplus arising from their respective businesses and must
receive the prior approval of the respective state regulator to
pay any dividend that would exceed certain statutory
limitations. The current statutes generally limit any dividend,
together with dividends paid out within the preceding
12 months, to the greater of (i) 10% of the respective
companys policyowners statutory surplus as of the
preceding year end or (ii) the statutory net gain from
operations for the previous calendar year.

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Generally, the various state laws give the state
regulators discretion to approve or disapprove requests for
dividends in excess of these limits. Based on these limitations
and 2002 results, our life insurance subsidiaries could have
paid us approximately $82 million in dividends in 2003
without obtaining regulatory approval. Our subsidiaries paid us
approximately $85 million in 2003 that included dividends
for which we obtained regulatory approval. Based on 2003
results, our subsidiaries can pay an estimated $78 million
in dividends without obtaining regulatory approval during 2004.
We also consider risk-based capital levels, capital and
liquidity operating needs, and other factors prior to paying
dividends from the insurance subsidiaries.


We generated cash flows from operating activities
of $394.9 million, $920.1 million and
$97.1 million for the years ended December 31, 2003,
2002, and 2001, respectively. Operating cash flows were
primarily used to increase our investment portfolio.

We have a $200 million revolving credit
facility with a syndicate of lenders (which we refer to as the
Revolving Credit Agreement). As of December 31, 2003, there
was a $27.0 million outstanding loan balance under the
facility. The Revolving Credit Agreement provides for typical
events of default and covenants with respect to the conduct of
business and requires the maintenance of various financial
levels and ratios. Among other covenants, we (a) cannot
have a leverage ratio greater than 0.35:1.0, (b) cannot
have an interest coverage ratio less than 2.50:1.0, (c) are
prohibited from paying cash dividends on common stock in excess
of an amount equal to 3% of consolidated net worth as of the
last day of the preceding fiscal year, (d) must cause our
insurance subsidiaries to maintain certain levels of risk-based
capital, and (e) are prohibited from incurring additional
indebtedness for borrowed money in excess of certain limits
typical for such lines of credit. We closely monitor all of
these covenants to ensure continued compliance.

On May 28, 2003, we issued $125 million
of PRIDES securities. On June 5, 2003, the underwriters
exercised their over-allotment option in full and the Company
issued an additional $18.8 million of PRIDES. On
March 6, 2002, we issued and sold in a private placement
$185 million aggregate original principal amount of OCEANs.
The issuance of PRIDES and OCEANs were previously discussed in
Item 5  Market for Registrants
Common Equity and Related Stockholder Matters, which
portions are incorporated herein by reference.

The Company has several options for deploying
excess capital, including supporting higher sales growth,
reducing debt levels, pursuing acquisitions and buying back
common stock. We may resume purchasing shares of our common
stock pursuant to the repurchase program previously approved by
the Companys Board of Directors. Our Board of Directors
approved a stock purchase program effective August 9, 2002,
under which we may purchase up to three million shares of our
common stock at such times and under such conditions, as we deem
advisable. The purchases may be made in the open market or by
such other means as we determine to be appropriate, including
privately negotiated purchases. The purchase program supercedes
all prior purchase programs. We plan to fund the purchase
program from a combination of our internal sources, dividends
from insurance subsidiaries and the Revolving Credit Agreement.
Approximately 2.3 million shares remain available for
repurchase under this program. There were no significant shares
purchased in 2003.

We manage liquidity on a continuing basis. One
way is to minimize our need for capital. We accomplish this by
attempting to use our capital as efficiently as possible and by
developing capital-efficient products in our insurance
subsidiaries. We manage our mix of sales by focusing on the more
capital-efficient products. In addition, we use reinsurance
agreements, where cost-effective, to reduce capital strain in
the insurance subsidiaries. We also focus on optimizing the
consolidated capital structure to properly balance the levels
and sources of borrowing and the issuance of equity securities.

Insurance Subsidiaries

The cash flows of our insurance subsidiaries
consist primarily of premium income; deposits to policyowner
account balances; income from investments; sales, maturities and
calls of investments and repayments of investment principal.
Cash outflows are primarily related to withdrawals of
policyowner account balances, investment purchases, payment of
policy acquisition costs, payment of policyowner benefits,
payment of debt, income taxes and current operating expenses.
Insurance companies generally produce a positive cash flow from
operations, as measured by the amount by which cash flows are
adequate to meet

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benefit obligations to policyowners and normal
operating expenses as they are incurred. The remaining cash flow
is generally used to increase the asset base to provide funds to
meet the need for future policy benefit payments and for writing
new business.


Management believes that the current level of
cash and available-for-sale, held for trading and short-term
securities, combined with expected net cash inflows from
operations, maturities of fixed maturity investments, principal
payments on mortgage-backed securities and sales of its
insurance products, will be adequate to meet the anticipated
short-term cash obligations of the insurance subsidiaries.

Matching the investment portfolio maturities to
the cash flow demands of the type of insurance being provided is
an important consideration for each type of protection product
and accumulation product. We continuously monitor benefits and
surrenders to provide projections of future cash requirements.
As part of this monitoring process, we perform cash flow testing
of assets and liabilities under various scenarios to evaluate
the adequacy of reserves. In developing our investment strategy,
we establish a level of cash and securities which, combined with
expected net cash inflows from operations and maturities and
principal payments on fixed maturity investment securities, are
believed adequate to meet anticipated short-term and long-term
benefit and expense payment obligations. There can be no
assurance that future experience regarding benefits and
surrenders will be similar to historic experience since
withdrawal and surrender levels are influenced by such factors
as the interest rate environment and general economic conditions
and the claims-paying and financial strength ratings of the
insurance subsidiaries.

We take into account asset/liability management
considerations in the product development and design process.
Contract terms for the interest-sensitive products include
surrender and withdrawal provisions which mitigate the risk of
losses due to early withdrawals. These provisions generally do
one or more of the following: limit the amount of penalty-free
withdrawals, limit the circumstances under which withdrawals are
permitted, or assess a surrender charge or market value
adjustment relating to the underlying assets.

In addition to the interest-sensitive products,
our insurance subsidiaries placed additional funding agreements
totaling $875 million primarily in six to ten year fixed
rate insurance contracts during 2002. The assets backing the
funding agreements are legally segregated and are not subject to
claims that arise out of any other business of the insurance
subsidiaries. The funding agreements are further backed by the
general account assets of the insurance subsidiaries. The
segregated assets and liabilities are included with general
account assets in the financial statements. The funding
agreements may not be cancelled unless there is a default under
the agreement, but the insurance subsidiaries may terminate the
agreement at any time. During 2003, a $250 million funding
agreement which was placed in 1999 was terminated. Total funding
agreements of $875 million were outstanding as of
December 31, 2003.

We also have variable separate account assets and
liabilities representing funds that are separately administered,
principally for variable annuity contracts, and for which the
contractholder bears the investment risk. Separate account
assets and liabilities are reported at fair value and amounted
to $261.7 million at December 31, 2003. Separate
account contractholders have no claim against the assets of the
general account. The operations of the separate accounts are not
included in the accompanying consolidated financial statements.

Through their respective memberships in the
Federal Home Loan Banks (FHLB) of Des Moines and Topeka,
ALIC and American are eligible to borrow under variable-rate
short term fed funds arrangements to provide additional
liquidity. These borrowings are secured and interest is payable
at the current rate at the time of each advance. There were
borrowings totaling $23.6 million outstanding under these
arrangements at December 31, 2003. In addition, ALIC has
long-term fixed rate advances from the FHLB outstanding of
$13.3 million at December 31, 2003.

The insurance subsidiaries may also obtain
liquidity through sales of investments. The investment portfolio
as of December 31, 2003, had a carrying value of
$17.9 billion, including closed block investments.

The level of capital in the insurance companies
is regulated by risk-based capital formulas and is monitored by
rating agencies. In order to maintain appropriate capital
levels, it may be necessary from time to time for AmerUs Group
Co. to provide additional capital to the insurance companies.

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At December 31, 2003, the statutory capital
and surplus of the insurance subsidiaries was approximately
$828 million. Management believes that each insurance
company has statutory capital which provides adequate risk based
capital that exceeds required levels.

In the future, in addition to cash flows from
operations and borrowing capacity, the insurance subsidiaries
may obtain their required capital from AmerUs Group Co.

Off-Balance Sheet Arrangements

Guarantee Obligations

We have an agreement with Bank One, N.A. whereby
we guarantee the payment of loans made to certain managers and
executives for the purpose of purchasing common stock and ACES
pursuant to the stock purchase program. Our liability in respect
of the principal amount of loans is limited to $3.3 million
which was repaid in March 2004 by the participants. We have also
guaranteed interest and all other fees and obligations owing on
the loans. Each participant in the program has agreed to repay
any amounts paid by us under the guarantee in accordance with a
reimbursement agreement with the participant. This agreement was
entered into in 1999, prior to the restrictions imposed by the
Sarbanes-Oxley Act regarding loans with executive officers.

Certain partnership investments provide for
commitments of future capital, loans or guarantees. We have
obligations to make future capital contributions to various
partnerships of up to $1.3 million at December 31,
2003. In addition, at December 31, 2003, we had loan
guarantees which totaled $1.3 million. ALIC and its joint
venture partner are contingently liable in the event AVLIC
cannot meet its obligations. At December 31, 2003, AVLIC
had statutory assets of $2,379 million, liabilities of
$2,282 million and surplus of $97 million.

We are contingently liable for the portion of the
policies reinsured under existing reinsurance agreements in the
event the reinsurance companies are unable to pay their portion
of any reinsured claim. Management believes that any liability
from this contingency is unlikely. However, to limit the
possibility of such losses, we evaluate the financial condition
of reinsurers and monitor concentration of credit risk.

Summary of Contractual Obligations and
Commitments

Our contractual obligations primarily consist of
amounts owed for notes payable and operating lease commitments.
See note 8 to the consolidated financial statements for
further discussion about the notes payable and note 12 for
additional information regarding leases. Maturities of notes
payable and lease obligations are as follows for each of the
five years ending December 31, 2003:

|                     |       |                        |         |         |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |         |         |  |   |         |         | 
|-------------------- | ----- | ---------------------- | ------- | ------- |  | ---- | ------ | ------ |  | ---- | ------- | ------- |  | ---------- | ----- | ----- |  | - | ------ | ------ |  | - | ------- | ------- |  | - | ------- | ------- | 
|                     |       |                       
|                     |       | Payments due by period
|                     |       |                       
|Obligation           |       | Total                  |         | 2004    |  | 2005 |        | 2006   |  | 2007 |         | 2008    |  | Thereafter
|                     |       |                        |         |         |  |      |        |        |  |      |         |         |  |           
|                     |       |                       
|                     |       | ($ in thousands)      
|Notes payable        |       | $                      | 596,101 |         |  | $    | 24,103 |        |  | $    | 125,606 |         |  | $          | 647   |       |  | $ | 27,690 |        |  | $ | 144,487 |         |  | $ | 273,568 |        
|Operating leases     |       |                        | 18,663  |         |  |      | 6,131  |        |  |      | 5,596   |         |  |            | 3,029 |       |  |   | 2,465  |        |  |   | 872     |         |  |   | 570     |        
|Capital leases       |       |                        |        |         |  |      |       |        |  |      |        |         |  |            |      |       |  |   |       |        |  |   |        |         |  |   |        |        
|Purchase obligations |       |                        |        |         |  |      |       |        |  |      |        |         |  |            |      |       |  |   |       |        |  |   |        |         |  |   |        |        
|Other liabilities    |       |                        |        |         |  |      |       |        |  |      |        |         |  |            |      |       |  |   |       |        |  |   |        |         |  |   |        |        
|                     |       |                        |         |         |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |         |         |  |   |         |        
|                     | Total |                        | $       | 614,764 |  |      | $      | 30,234 |  |      | $       | 131,202 |  |            | $     | 3,676 |  |   | $      | 30,155 |  |   | $       | 145,359 |  |   | $       | 274,138 | 
|                     |       |                        |         |         |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |         |         |  |   |         |        

Critical Accounting Policies

The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities.
The valuation of financial instruments, accounting for
derivatives and amortization of DAC and VOBA are considered our
critical accounting policies due to their subjective nature and
significance to the financial statements.

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Valuation of Financial
Instruments

A significant portion of our assets are carried
at fair value, primarily securities available-for-sale,
securities held for trading purposes and derivative financial
instruments. Market values are based on quoted market prices
where available.

Securities in our portfolio with a carrying value
of approximately $1,605 million and $1,625 million at
December 31, 2003 and 2002, respectively, do not have
readily determinable market prices. Valuation techniques vary by
security type and availability of market data. Fair values for
securities which do not have a readily available market price
are determined by: 1) a matrix process that uses a current
market spread added to an applicable treasury rate to discount
expected future cash flows applicable to the coupon rate, credit
quality, industry sector and term of the investment;
2) independent third party sources or recent transactions
in similar securities, or 3) internally prepared valuations
incorporating standard valuation techniques. Certain market
conditions that could impact the valuation of securities include
credit ratings, business climate, economic environment, industry
trends, and regulatory and legal risks/events, among others. All
such investments are classified as available-for-sale. Our
ability to liquidate our positions in these securities will be
impacted to a significant degree by the lack of an actively
traded market, and we may not be able to dispose of these
investments in a timely manner. Although we believe our
estimates reasonably reflect the fair value of those securities,
our key assumptions about the risk-free interest rates, risk
premiums, performance of underlying collateral (if any), and
other factors may not be realized in the event of an actual sale.

Securities are also reviewed to identify
potential impairments. In determining if and when a decline in
market value below amortized cost is other-than-temporary, we
evaluate the market conditions, offering prices, trends of
earnings, price multiples and other key measures for our
investments in marketable equity securities and debt
instruments. For fixed maturity securities, our intent and
ability to hold securities is also considered. When such a
decline in value is deemed to be other-than-temporary, we
recognize an impairment loss in the current period net income to
the extent of the decline. For additional information regarding
our evaluation of OTTI, see the section titled
Investments  Impairment.

Investments in mortgage loans, real estate,
policy loans and other investments are monitored for possible
impairment. If it is determined that collection of all amounts
due under the contractual terms is doubtful or carrying values
exceed the fair value of underlying collateral, such investments
are considered impaired and the asset carrying value is adjusted
or a valuation allowance is established.

Accounting for Derivatives

We hold derivative financial instruments to hedge
growth in policyowner liabilities for certain protection and
accumulation products and to hedge market risk for fixed income
investments. These derivatives qualify for hedge accounting or
are considered economic hedges as discussed in detail in
note 4 to our consolidated financial statements.

Hedge accounting results when we designate and
document the hedging relationships involving derivative
instruments. Economic hedging instruments are those instruments
whose change in fair value acts as a natural hedge against the
change in fair value of hedged assets or liabilities with both
changes wholly or partially being offset in earnings.

To hedge equity market risk, we primarily use
S&P 500 Index call options to hedge the growth in interest
credited to the customer as provided by our equity-indexed
products. We may also use interest rate swaps or options to
manage our fixed products risk profile. Generally, credit
default swaps are coupled with a bond to synthetically create an
instrument cheaper than an equivalent investment traded in the
cash market.

We have not changed our methods of calculating
the fair values of derivatives or the underlying assumptions.
The fair values of these derivatives will change over time as
cash receipts and payments are made and as market conditions
change.

Our derivative instruments are not subject to a
multiple or use of leverage on the underlying price index. We do
not believe we are exposed to more than a nominal amount of
credit risk in our interest rate or equity

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hedges as the counterparties are established,
well-capitalized financial institutions. Information about the
fair values, notional amounts, and contractual terms of these
instruments can be found in note 4 to our consolidated
financial statements and the section titled Quantitative
and Qualitative Disclosures About Market Risk.


Amortization of DAC and VOBA

We generally amortize DAC based on a percentage
of our expected gross margins (EGMs) over the life of the
policies. Our estimated EGMs are computed based on assumptions
related to the underlying policies written, including the lives
of the underlying policies, growth rate of the assets supporting
the liabilities, and level of expenses necessary to maintain the
policies over their entire life. We amortize DAC by estimating
the present value of the EGMs over the lives of the insurance
policies and then calculate a percentage of the policy
acquisition cost deferred as compared to the present value of
the EGMs. That percentage is used to amortize the DAC such that
the amount amortized over the life of the policies results in a
constant percentage of amortization when related to the actual
and future gross margins.

Because the EGMs are only an estimate of the
profits we expect to recognize from these policies, the EGMs are
adjusted annually to take into consideration the actual gross
profits to date and any changes in the remaining expected future
gross margins. When EGMs are adjusted, we also adjust the
amortization of the deferred policy acquisition costs amount to
maintain a constant percentage over the entire life of the
policies.

We amortize the VOBA based on the incidence of
the EGMs from insurance contracts using the interest rate
credited to the underlying policies. The EGMs are based on
actuarially determined projections of future premium receipts,
mortality, surrenders, operating expenses, changes in insurance
liabilities, investment yields on the assets retained to support
the policy liabilities and other factors. These projections take
into account all factors known or expected by management. The
actual gross margins may vary from expected levels due to
differences in renewal premium, investment spread, investment
gains or losses, mortality and morbidity costs and other factors.

Investment Portfolio

General

We maintain a diversified portfolio of
investments which is supervised by an experienced in-house staff
of investment professionals. Sophisticated asset/liability
management techniques are employed in order to achieve
competitive yields, while maintaining risk at acceptable levels.
The asset portfolio is segmented by liability type, with
tailored investment strategies for specific product lines.
Investment policies and significant individual investments are
subject to approval by the Board of Directors and are overseen
by the Investment and Risk Management Committee of our Board of
Directors. Management regularly monitors individual assets and
asset groups, in addition to monitoring the overall asset mix.
In addition, the Investment and Risk Management Committee review
investment guidelines and monitor internal controls.

Investment Strategy

Our investment philosophy is to employ an
integrated asset/liability management approach with separate
investment portfolios for specific product lines, such as
traditional life, universal life, equity-indexed life,
traditional annuities, equity-indexed annuities, variable
annuities and funding agreements to generate attractive
risk-adjusted returns on capital. Essential to this philosophy
is coordinating investments in the investment portfolio with
product strategies, focusing on risk-adjusted returns and
identifying and evaluating associated business risks.

Investment strategies have been established based
on the specific characteristics of each product line. The
portfolio investment strategies establish asset duration,
quality and other guidelines. Analytical systems are utilized to
establish an optimal asset mix for each line of business. We
seek to manage the asset/liability mismatch and the associated
interest rate risk through active management of the investment
portfolio. Financial, actuarial, investment, product development
and product marketing professionals work together

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throughout the product development, introduction
and management phases to jointly develop and implement product
features, initial and renewal crediting strategies, and
investment strategies based on extensive modeling of a variety
of factors under a number of interest rate scenarios.


Invested Assets

Our diversified portfolio of investments includes
public and private fixed maturity securities and commercial
mortgage loans. Our objective is to maintain a high-quality,
diversified fixed maturity securities portfolio that produces a
yield and total return that supports the various product line
liabilities and our earnings goals.

The following table summarizes invested assets by
asset category as of December 31, 2003 and 2002:

|                          |         |                 |          |          |          |          |       |       |      |   |          |          |          |  |       |      |      |  
|------------------------- | ------- | --------------- | -------- | -------- | -------- | -------- | ----- | ----- | ---- | - | -------- | -------- | -------- |  | ----- | ---- | ---- | -
|                          |         |                
|                          |         | Invested Assets
|                          |         | December 31,   
|                          |         |                
|                          |         |                 |          |         
|                          |         | 2003            |          | 2002    
|                          |         |                 |          |         
|                          |         |                 |          |         
|                          |         | ($ in millions) |          |         
|                          |         | Carrying        |          | % of     |          | Carrying |       | % of 
|                          |         | Value           |          | Total    |          | Value    |       | Total
|                          |         |                 |          |          |          |          |       |      
|Fixed maturity securities |         |                 |          |          |          |          |       |       |      |   |          |          |          |  |       |     
|                          | Public  |                 | $        | 14,094.2 |          |          |       | 78.6  | %    |   | $        | 13,573.6 |          |  |       | 80.2 | %   
|                          | Private |                 |          | 1,940.3  |          |          |       | 10.8  | %    |   |          | 1,599.2  |          |  |       | 9.4  | %   
|                          |         |                 |          |          |          |          |       |       |      |   |          |          |          |  |       |     
|                          |         | Subtotal        |          |          | 16,034.5 |          |       |       | 89.4 | % |          |          | 15,172.8 |  |       |      | 89.6 | %
|Equity securities         |         |                 | 76.5     |          |          |          | 0.4   | %     |      |   | 63.3     |          |          |  | 0.4   | %   
|Mortgage loans            |         |                 | 968.6    |          |          |          | 5.4   | %     |      |   | 883.0    |          |          |  | 5.2   | %   
|Policy loans              |         |                 | 494.6    |          |          |          | 2.7   | %     |      |   | 496.8    |          |          |  | 2.9   | %   
|Real estate               |         |                 |         |          |          |          |      |       |      |   | 0.5      |          |          |  |      |     
|Other investments         |         |                 | 339.5    |          |          |          | 1.9   | %     |      |   | 283.8    |          |          |  | 1.7   | %   
|Short-term investments    |         |                 | 29.1     |          |          |          | 0.2   | %     |      |   | 32.3     |          |          |  | 0.2   | %   
|                          |         |                 |          |          |          |          |       |       |      |   |          |          |          |  |       |     
|Total invested assets     |         | $               | 17,942.8 |          |          |          | 100.0 | %     |      | $ | 16,932.5 |          |          |  | 100.0 | %   
|                          |         |                 |          |          |          |          |       |       |      |   |          |          |          |  |       |     

Fixed Maturity Securities

The fixed maturity securities portfolio consists
primarily of investment grade corporate fixed maturity
securities, high-quality mortgage-backed securities (or MBS) and
United States government and agency obligations. As of
December 31, 2003, fixed maturity securities were
$16,034.5 million, or 89.4% of the carrying value of
invested assets with public and private fixed maturity
securities constituting $14,094.2 million, or 87.9%, and
$1,940.3 million, or 12.1%, respectively, of total fixed
maturity securities, respectively.

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The following table summarizes the composition of
the fixed maturity securities by category as of
December 31, 2003 and 2002:

|                                 |                          |                                          |          |          |  |          |      |          |   |   |         |          |  |  |      |       |  
|-------------------------------- | ------------------------ | ---------------------------------------- | -------- | -------- |  | -------- | ---- | -------- | - | - | ------- | -------- |  |  | ---- | ----- | -
|                                 |                          |                                         
|                                 |                          | Composition of Fixed Maturity Securities
|                                 |                          | December 31,                            
|                                 |                          |                                         
|                                 |                          |                                          |          |         
|                                 |                          | 2003                                     |          | 2002    
|                                 |                          |                                          |          |         
|                                 |                          | Carrying                                 |          | %        |  | Carrying |      | %       
|                                 |                          | Value                                    |          | of Total |  | Value    |      | of Total
|                                 |                          |                                          |          |          |  |          |      |         
|                                 |                          |                                         
|                                 |                          | ($ in millions)                         
|U.S. government/agencies         |                          | $                                        | 816.8    |          |  |          | 5.1  | %        |   | $ | 973.0   |          |  |  | 6.4  | %    
|State and political subdivisions |                          |                                          | 67.1     |          |  |          | 0.4  | %        |   |   | 50.0    |          |  |  | 0.3  | %    
|Foreign government bonds         |                          |                                          | 128.5    |          |  |          | 0.8  | %        |   |   | 246.9   |          |  |  | 1.6  | %    
|Corporate bonds                  |                          |                                          | 10,994.3 |          |  |          | 68.5 | %        |   |   | 9,931.6 |          |  |  | 65.5 | %    
|Redeemable preferred stocks      |                          |                                          | 173.7    |          |  |          | 1.1  | %        |   |   | 120.1   |          |  |  | 0.8  | %    
|Indexed debt instruments         |                          |                                          | 396.1    |          |  |          | 2.5  | %        |   |   |        |          |  |  |     |      
|Asset-backed bonds               |                          |                                          | 470.2    |          |  |          | 2.9  | %        |   |   | 777.6   |          |  |  | 5.1  | %    
|CMBS                             |                          |                                          | 973.0    |          |  |          | 6.1  | %        |   |   | 682.3   |          |  |  | 4.5  | %    
|MBS                              |                          |                                          |          |          |  |          |      |          |   |   |         |          |  |  |      |      
|                                 | U.S. government/agencies |                                          |          | 1,909.2  |  |          |      | 11.9     | % |   |         | 2,118.9  |  |  |      | 14.0  | %
|                                 | Non-government/agencies  |                                          |          | 105.6    |  |          |      | 0.7      | % |   |         | 272.4    |  |  |      | 1.8   | %
|                                 |                          |                                          |          |          |  |          |      |          |   |   |         |          |  |  |      |      
|                                 | Subtotal-MBS             |                                          |          | 2,014.8  |  |          |      | 12.6     | % |   |         | 2,391.3  |  |  |      | 15.8  | %
|                                 |                          |                                          |          |          |  |          |      |          |   |   |         |          |  |  |      |      
|                                 | Total                    |                                          | $        | 16,034.5 |  |          |      | 100.0    | % |   | $       | 15,172.8 |  |  |      | 100.0 | %
|                                 |                          |                                          |          |          |  |          |      |          |   |   |         |          |  |  |      |      

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The following table summarizes fixed maturity
securities by remaining maturity as of December 31, 2003:

Remaining Maturity of Fixed Maturity
Securities

|                   |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |      |       |  
|------------------ | ------------------------------ | -------- | - | --------------- | -------- | ---------- |  | -------- | ----- | - | - | ---- | ----- |  |  | ---- | ----- | -
|                   |                                | Carrying |   | %               |          | Unrealized |  | %       
|                   |                                | Value    |   | of Total        |          | Loss       |  | of Total
|                   |                                |          |   |                 |          |            |  |         
|                   |                                |          |   |                 |          |           
|                   |                                |          |   | ($ in millions) |          |           
|Available-for-Sale |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     
|Due:               |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     
|                   | In one year or less (2004)     |          | $ | 375.4           |          |            |  | 2.7      | %     |   | $ | 0.6  |       |  |  | 0.5  | %    
|                   | One to five years (2005-2009)  |          |   | 3,637.0         |          |            |  | 26.1     | %     |   |   | 4.5  |       |  |  | 3.8  | %    
|                   | Five to 10 years (2010-2014)   |          |   | 4,824.3         |          |            |  | 34.6     | %     |   |   | 34.1 |       |  |  | 28.7 | %    
|                   | 10 to 20 years (2015-2024)     |          |   | 1,636.0         |          |            |  | 11.7     | %     |   |   | 60.1 |       |  |  | 50.7 | %    
|                   | Over 20 years (2025 and after) |          |   | 1,616.8         |          |            |  | 11.6     | %     |   |   | 11.4 |       |  |  | 9.6  | %    
|                   |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     
|                   |                                | Subtotal |   |                 | 12,089.5 |            |  |          | 86.7  | % |   |      | 110.7 |  |  |      | 93.3  | %
|                   | MBS                            |          |   | 1,855.5         |          |            |  | 13.3     | %     |   |   | 8.0  |       |  |  | 6.7  | %    
|                   |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     
|                   |                                | Total    |   | $               | 13,945.0 |            |  |          | 100.0 | % |   | $    | 118.7 |  |  |      | 100.0 | %
|                   |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     
|Held-for-Trading   |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     
|Due:               |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     
|                   | In one year or less (2004)     |          | $ | 46.3            |          |            |  | 2.2      | %     |   |   |      |       |  |  |      |      
|                   | One to five years (2005-2009)  |          |   | 453.4           |          |            |  | 21.7     | %     |   |   |      |       |  |  |      |      
|                   | Five to 10 years (2010-2014)   |          |   | 354.9           |          |            |  | 17.0     | %     |   |   |      |       |  |  |      |      
|                   | 10 to 20 years (2015-2024)     |          |   | 625.2           |          |            |  | 29.9     | %     |   |   |      |       |  |  |      |      
|                   | Over 20 years (2025 and after) |          |   | 450.5           |          |            |  | 21.6     | %     |   |   |      |       |  |  |      |      
|                   |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     
|                   |                                | Subtotal |   |                 | 1,930.3  |            |  |          | 92.4  | % |   |      |       |  |  |      |       |  
|                   | MBS                            |          |   | 159.2           |          |            |  | 7.6      | %     |   |   |      |       |  |  |      |      
|                   |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     
|                   |                                | Total    |   | $               | 2,089.5  |            |  |          | 100.0 | % |   |      |       |  |  |      |       |  
|                   |                                |          |   |                 |          |            |  |          |       |   |   |      |       |  |  |     

The portfolio of investment grade fixed maturity
securities is diversified by number and type of issuer. As of
December 31, 2003, investment grade fixed maturity
securities included the securities of 878 issuers, with 2,648
different issues of securities. No non-government/agency issuer
represents more than 1% of investment grade fixed maturity
securities.

Below-investment grade fixed maturity securities
as of December 31, 2003, included the securities of 280
issuers representing 6.9% of total invested assets, with the
largest being a $30.5 million investment.

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As of December 31, 2003, 82.4% of total
invested assets were investment grade fixed maturity securities.
The following table sets forth the credit quality, by NAIC
designation and Standard & Poors rating
equivalents, of fixed maturity securities as of
December 31, 2003:

Fixed Maturity Securities By NAIC
Designation

|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |       |   |  |   |          |   |  |   |         |   |  |  |      |  
|---------------------------- | ----- | ---------------------------------------- | -------- | --------------- |  | ------- | ------- | -------- |  | ----- | ------- | -------- |  | ----- | ----- | - |  | - | -------- | - |  | - | ------- | - |  |  | ---- | -
|                             |       |                                          |          |                 |  |         |         |         
|                             |       |                                          |          | Public          |  | Private |         | Total   
|                             |       |                                          |          |                 |  |         |         |         
|NAIC                         |       |                                          |          | Carrying        |  | % of    |         | Carrying |  | % of  |         | Carrying |  | % of 
|Designation                  |       | Standard & Poors Equivalent Designation |          | Value           |  | Total   |         | Value    |  | Total |         | Value    |  | Total
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |      
|                             |       |                                          |          |                 |  |        
|                             |       |                                          |          | ($ in millions) |  |        
|                             | 1     |                                          |          | A- or higher    |  | $       | 8,947.2 |          |  |       | 63.5    | %        |  | $     | 975.6 |   |  |   | 50.3     | % |  | $ | 9,922.8 |   |  |  | 61.9 | %
|                             | 2     |                                          |          | BBB- to BBB+    |  |         | 4,015.4 |          |  |       | 28.5    | %        |  |       | 852.3 |   |  |   | 43.9     | % |  | $ | 4,867.7 |   |  |  | 30.3 | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |       |   |  |   |          |   |  |   |         |   |  |  |      |  
|Total investment grade       |       |                                          | 12,962.6 |                 |  |         | 92.0    | %        |  |       | 1,827.9 |          |  |       | 94.2  | % |  | $ | 14,790.5 |   |  |   | 92.2    | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |       |   |  |   |          |   |  |   |         |   |  |  |      |  
|                             | 3     |                                          |          | BB to BB+       |  |         | 737.2   |          |  |       | 5.2     | %        |  |       | 64.0  |   |  |   | 3.3      | % |  | $ | 801.2   |   |  |  | 5.0  | %
|                             | 4     |                                          |          | B to B+         |  |         | 361.5   |          |  |       | 2.6     | %        |  |       | 21.7  |   |  |   | 1.1      | % |  | $ | 383.2   |   |  |  | 2.4  | %
|                             | 5 & 6 |                                          |          | CCC or lower    |  |         | 32.9    |          |  |       | 0.2     | %        |  |       | 26.7  |   |  |   | 1.4      | % |  | $ | 59.6    |   |  |  | 0.4  | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |       |   |  |   |          |   |  |   |         |   |  |  |      |  
|Total below investment grade |       |                                          | 1,131.6  |                 |  |         | 8.0     | %        |  |       | 112.4   |          |  |       | 5.8   | % |  | $ | 1,244.0  |   |  |   | 7.8     | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |       |   |  |   |          |   |  |   |         |   |  |  |      |  
|Total                        |       | $                                        | 14,094.2 |                 |  |         | 100.0   | %        |  | $     | 1,940.3 |          |  |       | 100.0 | % |  | $ | 16,034.5 |   |  |   | 100.0   | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |       |   |  |   |          |   |  |   |         |   |  |  |      |  

The following table summarizes fixed maturity
securities by Standard & Poors or equivalent
rating, including unrealized losses, at December 31, 2003:

Fixed Maturity Securities by Standard &
Poors or Equivalent Rating

|            |          |                 |         |          |  |            |      |       |   |   |      |       |  |  |      |       |  
|----------- | -------- | --------------- | ------- | -------- |  | ---------- | ---- | ----- | - | - | ---- | ----- |  |  | ---- | ----- | -
|            |          | Market          |         | % of     |  | Unrealized |      | % of 
|Rating      |          | Value           |         | Total    |  | Loss       |      | Total
|            |          |                 |         |          |  |            |      |      
|            |          |                
|            |          | ($ in millions)
|AAA         |          | $               | 4,454.5 |          |  |            | 27.8 | %     |   | $ | 14.9 |       |  |  | 12.6 | %    
|AA          |          |                 | 947.7   |          |  |            | 5.9  | %     |   |   | 42.0 |       |  |  | 35.4 | %    
|A           |          |                 | 4,531.3 |          |  |            | 28.2 | %     |   |   | 29.9 |       |  |  | 25.2 | %    
|BBB         |          |                 | 4,225.8 |          |  |            | 26.3 | %     |   |   | 16.2 |       |  |  | 13.6 | %    
|BB          |          |                 | 684.5   |          |  |            | 4.3  | %     |   |   | 3.5  |       |  |  | 2.9  | %    
|B and below |          |                 | 345.7   |          |  |            | 2.2  | %     |   |   | 1.5  |       |  |  | 1.3  | %    
|            |          |                 |         |          |  |            |      |       |   |   |      |       |  |  |      |      
|            | Subtotal |                 |         | 15,189.5 |  |            |      | 94.7  | % |   |      | 108.0 |  |  |      | 91.0  | %
|Not-rated   |          |                 | 845.0   |          |  |            | 5.3  | %     |   |   | 10.7 |       |  |  | 9.0  | %    
|            |          |                 |         |          |  |            |      |       |   |   |      |       |  |  |      |      
|            | Total    |                 | $       | 16,034.5 |  |            |      | 100.0 | % |   | $    | 118.7 |  |  |      | 100.0 | %
|            |          |                 |         |          |  |            |      |       |   |   |      |       |  |  |      |      

MBS investments are mortgage-related securities
including collateralized mortgage obligations (or CMOs) and
pass-through mortgage securities. Asset-backed securities are
both residential and non-residential including exposure to home
equity loans, home improvement loans, manufactured housing loans
as well as securities backed by loans on automobiles, credit
cards, and other collateral or collateral bond obligations. As
of December 31, 2003, asset-backed residential mortgages
totaled $320.6 million or 1.8% of total invested assets. As
of December 31, 2003, residential mortgage pass-through and
CMOs totaled $2,014.8 million or 11.2% of total invested
assets. As of December 31, 2003, $1,909.2 million or
94.8% of MBS were from government sponsored enterprises. Other
MBS were $105.6 million or 5.2% of MBS as of
December 31, 2003. Management believes that the quality of
assets in the MBS portfolio is generally high, with 99.9% of
such assets representing agency backed or AAA rated
securities. Collateralized mortgage backed securities (or CMBS)
totaled $973.0 million or 6.1% of total invested assets as
of December 31, 2003.

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Derivatives

Interest rate swaps and options are primarily
used to reduce exposure to changes in interest rates and to
manage duration mismatches. Call options are primarily used to
hedge equity-indexed products. Credit default swaps are coupled
with a bond to synthetically create an investment cheaper than
the equivalent instrument traded in the cash market. Although we
are subject to the risk that counterparties will fail to
perform, credit standings of counterparties are monitored
regularly. We only enter into transactions with highly rated
counterparties. We are also subject to the risk associated with
changes in the value of contracts. However, such adverse changes
in value generally are offset by changes in the value of the
items being hedged. The notional principal amounts of the swaps
and options, which represent the extent of our involvement in
such contracts but not the risk of loss, at December 31,
2003, amounted to $2,603.3 million. The interest rate swaps
had a carrying value of a net receivable position of
$3.2 million at December 31, 2003. The credit default
swaps had a carrying value of a net receivable position of
$0.6 million at December 31, 2003. The carrying value
of options amounted to $134.9 million at December 31,
2003. For each of these derivatives, the carrying value is equal
to fair value as of December 31, 2003. The derivatives are
reflected as other investments on the consolidated financial
statements. The net amount payable or receivable from interest
rate and credit default swaps are accrued as an adjustment to
interest income. Effective October 1, 2003, we adopted DIG
Issue B36 and effective January 1, 2001, we adopted
SFAS 133. See note 4 to the consolidated financial
statements for further discussion of the impact of adopting both
accounting pronouncements.

Mortgage Loans

As of December 31, 2003, mortgage loans in
the investment portfolio were $968.6 million, or 5.4% of
the aggregate carrying value of invested assets. As of
December 31, 2003, commercial mortgage loans and
residential mortgage loans comprised 87.4% and 12.6%,
respectively, of total mortgage loans. Commercial mortgage loans
consist primarily of fixed-rate mortgage loans. As of
December 31, 2003, we held 686 individual commercial
mortgage loans with an average balance of $1.2 million.

As of December 31, 2003, four loans in the
loan portfolio with a carrying value of $5.5 million were
classified as delinquent and no loans were in foreclosure. As of
the same date, only two loans with a carrying value aggregating
$1.2 million were classified as restructured. During 2003,
we had one foreclosure.

Other

We participate in a securities lending program
whereby certain fixed maturity securities from the investment
portfolio are loaned to other institutions for a short period of
time. We receive a fee in exchange for the loan of securities
and require initial collateral equal to 102 percent of the
market value of the loaned securities to be separately
maintained. Securities with a market value of
$154.6 million were on loan under the program and the
Company has cash collateral under its control of
$158.8 million at December 31, 2003. There were no
securities on loan at December 31, 2002. We also may enter
into securities borrowing arrangements from time to time. At
December 31, 2003 and 2002, there were no securities
borrowed.

We held $494.6 million of policy loans on
individual insurance products as of December 31, 2003.
Policy loans are permitted to the extent of a policys
contractual limits and are fully collateralized by policy cash
values. As of December 31, 2003, we held equity securities
of $76.5 million of which the largest holding was Federal
Home Loan Bank common stock totaling $58.1 million.

We held $368.6 million of other invested
assets (including short-term investments and real estate) on
December 31, 2003. Other invested assets consist primarily
of our Ameritas Joint Venture investment, various other joint
ventures and limited partnership investments and derivatives.

Structured Securities
Arrangements

We have utilized a limited number of structured
finance arrangements. The structures primarily consisted of
interests in collateralized bond obligations and special-purpose
entities with principal protected limited partnership interests.
Neither AmerUs nor any management members had operating control
or management

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oversight of the entities and accordingly the
entities were not consolidated but rather accounted for as
available for sale debt securities or equity method investments.
In addition, we did not have any continued obligation or
commitment to provide additional financing to the entities. At
December 31, 2002, approximately $560 million of such
structured finance investments were included in invested assets.
These structured securities were liquidated during 2003.


We hold investments in indexed debt instruments
(IDIs) in which the principal is initially partially defeased by
an obligation of a third party financial institution
(institution) collateralized by U.S. Treasuries which
will accrete to 50% of the original principal amount of the IDIs
at maturity. The balance of the principal amount due at maturity
is subject to a dynamic defeasance mechanism, which should
provide a return of the initial investment. The instruments
issued by the institutions are linked to the performance of a
hedge fund or fund of funds. The annual income on these
investments will be equal to the quarterly distribution of the
hedge fund or fund of funds plus the change in the present value
of anticipated distributions to be received at maturity and will
be included in net investment income. Over the life of the IDIs,
the income will be a function of the cumulative performance of
the linked hedge fund or fund of funds and the return on any
defeased portion of the investment. The quarterly distribution
paid, if any, reduces the amount of future participation in the
performance of the linked hedge fund or fund of funds. At
maturity, the Company will take delivery of the referenced hedge
fund interests and cash or U.S. Treasuries equal to the
portion of the instruments that have been defeased, the total of
which should equal or exceed the instruments principal
amount. The investment purpose of these instruments is to enable
the Company to obtain the return as if they had invested in
hedge funds or fund of funds with dynamic principal protection.
The instruments as of December 31, 2003 carried an A rating
or better by Fitch. The carrying value of IDIs was
$396.1 million at December 31, 2003.

Impairments

Our evaluation of other-than-temporary impairment
(OTTI) for fixed income securities follows a three-step
process of 1) screen and identify; 2) assess and
document; 3) recommend and approve. In identifying
potential OTTIs, we screen for all securities that have a
fair value less than 80% of amortized cost. In addition, we
monitor securities for general credit issues that have been
identified and included on a watch list which may result in the
potential impairment list including other securities that have a
fair value at or greater than 80% of amortized cost. For asset
backed securities, the guidance of EITF 99-20 is followed which
requires an impairment loss if the fair value of the security is
less than amortized costs and there is an adverse change in
estimated cash flows from the cash flows previously projected.

The list of securities identified is subject to a
formal assessment to determine if an impairment is other than
temporary. Management makes certain assumptions or judgments in
its assessment of potentially impaired securities including but
not limited to:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | Industry characteristics and trends, company to
    industry profile, quality of management                                
|
| |  | Financial conditions and trends including
    strength of balance sheet and financial liquidity                            
|
| |  | Significant events affecting the company and/or
    industry                                                               
|
| |  | Viability of the business model incorporating an
    evaluation of default probability and associated recoverable
    value
|
| |  | Length of time the fair value was below 80% of
    amortized cost                                                          
|
| |  | Ability and intent to retain the investment to
    maturity or for a sufficient period of time for it to recover           

If the determination is that the security is
OTTI, it is written down to fair value. This is reviewed and
approved by senior management. The difference between amortized
cost and fair value is charged to net income.

When actively traded market prices are not
available, fair values are determined using present value or
other standard valuation techniques such as earnings multiples
and asset valuations. The fair value

44



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determinations are made at a specific point in
time based on then available market information and judgments
about the financial instruments. Factors considered in
determining fair value include: coupon rate, term, collateral
(if any), industry sector outlook, credit rating, expectations
regarding going concern status, timing and amounts of expected
future cash flows among other factors.


There are risks and uncertainties inherent in the
process of monitoring impairments and determining if an
impairment is OTTI. Risks may include 1) the credit
characteristics change affecting the creditors ability to
meet all of its contractual obligations; 2) the economic
outlook may be worse than expected or impact the credit more
than anticipated; 3) accuracy of information provided by
issuers could affect valuations; and 4) new information may
change our intent to hold the security to maturity. Any of these
items could result in a charge to net income in the future.

45



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The following table lists material investment
impairments in 2003 and 2002. The writedowns occurred due to
creditor and/or issue specific circumstances.

Material Impairments

|                                          |  |                 |      |               |  |                                                                                       |  |                                                                                                                                                                
|----------------------------------------- |  | --------------- | ---- | ------------- |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                          |  | Impairment Loss |      |               |  | Impact on Other                                                                      
|General Description                       |  | ($ in millions) |      | Circumstances |  | Material Investments                                                                 
|                                          |  |                 |      |               |  |                                                                                      
|2003                                      |  |                 |      |               |  |                                                                                       |  |                                                                                                                                                                
|Major United States airline               |  | $               | 11.6 |               |  | High probability of restructuring and threat of
    bankruptcy                        |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|Merchant Energy Generator                 |  |                 | 3.6  |               |  | High probability of restructuring and threat of
    bankruptcy                        |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|2002                                      |  |                 |      |               |  |                                                                                       |  |                                                                                                                                                                
|Large telecommunication company           |  |                 | 17.7 |               |  | Materially inaccurate financial statements and
    imminent default or bankruptcy     |  | Credit specific issues with no impact on other
    material investments                                                                                        
|Securitized medical receivables           |  |                 | 14.5 |               |  | Materially inaccurate financial statements and
    default event                      |  | Alleged credit specific fraud and default issues
    with no impact on other material investments                                                              
|Merchant energy generator and distributor |  |                 | 11.3 |               |  | Significant off-balance sheet liabilities and
    high probability of a restructuring |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|Collateralized debt obligation            |  |                 | 8.0  |               |  | Adverse change in cash flows on underlying
    portfolios                             |  | Specific collateral and structure issues with no
    impact on other material investments                                                                      
|Property and casualty insurance company   |  |                 | 7.7  |               |  | Rating downgrade and announced suspension of
    interest payments                    |  | Credit specific issues with no impact on other
    material investments                                                                                        
|Merchant energy generator                 |  |                 | 7.4  |               |  | Default on interest payment                                                           |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|Securitized manufactured housing loans    |  |                 | 7.2  |               |  | Suspension of guarantee payments related to
    manufactured housing                  |  | Credit specific issues with no impact on other
    material investments                                                                                        
|Major United States airline               |  |                 | 5.7  |               |  | Bankruptcy and lease rejection                                                        |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|Northeast electric energy generator       |  |                 | 3.4  |               |  | Default on interest payment                                                           |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down

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The following tables present unrealized losses
for fixed maturity securities at December 31, 2003 and 2002
by investment category and industry sector:

Composition of Fixed Maturity Securities by
Type

|                                 |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |     |  
|-------------------------------- | ------------------------ | ----------------- | -------- | ------- |  | ---------- | ----- | ------- | - |  | ----- | --- |  |  | ----- | --- | -
|                                 |                          |                  
|                                 |                          | December 31, 2003
|                                 |                          |                  
|                                 |                          | Carrying          |          |         |  | Unrealized |       |        
|                                 |                          | Value             |          | % Total |  | Losses     |       | % Total
|                                 |                          |                   |          |         |  |            |       |        
|                                 |                          |                  
|                                 |                          | ($ in millions)  
|U.S. government/agencies         |                          |                   | 816.8    |         |  |            | 5.1   | %       |   |  | 1.7   |     |  |  | 1.4   | %  
|State and political subdivisions |                          |                   | 67.1     |         |  |            | 0.4   | %       |   |  | 1.4   |     |  |  | 1.2   | %  
|Foreign governments              |                          |                   | 128.5    |         |  |            | 0.8   | %       |   |  | 0.3   |     |  |  | 0.2   | %  
|Corporate                        |                          |                   | 10,994.3 |         |  |            | 68.5  | %       |   |  | 57.8  |     |  |  | 48.7  | %  
|Redeemable preferred stocks      |                          |                   | 173.7    |         |  |            | 1.1   | %       |   |  | 37.1  |     |  |  | 31.3  | %  
|Indexed debt instruments         |                          |                   | 396.1    |         |  |            | 2.5   | %       |   |  | 8.3   |     |  |  | 7.0   | %  
|Asset-backed bonds               |                          |                   | 470.2    |         |  |            | 2.9   | %       |   |  | 1.5   |     |  |  | 1.2   | %  
|CMBS                             |                          |                   | 973.0    |         |  |            | 6.1   | %       |   |  | 2.7   |     |  |  | 2.3   | %  
|MBS:                             |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |    
|                                 | U.S. government/agencies |                   |          | 1,909.2 |  |            |       | 11.9    | % |  |       | 7.9 |  |  |       | 6.7 | %
|                                 | Non-government           |                   |          | 105.6   |  |            |       | 0.7     | % |  |       | 0.0 |  |  |       | 0.0 | %
|                                 |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |    
|                                 | Subtotal-MBS             |                   |          | 2,014.8 |  |            |       | 12.6    | % |  |       | 7.9 |  |  |       | 6.7 | %
|                                 |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |    
|Total                            |                          |                   | 16,034.5 |         |  |            | 100.0 | %       |   |  | 118.7 |     |  |  | 100.0 | %  
|                                 |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |    

|                                 |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |     |  
|-------------------------------- | ------------------------ | ----------------- | -------- | ------- |  | ---------- | ----- | ------- | - |  | ----- | --- |  |  | ----- | --- | -
|                                 |                          |                  
|                                 |                          | December 31, 2002
|                                 |                          |                  
|                                 |                          | Carrying          |          |         |  | Unrealized |       |        
|                                 |                          | Value             |          | % Total |  | Losses     |       | % Total
|                                 |                          |                   |          |         |  |            |       |        
|                                 |                          |                  
|                                 |                          | ($ in millions)  
|U.S. government/agencies         |                          |                   | 973.0    |         |  |            | 6.4   | %       |   |  | 0.4   |     |  |  | 0.2   | %  
|State and political subdivisions |                          |                   | 50.0     |         |  |            | 0.3   | %       |   |  |      |     |  |  |      |    
|Foreign governments              |                          |                   | 246.9    |         |  |            | 1.6   | %       |   |  | 3.1   |     |  |  | 1.4   | %  
|Corporate                        |                          |                   | 9,931.6  |         |  |            | 65.5  | %       |   |  | 133.5 |     |  |  | 60.2  | %  
|Redeemable preferred stocks      |                          |                   | 120.1    |         |  |            | 0.8   | %       |   |  | 40.2  |     |  |  | 18.1  | %  
|Indexed debt instruments         |                          |                   |         |         |  |            |      |         |   |  |      |     |  |  |      |    
|Asset-backed bonds               |                          |                   | 777.6    |         |  |            | 5.1   | %       |   |  | 44.0  |     |  |  | 19.8  | %  
|CMBS                             |                          |                   | 682.3    |         |  |            | 4.5   | %       |   |  | 0.3   |     |  |  | 0.2   | %  
|MBS:                             |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |    
|                                 | U.S. government/agencies |                   |          | 2,118.9 |  |            |       | 14.0    | % |  |       | 0.1 |  |  |       |    |  
|                                 | Non-government           |                   |          | 272.4   |  |            |       | 1.8     | % |  |       | 0.2 |  |  |       | 0.1 | %
|                                 |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |    
|                                 | Subtotal-MBS             |                   |          | 2,391.3 |  |            |       | 15.8    | % |  |       | 0.3 |  |  |       | 0.1 | %
|                                 |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |    
|Total                            |                          |                   | 15,172.8 |         |  |            | 100.0 | %       |   |  | 221.9 |     |  |  | 100.0 | %  
|                                 |                          |                   |          |         |  |            |       |         |   |  |       |     |  |  |       |    

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Composition of Fixed Maturity Securities by
Industry

|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |       |  
|---------------------- | -------- | ----------------- | ------- | -------- |  | ---------- | ---- | ------- | - | - | ---- | ----- |  |  | ---- | ----- | -
|                       |          |                  
|                       |          | December 31, 2003
|                       |          |                  
|                       |          | Market            |         |          |  | Unrealized |      |        
|                       |          | Value             |         | % Total  |  | Loss       |      | % Total
|                       |          |                   |         |          |  |            |      |        
|                       |          |                  
|                       |          | ($ in millions)  
|Basic industry         |          | $                 | 756.0   |          |  |            | 4.7  | %       |   | $ | 5.6  |       |  |  | 4.7  | %    
|Capital goods          |          |                   | 865.0   |          |  |            | 5.4  | %       |   |   | 4.0  |       |  |  | 3.4  | %    
|Communications         |          |                   | 1,124.7 |          |  |            | 7.0  | %       |   |   | 8.6  |       |  |  | 7.2  | %    
|Consumer cyclical      |          |                   | 981.5   |          |  |            | 6.1  | %       |   |   | 2.3  |       |  |  | 1.9  | %    
|Consumer non-cyclical  |          |                   | 1,701.8 |          |  |            | 10.6 | %       |   |   | 7.5  |       |  |  | 6.3  | %    
|Energy                 |          |                   | 965.5   |          |  |            | 6.0  | %       |   |   | 2.3  |       |  |  | 1.9  | %    
|Technology             |          |                   | 245.7   |          |  |            | 1.5  | %       |   |   | 0.6  |       |  |  | 0.5  | %    
|Transportation         |          |                   | 462.7   |          |  |            | 2.9  | %       |   |   | 5.9  |       |  |  | 5.0  | %    
|Industrial other       |          |                   | 154.5   |          |  |            | 1.0  | %       |   |   | 0.4  |       |  |  | 0.3  | %    
|Utilities              |          |                   | 1,548.0 |          |  |            | 9.7  | %       |   |   | 12.0 |       |  |  | 10.1 | %    
|Financial institutions |          |                   | 2,427.9 |          |  |            | 15.2 | %       |   |   | 52.0 |       |  |  | 43.9 | %    
|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |      
|                       | Subtotal |                   |         | 11,233.3 |  |            |      | 70.1    | % |   |      | 101.2 |  |  |      | 85.2  | %
|Other                  |          |                   | 4,801.2 |          |  |            | 29.9 | %       |   |   | 17.5 |       |  |  | 14.8 | %    
|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |      
|                       | Total    |                   | $       | 16,034.5 |  |            |      | 100.0   | % |   | $    | 118.7 |  |  |      | 100.0 | %
|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |      

|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |       |  
|---------------------- | -------- | ----------------- | ------- | -------- |  | ---------- | ---- | ------- | - | - | ---- | ----- |  |  | ---- | ----- | -
|                       |          |                  
|                       |          | December 31, 2002
|                       |          |                  
|                       |          | Market            |         |          |  | Unrealized |      |        
|                       |          | Value             |         | % Total  |  | Loss       |      | % Total
|                       |          |                   |         |          |  |            |      |        
|                       |          |                  
|                       |          | ($ in millions)  
|Basic industry         |          | $                 | 533.3   |          |  |            | 3.5  | %       |   | $ | 5.0  |       |  |  | 2.2  | %    
|Capital goods          |          |                   | 671.9   |          |  |            | 4.4  | %       |   |   | 1.5  |       |  |  | 0.7  | %    
|Communications         |          |                   | 878.4   |          |  |            | 5.8  | %       |   |   | 23.9 |       |  |  | 10.8 | %    
|Consumer cyclical      |          |                   | 845.1   |          |  |            | 5.6  | %       |   |   | 7.8  |       |  |  | 3.5  | %    
|Consumer non-cyclical  |          |                   | 1,562.6 |          |  |            | 10.3 | %       |   |   | 16.2 |       |  |  | 7.3  | %    
|Energy                 |          |                   | 957.8   |          |  |            | 6.3  | %       |   |   | 5.7  |       |  |  | 2.6  | %    
|Technology             |          |                   | 267.8   |          |  |            | 1.8  | %       |   |   | 0.4  |       |  |  | 0.2  | %    
|Transportation         |          |                   | 469.1   |          |  |            | 3.1  | %       |   |   | 24.2 |       |  |  | 10.9 | %    
|Industrial other       |          |                   | 92.8    |          |  |            | 0.6  | %       |   |   | 1.0  |       |  |  | 0.4  | %    
|Utilities              |          |                   | 1,235.2 |          |  |            | 8.1  | %       |   |   | 37.2 |       |  |  | 16.8 | %    
|Financial institutions |          |                   | 1,864.5 |          |  |            | 12.3 | %       |   |   | 45.6 |       |  |  | 20.5 | %    
|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |      
|                       | Subtotal |                   |         | 9,378.5  |  |            |      | 61.8    | % |   |      | 168.5 |  |  |      | 75.9  | %
|Other                  |          |                   | 5,794.3 |          |  |            | 38.2 | %       |   |   | 53.4 |       |  |  | 24.1 | %    
|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |      
|                       | Total    |                   | $       | 15,172.8 |  |            |      | 100.0   | % |   | $    | 221.9 |  |  |      | 100.0 | %
|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |      

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The following table provides a summary of
unrealized losses for fixed maturity securities which identifies
the length of time the securities have continually been in an
unrealized loss position as of December 31, 2003 and 2002:

Unrealized Loss as a Percentage of Market
Value

|                                           |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|------------------------------------------ |  | ------------------ | ------- | ----------- |  | ------------ | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ------- |  |  | - | ----- | 
|                                           |  |                   
|                                           |  | December 31, 2003 
|                                           |  |                   
|                                           |  |                   
|                                           |  | ($ in millions)   
|                                           |  |                    |         |             |  |             
|                                           |  |                    |         |             |  | More than 12 |      |           
|                                           |  | Less than 7 months |         | 7-12 months |  | months       |      | Total     
|                                           |  |                    |         |             |  |              |      |           
|                                           |  |                    |         | Gross       |  |              |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                           |  | Fair               |         | unrealized  |  | Fair         |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|                                           |  | value              |         | loss        |  | value        |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                           |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |           
|Total Temporarily Impaired
    Securities: |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|Corporate bonds                            |  | $                  | 1,618.3 |             |  | $            | 31.3 |            |  | $     | 275.5 |            |  | $     | 15.8 |            |  | $ | 118.0 |  |  | $ | 10.6 |  |  | $ | 2,011.8 |  |  | $ | 57.7  | 
|U.S. government bonds                      |  |                    | 156.5   |             |  |              | 1.7  |            |  |       | 0.4   |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 156.9   |  |  |   | 1.7   | 
|State and political subdivisions           |  |                    | 18.8    |             |  |              | 1.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 18.8    |  |  |   | 1.4   | 
|Foreign government bonds                   |  |                    | 51.2    |             |  |              | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 1.3   |  |  |   |     |  |  |   | 52.5    |  |  |   | 0.3   | 
|Asset-backed bonds                         |  |                    | 74.1    |             |  |              | 0.5  |            |  |       | 4.6   |            |  |       |     |            |  |   | 18.5  |  |  |   | 1.0  |  |  |   | 97.2    |  |  |   | 1.5   | 
|CMBS                                       |  |                    | 227.9   |             |  |              | 2.7  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 227.9   |  |  |   | 2.7   | 
|Mortgage-backed bonds                      |  |                    | 598.1   |             |  |              | 5.2  |            |  |       | 135.8 |            |  |       | 2.7  |            |  |   | 0.2   |  |  |   |     |  |  |   | 734.1   |  |  |   | 7.9   | 
|Indexed debt instruments                   |  |                    | 240.9   |             |  |              | 3.7  |            |  |       | 157.6 |            |  |       | 4.6  |            |  |   |      |  |  |   |     |  |  |   | 398.5   |  |  |   | 8.3   | 
|Redeemable preferred stock                 |  |                    |        |             |  |              |     |            |  |       |      |            |  |       |     |            |  |   | 104.6 |  |  |   | 37.1 |  |  |   | 104.6   |  |  |   | 37.1  | 
|Equity securities AFS                      |  |                    |        |             |  |              |     |            |  |       | 0.8   |            |  |       | 0.2  |            |  |   | 0.3   |  |  |   | 0.2  |  |  |   | 1.1     |  |  |   | 0.4   | 
|Short-term investments AFS                 |  |                    | 3.7     |             |  |              |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 3.7     |  |  |   |      | 
|                                           |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|Total                                      |  | $                  | 2,989.5 |             |  | $            | 46.8 |            |  | $     | 574.7 |            |  | $     | 23.3 |            |  | $ | 242.9 |  |  | $ | 48.9 |  |  | $ | 3,807.1 |  |  | $ | 119.0 | 
|                                           |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 

|                                 |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|-------------------------------- |  | ------------------ | ------- | ----------- |  | ------------ | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | --- |  |  | - | ------- |  |  | - | ---- | 
|                                 |  |                    |         |             |  |              |      |            |  |       |       |            |  |      
|                                 |  |                    |         |             |  | More than 12 |      |           
|                                 |  | Less than 7 months |         | 7-12 months |  | months       |      | Total     
|                                 |  |                    |         |             |  |              |      |           
|                                 |  |                    |         | Gross       |  |              |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                 |  | Fair               |         | unrealized  |  | Fair         |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|                                 |  | value              |         | loss        |  | value        |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                 |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |           
|Less Than 20% Underwater:        |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|Corporate bonds                  |  | $                  | 1,618.3 |             |  | $            | 31.3 |            |  | $     | 275.5 |            |  | $     | 15.8 |            |  | $ | 109.8 |  |  | $ | 8.2 |  |  | $ | 2,003.6 |  |  | $ | 55.3 | 
|U.S. government bonds            |  |                    | 156.5   |             |  |              | 1.7  |            |  |       | 0.4   |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 156.9   |  |  |   | 1.7  | 
|State and political subdivisions |  |                    | 18.8    |             |  |              | 1.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 18.8    |  |  |   | 1.4  | 
|Foreign government bonds         |  |                    | 51.2    |             |  |              | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 1.3   |  |  |   |    |  |  |   | 52.5    |  |  |   | 0.3  | 
|Asset-backed bonds               |  |                    | 74.1    |             |  |              | 0.5  |            |  |       | 4.6   |            |  |       |     |            |  |   | 18.5  |  |  |   | 1.0 |  |  |   | 97.2    |  |  |   | 1.5  | 
|CMBS                             |  |                    | 227.9   |             |  |              | 2.7  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 227.9   |  |  |   | 2.7  | 
|Mortgage-backed bonds            |  |                    | 598.1   |             |  |              | 5.2  |            |  |       | 135.8 |            |  |       | 2.7  |            |  |   | 0.2   |  |  |   |    |  |  |   | 734.1   |  |  |   | 7.9  | 
|Indexed debt instruments         |  |                    | 240.9   |             |  |              | 3.7  |            |  |       | 157.6 |            |  |       | 4.6  |            |  |   |      |  |  |   |    |  |  |   | 398.5   |  |  |   | 8.3  | 
|Equity securities AFS            |  |                    |        |             |  |              |     |            |  |       | 0.8   |            |  |       | 0.2  |            |  |   |      |  |  |   |    |  |  |   | 0.8     |  |  |   | 0.2  | 
|Short-term investments AFS       |  |                    | 3.7     |             |  |              |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 3.7     |  |  |   |     | 
|                                 |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|Total                            |  | $                  | 2,989.5 |             |  | $            | 46.8 |            |  | $     | 574.7 |            |  | $     | 23.3 |            |  | $ | 129.8 |  |  | $ | 9.2 |  |  | $ | 3,694.0 |  |  | $ | 79.3 | 
|                                 |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 

49



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##### Table of Contents



Unrealized Loss as a Percentage of Market
Value

|                                 |  |                   |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|-------------------------------- |  | ----------------- | - | ----------- |  | ------------------- | - | ---------- |  | ----- | - | ---------- |  | ----- | - | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ----- |  |  | - | ---- | 
|                                 |  |                  
|                                 |  | December 31, 2003
|                                 |  |                  
|                                 |  |                  
|                                 |  | ($ in millions)  
|                                 |  |                   |   |            
|                                 |  | Less than 7       |   |             |  |                     |   |           
|                                 |  | months            |   | 7-12 months |  | More than 12 months |   | Total     
|                                 |  |                   |   |             |  |                     |   |           
|                                 |  |                   |   | Gross       |  |                     |   | Gross      |  |       |   | Gross      |  |       |   | Gross     
|                                 |  | Fair              |   | unrealized  |  | Fair                |   | unrealized |  | Fair  |   | unrealized |  | Fair  |   | unrealized
|                                 |  | value             |   | loss        |  | value               |   | loss       |  | value |   | loss       |  | value |   | loss      
|                                 |  |                   |   |             |  |                     |   |            |  |       |   |            |  |       |   |           
|20%-50% Underwater:              |  |                   |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|Corporate bonds                  |  | $                 |  |             |  | $                   |  |            |  | $     |  |            |  | $     |  |            |  | $ | 8.2   |  |  | $ | 2.4  |  |  | $ | 8.2   |  |  | $ | 2.4  | 
|U.S. government bonds            |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   |      |  |  |   |     |  |  |   |      |  |  |   |     | 
|State and political subdivisions |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   |      |  |  |   |     |  |  |   |      |  |  |   |     | 
|Foreign government bonds         |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   |      |  |  |   |     |  |  |   |      |  |  |   |     | 
|Asset-backed bonds               |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   |      |  |  |   |     |  |  |   |      |  |  |   |     | 
|CMBS                             |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   |      |  |  |   |     |  |  |   |      |  |  |   |     | 
|Mortgage-backed bonds            |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   |      |  |  |   |     |  |  |   |      |  |  |   |     | 
|Indexed Debt Instruments         |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   |      |  |  |   |     |  |  |   |      |  |  |   |     | 
|Redeemable preferred stock       |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   | 104.6 |  |  |   | 37.1 |  |  |   | 104.6 |  |  |   | 37.1 | 
|Equity securities AFS            |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   | 0.3   |  |  |   | 0.2  |  |  |   | 0.3   |  |  |   | 0.2  | 
|Short-term investments AFS       |  |                   |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   |      |  |  |   |     |  |  |   |      |  |  |   |     | 
|                                 |  |                   |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|Total                            |  | $                 |  |             |  | $                   |  |            |  | $     |  |            |  | $     |  |            |  | $ | 113.1 |  |  | $ | 39.7 |  |  | $ | 113.1 |  |  | $ | 39.7 | 
|                                 |  |                   |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 

There are no securities that were more than 50%
underwater at December 31, 2003.

Unrealized Loss as a Percentage of Market
Value

|                                           |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |       |  |  |   |         |  |  |   |       | 
|------------------------------------------ |  | ------------------ | ------- | ----------- |  | ------------ | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ----- |  |  | - | ------- |  |  | - | ----- | 
|                                           |  |                   
|                                           |  | December 31, 2002 
|                                           |  |                   
|                                           |  |                   
|                                           |  | ($ in millions)   
|                                           |  |                    |         |             |  |             
|                                           |  |                    |         |             |  | More than 12 |      |           
|                                           |  | Less than 7 months |         | 7-12 months |  | months       |      | Total     
|                                           |  |                    |         |             |  |              |      |           
|                                           |  |                    |         | Gross       |  |              |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                           |  | Fair               |         | unrealized  |  | Fair         |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|                                           |  | value              |         | loss        |  | value        |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                           |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |           
|Total Temporarily Impaired
    Securities: |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |       |  |  |   |         |  |  |   |       | 
|Corporate bonds                            |  | $                  | 988.2   |             |  | $            | 33.9 |            |  | $     | 351.9 |            |  | $     | 27.3 |            |  | $ | 288.3 |  |  | $ | 72.3  |  |  | $ | 1,628.4 |  |  | $ | 133.5 | 
|U.S. government bonds                      |  |                    | 170.1   |             |  |              | 0.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |      |  |  |   | 170.1   |  |  |   | 0.4   | 
|Foreign government bonds                   |  |                    | 13.0    |             |  |              | 0.3  |            |  |       | 30.1  |            |  |       | 2.0  |            |  |   | 5.8   |  |  |   | 0.9   |  |  |   | 48.9    |  |  |   | 3.2   | 
|Asset-backed bonds                         |  |                    | 116.7   |             |  |              | 10.3 |            |  |       | 6.5   |            |  |       | 2.8  |            |  |   | 101.3 |  |  |   | 30.9  |  |  |   | 224.5   |  |  |   | 44.0  | 
|CMBS                                       |  |                    | 4.8     |             |  |              |     |            |  |       |      |            |  |       |     |            |  |   | 10.7  |  |  |   | 0.3   |  |  |   | 15.5    |  |  |   | 0.3   | 
|Mortgage-backed bonds                      |  |                    | 83.8    |             |  |              | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 0.4   |  |  |   |      |  |  |   | 84.2    |  |  |   | 0.3   | 
|Redeemable preferred stock                 |  |                    | 4.8     |             |  |              |     |            |  |       |      |            |  |       |     |            |  |   | 95.1  |  |  |   | 40.2  |  |  |   | 99.9    |  |  |   | 40.2  | 
|Equity securities AFS                      |  |                    | 1.3     |             |  |              | 0.2  |            |  |       |      |            |  |       |     |            |  |   | 0.4   |  |  |   | 0.2   |  |  |   | 1.7     |  |  |   | 0.4   | 
|Short-term investments AFS                 |  |                    | 9.9     |             |  |              |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |      |  |  |   | 9.9     |  |  |   |      | 
|                                           |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |       |  |  |   |         |  |  |   |       | 
|Total                                      |  | $                  | 1,392.6 |             |  | $            | 45.4 |            |  | $     | 388.5 |            |  | $     | 32.1 |            |  | $ | 502.0 |  |  | $ | 144.8 |  |  | $ | 2,283.1 |  |  | $ | 222.3 | 
|                                           |  |                    |         |             |  |              |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |       |  |  |   |         |  |  |   |       | 

50



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##### Table of Contents



|                           |  |           |         |             |  |           |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|-------------------------- |  | --------- | ------- | ----------- |  | --------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ------- |  |  | - | ---- | 
|                           |  |           |         |             |  |           |      |            |  |       |       |           
|                           |  | Less than |         |             |  | More than |      |           
|                           |  | 7 months  |         | 7-12 months |  | 12 months |      | Total     
|                           |  |           |         |             |  |           |      |           
|                           |  |           |         | Gross       |  |           |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                           |  | Fair      |         | unrealized  |  | Fair      |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|                           |  | value     |         | loss        |  | value     |      | loss       |  | value |       | loss       |  | value |      | loss      
|                           |  |           |         |             |  |           |      |            |  |       |       |            |  |       |      |           
|Less Than 20% Underwater:  |  |           |         |             |  |           |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|Corporate bonds            |  | $         | 962.1   |             |  | $         | 21.9 |            |  | $     | 326.1 |            |  | $     | 14.9 |            |  | $ | 211.0 |  |  | $ | 22.3 |  |  | $ | 1,499.2 |  |  | $ | 59.1 | 
|U.S. government bonds      |  |           | 170.1   |             |  |           | 0.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 170.1   |  |  |   | 0.4  | 
|Foreign government bonds   |  |           | 13.0    |             |  |           | 0.3  |            |  |       | 27.5  |            |  |       | 1.3  |            |  |   | 5.3   |  |  |   | 0.5  |  |  |   | 45.8    |  |  |   | 2.1  | 
|Asset-backed bonds         |  |           | 107.5   |             |  |           | 3.6  |            |  |       | 3.4   |            |  |       |     |            |  |   | 40.7  |  |  |   | 4.5  |  |  |   | 151.6   |  |  |   | 8.1  | 
|CMBS                       |  |           | 4.8     |             |  |           |     |            |  |       |      |            |  |       |     |            |  |   | 10.7  |  |  |   | 0.3  |  |  |   | 15.5    |  |  |   | 0.3  | 
|Mortgage-backed bonds      |  |           | 83.8    |             |  |           | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 0.4   |  |  |   |     |  |  |   | 84.2    |  |  |   | 0.3  | 
|Redeemable preferred stock |  |           | 4.8     |             |  |           |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 4.8     |  |  |   |     | 
|Equity securities AFS      |  |           | 1.0     |             |  |           |     |            |  |       |      |            |  |       |     |            |  |   | 0.1   |  |  |   |     |  |  |   | 1.1     |  |  |   |     | 
|Short-term investments AFS |  |           | 9.9     |             |  |           |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 9.9     |  |  |   |     | 
|                           |  |           |         |             |  |           |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|Total                      |  | $         | 1,357.0 |             |  | $         | 26.5 |            |  | $     | 357.0 |            |  | $     | 16.2 |            |  | $ | 268.2 |  |  | $ | 27.6 |  |  | $ | 1,982.2 |  |  | $ | 70.3 | 
|                           |  |           |         |             |  |           |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 

Unrealized Loss at a % of Market
Value

|                           |  |                    |      |             |  |                     |      |            |  |       |      |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |       | 
|-------------------------- |  | ------------------ | ---- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ---- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ----- |  |  | - | ----- | 
|                           |  |                   
|                           |  | December 31, 2002 
|                           |  |                   
|                           |  |                   
|                           |  | ($ in millions)   
|                           |  |                    |      |             |  |                     |      |           
|                           |  | Less than 7 months |      | 7-12 months |  | More than 12 months |      | Total     
|                           |  |                    |      |             |  |                     |      |           
|                           |  |                    |      | Gross       |  |                     |      | Gross      |  |       |      | Gross      |  |       |      | Gross     
|                           |  | Fair               |      | unrealized  |  | Fair                |      | unrealized |  | Fair  |      | unrealized |  | Fair  |      | unrealized
|                           |  | value              |      | loss        |  | value               |      | loss       |  | value |      | loss       |  | value |      | loss      
|                           |  |                    |      |             |  |                     |      |            |  |       |      |            |  |       |      |           
|20%-50% Underwater:        |  |                    |      |             |  |                     |      |            |  |       |      |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |       | 
|Corporate bonds            |  | $                  | 26.0 |             |  | $                   | 11.7 |            |  | $     | 24.7 |            |  | $     | 11.0 |            |  | $ | 63.9  |  |  | $ | 30.8 |  |  | $ | 114.6 |  |  | $ | 53.5  | 
|Foreign government bonds   |  |                    |     |             |  |                     |     |            |  |       | 2.6  |            |  |       | 0.7  |            |  |   | 0.5   |  |  |   | 0.4  |  |  |   | 3.1   |  |  |   | 1.1   | 
|Asset-backed bonds         |  |                    | 9.2  |             |  |                     | 6.7  |            |  |       | 3.1  |            |  |       | 2.8  |            |  |   | 54.3  |  |  |   | 17.3 |  |  |   | 66.6  |  |  |   | 26.8  | 
|Redeemable preferred stock |  |                    |     |             |  |                     |     |            |  |       |     |            |  |       |     |            |  |   | 95.1  |  |  |   | 40.2 |  |  |   | 95.1  |  |  |   | 40.2  | 
|Equity securities AFS      |  |                    | 0.3  |             |  |                     | 0.2  |            |  |       |     |            |  |       |     |            |  |   | 0.2   |  |  |   | 0.1  |  |  |   | 0.5   |  |  |   | 0.3   | 
|                           |  |                    |      |             |  |                     |      |            |  |       |      |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |       | 
|Total                      |  | $                  | 35.5 |             |  | $                   | 18.6 |            |  | $     | 30.4 |            |  | $     | 14.5 |            |  | $ | 214.0 |  |  | $ | 88.8 |  |  | $ | 279.9 |  |  | $ | 121.9 | 
|                           |  |                    |      |             |  |                     |      |            |  |       |      |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |       | 

|                          |  |           |     |             |  |           |     |            |  |       |     |            |  |       |     |            |  |   |      |  |  |   |      |  |  |   |      |  |  |   |      | 
|------------------------- |  | --------- | --- | ----------- |  | --------- | --- | ---------- |  | ----- | --- | ---------- |  | ----- | --- | ---------- |  | - | ---- |  |  | - | ---- |  |  | - | ---- |  |  | - | ---- | 
|                          |  |           |     |             |  |           |     |            |  |       |     |           
|                          |  | Less than |     |             |  | More than |     |           
|                          |  | 7 months  |     | 7-12 months |  | 12 months |     | Total     
|                          |  |           |     |             |  |           |     |           
|                          |  |           |     | Gross       |  |           |     | Gross      |  |       |     | Gross      |  |       |     | Gross     
|                          |  | Fair      |     | unrealized  |  | Fair      |     | unrealized |  | Fair  |     | unrealized |  | Fair  |     | unrealized
|                          |  | value     |     | loss        |  | value     |     | loss       |  | value |     | loss       |  | value |     | loss      
|                          |  |           |     |             |  |           |     |            |  |       |     |            |  |       |     |           
|More Than 50% Underwater: |  |           |     |             |  |           |     |            |  |       |     |            |  |       |     |            |  |   |      |  |  |   |      |  |  |   |      |  |  |   |      | 
|Corporate bonds           |  | $         | 0.1 |             |  | $         | 0.3 |            |  | $     | 1.1 |            |  | $     | 1.4 |            |  | $ | 13.4 |  |  | $ | 19.2 |  |  | $ | 14.6 |  |  | $ | 20.9 | 
|Asset-backed bonds        |  |           |    |             |  |           |    |            |  |       |    |            |  |       |    |            |  |   | 6.3  |  |  |   | 9.1  |  |  |   | 6.3  |  |  |   | 9.1  | 
|Equity securities AFS     |  |           |    |             |  |           |    |            |  |       |    |            |  |       |    |            |  |   | 0.1  |  |  |   | 0.1  |  |  |   | 0.1  |  |  |   | 0.1  | 
|                          |  |           |     |             |  |           |     |            |  |       |     |            |  |       |     |            |  |   |      |  |  |   |      |  |  |   |      |  |  |   |      | 
|Total                     |  | $         | 0.1 |             |  | $         | 0.3 |            |  | $     | 1.1 |            |  | $     | 1.4 |            |  | $ | 19.8 |  |  | $ | 28.4 |  |  | $ | 21.0 |  |  | $ | 30.1 | 
|                          |  |           |     |             |  |           |     |            |  |       |     |            |  |       |     |            |  |   |      |  |  |   |      |  |  |   |      |  |  |   |      | 

51



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##### Table of Contents



The following table identifies the type, carrying
value and unrealized loss of individual material securities with
unrealized losses at December 31, 2003 and 2002, exceeding
$3 million:

Material Unrealized Losses

|                            |  |                   |       |            |  |   |     | 
|--------------------------- |  | ----------------- | ----- | ---------- |  | - | --- | 
|                            |  |                  
|                            |  | Year Ended       
|                            |  | December 31, 2003
|                            |  |                  
|                            |  | Market            |       | Unrealized
|General Description         |  | Value             |       | Loss      
|                            |  |                   |       |           
|                            |  |                  
|                            |  | ($ in millions)  
|Government sponsored entity |  | $                 | 313.0 |            |  | $ | 3.5 | 
|Government sponsored entity |  |                   | 355.0 |            |  |   | 3.5 | 

|                                       |  |                   |      |            |  |   |     | 
|-------------------------------------- |  | ----------------- | ---- | ---------- |  | - | --- | 
|                                       |  |                  
|                                       |  | Year Ended       
|                                       |  | December 31, 2002
|                                       |  |                  
|                                       |  | Market            |      | Unrealized
|General Description                    |  | Value             |      | Loss      
|                                       |  |                   |      |           
|                                       |  |                  
|                                       |  | ($ in millions)  
|Collateralized debt obligation         |  | $                 | 6.3  |            |  | $ | 9.1 | 
|Securitized manufactured housing loans |  |                   | 8.3  |            |  |   | 7.5 | 
|Major United States airline            |  |                   | 7.1  |            |  |   | 7.2 | 
|Merchant energy generator              |  |                   | 3.5  |            |  |   | 6.4 | 
|Pharmaceutical company                 |  |                   | 4.5  |            |  |   | 4.5 | 
|Large telecommunications company       |  |                   | 7.7  |            |  |   | 4.3 | 
|Major United States airline            |  |                   | 8.9  |            |  |   | 4.0 | 
|Independent power producer             |  |                   | 2.9  |            |  |   | 3.8 | 
|Foreign utility                        |  |                   | 11.3 |            |  |   | 3.6 | 
|Telecommunications equipment provider  |  |                   | 12.3 |            |  |   | 3.6 | 
|Foreign oil receivables                |  |                   | 21.2 |            |  |   | 3.2 | 
|Major United States airline            |  |                   | 19.1 |            |  |   | 3.1 | 

In addition to the above listing, at
December 31, 2003 and 2002, securities with a market value
of $500.7 million and $149.4 million and unrealized
loss position of $45.4 million and $57.4 million,
respectively, were principal protected. These securities
included underlying holdings that provided for a return of
principal through maturity of zero coupon bonds from a highly
rated issuer or a principal guarantee from a highly rated
company. These securities along with the securities in the above
listing of unrealized losses did not meet the criteria as
described in our other-than-temporary process for impairment
determination. As a result, there was no realized loss for these
securities. Unrealized gains or losses may not represent future
gains or losses that will be realized. These unrealized gains or
losses are subject to fluctuation, reflective of such things as
volatile financial markets, interest rate movements, credit
spread changes and sale decisions.

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The following table presents, for securities sold
during 2003 and 2002, the amount of material losses recorded and
the fair value at the sales date:

Material Realized Losses

|                                       |  |                              |         |          |  |              |     |              |  |                  |  |                 
|-------------------------------------- |  | ---------------------------- | ------- | -------- |  | ------------ | --- | ------------ |  | ---------------- |  | ----------------
|                                       |  |                             
|                                       |  | Year Ended December 31, 2003
|                                       |  |                             
|                                       |  | Proceeds/                    |         | Realized |  | Time in      |     | Time in     
|                                       |  | Market                       |         | Loss     |  | Months Below |     | Months  <80%
|General Description                    |  | Value                        |         | on Sale  |  | Book         |     | of Book     
|                                       |  |                              |         |          |  |              |     |             
|US Treasury                            |  | $                            | 1,082.6 |          |  | $            | 9.9 |              |  | 6 months or less |  | 6 months or less
|Securitized manufactured housing loans |  |                              | 31.8    |          |  |              | 6.3 |              |  | Over 12 months   |  | 7 to 12 months  
|Collateralized debt obligation         |  |                              | 136.3   |          |  |              | 5.7 |              |  | Over 12 months   |  | 6 months or less
|Government sponsored entity            |  |                              | 860.7   |          |  |              | 5.5 |              |  | 6 months or less |  | 6 months or less
|Foreign oil revenue financing entity   |  |                              | 49.4    |          |  |              | 4.4 |              |  | 7 to 12 months   |  | 6 months or less
|Major United States airline            |  |                              | 49.4    |          |  |              | 4.2 |              |  | Over 12 months   |  | 6 months or less
|Collateralized debt obligation         |  |                              | 31.7    |          |  |              | 4.1 |              |  | 6 months or less |  | 6 months or less
|Aircraft securitization                |  |                              | 25.7    |          |  |              | 4.0 |              |  | Over 12 months   |  | 7 to 12 months  
|Electric generator                     |  |                              | 20.3    |          |  |              | 4.0 |              |  | 7 to 12 months   |  | 6 months or less
|Natural gas supplier                   |  |                              | 42.3    |          |  |              | 3.9 |              |  | 7 to 12 months   |  | 6 months or less
|Healthcare service provider            |  |                              | 20.3    |          |  |              | 3.8 |              |  | 7 to 12 months   |  | 6 months or less
|Major United States airline            |  |                              | 21.5    |          |  |              | 3.7 |              |  | Over 12 months   |  | 6 months or less
|Major United States airline            |  |                              | 17.0    |          |  |              | 3.4 |              |  | Over 12 months   |  | 7 to 12 months  
|Government sponsored entity            |  |                              | 493.3   |          |  |              | 3.3 |              |  | 6 months or less |  | 6 months or less

|                                               |  |                              |       |          |  |              |      |              |  |                  |  |                 
|---------------------------------------------- |  | ---------------------------- | ----- | -------- |  | ------------ | ---- | ------------ |  | ---------------- |  | ----------------
|                                               |  |                             
|                                               |  | Year Ended December 31, 2003
|                                               |  |                             
|                                               |  | Proceeds/                    |       | Realized |  | Time in      |      | Time in     
|                                               |  | Market                       |       | Loss     |  | Months Below |      | Months  <80%
|General Description                            |  | Value                        |       | on Sale  |  | Book         |      | of Book     
|                                               |  |                              |       |          |  |              |      |             
|                                               |  |                             
|                                               |  | ($ in millions)             
|Large telecommunications company               |  | $                            | 2.6   |          |  | $            | 17.8 |              |  | 6 months or less |  | 6 months or less
|Securities manufactured housing loans          |  |                              | 2.5   |          |  |              | 9.6  |              |  | Over 12 months   |  | 6 months or less
|Multinational energy transmissions distributor |  |                              | 4.6   |          |  |              | 7.4  |              |  | Over 12 months   |  | 7 to 12 months  
|Media conglomerate                             |  |                              | 24.4  |          |  |              | 6.6  |              |  | 7 to 12 months   |  | 6 months or less
|US Treasury                                    |  |                              | 619.3 |          |  |              | 6.3  |              |  | 6 months or less |  | 6 months or less
|Independent power producer                     |  |                              | 4.0   |          |  |              | 6.0  |              |  | Over 12 months   |  | 7 to 12 months  
|Large telecommunications company               |  |                              | 28.0  |          |  |              | 5.4  |              |  | Over 12 months   |  | 7 to 12 months  
|Canadian telecommunications company            |  |                              | 18.1  |          |  |              | 5.2  |              |  | 7 to 12 months   |  | 6 months or less
|Telecommunications company                     |  |                              | 0.9   |          |  |              | 4.1  |              |  | Over 12 months   |  | 7 to 12 months  
|Energy pipeline company                        |  |                              | 8.4   |          |  |              | 3.9  |              |  | 7 to 12 months   |  | 6 months or less
|Energy pipeline company                        |  |                              | 12.4  |          |  |              | 3.7  |              |  | 6 months or less |  | 6 months or less
|Merchant energy generator/distributor          |  |                              | 6.4   |          |  |              | 3.5  |              |  | 7 to 12 month    |  | 6 months or less
|Energy pipeline company                        |  |                              | 6.9   |          |  |              | 3.1  |              |  | 6 months or less |  | 6 months or less

We may decide to sell certain securities within
the overall context of our portfolio management strategies. This
may include required exposure reductions due to internal credit
limits, total rate of return strategies, capital reserve
objectives, asset allocation decisions and hedging activities.

Effects of Inflation and Interest Rate
Changes

Management does not believe that inflation has
had a material effect on the consolidated results of operations.

Interest rate changes may have temporary effects
on the sale and profitability of the protection products and
accumulation products offered. For example, if interest rates
rise, competing investments (such as

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annuities or life insurance products offered by
competitors, certificates of deposit, mutual funds, and similar
instruments) may become more attractive to potential purchasers
of our products until we increase the interest rate credited to
owners of our protection products and accumulation products. In
contrast, as interest rates fall, we attempt to adjust credited
rates to compensate for the corresponding decline in
reinvestment rates. We monitor interest rates and sell annuities
and life insurance policies that permit flexibility to make
interest rate changes as part of management of interest spreads.
However, the profitability of our products is based upon
persistency, mortality and expenses, as well as interest rate
spreads.


We manage our investment portfolio in part to
reduce exposure to interest rate fluctuations. In general, the
market value of our fixed maturity portfolio increases or
decreases in an inverse relationship with fluctuations in
interest rates, and net investment income increases or decreases
in a direct relationship with interest rate changes.

We have developed an asset/liability management
approach with separate investment portfolios for major product
lines such as traditional life, universal life, equity-indexed
life, traditional annuities, equity-indexed annuities, variable
annuities and funding agreements. Investment strategies have
been established based on the specific characteristics of each
product line. The portfolio investment strategies establish
asset duration, quality and other guidelines. Analytical systems
are utilized to establish an optimal asset mix for each line of
business. We seek to manage the asset/liability mismatch and the
associated interest rate risk through active management of the
investment portfolio. Financial, actuarial, investment, product
development and product marketing professionals work together
throughout the product development, introduction and management
phases to jointly develop and implement product features,
initial and renewal crediting strategies, and investment
strategies based on extensive modeling of a variety of factors
under a number of interest rate scenarios.

In force reserves and the assets allocated to
each segment are modeled on a regular basis to analyze projected
cash flows under a variety of economic scenarios. The result of
this modeling is used to modify asset allocation, investment
portfolio duration and renewal crediting strategies. We invest
in derivatives to hedge against the effects of interest rate
fluctuations or to hedge growth in policyowner liabilities for
certain life and annuity products and funding agreements. For a
further discussion and disclosure of the nature and extent of
the use of derivatives, see note 4 to the consolidated
financial statements.

Federal Income Tax Matters

Generally, AmerUs Group and our non-life
subsidiaries file a consolidated federal income tax return. The
life insurance subsidiaries file separate federal income tax
returns, except for ILIC and Bankers Life which together file a
consolidated tax return beginning in 2002. The separate return
method is used to compute the provision for allocating federal
income taxes. Deferred income tax assets and liabilities are
determined based on differences among the financial reporting
and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws.

Emerging Accounting Matters

SFAS 146

In July 2002, the Financial Accounting Standards
Board issued SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146
provides for costs to exit an activity or dispose of long-lived
assets to be recorded when they are incurred and are to be
measured at fair value. Under previous accounting guidance, a
liability for an exit cost was recognized at the date of the
commitment to an exit plan. SFAS 146 is effective for exit
or disposal activities initiated after December 31, 2002
and its adoption had no impact on net income or
stockholders equity as of or for the years ended
December 31, 2003 and 2002.

SFAS 148

In December 2002, the Financial Accounting
Standards Board issued SFAS 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure. SFAS 148 amends SFAS 123,
Accounting for Stock-

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Based Compensation, and provides
alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 requires more prominent
and more frequent disclosures in financial statements about the
effects of stock-based compensation. As of December 31,
2003, we continue to account for employee stock-based
compensation using the intrinsic value method provided under
SFAS 123 and SFAS 148. The disclosure requirements of
both standards have been provided in note 1 to the
consolidated financial statements.


SFAS 149

In April 2003, the Financial Accounting Standards
Board issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.
SFAS 149 is intended to provide more consistent reporting
of contracts as either freestanding derivative instruments
subject to SFAS 133 in its entirety, or as hybrid
instruments with debt host contracts and embedded derivative
features. SFAS 149 incorporates decisions previously made
by the Derivatives Implementation Group, changes in financial
instruments resulting from other projects, and deliberations in
connection with issues raised in the application of the
definition of a derivative and it does not amend the definition
of a derivative. The provisions of SFAS 149 are effective
for contracts entered into or modified after June 30, 2003,
except for the codification of previous derivative decisions
which were already effective and continue to be applied in
accordance with their respective effective dates. SFAS 149
had no impact on net income or stockholders equity as of
or for the year ended December 31, 2003.

SFAS 150

In May 2003, the Financial Accounting Standards
Board issued SFAS 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. SFAS 150 establishes standards for how an
issuer classifies and measures freestanding financial
instruments as liabilities or equity and was generally effective
at the beginning of the first interim period after June 30,
2003. A Financial Accounting Standards Board Staff Position has
deferred the application of various provisions of SFAS 150
for specified mandatorily redeemable non-controlling interests
in consolidated limited life entities. The AmerUs Capital I
8.85% Capital Securities were issued through a wholly-owned
subsidiary trust and are mandatorily redeemable securities which
are carried as notes payable on the consolidated balance sheet
with interest expense recorded in the consolidated statement of
income. The adoption of SFAS 150 did not have any effect on
the consolidated financial statements.

FIN 45

In November 2002, the Financial Accounting
Standards Board issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, or FIN 45. FIN 45
clarifies disclosure and recognition and measurement
requirements related to certain guarantees. The disclosure
requirements are effective for financial statements issued after
December 15, 2002 and the recognition and measurement
requirements are effective on a prospective basis for guarantees
issued or modified after December 31, 2002. Adoption of
FIN 45 in 2003 did not have an effect on net income or
stockholders equity. See note 12 to the consolidated
financial statements for disclosures related to our guarantees.

FIN 46

In January 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of ARB 51, or FIN 46. FIN 46 provides
guidance to identify variable interest entities, or VIEs, and
their consolidation by a primary beneficiary. A VIE is defined
as an entity in which either 1) the equity investors, if
any, do not have a controlling financial interest, or
2) the equity investment at risk is insufficient to finance
that entitys activities without receiving additional
subordinated financial support from other parties. An enterprise
whose investment in a VIE absorbs the majority of the VIEs
expected losses or receives a majority of its expected residual
returns is considered a primary beneficiary, although not all
VIEs will have a primary beneficiary. FIN 46 requires
primary

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beneficiaries to consolidate VIEs in their
financial statements and also requires additional disclosures
for enterprises which are not primary beneficiaries but which
have a significant variable interest in a VIE. The provisions of
FIN 46 are effective immediately for VIEs created after
January 31, 2003 and is to be applied in the first interim
period beginning after June 15, 2003 for interests in VIEs
acquired before February 1, 2003. The additional disclosure
is required for financial statements issued after
January 31, 2003.


At December 31, 2002, we held interests in
structured securities arrangements which met the definition of
VIEs; however, most of the interests were sold prior to
June 30, 2003. We would have been considered the primary
beneficiary for several of those structured securities, which if
consolidated at December 31, 2002, would have resulted in
an increase in total assets of $167 million, an increase in
total liabilities of $154 million and an increase in total
stockholders equity of $13 million. At
December 31, 2003, an investment in a limited partnership,
for which we provide indirect management functions, has been
consolidated rather than carried as an equity method investment,
as provided by FIN 46, resulting in an increase in total
assets and total liabilities of $21.1 million and no change
in stockholders equity or net income. In addition, AmerUs
Capital I, a previously consolidated subsidiary which has
issued trust preferred securities, was deconsolidated in 2003 as
AmerUs Group Co. is not considered the primary beneficiary under
FIN 46. Deconsolidation of AmerUs Capital I resulted
in an increase of other assets and notes payable of
$2.7 million and no change in stockholders equity or
net income. See notes 3 and 8 to the consolidated financial
statements for disclosures and additional information related to
our VIE interests.

SFAS 133 Implementation 
Embedded Derivatives

The Financial Accounting Standards Boards
Derivatives Implementation Group issued SFAS 133
Implementation Issue No. B36, Embedded Derivatives:
Bifurcation of a Debt Instrument that Incorporates both Interest
Rate Risk and Credit Risk Exposures that are Unrelated or Only
Partially Related to the Creditworthiness of the Issuer of that
Instrument, or DIG Issue B36. DIG Issue 36 applies to
modified coinsurance and coinsurance with funds withheld
arrangements where interest is determined by reference to a pool
of fixed maturity assets or a total return debt index. Such
arrangements in which funds are withheld by the ceding insurer
cause the reinsurer to recognize a receivable from the ceding
insurer as well as a liability representing reserves for the
insurance coverage assumed under the reinsurance arrangements.
The terms of the reinsurers receivable provide for the
future payment of principal plus a rate of return on either its
general account assets or a specified block of those assets
which is typically composed of fixed-rate debt securities. DIG
Issue B36 considers the reinsurers receivable from the
ceding company to contain an embedded derivative that must be
bifurcated and accounted for separately under SFAS 133. We
adopted DIG Issue B36 on October 1, 2003, which included
the reclassification of certain securities supporting the
products being reinsured from available for sale to trading. The
net cumulative effect of the change in accounting for DIG Issue
B36 was a charge to net income of $1.3 million after income
taxes and a reduction in accumulated other comprehensive income
for the reclassification of securities from available-for-sale
to held for trading amounting to $5.2 million after income
taxes.

SOP 03-1

In July 2003, the Accounting Standards Executive
Committee of the American Institute of Certified Public
Accountants issued Statement of Position 03-1, Accounting
and Reporting by Insurance Enterprises for Certain
Non-Traditional Long-Duration Insurance Contracts and for
Separate Accounts. SOP 03-1 provides interpretive guidance
on separate account presentation and valuation, accounting
recognition for sales inducements, and classification and
valuation of long-duration contract liabilities. The provisions
of SOP 03-1 are effective for financial statements for fiscal
years beginning after December 15, 2003. The adoption of
SOP 03-1 will not have a material effect on net income or
stockholders equity in 2004.






|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

The main objectives in managing our investment
portfolios and our insurance subsidiaries are to maximize
investment income and total investment returns while minimizing
credit risks in order to provide maximum support to the
insurance underwriting operations. Investment strategies are
developed based on

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many factors including asset liability
management, regulatory requirements, fluctuations in interest
rates and consideration of other market risks. Investment
decisions are centrally managed by investment professionals
based on guidelines established by management and approved by
the boards of directors.


Market risk represents the potential for loss due
to adverse changes in the fair value of financial instruments.
The market risks related to our financial instruments primarily
relate to the investment portfolio, which exposes us to risks
related to interest rates, credit quality and prepayment
variation. Analytical tools and monitoring systems are in place
to assess each of these elements of market risk.

Interest rate risk is the price sensitivity of a
fixed income security to changes in interest rates. Management
views these potential changes in price within the overall
context of asset and liability management. Actuarial
professionals estimate the payout pattern of our liabilities,
primarily lapses, to determine duration, which is the present
value of the fixed income investment portfolios after
consideration of the duration of these liabilities and other
factors, which management believes mitigates the overall effect
of interest rate risk.

For variable and equity-indexed products,
profitability on the portion of the policyowners account
balance invested in the fixed general account option, if any, is
also affected by the spreads between interest yields on
investments and rates credited to the policies. For the variable
products, the policyholder assumes essentially all the
investment earnings risk for the portion of the account balance
invested in the separate accounts. For the equity-indexed
products, we purchase primarily call options that are designed
to match the return owed to contract holders who elect to
participate in one or more market indices. Profitability on the
portion of the equity-indexed products tied to market indices is
significantly impacted by the spread on interest earned on
investments and the sum of (1) the cost of underlying call
options purchased to match the returns owed to contract holders
and (2) the minimum interest guarantees owed to the
contract holder, if any. Profitability on the equity-indexed
products is also impacted by changes in the fair value of the
embedded option which provides the contract holder the right to
participate in market index returns after the next anniversary
date of the contract. This impacts profitability as we primarily
purchase one-year call options to fund the returns owed to the
contract holders at the inception of each contract year. This
practice matches with the contract holders rights to
switch to different indices on each anniversary date. The value
of the forward starting options embedded in the equity-indexed
products can fluctuate with changes in assumptions as to future
volatility of the market indices, risk free interest rates,
market returns and the lives of the contracts.

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The following table provides information about
our fixed maturity investments and mortgage loans for both our
trading and other than trading portfolios at December 31,
2003. The table presents amortized cost and related weighted
average interest rates by expected maturity dates. The amortized
cost approximates the cash flows of principal amounts in each of
the periods. The cash flows are based on the earlier of the call
date or the maturity date or, for mortgage-backed securities,
expected payment patterns. Actual cash flows could differ from
the expected amounts.

Expected Cash Flows

|                                                        |       |                 |       |       |  |      |       |       |  |      |      |            |  |          |       |       |  |   |       |       |  |   |       |       |  |   |        |        |  |   |        |        | 
|------------------------------------------------------- | ----- | --------------- | ----- | ----- |  | ---- | ----- | ----- |  | ---- | ---- | ---------- |  | -------- | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                        |       |                 |       |       |  |      |       |       |  |      |      |            |  | Expected |       |      
|                                                        |       |                 |       |       |  |      |       |       |  |      |      |            |  | Cash     |       | Fair 
|                                                        |       | 2004            |       | 2005  |  | 2006 |       | 2007  |  | 2008 |      | Thereafter |  | Flows    |       | Value
|                                                        |       |                 |       |       |  |      |       |       |  |      |      |            |  |          |       |      
|                                                        |       |                
|                                                        |       | ($ in millions)
|Fixed maturity securities available-for-sale            |       | $               | 1,106 |       |  | $    | 1,128 |       |  | $    | 940  |            |  | $        | 1,092 |       |  | $ | 1,213 |       |  | $ | 7,996 |       |  | $ | 13,475 |        |  | $ | 13,945 |       
|Average interest rate                                   |       |                 | 7.1%  |       |  |      | 6.3%  |       |  |      | 7.5% |            |  |          | 6.8%  |       |  |   | 5.2%  |       |  |   | 5.3%  |       |  |   |        |        |  |   |        |       
|Fixed maturity securities held for trading
    purposes |       | $               | 226   |       |  | $    | 292   |       |  | $    | 238  |            |  | $        | 195   |       |  | $ | 289   |       |  | $ | 850   |       |  | $ | 2,090  |        |  | $ | 2,090  |       
|Average interest rate                                   |       |                 | 2.6%  |       |  |      | 2.3%  |       |  |      | 2.4% |            |  |          | 3.3%  |       |  |   | 2.8%  |       |  |   | 4.4%  |       |  |   |        |        |  |   |        |       
|Mortgage loans                                          |       | $               | 64    |       |  | $    | 67    |       |  | $    | 65   |            |  | $        | 64    |       |  | $ | 73    |       |  | $ | 636   |       |  | $ | 969    |        |  | $ | 1,034  |       
|Average interest rate                                   |       |                 | 7.3%  |       |  |      | 7.7%  |       |  |      | 7.7% |            |  |          | 7.6%  |       |  |   | 7.6%  |       |  |   | 7.5%  |       |  |   |        |        |  |   |        |       
|                                                        |       |                 |       |       |  |      |       |       |  |      |      |            |  |          |       |       |  |   |       |       |  |   |       |       |  |   |        |        |  |   |        |       
|                                                        | Total |                 | $     | 1,396 |  |      | $     | 1,487 |  |      | $    | 1,243      |  |          | $     | 1,351 |  |   | $     | 1,575 |  |   | $     | 9,482 |  |   | $      | 16,534 |  |   | $      | 17,069 | 
|                                                        |       |                 |       |       |  |      |       |       |  |      |      |            |  |          |       |       |  |   |       |       |  |   |       |       |  |   |        |        |  |   |        |       

In accordance with our strategy of minimizing
credit quality risk, we consistently invest in high quality
marketable securities. Fixed maturity securities are comprised
of U.S. Treasury, government agency, mortgage-backed and
corporate securities. Approximately 64% of fixed maturity
securities are issued by the U.S. Treasury or
U.S. government agencies or are rated A or better by
Moodys, Standard and Poors, or the NAIC. Less than
8% of the bond portfolio is below investment grade. Fixed
maturity securities have an average maturity of approximately
7.6 years.

Prepayment risk refers to the changes in
prepayment patterns that can either shorten or lengthen the
expected timing of the principal repayments and thus the average
life and the effective yield of a security. Such risk exists
primarily within the portfolio of mortgage-backed securities.
Management monitors such risk regularly. We invest primarily in
those classes of mortgage-backed securities that have average or
lower prepayment risk.

Our use of derivatives is generally limited to
hedging purposes and has principally consisted of using swaps
and options. These instruments, viewed separately, subject us to
varying degrees of market and credit risk. However when used for
hedging, the expectation is that these instruments would reduce
overall market risk. Credit risk arises from the possibility
that counterparties may fail to perform under the terms of the
contracts. See note 4 of the consolidated financial
statements for additional information about our derivative
positions.

Equity price risk is the potential loss arising
from changes in the value of equity securities. In general,
equities have more year-to-year price variability than
intermediate term grade bonds. However, returns over longer time
frames have been consistently higher.

All of the above risks are monitored on an
ongoing basis. A combination of in-house systems and proprietary
models and externally licensed software are used to analyze
individual securities as well as each portfolio. These tools
provide the portfolio managers with information to assist them
in the evaluation of the market risks of the portfolio.






|        |                                                
|------- | -----------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA

The consolidated financial statements begin on
page F-1. Reference is made to the Index to Financial Statements
on page F-1 herein.

58



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Additional financial statement schedules begin on
page S-1. Reference is made to the Index to Financial
Statement Schedules on page S-1 herein.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
    ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.




ITEM 9A.  CONTROLS AND
PROCEDURES



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Based upon their evaluation as of the period
    covered by this Annual Report on Form 10-K, our Chief
    Executive Officer and Chief Financial Officer have concluded
    that our disclosure controls and procedures as defined in
    Rule 13a-15(e) under the Securities Exchange Act of 1934,
    as amended, are effective for recording, processing, summarizing
    and reporting the information we are required to disclose in our
    reports filed under such act.
|   
|(b) | There was no change in our internal control over
    financial reporting during our last fiscal quarter that has
    materially affected, or is reasonably likely to materially
    affect, our internal control over financial reporting.                                                                                                                                                                                                                                     




PART III

The Notice of 2004 Annual Meeting of Shareholders
and Proxy Statement (the Proxy Statement), which, when filed
pursuant to Regulation 14A under the Securities Exchange
Act of 1934, is incorporated by reference in this Annual Report
on Form 10-K pursuant to General Instruction G(3) of
Form 10-K, provides the information required under
Part III (Items 11. Executive Compensation, 12.
Security Ownership of Certain Beneficial Owners and Management,
13. Certain Relationships and Related Transactions and 14.
Principal Accounting Fees and Services).






|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    REGISTRANT



|    |                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Information concerning directors of AmerUs Group
    Co. appears in the Proxy Statement, under Election of
    Directors. This portion of the Proxy Statement is
    incorporated herein by reference.                                                                                                         
|   
|(b) | For information with respect to Executive
    Officers, see Part I of this Annual Report on
    Form 10-K, under Executive Officers of the
    Company.                                                                                                                                                        
|   
|(c) | Information concerning Section 16(a)
    beneficial ownership reporting compliance appears in the Proxy
    Statement, under Section 16(a) Beneficial Ownership
    Reporting Compliance. This portion of the Proxy Statement
    is incorporated herein by reference.                                         
|   
|(d) | Information concerning the identification of the
    audit committee and the audit committee financial expert appears
    in the Proxy Statement, under Board and Corporate
    Governance Matters. This portion of the Proxy Statement is
    incorporated herein by reference.                               
|   
|(e) | Information describing any material changes to
    the procedures by which security holders may recommend nominees
    to the board of directors appears in the Proxy Statement, under
    Board and Corporate Governance Matters. This portion
    of the Proxy Statement is incorporated herein by reference.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
    REPORTS ON FORM 8-K



|        |                                                                                    
|------- | -----------------------------------------------------------------------------------
|(a)  1. | Financial Statements. Reference is made to the
    Index on page F-1 of the report.



| |    |                                                                                             
| | -- | --------------------------------------------------------------------------------------------
| | 2. | Financial Statement Schedules. Reference is made
    to the Index on page S-1 of the report.

59



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##### Table of Contents





| |    |                                                                                   
| | -- | ----------------------------------------------------------------------------------
| | 3. | Exhibits. Reference is made to the Index to
    Exhibits on page 61 of the report.



|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|(b) | The following reports on Form 8-K were filed
    during the quarter ended December 31, 2003:



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Form 8-K dated October 2, 2003
    furnishing the presentation on equity index annuities and equity
    index life insurance made by webcast on September 30, 2003.
|
| | Form 8-K dated November 5, 2003
    furnishing certain third quarter 2003 financial information.                                                                   
|
| | Form 8-K dated November 7, 2003
    announcing the appointments of personnel and action of the board
    of directors declaring the 2003 annual dividend.          

60



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AMERUS GROUP CO. AND SUBSIDIARIES




INDEX TO EXHIBITS

|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ---- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|No.     |      | Description
|        |      |            
|        | 2.1  |             |  | Combination and Investment Agreement, dated
    February 18, 2000, among American Mutual Holding Company,
    AmerUs Life Holdings, Inc., Indianapolis Life
    Insurance Company and The Indianapolis Life Group of
    Companies, Inc., filed as Exhibit 2.1 to AmerUs Life
    Holdings, Inc.s report on Form 8-K/ A on
    March 6, 2000, is hereby incorporated by reference.                                                                   
|       
|        | 2.2  |             |  | Purchase Agreement, dated as of February 18,
    2000, by and between American Mutual Holding Company and AmerUs
    Life Holdings, Inc., filed as Exhibit 2.5 on
    Form 10-K, dated March 8, 2000, is hereby incorporated
    by reference.                                                                                                                                                                                                        
|       
|        | 2.3  |             |  | Agreement and Plan of Merger, dated
    December 17, 1999, by and between American Mutual Holding
    Company and AmerUs Life Holdings, Inc., filed as
    Exhibit 2.6 on Form 10-K, dated March 8, 2000, is
    hereby incorporated by reference.                                                                                                                                                                                                    
|       
|        | 2.4  |             |  | Amendment No. 1 to Agreement and Plan of
    Merger, dated February 18, 2000, by and between American
    Mutual Holding Company and AmerUs Life Holdings, Inc.,
    filed as Exhibit 2.7 on Form 10-K, dated March 8,
    2000, is hereby incorporated by reference.                                                                                                                                                                                 
|       
|        | 2.5  |             |  | Letter Agreement, dated December 17, 1999,
    by and between American Mutual Holding Company and AmerUs Life
    Holdings, Inc., filed as Exhibit 2.8 on
    Form 10-K, dated March 8, 2000, is hereby incorporated
    by reference.                                                                                                                                                                                                                
|       
|        | 2.6  |             |  | Notification Agreement, dated as of
    February 18, 2000, by and among American Mutual Holding
    Company, AmerUs Life Holdings, Inc. and Bankers Trust
    Company, filed as Exhibit 2.9 on Form 10-K, dated
    March 8, 2000, is hereby incorporated by reference.                                                                                                                                                                               
|       
|        | 2.7  |             |  | Amendment No. 2 to Agreement and Plan of
    Merger, dated April 3, 2000, by and between American Mutual
    Holding Company and AmerUs Life Holdings, Inc., filed as
    Exhibit 2.10 on Form 10-Q, dated May 15, 2000, is
    hereby incorporated by reference.                                                                                                                                                                                     
|       
|        | 2.8  |             |  | Amendment No. 1 to the Purchase Agreement,
    dated April 3, 2000, by and between American Mutual Holding
    Company and AmerUs Life Holdings, Inc., filed as
    Exhibit 2.11 on Form 10-Q, dated May 15, 2000, is
    hereby incorporated by reference.                                                                                                                                                                                           
|       
|        | 2.9  |             |  | Amendment to Combination and Investment Agreement
    dated February 18, 2000 among American Mutual Holding
    Company, AmerUs Life Holdings, Inc., Indianapolis Life
    Insurance Company and The Indianapolis Life Group of
    Companies, Inc., dated September 18, 2000, filed as
    Exhibit 2.2 to Form 8-K12G3 of the Registrant dated
    September 21, 2000, is hereby incorporated by reference.                                          
|       
|        | 2.10 |             |  | Stock Purchase Agreement, dated January 1,
    2002, by and among AmerUs Annuity Group Co., and the
    Stockholders of Family First Advanced Estate Planning and Family
    First Insurance Services, files as Exhibit 2.13 on
    Form 10-Q dated August 12, 2002, is hereby
    incorporated by reference.                                                                                                                                         
|       
|        | 3.1  |             |  | Amended and Restated Articles of Incorporation of
    the Registrant filed as Exhibit 3.1 on Form 10-Q,
    dated November 14, 2000 is hereby incorporated by reference.                                                                                                                                                                                                                                                                              
|       
|        | 3.2  |             |  | Amended and Restated Bylaws of the Registrant,
    filed as Exhibit 4.2 on Form S-8, dated June 13,
    2003, is hereby incorporated by reference.                                                                                                                                                                                                                                                                                                    
|       
|        | 4.1  |             |  | Amended and Restated Trust Agreement dated as of
    February 3, 1997 among AmerUs Life Holdings, Inc.,
    Wilmington Trust Company, as property trustee, and the
    administrative trustees named therein (AmerUs Capital I
    business trust), filed as Exhibit 3.6 to the registration
    statement of AmerUs Life Holdings, Inc. and AmerUs
    Capital I on Form S-1, Registration
    Number 333-13713, is hereby incorporated by reference.

61



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|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|No.     |      | Description
|        |      |            
|        | 4.2  |             |  | Indenture dated as of February 3, 1997
    between AmerUs Life Holdings, Inc. and Wilmington Trust
    Company relating to the Companys 8.85% Junior Subordinated
    Debentures, Series A, filed as Exhibit 4.1 to the
    registration statement of AmerUs Life Holdings, Inc. and
    AmerUs Capital I on Form S-1, Registration Number,
    333-13713, is hereby incorporated by reference.                                                  
|       
|        | 4.3  |             |  | Guaranty Agreement dated as of February 3,
    1997 between AmerUs Life Holdings, Inc., as guarantor, and
    Wilmington Trust Company, as trustee, relating to the 8.85%
    Capital Securities, Series A, issued by AmerUs
    Capital I, filed as Exhibit 4.4 to the registration
    statement on Form S-1, Registration Number, 333-13713, is
    hereby incorporated by reference.                                                          
|        | 4.4  |             |  | Certificate of Trust of AmerUs Capital III
    filed as Exhibit 4.7 to the registration statement of
    AmerUs Life Holdings, Inc., AmerUs Capital II and
    AmerUs Capital III, on Form S-3 (No. 333-50249), is
    hereby incorporated by reference.                                                                                                                                                                                          
|       
|        | 4.5  |             |  | Senior Indenture, dated as of June 16, 1998,
    by and between AmerUs Life Holdings, Inc. and First Union
    National Bank, as Indenture Trustee, relating to the AmerUs Life
    Holdings, Inc.s 6.95% Senior Notes, filed as
    Exhibit 4.14 on Form 10-Q, dated August 13, 1998,
    is hereby incorporated by reference.                                                                                                                  
|       
|        | 4.6  |             |  | Subordinated Indenture, dated as of July 27,
    1998, by and between AmerUs Life Holdings, Inc. and First
    Union National Bank, as Indenture Trustee, relating to AmerUs
    Life Holdings, Inc.s 6.86% Junior Subordinated
    Deferrable Interest Debentures, filed as Exhibit 4.15 on
    Form 10-Q, dated August 13, 1998, is hereby
    incorporated by reference.                                                                      
|       
|        | 4.7  |             |  | First Supplement to Indenture dated
    February 3, 1997 among American Mutual Holding Company,
    AmerUs Life Holdings, Inc. and Wilmington Trust Company as
    Trustee, relating to the Companys 8.85% Junior
    Subordinated Debentures, Series A, dated September 20,
    2000, filed as Exhibit 4.14 on Form 10-Q dated
    November 14, 2000, is hereby incorporated by reference.                                                      
|       
|        | 4.8  |             |  | Assignment and Assumption Agreement to Amended
    and Restated Trust Agreement, dated February 3, 1997
    between American Mutual Holding Company and AmerUs Life
    Holdings, Inc., dated September 20, 2000, filed as
    Exhibit 4.15 on Form 10-Q dated November 14,
    2000, is hereby incorporated by reference.                                                                                                                        
|       
|        | 4.9  |             |  | Assignment and Assumption to Guaranty Agreement,
    dated February 3, 1997 between American Mutual Holding
    Company and AmerUs Life Holdings, Inc., dated
    September 20, 2000, filed as Exhibit 4.16 on
    Form 10-Q, dated November 14, 2000, is hereby
    incorporated by reference.                                                                                                                                                   
|       
|        | 4.10 |             |  | First Supplement to Subordinated Indenture, dated
    July 27, 1998, relating to AmerUs Life
    Holdings, Inc.s 6.86% Junior Subordinated Deferrable
    Interest Debentures, among American Mutual Holding Company,
    AmerUs Life Holdings, Inc. and First Union National Bank,
    as Indenture Trustee, dated September 20, 2000, filed as
    Exhibit 4.17 on Form 10-Q, dated November 14,
    2000, is hereby incorporated by reference.
|       
|        | 4.11 |             |  | First Supplement to Purchase Contracts between
    American Mutual Holding Company and Holders, as specified, dated
    September 20, 2000, filed as Exhibit 4.21 on
    Form 10-Q, dated November 14, 2000, is hereby
    incorporated by reference.                                                                                                                                                                                             
|       
|        | 4.12 |             |  | First Supplement to Senior Indenture dated
    June 16, 1998, relating to AmerUs Life
    Holdings, Inc.s 6.95% Senior Notes, among
    American Mutual Holding Company, AmerUs Life Holdings, Inc.
    and First Union National Bank, as Trustee, dated
    September 20, 2000, filed as Exhibit 4.23 on
    Form 10-Q, dated November 14, 2000, is hereby
    incorporated by reference.                                                       
|       
|        | 4.13 |             |  | Indenture dated as of March 6, 2002 between
    AmerUs Group Co. and BNY Midwest Trust Company, as Trustee,
    filed as Exhibit 4.1 on form 8-K/ A, dated
    February 28, 2002, is hereby incorporated by reference.                                                                                                                                                                                                                            
|       
|        | 4.14 |             |  | Registration Rights Agreement dated as of
    March 6, 2002 between AmerUs Group Co. and 2002, is hereby
    incorporated by reference.                                                                                                                                                                                                                                                                                                           

62



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|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ---- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|No.     |      | Description
|        |      |            
|        | 4.15 |             |  | Form of Purchase Contract Agreement between
    AmerUs Group Co. and Wachovia Bank, National Association
    (formerly known as First Union National Bank), as Purchase
    Contract Agent, filed as Exhibit 4.1 on Form 8-A12B,
    dated May 22, 2003, is hereby incorporated by reference.                                                                                                   
|       
|        | 4.16 |             |  | Form of Pledge Agreement among AmerUs Group Co.,
    BNY Midwest Trust Company, as Collateral Agent, Custodial Agent
    and Securities Intermediary and Wachovia Bank, National
    Association (formerly known as First union National Bank), as
    Purchase Contract Agent, filed as Exhibit 4.2 on Form
    8-A12B dated May 22, 2003, is hereby incorporated by
    reference.            
|       
|        | 4.17 |             |  | Form of Remarketing Agreement among AmerUs Group
    Co., Wachovia Bank, National Association (formerly known as
    First Union National Bank), as Purchase Contract Agent, and the
    Remarketing Agent named therein, filed as Exhibit 4.3 on
    Form 8-A12B dated May 22, 2003, is hereby incorporated
    by reference.                                                                  
|       
|        | 4.18 |             |  | Form of Income PRIDES (included in
    Exhibit 4.1 as Exhibit A thereto), filed as
    Exhibit 4.1 on Form 8-A12B, dated May 22, 2003,
    is hereby incorporated by reference.                                                                                                                                                                                                                 
|       
|        | 4.19 |             |  | Officers Certificate attaching form of
    Senior Notes initially due 2008, filed as Exhibit 4.7 on
    Form 8-A12B, dated May 22, 2003, is hereby
    incorporated by reference.                                                                                                                                                                                                              
|       
|        | 4.20 |             |  | Form of Purchase Agreement between AmerUs Group
    Co. and Merrill Lynch, Pierce, Fenner & Smith
    Incorporated, filed as Exhibit 1.1 on For 8-K, dated as of
    May 28, 2003, is hereby incorporated by reference.                                                                                                                                                                         
|       
|        | 10.1 |             |  | Joint Venture Agreement, dated as of
    June 30, 1996, between American Mutual Insurance Company
    and Ameritas Life Insurance Corp., filed as Exhibit 10.2 on
    Form 10-K, dated March 25, 1998, is hereby
    incorporated by reference.                                                                                                                                                 
|       
|        | 10.2 |             |  | Management and Administration Service Agreement,
    dated as of April 1, 1996, among American Mutual Life
    Insurance Company, Ameritas Variable Life Insurance Company and
    Ameritas Life Insurance Corp., filed as Exhibit 10.3 to the
    registration statement of AmerUs Life Holdings, Inc. on
    Form S-1, Registration Number 333-12239, is hereby
    incorporated by reference.
|       
|        | 10.3 |             |  | AmerUs Life Holdings, Inc. Executive Stock
    Purchase Plan, dated November 13, 1998, filed as
    Exhibit 4.11 to the registration statement of AmerUs Life
    Holdings, Inc. on Form S-8, Registration
    Number 333-72237, is hereby incorporated by reference.                                                                                                                           
|       
|        | 10.4 |             |  | AllrAmerUs Supplemental Executive Retirement
    Plan, effective January 1, 1996, filed as Exhibit 10.6
    to the registration statement of AmerUs Life Holdings, Inc.
    on Form S-1, Registration Number 333-12239, is hereby
    incorporated by reference.                                                                                                                                
|       
|        | 10.5 |             |  | Management Incentive Plan, filed as
    Exhibit 10.9 to the registration statement of AmerUs Life
    Holdings, Inc. on Form S-1, Registration
    Number 333-12239, is hereby incorporated by reference.                                                                                                                                                                                       
|       
|        | 10.6 |             |  | AmerUs Life Insurance Company Performance Share
    Plan, filed as Exhibit 10.10 to the registration statement
    of AmerUs Life Holdings, Inc. on Form S-1,
    Registration Number 333-12239, is hereby incorporated by
    reference.                                                                                                                                                       
|       
|        | 10.7 |             |  | AmerUs Life Stock Incentive Plan, filed as
    Exhibit 10.11 to the registration statement of AmerUs Life
    Holdings, Inc. on Form S-1, Registration
    Number 333-12239, is hereby incorporated by reference.                                                                                                                                                                               
|       
|        | 10.8 |             |  | AmerUs Life Non-Employee Director Stock Plan,
    filed as Exhibit 10.13 to the registration statement of
    AmerUs Life Holdings, Inc. on Form S-1, Registration
    Number 333-12239, is hereby incorporated by reference.                                                                                                                                                                   
|       
|        | 10.9 |             |  | Form of Indemnification Agreement executed with
    directors and certain officers, filed as Exhibit 10.33 to
    the registration statement of AmerUs Life Holdings, Inc. on
    Form S-1, Registration Number 333-12239, is hereby
    incorporated by reference.                                                                                                                             

63



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|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ----- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 10.10 |             |  | AmVestors Financial Corporation 1996 Incentive
    Stock Option Plan, filed as Exhibit (4)(a) to Registration
    Statement of AmVestors Financial Corporation on Form S-8,
    Registration Number 333-14571 dated October 21, 1996,
    is hereby incorporated by reference.                                                                                                                                                               
|       
|        | 10.11 |             |  | AmerUs Group Co. Amended and Restated MIP
    Deferral Plan dated as of May 10, 2001 filed as
    Exhibit 10.12 on Form 10-K dated March 15, 2002,
    is hereby incorporated by reference.                                                                                                                                                                                                                                                  
|       
|        | 10.12 |             |  | Open Line of Credit Application and Terms
    Agreement, dated March 5, 1999, between Federal Home
    Loan Bank of Des Moines and AmerUs Life Insurance Company,
    filed as Exhibit 10.34 on Form 10-Q dated May 14,
    1999, is hereby incorporated by reference.                                                                                                                                                                       
|       
|        | 10.13 |             |  | Facility and Guaranty Agreement, dated
    February 12, 1999, among The First National Bank of Chicago
    and AmerUs Life Holdings, Inc., filed as Exhibit 10.39
    on Form 10-Q dated May 14, 1999, is hereby
    incorporated by reference.                                                                                                                                                                                              
|       
|        | 10.14 |             |  | Form of Reimbursement Agreement, dated
    February 15, 1999, among AmerUs Life Holdings, Inc.
    and Roger K. Brooks, Victor N. Daley, Thomas C. Godlasky, Marcia
    S. Hanson, Mark V. Heitz and Gary R. McPhail, filed as
    Exhibit 10.40 on Form 10-Q dated May 14, 1999, is
    hereby incorporated by reference.                                                                                                                   
|       
|        | 10.15 |             |  | Amendment No. 1 to Facility Agreement, dated
    March 23, 1999, among The First National Bank of Chicago
    and AmerUs Life Holdings, Inc., filed as Exhibit 10.41
    on Form 10-Q dated May 14, 1999, is hereby
    incorporated by reference.                                                                                                                                                                                           
|       
|        | 10.16 |             |  | 1999 Non-Employee Stock Option Plan, dated
    April 19, 1999, filed on Form S-3, Registration
    Number 333-72643, is hereby incorporated by reference.                                                                                                                                                                                                                                                                                    
|       
|        | 10.17 |             |  | Amendment No. 2 to Facility Agreement, dated
    January 25, 2000, among The First National Bank of Chicago
    and the Registrant, filed as Exhibit 10.44 on
    Form 10-K, dated March 8, 2000, is hereby incorporated
    by reference.                                                                                                                                                                                                   
|       
|        | 10.18 |             |  | Amendment No. 3 to Facility Agreement dated
    December 12, 2001, among the First National Bank of Chicago
    and the Registrant filed as Exhibit 10.19 on Form 10-K
    dated March 15, 2002, is hereby incorporated by reference.                                                                                                                                                                                                        
|       
|        | 10.19 |             |  | Irrevocable Standby Letter of Credit Application
    and Terms Agreement, dated February 1, 2000, between
    Federal Home Loan Bank of Des Moines and AmerUs Life
    Insurance Company, filed as Exhibit 10.45 on
    Form 10-K, dated March 8, 2000, is hereby incorporated
    by reference.                                                                                                                                             
|       
|        | 10.20 |             |  | Investment Advisory Agreements, dated as of
    February 18, 2000, by and between Indianapolis Life
    Insurance Company, Bankers Life Insurance Company of
    New York, IL Annuity and Insurance Company and AmerUs
    Capital Management Group, Inc. filed as
    Exhibits 10.1,10.3, 10.4 and 10.2, respectively, to AmerUs
    Life Holdings, Inc.s report on Form 8-K/ A on
    March 6, 2000, are hereby incorporated by reference.
|       
|        | 10.21 |             |  | Advance, Pledge and Security Agreement, dated
    April 12, 2000, by and between the Federal Home
    Loan Bank of Topeka and American Investors Life Insurance
    Company, Inc., filed as Exhibit 10.48 on
    Form 10-Q, dated May 15, 2000, is hereby incorporated
    by reference.                                                                                                                                                     
|       
|        | 10.22 |             |  | Institutional Custody Agreement, dated
    April 12, 2000, by and between the Federal Home
    Loan Bank of Topeka and American Investors Life Insurance
    Company, Inc., filed as Exhibit 10.49 on
    Form 10-Q, dated May 15, 2000, is hereby incorporated
    by reference.                                                                                                                                                            
|       
|        | 10.23 |             |  | Line of Credit Application, dated April 12,
    2000, by and between the Federal Home Loan Bank of Topeka
    and American Investors Life Insurance Company, Inc., filed
    as Exhibit 10.50 on Form 10-Q, dated May 15,
    2000, is hereby incorporated by reference.                                                                                                                                                                     
|       
|        | 10.24 |             |  | Agreement for Advances, Pledge and Security
    Agreement, dated March 12, 1992, by and between Central
    Life Assurance Company and the Federal Home Loan Bank of
    Des Moines, filed as Exhibit 10.53 on Form 10-Q, dated
    May 15, 2000, is hereby incorporated by reference.                                                                                                                                                       

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|        |        |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ------ | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|No.     |        | Description
|        |        |            
|        | 10.25  |             |  | Agreement for Advances, Pledge and Security
    Agreement, dated September 1, 1995, by and between American
    Vanguard Life Insurance Company and the Federal Home
    Loan Bank of Des Moines, filed as Exhibit 10.54 on
    Form 10-Q, dated May 15, 2000, is hereby incorporated
    by reference.                                                                                                                                                                       
|       
|        | 10.26  |             |  | Affirmation Agreement to Facility and Guaranty
    Agreement dated February 12, 1999 by American Mutual
    Holding Company, survivor of a merger with AmerUs Life
    Holdings, Inc. in favor of the Agent and the Lenders, dated
    September 20, 2000, filed as Exhibit 10.58 on
    Form 10-Q, dated November 14, 2000, is hereby
    incorporated by reference.                                                                                                         
|       
|        | 10.27  |             |  | Amendment to Facility and Guaranty Agreement
    dated February 12, 1999 among The First National Bank of
    Chicago and AmerUs Group Co., dated September 20, 2000,
    filed as Exhibit 10.59 on Form 10-Q, dated
    November 14, 2000, is hereby incorporated by reference.                                                                                                                                                                                              
|       
|        | 10.28  |             |  | AmerUs Group Co. 2000 Stock Incentive Plan, dated
    November 15, 2000, filed as Exhibit 99.9 to the
    registration statement of AmerUs Group Co. on Form S-8,
    Registration Number 333-50030, is hereby incorporated by
    reference.                                                                                                                                                                                                                                 
|       
|        | 10.29* |             |  | Credit Agreement dated December 8, 2003,
    among AmerUs Group Co., Various Lending Institutions, the Bank
    of New York, Bank One, NA, Fleet National Bank and Mellon
    Bank, N.A. as Co-Syndication Agents and J P Morgan Chase Bank as
    Administrative Agent.                                                                                                                                                                                                      
|       
|        | 10.30  |             |  | Consent dated as of March 15, 2002, among
    AmerUs Group Co., the lending institutions party hereto, The
    Bank of New York, Mellon Bank N.A. and Fleet National Bank
    as Co-Arrangers and JPMorgan Chase Bank as Administrative Agent
    and Co-Arranger, filed as Exhibit 10.36 on Form 10-Q
    dated May 14, 2002, is hereby incorporated by reference.                                                                                                           
|       
|        | 10.31  |             |  | Amendment No. 1 to Joint Venture Agreement,
    dated April 1, 2002, by and between Ameritas Life Insurance
    Corp. and AmerUs Life Insurance Company filed as
    Exhibit 10.37 on Form 10-Q dated August 12, 2002
    is hereby incorporated by reference.                                                                                                                                                                                                                
|       
|        | 10.32  |             |  | Distribution Commitment Agreement for Variable
    Business, dated April 1, 2002, by and between AmerUs Group
    Co. and Ameritas Variable Life Insurance Company filed as
    Exhibit 10.38 on Form 10-Q dated August 12, 2002
    is hereby incorporated by reference.                                                                                                                                                                                                     
|       
|        | 10.33  |             |  | Amendment No. 4 to Facility Agreement dated
    February 12, 1999 by and among AmerUs Group Co. and Bank
    One, NA (f/k/a The First National Bank of Chicago), dated
    June 30, 2002 filed as Exhibit 10.39 on Form 10-Q
    dated August 12, 2002 is hereby incorporated by reference.                                                                                                                                                                                   
|       
|        | 10.34  |             |  | Supplemental Benefit Agreement among AmerUs Group
    Co. and Melinda S. Urion dated March 4, 2002 filed as
    Exhibit 10.1 on Form 10-Q dated November 13, 2002
    is hereby incorporated by reference.                                                                                                                                                                                                                                                                    
|       
|        | 10.35  |             |  | Retirement Agreement, dated March 14, 2000,
    by and between Victor N. Daley and AmerUs Life
    Holdings, Inc., filed as Exhibit 99.8 on
    Form 10-Q, dated May 15, 2000, is hereby incorporated
    by reference.                                                                                                                                                                                                                                                       
|       
|        | 10.36  |             |  | First Amendment to Employment Agreement, dated as
    of April 15, 1999, to the Employment Agreement dated as of
    September 19, 1997, among Mark V. Heitz, AmVestors
    Financial Corporation, American Investors Life Insurance
    Company, Inc., AmVestors Investment Group, Inc.,
    American Investors Sales Group, Inc., and AmerUs Life
    Holdings, Inc., filed as Exhibit 99.4 on
    Form 10-Q dated August 13, 1999, is hereby
    incorporated by reference.
|       
|        | 10.37  |             |  | Supplemental Benefit Agreement, dated as of
    April 15, 1999, among Roger K. Brooks and AmerUs Life
    Holdings, Inc., filed as Exhibit 99.5 on 10-Q dated
    August 13, 1999, is hereby incorporated by reference.                                                                                                                                                                                                                                                       
|       
|        | 10.38  |             |  | Form of Supplemental Benefit Agreement, dated as
    of April 15, 1999, among AmerUs Life Holdings, Inc.
    and Victor N. Daley, Thomas C. Godlasky and Gary R. McPhail,
    filed as Exhibit 99.6 on Form 10-Q dated
    August 13, 1999, is hereby incorporated by reference.                                                                                                                                                                                              

65



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|        |        |             |  |                                                                                                                                                                                                                                                                                                                                      
|------- | ------ | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|No.     |        | Description
|        |        |            
|        | 10.39  |             |  | Form of Supplemental Benefit Agreement, dated as
    of February 7, 2000, among AmerUs Life Holdings, Inc.
    and Victor N. Daley, Thomas C. Godlasky and Gary R. McPhail,
    filed as Exhibit 99.7 on Form 10-K, dated
    March 8, 2000 is hereby incorporated by reference.                                                     
|       
|        | 10.40  |             |  | AllrAmerUs Supplemental Executive Retirement Plan
    filed as Exhibit 4.3 to the registration statement on
    Form S-8, Registration Number 333-101961, is hereby
    incorporated by reference.                                                                                                                                   
|       
|        | 10.41  |             |  | Form of Supplemental Benefit Agreement, dated
    February 3, 2003, among AmerUs Group Co. and Roger K.
    Brooks, Brian J. Clark, Victor N. Daley, Thomas C. Godlasky,
    Mark V. Heitz, Gary R. McPhail, and Melinda S. Urion, filed as
    Exhibit 10.1 on Form 10-Q dated May 15, 2003 is
    hereby incorporated by reference.
|       
|        | 10.42  |             |  | Tax Allocation and Indemnification Agreement
    dated as of July 1, 2000, filed as Exhibit 10.2 on
    Form 10-Q dated May 15, 2003 is hereby incorporated by
    reference.                                                                                                                                                        
|       
|        | 10.43* |             |  | AmerUs Group Co. 2003 Stock Incentive Plan as
    amended.                                                                                                                                                                                                                                                                           
|       
|        | 10.44  |             |  | AmerUs Group Co. MIP Deferral Plan, filed as
    Exhibit 4.3 on Form S-8 dated June 27, 2003, is
    hereby incorporated by reference.                                                                                                                                                                                               
|       
|        | 11.1*  |             |  | Statement Re: Computation of Per Share Earnings
    is included in note 18 to the consolidated financial
    statements.                                                                                                                                                                                                             
|       
|        | 12*    |             |  | Computation of Ratios of Earnings to Fixed
    Charges.                                                                                                                                                                                                                                                                              
|       
|        | 21.1*  |             |  | List of Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                              
|       
|        | 23.1*  |             |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                                                        
|       
|        | 31.1*  |             |  | Certification of Chief Executive Officer of
    Periodic Report Pursuant to Rule 13a-15(e) or
    Rule 15(d)-15(e).                                                                                                                                                                                                                  
|       
|        | 31.2*  |             |  | Certification of Chief Financial Officer of
    Periodic Report Pursuant to Rule 13a-15(e) or
    Rule 15(d)-15(e).                                                                                                                                                                                                                  
|       
|        | 32.1*  |             |  | Certification of Chief Executive Officer of
    Periodic Report Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                  
|       
|        | 32.2*  |             |  | Certification of Chief Financial Officer of
    Periodic Report Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                  



---



|  |                
|- | ---------------
|* | included herein

66



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                     
| | ------------------------------------
| | AMERUS GROUP CO.                    
|
|
| | /s/ ROGER K. BROOKS                 
| |                                     
| | Roger K. Brooks                     
| | Chairman and Chief Executive Officer

Date: March 12, 2004




POWER OF ATTORNEY

We, the undersigned officers and directors of
AmerUs Group Co., hereby severally and individually constitute
and appoint Melinda S. Urion, Brenda J. Cushing and James A.
Smallenberger, and each of them, the true and lawful attorneys
and agents of each of us to execute in the name, place and stead
of each of us (individually and in any capacity stated below)
any and all amendments to this Annual Report on Form 10-K
and all instruments necessary or advisable in connection
therewith and to file the same with the Securities and Exchange
Commission, each of said attorneys and agents to have the power
to act with or without the others and to have full power and
authority to do and perform in the name and on behalf of each of
the undersigned every act whatsoever necessary or advisable to
be done on the premises as fully and to all intents and purposes
as any of the undersigned might or could do in person, and we
hereby ratify and confirm our signatures as they may be signed
by said attorneys and agents or each of them to any and all such
amendments and instruments.

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

|                                               |  |                                                                                                  
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|                                              
|/s/ ROGER K. BROOKSRoger K. Brooks             |  | Chairman and Chief Executive Officer (principal
    executive officer) and Director              
|                                              
|/s/ THOMAS C. GODLASKYThomas C. Godlasky       |  | President and Chief Operating Officer and Director                                               
|                                              
|/s/ MELINDA S. UNIONMelinda S. Urion           |  | Executive Vice President, Chief Financial Officer
    and Treasurer (principal financial officer)
|                                              
|/s/ BRENDA J. CUSHINGBrenda J. Cushing         |  | Senior Vice President and Controller (principal
    accounting officer)                          
|                                              
|/s/ JOHN R. ALBERSJohn R. Albers               |  | Director                                                                                         
|                                              
|/s/ DAVID A. ARLEDGEDavid A. Arledge           |  | Director                                                                                         
|                                              
|/s/ ALECIA A. DECOUDREAUXAlecia A. DeCoudreaux |  | Director                                                                                         

67



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##### Table of Contents



|                                             |  |         
|-------------------------------------------- |  | --------
|                                            
|/s/ THOMAS F. GAFFNEYThomas F. Gaffney       |  | Director
|                                            
|/s/ JOHN W. NORRIS, JR.John W. Norris, Jr.   |  | Director
|                                            
|/s/ ANDREW J. PAINE, JR.Andrew J. Paine, Jr. |  | Director
|                                            
|/s/ JACK C. PESTERJack C. Pester             |  | Director
|                                            
|/s/ JOHN A. WINGJohn A. Wing                 |  | Director
|                                            
|/s/ F. A. WITTERN, JR.F. A. Wittern, Jr.     |  | Director

68



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##### Table of Contents



AMERUS GROUP CO.



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS


|                                                                                                         |  |  |                   | 
|-------------------------------------------------------------------------------------------------------- |  |  | ----------------- | 
|Independent Auditors Report                                                                             |  |  | F-2               | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                         |  |  | F-3 through F-4   | 
|Consolidated Statements of Income for the Years
    Ended December 31, 2003, 2002 and 2001               |  |  | F-5               | 
|Consolidated Statements of Comprehensive Income
    for the Years Ended December 31, 2003, 2002 and 2001 |  |  | F-6               | 
|Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2003, 2002 and 2001 |  |  | F-7               | 
|Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2003, 2002 and 2001           |  |  | F-8 through F-10  | 
|Notes to Consolidated Financial Statements                                                               |  |  | F-11 through F-59 | 

Separate financial statements of subsidiaries not
consolidated and 50% or less owned persons accounted for by the
equity method have been omitted because they do not individually
constitute a significant subsidiary.

F-1



---



##### Table of Contents



REPORT OF ERNST & YOUNG
LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders

AmerUs Group Co.


We have audited the accompanying consolidated
balance sheets of AmerUs Group Co. as of December 31, 2003
and 2002, and the related consolidated statements of income,
comprehensive income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2003. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of AmerUs Group Co. as of
December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States.

As described in note 1 to the consolidated
financial statements, in 2003 the Company changed its method of
accounting for embedded derivatives associated with certain
reinsurance agreements, in 2002 the Company changed its method
of accounting for goodwill and other intangibles and in 2001 the
Company changed its method of accounting for derivative
instruments and its method of accounting for its closed block of
business.



| |                       
| | ----------------------
| | (-s-ERNST & YOUNG LLP)

Des Moines, Iowa

February 6, 2004


F-2



---



##### Table of Contents



AMERUS GROUP CO.

CONSOLIDATED BALANCE SHEETS

($ in thousands)


|                                     |                                                         |                           |                   |         |            |            |         |         |            |            | 
|------------------------------------ | ------------------------------------------------------- | ------------------------- | ----------------- | ------- | ---------- | ---------- | ------- | ------- | ---------- | ---------- | 
|                                     |                                                         |                          
|                                     |                                                         | December 31,             
|                                     |                                                         |                          
|                                     |                                                         | 2003                      |                   | 2002   
|                                     |                                                         |                           |                   |        
|Assets                               |                                                         |                           |                   |         |            |            |         |        
|Investments:                         |                                                         |                           |                   |         |            |            |         |        
|                                     | Securities available-for-sale at fair value:            |                           |                   |         |            |            |         |         |           
|                                     |                                                         | Fixed maturity securities |                   | $       | 13,944,961 |            |         | $       | 13,328,902 |           
|                                     |                                                         | Equity securities         |                   |         | 74,890     |            |         |         | 63,345     |           
|                                     |                                                         | Short-term investments    |                   |         | 28,556     |            |         |         | 32,318     |           
|                                     | Securities held for trading purposes at fair
    value: |                           |                   |         |            |            |         |         |           
|                                     |                                                         | Fixed maturity securities |                   |         | 2,089,502  |            |         |         | 1,843,868  |           
|                                     |                                                         | Equity securities         |                   |         | 1,652      |            |         |         |           |           
|                                     |                                                         | Short-term investments    |                   |         | 591        |            |         |         |           |           
|                                     | Mortgage loans                                          |                           |                   | 968,572 |            |            |         | 883,034 |           
|                                     | Real estate                                             |                           |                   | 33      |            |            |         | 476     |           
|                                     | Policy loans                                            |                           |                   | 494,646 |            |            |         | 496,753 |           
|                                     | Other investments                                       |                           |                   | 339,436 |            |            |         | 283,794 |           
|                                     |                                                         |                           |                   |         |            |            |         |        
|                                     |                                                         |                           | Total investments |         |            | 17,942,839 |         |         |            | 16,932,490 | 
|Cash and cash equivalents            |                                                         |                           | 274,150           |         |            |            | 102,612 |        
|Accrued investment income            |                                                         |                           | 205,492           |         |            |            | 185,660 |        
|Premiums, fees and other receivables |                                                         |                           | 42,761            |         |            |            | 13,082  |        
|Reinsurance receivables              |                                                         |                           | 663,452           |         |            |            | 865,930 |        
|Deferred policy acquisition costs    |                                                         |                           | 1,120,130         |         |            |            | 884,239 |        
|Value of business acquired           |                                                         |                           | 419,582           |         |            |            | 454,159 |        
|Goodwill                             |                                                         |                           | 224,075           |         |            |            | 218,995 |        
|Property and equipment               |                                                         |                           | 48,849            |         |            |            | 74,188  |        
|Other assets                         |                                                         |                           | 311,305           |         |            |            | 296,994 |        
|Separate account assets              |                                                         |                           | 261,657           |         |            |            | 235,913 |        
|Assets of discontinued operations    |                                                         |                           | 27,950            |         |            |            | 29,403  |        
|                                     |                                                         |                           |                   |         |            |            |         |        
|                                     |                                                         |                           | Total assets      |         | $          | 21,542,242 |         |         | $          | 20,293,665 | 
|                                     |                                                         |                           |                   |         |            |            |         |        

See accompanying notes to consolidated financial
statements.

F-3



---



##### Table of Contents



AMERUS GROUP CO.

CONSOLIDATED BALANCE SHEETS
(Continued)

($ in thousands)


|                                         |                                                                                                                                                                                                               |                                         |                                            |           |            |            |            |           |            |            | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------------------------ | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | 
|                                         |                                                                                                                                                                                                               |                                        
|                                         |                                                                                                                                                                                                               | December 31,                           
|                                         |                                                                                                                                                                                                               |                                        
|                                         |                                                                                                                                                                                                               | 2003                                    |                                            | 2002     
|                                         |                                                                                                                                                                                                               |                                         |                                            |          
|Liabilities and Stockholders
    Equity |                                                                                                                                                                                                               |                                         |                                            |           |            |            |            |          
|Liabilities:                             |                                                                                                                                                                                                               |                                         |                                            |           |            |            |            |          
|                                         | Policy reserves and policyowner funds:                                                                                                                                                                        |                                         |                                            |           |            |            |            |           |           
|                                         |                                                                                                                                                                                                               | Future life and annuity policy benefits |                                            | $         | 16,994,255 |            |            | $         | 16,244,016 |           
|                                         |                                                                                                                                                                                                               | Policyowner funds                       |                                            |           | 1,306,160  |            |            |           | 1,335,144  |           
|                                         |                                                                                                                                                                                                               |                                         |                                            |           |            |            |            |          
|                                         |                                                                                                                                                                                                               |                                         | 18,300,415                                 |           |            |            | 17,579,160 |          
|                                         | Accrued expenses and other liabilities                                                                                                                                                                        |                                         |                                            | 443,589   |            |            |            | 261,147   |           
|                                         | Dividends payable to policyowners                                                                                                                                                                             |                                         |                                            | 321,233   |            |            |            | 303,062   |           
|                                         | Policy and contract claims                                                                                                                                                                                    |                                         |                                            | 58,880    |            |            |            | 39,569    |           
|                                         | Income taxes payable                                                                                                                                                                                          |                                         |                                            | 50,274    |            |            |            | 61,325    |           
|                                         | Deferred income taxes                                                                                                                                                                                         |                                         |                                            | 80,861    |            |            |            | 16,499    |           
|                                         | Notes payable                                                                                                                                                                                                 |                                         |                                            | 596,101   |            |            |            | 511,353   |           
|                                         | Separate account liabilities                                                                                                                                                                                  |                                         |                                            | 261,657   |            |            |            | 235,913   |           
|                                         | Liabilities of discontinued operations                                                                                                                                                                        |                                         |                                            | 19,421    |            |            |            | 22,689    |           
|                                         |                                                                                                                                                                                                               |                                         |                                            |           |            |            |            |          
|                                         |                                                                                                                                                                                                               |                                         | Total liabilities                          |           |            | 20,132,431 |            |           |            | 19,030,717 | 
|Stockholders equity:                    |                                                                                                                                                                                                               |                                         |                                            |           |            |            |            |          
|                                         | Preferred Stock, no par value, 20,000,000 shares
    authorized, none issued                                                                                                                                  |                                         |                                            |          |            |            |            |          |           
|                                         | Common Stock, no par value, 230,000,000 shares
    authorized; 43,836,608 shares issued and 39,194,602 shares
    outstanding in 2003; 43,656,280 shares issued and 39,011,578
    shares outstanding in 2002 |                                         |                                            | 43,836    |            |            |            | 43,656    |           
|                                         | Additional paid-in capital                                                                                                                                                                                    |                                         |                                            | 1,184,237 |            |            |            | 1,179,646 |           
|                                         | Accumulated other comprehensive income                                                                                                                                                                        |                                         |                                            | 84,519    |            |            |            | 88,522    |           
|                                         | Unearned compensation                                                                                                                                                                                         |                                         |                                            | (1,361    | )          |            |            | (458      | )         
|                                         | Unallocated ESOP shares                                                                                                                                                                                       |                                         |                                            |          |            |            |            | (1,443    | )         
|                                         | Retained earnings                                                                                                                                                                                             |                                         |                                            | 255,006   |            |            |            | 109,517   |           
|                                         | Treasury stock, at cost (4,642,006 shares in 2003
    and 4,644,702 in 2002)                                                                                                                                  |                                         |                                            | (156,426  | )          |            |            | (156,492  | )         
|                                         |                                                                                                                                                                                                               |                                         |                                            |           |            |            |            |          
|                                         |                                                                                                                                                                                                               |                                         | Total stockholders equity                 |           |            | 1,409,811  |            |           |            | 1,262,948  | 
|                                         |                                                                                                                                                                                                               |                                         |                                            |           |            |            |            |          
|                                         |                                                                                                                                                                                                               |                                         | Total liabilities and stockholders equity |           | $          | 21,542,242 |            |           | $          | 20,293,665 | 
|                                         |                                                                                                                                                                                                               |                                         |                                            |           |            |            |            |          

See accompanying notes to consolidated financial
statements.

F-4



---



##### Table of Contents



AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF INCOME

($ in thousands, except share data)


|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |            |  
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------------------- | --------- | ---------- |  | ---- | --------- | ---------- | - | - | --------- | ---------- | -
|                                                                |                                                                                      |                                 
|                                                                |                                                                                      | For The Years Ended December 31,
|                                                                |                                                                                      |                                 
|                                                                |                                                                                      | 2003                             |           | 2002       |  | 2001
|                                                                |                                                                                      |                                  |           |            |  |     
|Revenues:                                                       |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                | Insurance premiums                                                                   |                                  | $         | 297,188    |  |      | $         | 351,300    |   |   | $         | 305,905    |  
|                                                                | Product charges                                                                      |                                  |           | 181,354    |  |      |           | 144,494    |   |   |           | 146,055    |  
|                                                                | Net investment income                                                                |                                  |           | 1,001,914  |  |      |           | 1,001,257  |   |   |           | 873,174    |  
|                                                                | Realized/unrealized gains (losses) on
    investments                                |                                  |           | 131,291    |  |      |           | (149,919   | ) |   |           | (90,629    | )
|                                                                | Other income                                                                         |                                  |           | 68,298     |  |      |           | 68,513     |   |   |           | 45,736     |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                |                                                                                      |                                  | 1,680,045 |            |  |      | 1,415,645 |            |   |   | 1,280,241 |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|Benefits and expenses:                                          |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                | Policyowner benefits                                                                 |                                  |           | 940,158    |  |      |           | 871,892    |   |   |           | 753,003    |  
|                                                                | Underwriting, acquisition and other expenses                                         |                                  |           | 155,468    |  |      |           | 162,267    |   |   |           | 140,471    |  
|                                                                | Demutualization costs                                                                |                                  |           |           |  |      |           | 1,186      |   |   |           | 969        |  
|                                                                | Restructuring costs                                                                  |                                  |           | 23,294     |  |      |           | 21,225     |   |   |           | 8,566      |  
|                                                                | Amortization of deferred policy acquisition costs
    and value of business acquired |                                  |           | 193,340    |  |      |           | 139,565    |   |   |           | 132,899    |  
|                                                                | Dividends to policyowners                                                            |                                  |           | 98,393     |  |      |           | 104,866    |   |   |           | 98,945     |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                |                                                                                      |                                  | 1,410,653 |            |  |      | 1,301,001 |            |   |   | 1,134,853 |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|Income from continuing operations                               |                                                                                      |                                  | 269,392   |            |  |      | 114,644   |            |   |   | 145,388   |           
|Interest expense                                                |                                                                                      |                                  | 30,154    |            |  |      | 25,487    |            |   |   | 26,011    |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|Income before income tax expense                                |                                                                                      |                                  | 239,238   |            |  |      | 89,157    |            |   |   | 119,377   |           
|Income tax expense                                              |                                                                                      |                                  | 78,610    |            |  |      | 28,375    |            |   |   | 39,522    |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|Net income from continuing operations                           |                                                                                      |                                  | 160,628   |            |  |      | 60,782    |            |   |   | 79,855    |           
|Income from discontinued operations, net of tax                 |                                                                                      |                                  | 1,815     |            |  |      | 2,084     |            |   |   | 1,288     |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|Net income before cumulative effect of change in
    accounting |                                                                                      |                                  | 162,443   |            |  |      | 62,866    |            |   |   | 81,143    |           
|Cumulative effect of change in accounting, net of
    tax       |                                                                                      |                                  | (1,296    | )          |  |      |          |            |   |   | (8,236    | )         
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|Net income                                                      |                                                                                      | $                                | 161,147   |            |  | $    | 62,866    |            |   | $ | 72,907    |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|Net income from continuing operations per common
    share:     |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                | Basic                                                                                |                                  | $         | 4.10       |  |      | $         | 1.52       |   |   | $         | 2.16       |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                | Diluted                                                                              |                                  | $         | 4.05       |  |      | $         | 1.50       |   |   | $         | 2.13       |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|Net income per common share:                                    |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                | Basic                                                                                |                                  | $         | 4.11       |  |      | $         | 1.57       |   |   | $         | 1.97       |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                | Diluted                                                                              |                                  | $         | 4.07       |  |      | $         | 1.56       |   |   | $         | 1.95       |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|Weighted average common shares outstanding:                     |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                | Basic                                                                                |                                  |           | 39,175,924 |  |      |           | 39,972,328 |   |   |           | 36,949,198 |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           
|                                                                | Diluted                                                                              |                                  |           | 39,618,217 |  |      |           | 40,398,378 |   |   |           | 37,453,428 |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |   |   |           |           

See accompanying notes to consolidated financial
statements

F-5



---



##### Table of Contents



AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

($ in thousands)


|                                   |                                                                       |                                                                                                  |         |        |        |      |         |         |          |   |         |         |         |  
|---------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------- | ------ | ------ | ---- | ------- | ------- | -------- | - | ------- | ------- | ------- | -
|                                   |                                                                       |                                                                                                 
|                                   |                                                                       | For The Years Ended December 31,                                                                
|                                   |                                                                       |                                                                                                 
|                                   |                                                                       | 2003                                                                                             |         | 2002   |        | 2001
|                                   |                                                                       |                                                                                                  |         |        |        |     
|Net income                         |                                                                       | $                                                                                                | 161,147 |        |        | $    | 62,866  |         |          | $ | 72,907  |        
|Other comprehensive income (loss): |                                                                       |                                                                                                  |         |        |        |      |         |         |          |   |         |        
|                                   | Unrealized gains (losses) on securities:                              |                                                                                                  |         |        |        |      |         |         |          |   |         |         |        
|                                   |                                                                       | Transfer related to unrealized gain on
    available-for-sale securities reclassified to trading |         |        |       |      |         |         |         |   |         |         | (662    | )
|                                   |                                                                       | Unrealized holding gains (losses) arising
    during period                                      |         |        | 35,051 |      |         |         | 17,324   |   |         |         | 31,298  |  
|                                   |                                                                       | Less: Reclassification adjustment for gains
    (losses) included in net income                  |         |        | 28,210 |      |         |         | (101,261 | ) |         |         | (14,792 | )
|                                   |                                                                       | Minimum pension liability adjustment                                                             |         |        | (4,993 | )    |         |         | (1,888   | ) |         |         | (3,587  | )
|                                   |                                                                       |                                                                                                  |         |        |        |      |         |         |          |   |         |        
|                                   | Other comprehensive income, before tax                                |                                                                                                  |         | 1,848  |        |      |         | 116,697 |          |   |         | 41,841  |        
|                                   | Income tax expense related to items of other
    comprehensive income |                                                                                                  |         | (647   | )      |      |         | (40,844 | )        |   |         | (14,645 | )      
|                                   |                                                                       |                                                                                                  |         |        |        |      |         |         |          |   |         |        
|                                   |                                                                       |                                                                                                  | 1,201   |        |        |      | 75,853  |         |          |   | 27,196  |        
|                                   | Amounts attributable to change in accounting net
    of taxes         |                                                                                                  |         | (5,204 | )      |      |         |        |          |   |         | 2,661   |        
|                                   |                                                                       |                                                                                                  |         |        |        |      |         |         |          |   |         |        
|                                   | Other comprehensive income (loss), net of taxes                       |                                                                                                  |         | (4,003 | )      |      |         | 75,853  |          |   |         | 29,857  |        
|                                   |                                                                       |                                                                                                  |         |        |        |      |         |         |          |   |         |        
|Comprehensive income               |                                                                       | $                                                                                                | 157,144 |        |        | $    | 138,719 |         |          | $ | 102,764 |        
|                                   |                                                                       |                                                                                                  |         |        |        |      |         |         |          |   |         |        

See accompanying notes to consolidated financial
statements.

F-6



---



##### Table of Contents



AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

For the Years Ended December 31, 2003,
2002, and 2001


($ in thousands)


|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|------------------------------------------------------------------------------------------------ |  | ------ | ------ | ---------- |  | ------------- | --------- | ------------ |  | ----------- | ------- | -------- |  | -------- | ------ | ------------- |  | - | ------ | - |  | - | ------- | - |  | - | -------- | - |  | - | --------- | -
|                                                                                                 |  |        |        |            |  | Accumulated   |           |              |  |             |         |          |  |          |        |              
|                                                                                                 |  |        |        |            |  | Other         |           |              |  |             |         |          |  |          |        |              
|                                                                                                 |  |        |        | Additional |  | Comprehensive |           |              |  | Unallocated |         |          |  |          |        | Total        
|                                                                                                 |  | Common |        | Paid-In    |  | Income        |           | Unearned     |  | ESOP        |         | Retained |  | Treasury |        | Stockholders
|                                                                                                 |  | Stock  |        | Capital    |  | (Loss)        |           | Compensation |  | Shares      |         | Earnings |  | Stock    |        | Equity       
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |              
|Balance at December 31, 2000                                                                     |  | $      | 30,011 |            |  | $             | 809,894   |              |  | $           | (17,188 | )        |  | $        | (146   | )             |  | $ | (683   | ) |  | $ | 6,067   |   |  | $ |         |   |  | $ | 827,955   |  
|2001:                                                                                            |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Net income                                                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | 72,907  |   |  |   |         |   |  |   | 72,907    |  
|Change in accounting for derivatives                                                             |  |        |       |            |  |               |          |              |  |             | 2,661   |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 2,661     |  
|Transfer related to unrealized loss on
    available-for-sale securities reclassified to trading |  |        |       |            |  |               |          |              |  |             | (430    | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (430      | )
|Net unrealized gain on securities                                                                |  |        |       |            |  |               |          |              |  |             | 35,891  |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 35,891    |  
|Net unrealized loss on derivatives designated as
    cash flow hedges                            |  |        |       |            |  |               |          |              |  |             | (5,933  | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (5,933    | )
|Stock issued under various incentive plans, net
    of forfeitures                               |  |        | 206    |            |  |               | 5,861     |              |  |             |        |          |  |          | (581   | )             |  |   |       |   |  |   |        |   |  |   | 108      |   |  |   | 5,594     |  
|Stock issued under exercise of warrants                                                          |  |        |       |            |  |               | (1,383    | )            |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   | 4,468    |   |  |   | 3,085     |  
|Dividends declared on common stock                                                               |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | (16,787 | ) |  |   |         |   |  |   | (16,787   | )
|Purchase of treasury stock                                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   | (44,985  | ) |  |   | (44,985   | )
|Acquisition of IL Holdings                                                                       |  |        | 9,047  |            |  |               | 223,358   |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 232,405   |  
|Conversion of company-obligated mandatorily
    redeemable preferred capital securities          |  |        | 4,242  |            |  |               | 139,478   |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   | (16,173  | ) |  |   | 127,547   |  
|Allocation of shares in leveraged ESOP                                                           |  |        |       |            |  |               | 480       |              |  |             |        |          |  |          |       |               |  |   | 459    |   |  |   |        |   |  |   |         |   |  |   | 939       |  
|Minimum pension liability adjustment                                                             |  |        |       |            |  |               |          |              |  |             | (2,332  | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (2,332    | )
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Balance at December 31, 2001                                                                     |  |        | 43,506 |            |  |               | 1,177,688 |              |  |             | 12,669  |          |  |          | (727   | )             |  |   | (224   | ) |  |   | 62,187  |   |  |   | (56,582  | ) |  |   | 1,238,517 |  
|2002:                                                                                            |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Net income                                                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | 62,866  |   |  |   |         |   |  |   | 62,866    |  
|Net unrealized gain on securities                                                                |  |        |       |            |  |               |          |              |  |             | 73,646  |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 73,646    |  
|Net unrealized gain on derivatives designated as
    cash flow hedges                            |  |        |       |            |  |               |          |              |  |             | 3,434   |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 3,434     |  
|Stock issued under various incentive plans, net
    of forfeitures                               |  |        | 150    |            |  |               | 5,730     |              |  |             |        |          |  |          | 269    |               |  |   |       |   |  |   |        |   |  |   | 1        |   |  |   | 6,150     |  
|Stock issued under exercise of warrants                                                          |  |        |       |            |  |               | (3,802    | )            |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   | 12,205   |   |  |   | 8,403     |  
|Purchase of ESOP shares and treasury stock                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   | (2,522 | ) |  |   |        |   |  |   | (112,116 | ) |  |   | (114,638  | )
|Dividends declared on common stock                                                               |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | (15,536 | ) |  |   |         |   |  |   | (15,536   | )
|Allocation of shares in leveraged ESOP                                                           |  |        |       |            |  |               | 30        |              |  |             |        |          |  |          |       |               |  |   | 1,303  |   |  |   |        |   |  |   |         |   |  |   | 1,333     |  
|Minimum pension liability adjustment                                                             |  |        |       |            |  |               |          |              |  |             | (1,227  | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (1,227    | )
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Balance at December 31, 2002                                                                     |  |        | 43,656 |            |  |               | 1,179,646 |              |  |             | 88,522  |          |  |          | (458   | )             |  |   | (1,443 | ) |  |   | 109,517 |   |  |   | (156,492 | ) |  |   | 1,262,948 |  
|2003:                                                                                            |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Net income                                                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | 161,147 |   |  |   |         |   |  |   | 161,147   |  
|Net unrealized gain on securities                                                                |  |        |       |            |  |               |          |              |  |             | 1,971   |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 1,971     |  
|Net unrealized gain on derivatives designated as
    cash flow hedges                            |  |        |       |            |  |               |          |              |  |             | 2,476   |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 2,476     |  
|Change in accounting transfer of unrealized gain
    on available-for-sale securities to trading |  |        |       |            |  |               |          |              |  |             | (5,204  | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (5,204    | )
|Stock issued under various incentive plans, net
    of forfeitures                               |  |        | 180    |            |  |               | 11,717    |              |  |             |        |          |  |          | (903   | )             |  |   |       |   |  |   |        |   |  |   | 66       |   |  |   | 11,060    |  
|PRIDES purchase contract adjustment and allocated
    fees and expenses                          |  |        |       |            |  |               | (7,280    | )            |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (7,280    | )
|Dividends declared on common stock                                                               |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | (15,658 | ) |  |   |         |   |  |   | (15,658   | )
|Allocation of shares in leveraged ESOP                                                           |  |        |       |            |  |               | 154       |              |  |             |        |          |  |          |       |               |  |   | 1,443  |   |  |   |        |   |  |   |         |   |  |   | 1,597     |  
|Minimum pension liability adjustment                                                             |  |        |       |            |  |               |          |              |  |             | (3,246  | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (3,246    | )
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Balance at December 31, 2003                                                                     |  | $      | 43,836 |            |  | $             | 1,184,237 |              |  | $           | 84,519  |          |  | $        | (1,361 | )             |  | $ |       |   |  | $ | 255,006 |   |  | $ | (156,426 | ) |  | $ | 1,409,811 |  
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  

F-7



---



##### Table of Contents



AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

($ in thousands)


|                                                                                      |                                                                                                                       |                                                            |                        |          |          |          |            |          |          |         |            |          |          |         |  
|------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------- | -------- | -------- | -------- | ---------- | -------- | -------- | ------- | ---------- | -------- | -------- | ------- | -
|                                                                                      |                                                                                                                       |                                                           
|                                                                                      |                                                                                                                       | For The Years Ended December 31,                          
|                                                                                      |                                                                                                                       |                                                           
|                                                                                      |                                                                                                                       | 2003                                                       |                        | 2002     |          | 2001    
|                                                                                      |                                                                                                                       |                                                            |                        |          |          |         
|Cash flows from operating activities                                                  |                                                                                                                       |                                                            |                        |          |          |          |            |          |          |         |            |         
|Net income                                                                            |                                                                                                                       | $                                                          | 161,147                |          |          | $        | 62,866     |          |          | $       | 72,907     |         
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                                                       |                                                            |                        |          |          |          |            |          |          |         |            |         
|                                                                                      | Cumulative effect of change in accounting                                                                             |                                                            |                        | 1,296    |          |          |            |         |          |         |            | 8,236    |         
|                                                                                      | Product charges on universal life and annuity
    products                                                            |                                                            |                        | (153,252 | )        |          |            | (129,387 | )        |         |            | (121,547 | )       
|                                                                                      | Interest credited to policyowner account balances                                                                     |                                                            |                        | 472,881  |          |          |            | 492,781  |          |         |            | 394,322  |         
|                                                                                      | Change in option value of equity-indexed products
    and market value adjustments on total return strategy annuities |                                                            |                        | 65,741   |          |          |            | (28,759  | )        |         |            | (52,747  | )       
|                                                                                      | Realized/unrealized (gains) losses on
    investments                                                                 |                                                            |                        | (131,291 | )        |          |            | 149,919  |          |         |            | 90,629   |         
|                                                                                      | Goodwill amortization                                                                                                 |                                                            |                        |         |          |          |            |         |          |         |            | 8,324    |         
|                                                                                      | DAC and VOBA amortization                                                                                             |                                                            |                        | 193,340  |          |          |            | 139,565  |          |         |            | 132,899  |         
|                                                                                      | DAC and VOBA capitalized                                                                                              |                                                            |                        | (400,802 | )        |          |            | (408,218 | )        |         |            | (325,075 | )       
|                                                                                      | Change in:                                                                                                            |                                                            |                        |          |          |          |            |          |          |         |            |          |         
|                                                                                      |                                                                                                                       | Accrued investment income                                  |                        |          | (19,832  | )        |            |          | (11,422  | )       |            |          | (6,891   | )      
|                                                                                      |                                                                                                                       | Reinsurance receivables                                    |                        |          | 279,552  |          |            |          | (129,638 | )       |            |          | (123,569 | )      
|                                                                                      |                                                                                                                       | Securities held for trading purposes:                      |                        |          |          |          |            |          |          |         |            |          |          |        
|                                                                                      |                                                                                                                       |                                                            | Fixed maturities       |          |          | (219,310 | )          |          |          | 321,836 |            |          |          | 49,329  |  
|                                                                                      |                                                                                                                       |                                                            | Equity securities      |          |          | (1,606   | )          |          |          | 12,013  |            |          |          | (11,342 | )
|                                                                                      |                                                                                                                       |                                                            | Short-term investments |          |          | (596     | )          |          |          | 4,221   |            |          |          | (4,186  | )
|                                                                                      |                                                                                                                       | Liabilities for future policy benefits                     |                        |          | (228,261 | )        |            |          | 473,039  |         |            |          | 59,509   |        
|                                                                                      |                                                                                                                       | Accrued expenses and other liabilities                     |                        |          | 181,595  |          |            |          | (40,684  | )       |            |          | (64,984  | )      
|                                                                                      |                                                                                                                       | Policy and contract claims and other policyowner
    funds |                        |          | 111,374  |          |            |          | 30,769   |         |            |          | (48,423  | )      
|                                                                                      |                                                                                                                       | Income taxes:                                              |                        |          |          |          |            |          |          |         |            |          |          |        
|                                                                                      |                                                                                                                       |                                                            | Current                |          |          | (11,051  | )          |          |          | 14,837  |            |          |          | 39,092  |  
|                                                                                      |                                                                                                                       |                                                            | Deferred               |          |          | 66,849   |            |          |          | (24,363 | )          |          |          | (7,914  | )
|                                                                                      | Other, net                                                                                                            |                                                            |                        | 27,109   |          |          |            | (9,321   | )        |         |            | 8,545    |         
|                                                                                      |                                                                                                                       |                                                            |                        |          |          |          |            |          |          |         |            |         
|                                                                                      | Net cash provided by operating activities                                                                             |                                                            |                        | 394,883  |          |          |            | 920,054  |          |         |            | 97,114   |         
|                                                                                      |                                                                                                                       |                                                            |                        |          |          |          |            |          |          |         |            |         
|Cash flows from investing
    activities:                                             |                                                                                                                       |                                                            |                        |          |          |          |            |          |          |         |            |         
|Purchase of fixed maturities available-for-sale                                       |                                                                                                                       |                                                            | (10,430,571            | )        |          |          | (8,269,367 | )        |          |         | (4,673,375 | )       
|Proceeds from sale of fixed maturities
    available-for-sale                         |                                                                                                                       |                                                            | 7,467,468              |          |          |          | 5,736,480  |          |          |         | 2,745,381  |         
|Maturities, calls and principal reductions of
    fixed maturities available-for-sale |                                                                                                                       |                                                            | 2,354,539              |          |          |          | 959,293    |          |          |         | 1,006,631  |         
|Purchase of equity securities                                                         |                                                                                                                       |                                                            | (12,721                | )        |          |          | (66,408    | )        |          |         | (51,190    | )       
|Proceeds from sale of equity securities                                               |                                                                                                                       |                                                            | 14,926                 |          |          |          | 771        |          |          |         | 57,013     |         
|Change in short-term investments, net                                                 |                                                                                                                       |                                                            | (108                   | )        |          |          | (17,216    | )        |          |         | 5,656      |         
|Purchase of mortgage loans                                                            |                                                                                                                       |                                                            | (202,721               | )        |          |          | (64,416    | )        |          |         | (150,143   | )       

F-8



---



##### Table of Contents



AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Continued)

($ in thousands)


|                                                                              |                   |                                           |            |        |          |      |            |        |            |   |            |        |          |  
|----------------------------------------------------------------------------- | ----------------- | ----------------------------------------- | ---------- | ------ | -------- | ---- | ---------- | ------ | ---------- | - | ---------- | ------ | -------- | -
|                                                                              |                   |                                          
|                                                                              |                   | For The Years Ended December 31,         
|                                                                              |                   |                                          
|                                                                              |                   | 2003                                      |            | 2002   |          | 2001
|                                                                              |                   |                                           |            |        |          |     
|Proceeds from repayment and sale of mortgage loans                            |                   | $                                         | 123,033    |        |          | $    | 130,855    |        |            | $ | 118,479    |       
|Purchase of real estate and other invested assets                             |                   |                                           | (323,676   | )      |          |      | (28,872    | )      |            |   | (104,438   | )     
|Proceeds from sale of real estate and other
    invested assets               |                   |                                           | 328,002    |        |          |      | 61,661     |        |            |   | 48,417     |       
|Change in policy loans, net                                                   |                   |                                           | 2,107      |        |          |      | 9,565      |        |            |   | 3,883      |       
|Other assets, net                                                             |                   |                                           | (9,800     | )      |          |      | 4,684      |        |            |   | (75,997    | )     
|Acquisitions, net of cash acquired                                            |                   |                                           |           |        |          |      |           |        |            |   | 156,925    |       
|                                                                              |                   |                                           |            |        |          |      |            |        |            |   |            |       
|                                                                              |                   | Net cash used in investing activities     |            |        | (689,522 | )    |            |        | (1,542,970 | ) |            |        | (912,758 | )
|                                                                              |                   |                                           |            |        |          |      |            |        |            |   |            |       
|Cash flows from financing
    activities:                                     |                   |                                           |            |        |          |      |            |        |            |   |            |       
|Deposits to policyowner account balances                                      |                   |                                           | 2,220,545  |        |          |      | 2,180,925  |        |            |   | 2,137,698  |       
|Withdrawals from policyowner account balances                                 |                   |                                           | (1,825,472 | )      |          |      | (1,630,869 | )      |            |   | (1,231,109 | )     
|Change in debt, net                                                           |                   |                                           | (61,596    | )      |          |      | (38,703    | )      |            |   | 74,947     |       
|Dividends to shareholders                                                     |                   |                                           | (15,658    | )      |          |      | (15,536    | )      |            |   | (16,787    | )     
|Stock issued under various incentive plans, net
    of forfeitures            |                   |                                           | 11,060     |        |          |      | 14,553     |        |            |   | 8,678      |       
|Purchase of treasury stock                                                    |                   |                                           |           |        |          |      | (114,638   | )      |            |   | (44,985    | )     
|Proceeds from issuance of OCEANs                                              |                   |                                           |           |        |          |      | 179,593    |        |            |   |           |       
|Proceeds from issuance of PRIDES                                              |                   |                                           | 135,701    |        |          |      |           |        |            |   |           |       
|Purchase of company-obligated mandatorily
    redeemable capital securities   |                   |                                           |           |        |          |      | (20,805    | )      |            |   |           |       
|Conversion of company-obligated mandatorily
    redeemable capital securities |                   |                                           |            |        |          |      |            |        |            |   | 154        |       
|Adoption and allocation of shares in leveraged
    ESOP                       |                   |                                           | 1,597      |        |          |      | 1,333      |        |            |   | 939        |       
|Transfer of pension obligation to trustee                                     |                   |                                           |            |        |          |      | (9,481     | )      |            |   |            |       
|Other, net                                                                    |                   |                                           |           |        |          |      | (220       | )      |            |   |           |       
|                                                                              |                   |                                           |            |        |          |      |            |        |            |   |            |       
|                                                                              |                   | Net cash provided by financing activities |            |        | 466,177  |      |            |        | 546,152    |   |            |        | 929,535  |  
|                                                                              |                   |                                           |            |        |          |      |            |        |            |   |            |       
|                                                                              |                   | Net increase (decrease) in cash           |            |        | 171,538  |      |            |        | (76,764    | ) |            |        | 113,891  |  
|Cash and cash equivalents at beginning of period                              |                   |                                           | 102,612    |        |          |      | 179,376    |        |            |   | 65,485     |       
|                                                                              |                   |                                           |            |        |          |      |            |        |            |   |            |       
|Cash and cash equivalents at end of period                                    |                   | $                                         | 274,150    |        |          | $    | 102,612    |        |            | $ | 179,376    |       
|                                                                              |                   |                                           |            |        |          |      |            |        |            |   |            |       
|Supplemental disclosure of cash
    activities:                               |                   |                                           |            |        |          |      |            |        |            |   |            |       
|                                                                              | Interest paid     |                                           | $          | 32,516 |          |      | $          | 25,408 |            |   | $          | 29,325 |         
|                                                                              |                   |                                           |            |        |          |      |            |        |            |   |            |       
|                                                                              | Income taxes paid |                                           | $          | 25,422 |          |      | $          | 22,351 |            |   | $          | 1,914  |         
|                                                                              |                   |                                           |            |        |          |      |            |        |            |   |            |       

See accompanying notes to consolidated financial
statements.

F-9



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##### Table of Contents



AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

($ in thousands)


|                         |                                                    |                                  |   |      |  |      |   |   |  |  |   |           |  
|------------------------ | -------------------------------------------------- | -------------------------------- | - | ---- |  | ---- | - | - |  |  | - | --------- | -
|                         |                                                    |                                 
|                         |                                                    | For The Years Ended December 31,
|                         |                                                    |                                 
|                         |                                                    | 2003                             |   | 2002 |  | 2001
|                         |                                                    |                                  |   |      |  |     
|Details of acquisitions: |                                                    |                                  |   |      |  |      |   |   |  |  |   |          
|                         | Fair value of assets acquired                      |                                  | $ |     |  |      | $ |  |  |  | $ | 5,676,350 |  
|                         | Liabilities assumed                                |                                  |   |     |  |      |   |  |  |  |   | 5,349,908 |  
|                         |                                                    |                                  |   |      |  |      |   |   |  |  |   |          
|                         | Carrying value of acquisitions                     |                                  |   |     |  |      |   |  |  |  |   | 326,442   |  
|                         | Common stock issued                                |                                  |   |     |  |      |   |  |  |  |   | (232,405  | )
|                         | Accrual of cash payout component of purchase price |                                  |   |     |  |      |   |  |  |  |   | (9,000    | )
|                         | Preliminary investment in ILICO                    |                                  |   |     |  |      |   |  |  |  |   | (77,200   | )
|                         | Acquisition costs previously paid                  |                                  |   |     |  |      |   |  |  |  |   | (2,857    | )
|                         |                                                    |                                  |   |      |  |      |   |   |  |  |   |          
|                         | Cash paid                                          |                                  |   |     |  |      |   |  |  |  |   | 4,980     |  
|                         | Less: Cash acquired                                |                                  |   |     |  |      |   |  |  |  |   | 161,905   |  
|                         |                                                    |                                  |   |      |  |      |   |   |  |  |   |          
|                         | Net cash (received in) acquisitions                |                                  | $ |     |  |      | $ |  |  |  | $ | (156,925  | )
|                         |                                                    |                                  |   |      |  |      |   |   |  |  |   |          

See accompanying notes to consolidated financial
statements.

F-10



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##### Table of Contents



AMERUS GROUP CO.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|    |                                               
|--- | ----------------------------------------------
|(1) | SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES

Nature of Operations

AmerUs Group Co. (Company) is a holding company
whose subsidiaries are primarily engaged in the business of
marketing, underwriting and distributing a broad range of
individual life, annuity and insurance deposit products to
individuals and businesses in all 50 states, the District
of Columbia and the U.S. Virgin Islands. The Company has
two reportable operating segments: protection products and
accumulation products. The protection products segment was
formerly known as the life insurance segment and the
accumulation products segment was formerly known as the annuity
segment. The primary offerings of the protection products
segment are interest-sensitive whole life, term life, universal
life and equity-indexed life insurance policies. The primary
offerings of the accumulation products segment are individual
fixed annuities, including traditional fixed annuities and
equity-indexed annuities, and insurance contracts issued through
funding agreements.

Consolidation and Basis of
Presentation

The accompanying consolidated financial
statements of the Company and its wholly-owned subsidiaries have
been prepared in conformity with accounting principles generally
accepted in the United States (GAAP) which, as to the
insurance company subsidiaries, differ from statutory accounting
practices prescribed or permitted by regulatory authorities.

The accompanying consolidated financial
statements include the accounts and operations of the Company
and its wholly-owned subsidiaries, principally, AmerUs Life
Insurance Company (ALIC), AmerUs Annuity Group Co. and its
subsidiaries (collectively, AAG, formerly AmVestors Financial
Corporation (AmVestors)), AmerUs Capital Management
Group, Inc. (ACM), and ILICO Holdings, Inc., the
holding company of Indianapolis Life Insurance Company
(ILIC) and its subsidiaries (collectively, ILICO). As
discussed in note 15, ILICO was acquired in May 2001.
All significant intercompany transactions and balances have been
eliminated in consolidation.

Effective on March 29, 2002, Western
Security Life Insurance Company, a subsidiary of ILIC, was sold.
The insurance business of Western Security Life Insurance
Company was transferred to ILIC prior to the sale. The sale of
the corporate organization and insurance licenses resulted in a
gain of approximately $1.9 million which is included in
realized gains.

Certain amounts in the 2002 and 2001 financial
statements have been reclassified to conform to the 2003
financial statement presentation.

The preparation of consolidated financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. The valuation of financial instruments, derivatives,
and amortization of deferred policy acquisition costs and value
of business acquired are areas which involve a high degree of
estimation to determine their reported amounts. These areas are
described in more detail in the following policies.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company
includes cash and amounts due from other financial institutions
and interest-bearing deposits in other financial institutions
purchased with original maturities of three months or less in
cash and cash equivalents. Amounts of interest-bearing deposits
included as cash equivalents at December 31, 2003 and 2002
were $123.6 million and $99.1 million, respectively.

F-11



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Closed Block

The Company has established two Closed Blocks of
policies: (1) on June 30, 1996 in connection with the
reorganization of ALIC from a mutual company to a stock company,
and (2) on March 31, 2000 in connection with the
reorganization of ILIC from a mutual company to a stock company
(collectively, the Closed Block). Insurance policies which had a
dividend scale in effect as of each Closed Block establishment
date were included in the Closed Block. The Closed Block was
designed to give reasonable assurance to owners of insurance
policies that, after the reorganization of ALIC and ILIC, assets
would be available to maintain the dividend scales and interest
credits in effect prior to the reorganization, if the experience
underlying such scales and crediting continues. The assets,
including revenue therefrom, allocated to the Closed Block will
accrue solely to the benefit of the owners of policies included
in the Closed Block until the Closed Block no longer exists. The
Company will continue to pay guaranteed benefits under all
policies, including policies included in the Closed Block, in
accordance with their terms. In the event that the Closed
Blocks assets were insufficient to meet the benefits of
the Closed Blocks guaranteed benefits, general assets
would be utilized to meet the contractual benefits of the Closed
Blocks policyholders.

A policyholder dividend obligation is required to
be established for earnings in the Closed Block that are not
available to shareholders. A model of the Closed Block was
established to produce the pattern of expected earnings in the
Closed Block. If actual cumulative earnings of the Closed Block
are greater than the expected cumulative earnings of the Closed
Block, only the expected cumulative earnings will be recognized
in income with the excess recorded as a policyholder dividend
obligation. This policyholder dividend obligation represents
undistributed accumulated earnings that will be paid to Closed
Block policyholders as additional policyholder dividends unless
offset by future performance of the Closed Block that is less
favorable than originally expected. If actual cumulative
performance is less favorable than expected, only actual
earnings will be recognized in income.

Investments

Investments in fixed maturity securities, equity
securities and short-term investments that are to be held for
indefinite periods of time are reported as securities
available-for-sale and are reported in the accompanying
consolidated financial statements at fair value. Any valuation
changes resulting from changes in the fair value of these
securities are reflected as a component of stockholders
equity. These unrealized gains or losses in stockholders
equity are reported net of taxes and adjustments to deferred
policy acquisition costs (DAC), value of business acquired
(VOBA) and policy reserves. Fixed maturity and equity
securities that are bought and held principally to back our
total return strategy fixed annuity products are reported as
held for trading securities and are carried at fair value with
unrealized gains or losses reported in net income. Premiums and
discounts on fixed maturity securities are amortized or accreted
over the life of the related security as an adjustment to yield
using the effective interest method. The accreted carrying value
of investments in structured securities that can be
contractually prepaid or settled in a way that substantially all
of an investment may not be recovered is determined by updating
the estimate for the amount and timing of cash flows with
resulting adjustments in the accretable yield accounted for
prospectively. Should this estimate of cash flows reflect an
adverse change from an immediately preceding estimate, an
other-than-temporary impairment (OTTI) is deemed to have
occurred and, accordingly, the structured security is written
down to fair value with the change reflected in net income. For
loan-backed and structured securities included in fixed maturity
securities, income is recognized using a constant effective
yield based on currently anticipated cash flows.

Securities are also reviewed to identify
potential impairments. In determining if and when a decline in
market value below amortized cost is other-than-temporary, we
evaluate the market conditions, offering prices, trends of
earnings, price multiples, and other key measures for our
investments in marketable equity securities and debt
instruments. For fixed maturity securities, our intent and
ability to hold securities is also

F-12



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

considered. When such a decline in value is
deemed to be other-than-temporary, we recognize an impairment
loss in the current period net income to the extent of the
decline.

Market values of fixed maturity securities are
reported based on quoted market prices, where available. Market
values of fixed maturity securities not actively traded in a
liquid market are estimated by comparison to similar securities
with quoted prices when possible. Otherwise, the most recent
purchases and sales of similar unquoted securities, independent
broker quotes or internally prepared valuations are used to
estimate fair value. Internally prepared valuations use a matrix
calculation assuming a spread (based on interest rates and a
risk assessment of the bonds) over U.S. Treasury bonds.
Market values of redeemable preferred stocks and equity
securities are based on the latest quoted market prices, or for
those not readily marketable, generally at values which are
representative of the market values of comparable issues.

Loans and other long-term investments are stated
at cost less amortized discounts and allowances for possible
losses. Policy loans are stated at their aggregate unpaid
balances. Investments in loans and real estate are considered
impaired when the Company determines that collection of all
amounts due under the contractual terms is doubtful or carrying
values exceed the fair value of applicable underlying collateral
or assets. The Company adjusts such assets to their estimated
net realizable value at the point at which it determines an
impairment is other than temporary. Interest income on impaired
mortgage loans is recognized when cash is received. In addition,
the Company has established a valuation allowance for loans,
real estate, and other invested assets. Valuation allowances for
other than temporary impairments in value are netted against the
asset categories to which they apply, and additions to valuation
allowances are included in total investment results.

Real estate is stated at cost less accumulated
depreciation. Depreciation is calculated over the estimated
useful lives using primarily accelerated depreciation methods.

The Company issued a $250 million floating
rate funding agreement in 1999. Under the transaction, a
five-year floating rate insurance contract was issued to a
commercial paper conduit which was swapped to a fixed-rate. The
$250 million funding agreement was terminated in December
2003. During 2002, additional funding agreements totaling
$875 million were placed primarily in six to ten year fixed
rate insurance contracts. The assets backing the funding
agreements are legally segregated and are not subject to claims
that arise out of any other business of the Company. The funding
agreements are further backed by the general account assets of
the insurance companies. The segregated assets and liabilities
are included with general account assets in the financial
statements. The funding agreements may not be cancelled by the
counterparty unless there is a default under the agreements, but
the Company may terminate the agreements at any time.

Investments in partnerships in which the
Companys ownership percentage exceeds 3% and joint
ventures are generally accounted for under the equity method
whereby the Company initially records the investment at cost.
Subsequently, the Company increases or decreases the carrying
amount of the investment for its share of income or loss, of the
investee. Investments in partnerships in which the
Companys ownership percentage is less than 3% are
generally accounted for under the cost method whereby dividends
received by the investee are recognized as income. The Company
is primarily a limited partner in such investments. These
investments are shown as other investments and totaled
approximately $52.2 million and $56.3 million at
December 31, 2003 and 2002, respectively.

Realized gains and losses are included in
earnings and are determined using the specific identification
method. The carrying value of investments is reduced to its
estimated realizable value if a decline in fair value is
considered other-than-temporary with such reduction charged to
net income.

Derivative Instruments and Hedging
Activities

The Company uses financial instruments, primarily
options, futures and swaps to reduce its exposure to changes in
interest rates and to manage duration mismatches. The Company
also uses call options to hedge

F-13



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

equity-indexed products. The use of these
financial instruments modifies the exposure of these risks with
the intent to reduce the risk and variability to the Company.
Although the Company is subject to the risk that counterparties
will fail to perform, credit standings of counterparties are
monitored regularly. The Company is not a party to leveraged
derivatives. Derivative instruments are included in other
investments.

Effective January 1, 2001, the Company
adopted Statement of Financial Accounting Standard No.
(SFAS) 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS 137 and 138.
SFAS 133 requires that all derivative instruments,
including certain derivative instruments embedded in other
contracts, be reported on the consolidated balance sheet at fair
value. Accounting for gains and losses resulting from changes in
the fair values of derivatives is dependent upon the use of the
derivative and its qualification for special hedge accounting.
See note 4 for additional information regarding the
adoption of SFAS 133.

The Financial Accounting Standards Boards
Derivatives Implementation Group issued SFAS 133
Implementation Issue No. B36, Embedded Derivatives:
Bifurcation of a Debt Instrument that Incorporates both Interest
Rate Risk and Credit Risk Exposures that are Unrelated or Only
Partially Related to the Creditworthiness of the Issuer of that
Instrument, or DIG Issue B36. DIG Issue B36
applies to modified coinsurance and coinsurance with funds
withheld arrangements where interest is determined by reference
to a pool of fixed maturity assets or a total return debt index.
DIG Issue B36 considers the reinsurers receivable from the
ceding company to contain an embedded derivative that must be
bifurcated and accounted for separately under SFAS 133. The
Company adopted DIG Issue B36 on October 1, 2003. See
note 4 for additional information regarding the adoption of
DIG Issue B36.

Policy Acquisition Costs

Certain commissions, policy issue and
underwriting costs, and other variable costs, including bonus
interest, incurred to acquire or renew traditional life
insurance, universal life insurance, equity-indexed life and
annuity products are deferred. The method of amortizing DAC for
traditional life insurance products varies, dependent upon
whether the contract is participating or non-participating.
Participating contracts are those which are expected to pay
dividends to policyowners in proportion to their relative
contribution to the Companys statutory surplus. DAC for
participating traditional life insurance is generally amortized
over the life of the policies in proportion to the present value
of estimated gross margins. Non-participating traditional life
insurance DAC is amortized over the premium-paying period of the
related policies in proportion to the ratio of annual premium
revenues to total anticipated premium revenues using assumptions
consistent with those used in computing policy benefit reserves.
For universal life insurance and annuity products, DAC is
generally amortized in proportion to the present value of
estimated gross margins from surrender charges and investment,
mortality, and expense margins. The effect on the cumulative
amortization of DAC for revisions in estimated future gross
margins on participating traditional life, universal life, and
annuity products is reflected in the period such estimates are
revised. The DAC asset is also adjusted for the impact on
estimated gross profits of net unrealized gains and losses on
securities.

Value of Business Acquired

The portion of the purchase price from insurance
companies allocated to the right to receive future cash flows
from insurance contracts existing at the date of the acquisition
is referred to as VOBA. This cost of policies purchased
represents the actuarially determined present value of the
projected future gross margins from the acquired policies.

The expected future gross margins used in
determining such value are based on actuarially determined
projections of future premium receipts, mortality, surrenders,
operating expenses, changes in insurance liabilities, investment
yields on the assets retained to support the policy liabilities
and other factors. These projections take into account all
factors known or expected at the valuation date, based on the
judgment of

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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

management. The actual experience on purchased
business may vary from projections due to differences in renewal
premium, investment spread, investment gains or losses,
mortality and morbidity costs and other factors.

The discount rate used to determine the value of
policies purchased is the rate of return required in order to
invest in the business being acquired. Factors in determining
this rate include the cost of capital required to fund the
acquisition; the acquired companys compatibility with
other Company activities that may impact future gross margins;
the complexity of the acquired company; and recent discount
rates used by others to determine valuations to acquire similar
blocks of business.

VOBA is amortized based on the incidence of the
expected gross margins using the interest rate credited to the
underlying policies. If gross margins differ from expectations,
the amortization of the VOBA is adjusted. The VOBA asset is
adjusted for the impact on estimated gross margins of net
unrealized gains and losses on securities. Each year, the
recoverability of the VOBA is evaluated and if the evaluation
indicates that the existing insurance liabilities, together with
the present value of future gross margins from the blocks of
business acquired, is insufficient to recover the VOBA, the
difference is charged to expense as an additional write-off of
the VOBA.

Goodwill

Goodwill represents the excess of the amount paid
to acquire a company over the fair value of its net assets.
Prior to 2002, goodwill was amortized on a straight-line basis
over a thirty year period. Effective January 1, 2002, the
Company adopted SFAS 142, Goodwill and Other
Intangible Assets. SFAS 142 adopts a nonamortization,
impairment  only model for the Companys
goodwill and indefinite-lived intangible assets. This includes a
more stringent impairment test methodology for measuring and
recognizing impairment losses. The Company accordingly
discontinued amortization of goodwill on January 1, 2002.
See note 17 for additional information regarding the
adoption of SFAS 142.

Property and Equipment

Property and equipment is recorded at cost and is
depreciated principally under the straight-line method over the
estimated useful lives of the assets.

Separate Account

Separate account assets and liabilities represent
funds that are separately administered, principally for variable
annuity contracts, and for which the contractholder, rather than
the Company, bears the investment risk. Separate account
contractholders have no claim against the assets of the general
funds of the Company. Separate account assets are reported at
fair value. The operations of the separate accounts are not
included in the accompanying consolidated financial statements.

Recognition of Revenues

Premiums for traditional life insurance products
(including those products with fixed and guaranteed premiums and
benefits and which consist principally of whole life insurance
policies and certain annuities with life contingencies) are
recognized as revenues when due. For limited payment life
insurance policies, premiums are recorded as income when due
with any excess profit deferred and recognized over the expected
lives of the contracts. Amounts received as payments for
universal life insurance policies, annuity products (including
deferred annuities and annuities without life contingencies) and
funding agreements are not recorded as premium revenue. Revenues
for such contracts consist of policy charges for the cost of
insurance, policy administration charges, and surrender charges
assessed against policyowner account balances during the period.
All insurance-related revenue is reported net of reinsurance
ceded.

F-15



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Future Policy Benefits

The liability for future policy benefits for
traditional life insurance is computed using the net level
method, utilizing the guaranteed interest and mortality rates
used in calculating cash surrender values as described in the
contracts. Reserve interest assumptions range from
2.00 percent to 7.50 percent. The weighted average interest
rate for all traditional life policy reserves was
4.46 percent in 2003, 4.60 percent in 2002, and
4.81 percent in 2001. Policy benefit claims are charged to
expense in the period that the claims are incurred. All
insurance-related benefits, losses, and expenses are reported
net of reinsurance ceded.

Future policy benefit reserves for universal life
insurance, annuity products and funding agreements are computed
under a retrospective deposit method and represent policy
account balances before applicable surrender charges. In
addition, reserves for universal life policies include a
deferred revenue liability, if any, for excess first-year
policyowner charges. Policy benefits and claims that are charged
to expense include benefit claims incurred in the period in
excess of related policy account balances. The weighted average
interest crediting rates for universal life products were
4.96 percent in 2003, 5.39 percent in 2002 and
5.63 percent in 2001. The range of interest crediting rates
for annuity products, excluding bonus interest payouts, was 3.00
to 7.20 percent in 2003 and 2002 and 3.00 to
7.16 percent in 2001. The weighted average interest rate
for funding agreements was 4.69 percent for the fixed-rate
agreements and 1.17 percent for the floating-rate
agreements in 2003, and 4.69 percent for the fixed-rate
agreements and 2.01 percent for the floating-rate
agreements in 2002, and 4.46 percent for the floating-rate
agreement in 2001.

Reinsurance

The Company enters into reinsurance agreements
with other companies in the normal course of business. The
Company may assume reinsurance or cede reinsurance to other
companies. Assets and liabilities related to reinsurance ceded
are reported on a gross basis. Premiums and expenses are
reported net of reinsurance ceded. The Company is contingently
liable for the portion of the policies reinsured under each of
its existing reinsurance agreements in the event the reinsurance
companies are unable to pay their portion of any reinsured
claim. Management believes that any liability from this
contingency is unlikely. However, to limit the possibility of
such losses, the Company evaluates the financial condition of
its reinsurers and monitors concentration of credit risk.

Participating Policies

Participating policies entitle the policyowners
to receive dividends based on actual interest, mortality,
morbidity, and expense experience for the related policies.
These dividends are distributed to the policyowners through an
annual dividend using current dividend scales which are approved
by the board of directors. Approximately 52 percent in 2003
and 56 percent in 2002 of traditional life policies are
currently paying dividends. Traditional life policies represent
approximately 68 percent in 2003 and 71 percent in
2002 of the Companys individual life policies in force
(based on face amounts).

Stock-Based Compensation

At December 31, 2003, the Company has
stock-based employee compensation plans, which are described
more fully in note 13. The Company primarily accounts for
those plans under the recognition and measurement principles of
APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based
employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income
and earnings per share if the Company had

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

applied the fair value recognition provisions of
SFAS 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation:

|                                                                                                                                                    |  |                                     |         |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                                                    |  |                                    
|                                                                                                                                                    |  | Years Ended December 31,           
|                                                                                                                                                    |  |                                    
|                                                                                                                                                    |  | 2003                                |         | 2002 |  | 2001
|                                                                                                                                                    |  |                                     |         |      |  |     
|                                                                                                                                                    |  |                                    
|                                                                                                                                                    |  | ($ in thousands, except share data)
|Net income, as reported                                                                                                                             |  | $                                   | 161,147 |      |  | $    | 62,866 |   |  | $ | 72,907 |  
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |  |                                     | (4,087  | )    |  |      | (5,094 | ) |  |   | (5,123 | )
|                                                                                                                                                    |  |                                     |         |      |  |      |        |   |  |   |        |  
|Pro forma net income                                                                                                                                |  | $                                   | 157,060 |      |  | $    | 57,772 |   |  | $ | 67,784 |  
|                                                                                                                                                    |  |                                     |         |      |  |      |        |   |  |   |        |  
|Earnings per share:                                                                                                                                 |  |                                     |         |      |  |      |        |   |  |   |        |  
|Basic  as reported                                                                                                                                 |  | $                                   | 4.11    |      |  | $    | 1.57   |   |  | $ | 1.97   |  
|                                                                                                                                                    |  |                                     |         |      |  |      |        |   |  |   |        |  
|Basic  pro forma                                                                                                                                   |  | $                                   | 4.01    |      |  | $    | 1.45   |   |  | $ | 1.83   |  
|                                                                                                                                                    |  |                                     |         |      |  |      |        |   |  |   |        |  
|Diluted  as reported                                                                                                                               |  | $                                   | 4.07    |      |  | $    | 1.56   |   |  | $ | 1.95   |  
|                                                                                                                                                    |  |                                     |         |      |  |      |        |   |  |   |        |  
|Diluted  pro forma                                                                                                                                 |  | $                                   | 3.96    |      |  | $    | 1.43   |   |  | $ | 1.81   |  
|                                                                                                                                                    |  |                                     |         |      |  |      |        |   |  |   |        |  

Guaranty Fund Assessments

The Company is subject to insurance guaranty laws
in the states in which it writes business. These laws provide
for assessments against insurance companies for the benefit of
policyowners and claimants in the event of insolvency of other
life insurance companies. As of December 31, 2003 and 2002,
the Company has accrued for the gross amount of guaranty fund
assessments for known insolvencies and has established an other
asset for assessments expected to be recovered through future
premium tax offsets.

Income Taxes

Generally, the Company and its non-life insurance
subsidiaries file a consolidated federal income tax return. The
life insurance subsidiaries file separate federal income tax
returns, except for ILIC and Bankers Life Insurance Company of
New York which together file a consolidated tax return
beginning in 2002. In prior years, the life insurance
subsidiaries filed separate federal income tax returns. The
separate return method is used to compute the Companys
provision for allocating federal income taxes. Deferred income
tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and
laws.

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes
in stockholders equity during a period except those
resulting from investments by and distributions to stockholders.
Other comprehensive income (loss) excludes net realized
investment gains included in net income which merely represent
transfers from unrealized to realized gains and losses. Such
amounts totaled $28.2 million, ($101.3) million and
($14.8) million in 2003, 2002 and 2001, respectively.

Earnings Per Share

Basic earnings per share of common stock are
computed by dividing net income by the weighted-average number
of common shares outstanding during the period. Diluted earnings
per share assumes the issuance of common shares applicable to
stock options and warrants and is calculated using the treasury
stock method.

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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Diluted earnings per share applicable to the
Companys PRIDESSM securities are determined
using the treasury stock method as it is currently anticipated
that holders of the PRIDES are more likely to tender cash in the
future for the securities forward contract. The PRIDES
added 72,151 shares for the diluted earnings per share
calculation for the year ended 2003. See further discussion of
the PRIDES in note 8. Diluted earnings per share applicable
to the Companys Optionally Convertible Equity-linked
Accreting Notes (OCEANsSM) are determined using the
if-converted method for the number of days in the period in
which the common stock price conversion condition is met. The
common stock price conversion condition was not met for the
years ended December 31, 2003 and 2002. No undistributed
net income has been allocated to the convertible securities
holders since their participation in dividends with common
stockholders is limited to the amount of the annual regular
dividend. See further discussion of the OCEANs in note 8.

Emerging Accounting Matters

SOP 03-1

In July 2003, the Accounting Standards Executive
Committee of the American Institute of Certified Public
Accountants issued Statement of Position 03-1, Accounting
and Reporting by Insurance Enterprises for Certain
Non-Traditional Long-Duration Insurance Contracts and for
Separate Accounts. SOP 03-1 provides interpretive
guidance on separate account presentation and valuation,
accounting recognition for sales inducements, and classification
and valuation of long-duration contract liabilities. The
provisions of SOP 03-1 are effective for financial
statements for fiscal years beginning after December 15,
2003. The adoption of SOP 03-1 will not have a material
effect on net income or stockholders equity in 2004.

Business Risks

The Company operates in a business environment
which is subject to various risks and uncertainties. Such risks
and uncertainties include interest rate risk, legal and
regulatory changes and default risk.

Interest rate risk is the potential for interest
rates to change, which can cause fluctuations in the value of
investments. To the extent that fluctuations in interest rates
cause the duration of assets and liabilities to differ, the
Company may have to sell assets prior to their maturity and
realize losses. Interest rate exposure for the investment
portfolio is managed through asset/liability management
techniques which attempt to match the duration of the assets
with the estimated duration of the liabilities. The Company also
utilizes derivative investment contracts to manage interest rate
risk.

The potential also exists for changes in the
legal or regulatory environment in which the Company operates,
which can create additional costs and expenses not anticipated
by the Company in pricing its products. Such regulatory
initiatives or new legal theories may create costs for the
Company beyond those recorded in the financial statements. The
Company mitigates this risk by closely monitoring the regulatory
environment to anticipate changes and by using underwriting
practices which identify and minimize the potential adverse
impact of this risk.

Credit risk is the risk that issuers of
securities owned by the Company may default or be unable to
repay an investment obligation. Credit risk also includes other
parties, such as reinsurers, who may not be able to pay amounts
due the Company. The Company attempts to minimize credit risk by
adhering to a conservative investment strategy, holding a well
diversified portfolio of assets to minimize concentrations and
maintaining sound reinsurance and credit and collection policies.

F-18



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AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |             
|--- | ------------
|(2) | CLOSED BLOCK

The Closed Block is presented on a pre-tax basis
and accordingly does not include current or deferred taxes.
Summarized financial information of the Closed Block as of
December 31, 2003, 2002 and 2001 and for the years then
ended is as follows:

|                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |           | 
|--------------------------------------------------------------------- | ----------------- | ---------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                                                      |                   | 2003             |           | 2002      |  | 2001
|                                                                      |                   |                  |           |           |  |     
|                                                                      |                   |                 
|                                                                      |                   | ($ in thousands)
|Change in policyowner dividend
    obligation:                        |                   |                  |           |           |  |      |           |           |  |   |           |          
|Balance at beginning of year                                          |                   | $                | 118,623   |           |  | $    | 61,486    |           |  | $ | 24,916    |          
|Impact on net income before income taxes                              |                   |                  | 8,345     |           |  |      | (287      | )         |  |   | 1,820     |          
|Unrealized investment gains (losses)                                  |                   |                  | 7,418     |           |  |      | 57,424    |           |  |   | 34,750    |          
|                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |          
|Balance at end of year                                                |                   | $                | 134,386   |           |  | $    | 118,623   |           |  | $ | 61,486    |          
|                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |          
|Operations:                                                           |                   |                  |           |           |  |      |           |           |  |   |           |          
|Insurance premiums                                                    |                   | $                | 211,966   |           |  | $    | 265,586   |           |  | $ | 220,291   |          
|Product charges                                                       |                   |                  | 9,789     |           |  |      | 8,750     |           |  |   | 12,200    |          
|Net investment income                                                 |                   |                  | 151,769   |           |  |      | 157,928   |           |  |   | 132,402   |          
|Realized/unrealized gains (losses) on
    investments                 |                   |                  | 9,326     |           |  |      | (2,400    | )         |  |   | 8,719     |          
|Policyowner benefits                                                  |                   |                  | (251,872  | )         |  |      | (284,821  | )         |  |   | (239,688  | )        
|Underwriting, acquisition and other expenses                          |                   |                  | (4,114    | )         |  |      | (4,843    | )         |  |   | (5,958    | )        
|Dividends to policyowners                                             |                   |                  | (87,388   | )         |  |      | (95,443   | )         |  |   | (91,609   | )        
|                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |          
|Contribution from the Closed Block before income
    taxes            |                   | $                | 39,476    |           |  | $    | 44,757    |           |  | $ | 36,357    |          
|                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |          
|Maximum future earnings from Closed Block
    assets and liabilities: |                   |                  |           |           |  |      |           |           |  |   |           |          
|Beginning of year                                                     |                   | $                | 669,744   |           |  | $    | 715,611   |           |  | $ | 401,487   |          
|Pretax contribution from the Closed Block                             |                   |                  | (39,476   | )         |  |      | (44,757   | )         |  |   | (36,357   | )        
|Federal income taxes and other items funded by
    the Closed Block   |                   |                  | 54,143    |           |  |      | 14,553    |           |  |   | 5,336     |          
|Acquisition of Closed Block and related adjustment                    |                   |                  |          |           |  |      | (15,663   | )         |  |   | 345,145   |          
|                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |          
|Balance at end of year                                                |                   | $                | 684,411   |           |  | $    | 669,744   |           |  | $ | 715,611   |          
|                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |          
|Liabilities:                                                          |                   |                  |           |           |  |      |           |           |  |   |           |          
|Future life and annuity policy benefits                               |                   | $                | 2,845,365 |           |  | $    | 2,840,041 |           |  | $ | 2,835,423 |          
|Policyowner funds                                                     |                   |                  | 9,232     |           |  |      | 4,400     |           |  |   | 4,656     |          
|Accrued expenses and other liabilities                                |                   |                  | 44,473    |           |  |      | 44,295    |           |  |   | 69,678    |          
|Dividends payable to policyowners                                     |                   |                  | 173,703   |           |  |      | 147,177   |           |  |   | 154,139   |          
|Policy and contract claims                                            |                   |                  | 22,694    |           |  |      | 10,390    |           |  |   | 8,843     |          
|Policyowner dividend obligation                                       |                   |                  | 134,386   |           |  |      | 118,623   |           |  |   | 61,486    |          
|                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |          
|                                                                      | Total Liabilities |                  |           | 3,229,853 |  |      |           | 3,164,926 |  |   |           | 3,134,225 | 
|                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |          

F-19



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AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                                                             |              |                  |           |           |  |      |           |           |  |   |           |           | 
|-------------------------------------------------------------------------------------------- | ------------ | ---------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                                                                             |              | 2003             |           | 2002      |  | 2001
|                                                                                             |              |                  |           |           |  |     
|                                                                                             |              |                 
|                                                                                             |              | ($ in thousands)
|Assets:                                                                                      |              |                  |           |           |  |      |           |           |  |   |           |          
|Fixed maturity securities available-for-sale at
    fair value                               |              |                  | 2,027,177 |           |  |      | 1,970,659 |           |  |   | 1,829,060 |          
|Mortgage loans                                                                               |              |                  | 80,170    |           |  |      | 90,872    |           |  |   | 105,901   |          
|Policy loans                                                                                 |              |                  | 346,823   |           |  |      | 354,784   |           |  |   | 363,981   |          
|Other investments                                                                            |              |                  |          |           |  |      | 1,047     |           |  |   | 4,653     |          
|Cash and cash equivalents                                                                    |              |                  | 3,492     |           |  |      | 6,178     |           |  |   | 18,382    |          
|Accrued investment income                                                                    |              |                  | 32,629    |           |  |      | 30,726    |           |  |   | 32,396    |          
|Premiums and fees receivable                                                                 |              |                  | 55,134    |           |  |      | 16,999    |           |  |   | 22,414    |          
|Other assets                                                                                 |              |                  | 17        |           |  |      | 23,917    |           |  |   | 41,827    |          
|                                                                                             |              |                  |           |           |  |      |           |           |  |   |           |          
|                                                                                             | Total Assets |                  |           | 2,545,442 |  |      |           | 2,495,182 |  |   |           | 2,418,614 | 
|                                                                                             |              |                  |           |           |  |      |           |           |  |   |           |          
|Maximum future earnings to be recognized from
    assets and liabilities of the Closed Block |              | $                | 684,411   |           |  | $    | 669,744   |           |  | $ | 715,611   |          
|                                                                                             |              |                  |           |           |  |      |           |           |  |   |           |          



|    |            
|--- | -----------
|(3) | INVESTMENTS

Investment Assets

The Companys investments at
December 31, 2003 and 2002, classified as securities
available-for-sale, are summarized as follows:

|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |           |            | 
|--------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ---------- | ---------- | ---------- | ----- | ---------- | ------- |  | --- | ------ | ------- |  | ------ | --------- | ---------- | 
|                                              |                                           |                                          
|                                              |                                           | 2003                                     
|                                              |                                           |                                          
|                                              |                                           |                                           |        | Gross      |            | Gross      |       |           
|                                              |                                           | Amortized                                 |        | unrealized |            | unrealized |       |           
|                                              |                                           | cost                                      |        | gains      |            | losses     |       | Fair value
|                                              |                                           |                                           |        |            |            |            |       |           
|                                              |                                           |                                          
|                                              |                                           | ($ in thousands)                         
|Fixed maturity securities available-for-sale: |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |          
|                                              | Corporate bonds                           |                                           | $      | 9,041,015  |            |            | $     | 500,180    |         |  | $   | 57,809 |         |  | $      | 9,483,386 |           
|                                              | U.S. government bonds                     |                                           |        | 484,829    |            |            |       | 17,131     |         |  |     | 1,653  |         |  |        | 500,307   |           
|                                              | State and political subdivisions          |                                           |        | 64,574     |            |            |       | 2,844      |         |  |     | 1,431  |         |  |        | 65,987    |           
|                                              | Foreign government bonds                  |                                           |        | 123,360    |            |            |       | 5,474      |         |  |     | 291    |         |  |        | 128,543   |           
|                                              | Asset-backed bonds                        |                                           |        | 447,390    |            |            |       | 13,563     |         |  |     | 1,448  |         |  |        | 459,505   |           
|                                              | Collateralized mortgage-backed securities |                                           |        | 931,824    |            |            |       | 21,874     |         |  |     | 2,694  |         |  |        | 951,004   |           
|                                              | Mortgage-backed bonds                     |                                           |        | 1,835,775  |            |            |       | 27,657     |         |  |     | 7,950  |         |  |        | 1,855,482 |           
|                                              | Indexed debt instruments                  |                                           |        | 404,383    |            |            |       |           |         |  |     | 8,258  |         |  |        | 396,125   |           
|                                              | Redeemable preferred stock                |                                           |        | 141,752    |            |            |       | 1          |         |  |     | 37,131 |         |  |        | 104,622   |           
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |          
|                                              |                                           | Total fixed maturities available-for-sale |        | $          | 13,474,902 |            |       | $          | 588,724 |  |     | $      | 118,665 |  |        | $         | 13,944,961 | 
|Equity securities available-for-sale          |                                           |                                           | 72,796 |            |            |            | 2,468 |            |         |  | 374 |        |         |  | 74,890 |          
|Short-term investments available-for-sale     |                                           |                                           | 27,882 |            |            |            | 675   |            |         |  | 1   |        |         |  | 28,556 |          
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |          
|                                              |                                           | Total available-for-sale securities       |        | $          | 13,575,580 |            |       | $          | 591,867 |  |     | $      | 119,040 |  |        | $         | 14,048,407 | 
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |          

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |         |         |  |        |           |            | 
|--------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ---------- | ---------- | ---------- | ----- | ---------- | ------- |  | --- | ------- | ------- |  | ------ | --------- | ---------- | 
|                                              |                                           |                                          
|                                              |                                           | 2002                                     
|                                              |                                           |                                          
|                                              |                                           |                                           |        | Gross      |            | Gross      |       |           
|                                              |                                           | Amortized                                 |        | unrealized |            | unrealized |       |           
|                                              |                                           | cost                                      |        | gains      |            | losses     |       | Fair value
|                                              |                                           |                                           |        |            |            |            |       |           
|                                              |                                           |                                          
|                                              |                                           | ($ in thousands)                         
|Fixed maturity securities available-for-sale: |                                           |                                           |        |            |            |            |       |            |         |  |     |         |         |  |        |          
|                                              | Corporate bonds                           |                                           | $      | 8,111,585  |            |            | $     | 510,062    |         |  | $   | 133,461 |         |  | $      | 8,488,186 |           
|                                              | U.S. government bonds                     |                                           |        | 638,103    |            |            |       | 28,392     |         |  |     | 421     |         |  |        | 666,074   |           
|                                              | State and political subdivisions          |                                           |        | 45,336     |            |            |       | 4,633      |         |  |     |        |         |  |        | 49,969    |           
|                                              | Foreign government bonds                  |                                           |        | 236,601    |            |            |       | 9,831      |         |  |     | 3,157   |         |  |        | 243,275   |           
|                                              | Asset-backed bonds                        |                                           |        | 796,877    |            |            |       | 20,376     |         |  |     | 43,984  |         |  |        | 773,269   |           
|                                              | Collateralized mortgage-backed securities |                                           |        | 639,236    |            |            |       | 36,760     |         |  |     | 365     |         |  |        | 675,631   |           
|                                              | Mortgage-backed bonds                     |                                           |        | 2,248,055  |            |            |       | 72,721     |         |  |     | 278     |         |  |        | 2,320,498 |           
|                                              | Redeemable preferred stock                |                                           |        | 151,919    |            |            |       | 282        |         |  |     | 40,201  |         |  |        | 112,000   |           
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |         |         |  |        |          
|                                              |                                           | Total fixed maturities available-for-sale |        |            | 12,867,712 |            |       |            | 683,057 |  |     |         | 221,867 |  |        |           | 13,328,902 | 
|Equity securities available-for-sale          |                                           |                                           | 62,602 |            |            |            | 1,163 |            |         |  | 420 |         |         |  | 63,345 |          
|Short-term investments available-for-sale     |                                           |                                           | 32,050 |            |            |            | 308   |            |         |  | 40  |         |         |  | 32,318 |          
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |         |         |  |        |          
|                                              |                                           | Total available-for-sale securities       |        | $          | 12,962,364 |            |       | $          | 684,528 |  |     | $       | 222,327 |  |        | $         | 13,424,565 | 
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |         |         |  |        |          

The amortized cost and estimated fair value of
investments in available-for-sale fixed maturity securities at
December 31, 2003, are summarized by stated maturity as
follows:

|                                     |                            |                  |            |            |  |   |            |           | 
|------------------------------------ | -------------------------- | ---------------- | ---------- | ---------- |  | - | ---------- | --------- | 
|                                     |                            | Amortized        |            |           
|                                     |                            | cost             |            | Fair value
|                                     |                            |                  |            |           
|                                     |                            |                 
|                                     |                            | ($ in thousands)
|Fixed maturities available-for-sale: |                            |                  |            |            |  |   |            |          
|                                     | Due in 2004                |                  | $          | 368,996    |  |   | $          | 375,403   | 
|                                     | Due in 2005 - 2009         |                  |            | 3,408,594  |  |   |            | 3,637,022 | 
|                                     | Due in 2010 - 2014         |                  |            | 4,667,741  |  |   |            | 4,824,264 | 
|                                     | Due after 2014             |                  |            | 3,193,796  |  |   |            | 3,252,790 | 
|                                     | Mortgage-backed securities |                  |            | 1,835,775  |  |   |            | 1,855,482 | 
|                                     |                            |                  |            |            |  |   |            |          
|                                     |                            | $                | 13,474,902 |            |  | $ | 13,944,961 |          
|                                     |                            |                  |            |            |  |   |            |          

The foregoing data is based on the stated
maturities of the securities. Actual maturities will differ for
some securities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

The Company holds investments in indexed debt
instruments (IDIs) in which the principal is initially partially
defeased by an obligation of a third party financial institution
(institution) collateralized by U.S. Treasuries which
will accrete to 50% of the original principal amount of the IDIs
at maturity. The balance of the principal amount due at maturity
is subject to a dynamic defeasance mechanism, which should
provide a return of the initial investment. The instruments
issued by the institutions are linked to the performance of a
hedge fund or fund of funds. The annual income on these
investments will be equal to the quarterly distribution of the
hedge fund or fund of funds plus the change in the present value
of anticipated distributions to be received at maturity and will
be included in net investment income. Over the life of the IDIs,
the income will be a function of the cumulative performance of
the linked hedge fund or fund of funds and the return on any
defeased portion of the investment. The quarterly distribution
paid, if any, reduces the amount of future participation in the
performance of the linked hedge fund or fund of funds. At
maturity, the

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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Company will take delivery of the referenced
hedge fund interests and cash or U.S. Treasuries equal to
the portion of the instruments that have been defeased, the
total of which should equal or exceed the instruments
principal amount. The investment purpose of these instruments is
to enable the Company to obtain the return as if they had
invested in hedge funds or fund of funds with dynamic principal
protection. The instruments as of December 31, 2003 carried
an A rating or better by Fitch.

Included in equity securities available-for-sale
is Federal Home Loan Bank of Des Moines (FHLB) capital
stock amounting to $58.1 million and $50.3 million at
December 31, 2003 and 2002, respectively. As a member of
the FHLB, the Company is required to own the capital stock to
utilize various FHLB financing and other services.

At December 31, 2003 and 2002, investments
in fixed maturity securities with a carrying amount of
$39.6 million and $47.1 million, respectively, were on
deposit with state insurance departments to satisfy regulatory
requirements.

At December 31, 2003, the Company held
investments with Bear Stearns Company amounting to
$170.7 million and AG Deutsche Bank amounting to
$159.8 million. The investments are primarily IDIs. At
December 31, 2002, no investment in any party exceeded 10%
of stockholders equity.

The Company also participates in a securities
lending program whereby certain fixed maturity securities from
the investment portfolio are loaned to other institutions for a
short period of time. The Company receives a fee in exchange for
the loan of securities and requires initial collateral equal to
102 percent of the market value of the loaned securities to
be separately maintained. Securities with a market value of
$154.6 million were on loan under the program and the
Company has cash collateral under its control of
$158.8 million at December 31, 2003. There were no
securities on loan at December 31, 2002. The collateral
held under the securities lending program has been included in
cash and cash equivalents in the consolidated balance sheet and
the obligation to return the collateral upon the return of the
loaned securities has been included in accrued expenses and
other liabilities.

Other investments include investments which are
carried on the equity method of accounting. Distributions from
such equity method investments amounted to $1.5 million,
$0.8 million and $3.1 million in 2003, 2002 and 2001,
respectively.

Major categories of investment income are
summarized as follows:

|                          |  |                          |           |      |  |      |           |  |  |   |         | 
|------------------------- |  | ------------------------ | --------- | ---- |  | ---- | --------- |  |  | - | ------- | 
|                          |  |                         
|                          |  | Years ended December 31,
|                          |  |                         
|                          |  | 2003                     |           | 2002 |  | 2001
|                          |  |                          |           |      |  |     
|                          |  |                         
|                          |  | ($ in thousands)        
|Fixed maturity securities |  | $                        | 874,185   |      |  | $    | 880,112   |  |  | $ | 760,670 | 
|Equity securities         |  |                          | 817       |      |  |      | 304       |  |  |   | 4,546   | 
|Mortgage Loans            |  |                          | 74,739    |      |  |      | 77,592    |  |  |   | 64,723  | 
|Real estate               |  |                          | 234       |      |  |      | 136       |  |  |   | 53      | 
|Policy loans              |  |                          | 30,473    |      |  |      | 31,170    |  |  |   | 29,004  | 
|Other                     |  |                          | 36,612    |      |  |      | 25,256    |  |  |   | 27,599  | 
|                          |  |                          |           |      |  |      |           |  |  |   |         | 
|Gross investment income   |  |                          | 1,017,060 |      |  |      | 1,014,570 |  |  |   | 886,595 | 
|Investment expenses       |  |                          | 15,146    |      |  |      | 13,313    |  |  |   | 13,421  | 
|                          |  |                          |           |      |  |      |           |  |  |   |         | 
|Net investment income     |  | $                        | 1,001,914 |      |  | $    | 1,001,257 |  |  | $ | 873,174 | 
|                          |  |                          |           |      |  |      |           |  |  |   |         | 

F-22



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Realized and Unrealized Gains
(Losses)

Realized and unrealized gains and losses on
investments and provisions for loan losses are summarized as
follows:

|                                                                        |                           |                          |         |      |          |         |          |   |          |          |         |   |         |         |  
|----------------------------------------------------------------------- | ------------------------- | ------------------------ | ------- | ---- | -------- | ------- | -------- | - | -------- | -------- | ------- | - | ------- | ------- | -
|                                                                        |                           |                         
|                                                                        |                           | Years ended December 31,
|                                                                        |                           |                         
|                                                                        |                           | 2003                     |         | 2002 |          | 2001   
|                                                                        |                           |                          |         |      |          |        
|                                                                        |                           |                         
|                                                                        |                           | ($ in thousands)        
|Securities available-for-sale:                                          |                           |                          |         |      |          |         |          |   |          |          |         |  
|                                                                        | Fixed maturity securities |                          |         |      |          |         |          |   |          |          |         |   |        
|                                                                        |                           | Gross realized gains     |         | $    | 184,996  |         |          | $ | 141,687  |          |         | $ | 52,101  |        
|                                                                        |                           | Gross realized losses    |         |      | (143,097 | )       |          |   | (236,063 | )        |         |   | (75,295 | )      
|                                                                        | Equity securities         |                          |         |      |          |         |          |   |          |          |         |   |        
|                                                                        |                           | Gross realized gains     |         |      | 89       |         |          |   | 418      |          |         |   | 833     |        
|                                                                        |                           | Gross realized losses    |         |      | (211     | )       |          |   | (155     | )        |         |   | (12     | )      
|Other investments                                                       |                           |                          | (8,979  | )    |          |         | (12,474  | ) |          |          | (9,313  | )
|Provision for loan losses                                               |                           |                          | 8,723   |      |          |         | 1,877    |   |          |          | 1,106   |  
|Realized/unrealized gains/(losses) on swaps                             |                           |                          | 3,852   |      |          |         | 2,674    |   |          |          |        |  
|Realized/unrealized gains/(losses) on option
    assets                 |                           |                          | 59,098  |      |          |         | (42,942  | ) |          |          | (54,186 | )
|                                                                        |                           |                          |         |      |          |         |          |   |          |          |         |  
|Realized/unrealized gains/(losses) on
    available-for-sale securities |                           |                          | 104,471 |      |          |         | (144,978 | ) |          |          | (84,766 | )
|Realized/unrealized gains/(losses) on held for
    trading securities   |                           |                          | 26,820  |      |          |         | (4,941   | ) |          |          | (5,863  | )
|                                                                        |                           |                          |         |      |          |         |          |   |          |          |         |  
|                                                                        |                           |                          | Total   |      | $        | 131,291 |          |   | $        | (149,919 | )       |   | $       | (90,629 | )
|                                                                        |                           |                          |         |      |          |         |          |   |          |          |         |  

The unrealized appreciation
(depreciation) on invested assets available-for-sale is
reported as a separate component of stockholders equity,
reduced by adjustments to DAC, VOBA, future life and annuity
policy benefits, and a provision for deferred income taxes.
Unrealized appreciation (depreciation) attributable to the
Closed Block amounting to $108.9 million at
December 31, 2003, $101.4 million at December 31,
2002 and $44.0 million at December 31, 2001 has been
included in dividends payable to policyowners.

A summary of the components of the net unrealized
appreciation (depreciation) on invested assets carried at
fair value and other components of accumulated other
comprehensive income is as follows:

|                                       |                           |                  |          |         |  |   |          |         | 
|-------------------------------------- | ------------------------- | ---------------- | -------- | ------- |  | - | -------- | ------- | 
|                                       |                           |                 
|                                       |                           | December 31,    
|                                       |                           |                 
|                                       |                           | 2003             |          | 2002   
|                                       |                           |                  |          |        
|                                       |                           |                 
|                                       |                           | ($ in thousands)
|Unrealized appreciation (depreciation) |                           |                  |          |         |  |   |          |        
|Securities available-for-sale:         |                           |                  |          |         |  |   |          |        
|                                       | Fixed maturity securities |                  | $        | 470,059 |  |   | $        | 461,190 | 
|                                       | Equity securities         |                  |          | 2,094   |  |   |          | 743     | 
|                                       | Short-term investments    |                  |          | 674     |  |   |          | 268     | 
|Other investments                      |                           |                  | 496      |         |  |   | (3,538   | )      
|DAC and VOBA                           |                           |                  | (223,121 | )       |  |   | (216,973 | )      
|Policy reserves and policyowner funds  |                           |                  | (1,109   | )       |  |   | 1,402    |        
|Minimum pension liability adjustment   |                           |                  | (10,468  | )       |  |   | (5,475   | )      
|Policyowner dividend obligation        |                           |                  | (108,860 | )       |  |   | (101,441 | )      
|Deferred income taxes                  |                           |                  | (45,246  | )       |  |   | (47,654  | )      
|                                       |                           |                  |          |         |  |   |          |        
|                                       |                           | $                | 84,519   |         |  | $ | 88,522   |        
|                                       |                           |                  |          |         |  |   |          |        

F-23



---



##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The change in unrealized appreciation
(depreciation) on fixed maturity securities was an increase
of $8.9 million, an increase of $325.0 million and an
increase of $158.8 million for the years ended
December 31, 2003, 2002 and 2001, respectively; the
corresponding amounts for equity securities was an increase of
$1.4 million, an increase of $0.4 million and a
decrease of $0.3 million, respectively.

The following table shows gross unrealized losses
and fair value, aggregated by investment category and length of
time the individual securities have been in a continuous loss
position, at December 31, 2003:

|                                       |  |                                                 |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|-------------------------------------- |  | ----------------------------------------------- | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ------- |  |  | - | ----- | 
|                                       |  |                                                
|                                       |  | Unrealized Loss as a Percentage of Market Value
|                                       |  | December 31, 2003                              
|                                       |  |                                                
|                                       |  |                                                
|                                       |  | ($ in millions)                                
|                                       |  |                                                 |         |             |  |                     |      |           
|                                       |  | Less than 7 months                              |         | 7-12 months |  | More than 12 months |      | Total     
|                                       |  |                                                 |         |             |  |                     |      |           
|                                       |  |                                                 |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                       |  | Fair                                            |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|Total Temporarily Impaired Securities: |  | value                                           |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                       |  |                                                 |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Corporate bonds                        |  | $                                               | 1,618.3 |             |  | $                   | 31.3 |            |  | $     | 275.5 |            |  | $     | 15.8 |            |  | $ | 118.0 |  |  | $ | 10.6 |  |  | $ | 2,011.8 |  |  | $ | 57.7  | 
|U.S. government bonds                  |  |                                                 | 156.5   |             |  |                     | 1.7  |            |  |       | 0.4   |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 156.9   |  |  |   | 1.7   | 
|State and political subdivisions       |  |                                                 | 18.8    |             |  |                     | 1.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 18.8    |  |  |   | 1.4   | 
|Foreign government bonds               |  |                                                 | 51.2    |             |  |                     | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 1.3   |  |  |   |     |  |  |   | 52.5    |  |  |   | 0.3   | 
|Asset-backed bonds                     |  |                                                 | 74.1    |             |  |                     | 0.5  |            |  |       | 4.6   |            |  |       |     |            |  |   | 18.5  |  |  |   | 1.0  |  |  |   | 97.2    |  |  |   | 1.5   | 
|CMBS                                   |  |                                                 | 227.9   |             |  |                     | 2.7  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 227.9   |  |  |   | 2.7   | 
|Mortgage-backed bonds                  |  |                                                 | 598.1   |             |  |                     | 5.2  |            |  |       | 135.8 |            |  |       | 2.7  |            |  |   | 0.2   |  |  |   |     |  |  |   | 734.1   |  |  |   | 7.9   | 
|Indexed Debt Instruments               |  |                                                 | 240.9   |             |  |                     | 3.7  |            |  |       | 157.6 |            |  |       | 4.6  |            |  |   |      |  |  |   |     |  |  |   | 398.5   |  |  |   | 8.3   | 
|Redeemable preferred stock             |  |                                                 |        |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   | 104.6 |  |  |   | 37.1 |  |  |   | 104.6   |  |  |   | 37.1  | 
|Equity securities AFS                  |  |                                                 |        |             |  |                     |     |            |  |       | 0.8   |            |  |       | 0.2  |            |  |   | 0.3   |  |  |   | 0.2  |  |  |   | 1.1     |  |  |   | 0.4   | 
|Short-term investments AFS             |  |                                                 | 3.7     |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 3.7     |  |  |   |      | 
|                                       |  |                                                 |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|Total                                  |  | $                                               | 2,989.5 |             |  | $                   | 46.8 |            |  | $     | 574.7 |            |  | $     | 23.3 |            |  | $ | 242.9 |  |  | $ | 48.9 |  |  | $ | 3,807.1 |  |  | $ | 119.0 | 
|                                       |  |                                                 |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 

|                                 |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|-------------------------------- |  | ------------------ | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | --- |  |  | - | ------- |  |  | - | ---- | 
|                                 |  |                    |         |             |  |                     |      |           
|                                 |  | Less than 7 months |         | 7-12 months |  | More than 12 months |      | Total     
|                                 |  |                    |         |             |  |                     |      |           
|                                 |  |                    |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                 |  | Fair               |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|Less Than 20% Underwater:        |  | value              |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                 |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Corporate bonds                  |  | $                  | 1,618.3 |             |  | $                   | 31.3 |            |  | $     | 275.5 |            |  | $     | 15.8 |            |  | $ | 109.8 |  |  | $ | 8.2 |  |  | $ | 2,003.6 |  |  | $ | 55.3 | 
|U.S. government bonds            |  |                    | 156.5   |             |  |                     | 1.7  |            |  |       | 0.4   |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 156.9   |  |  |   | 1.7  | 
|State and political subdivisions |  |                    | 18.8    |             |  |                     | 1.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 18.8    |  |  |   | 1.4  | 
|Foreign government bonds         |  |                    | 51.2    |             |  |                     | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 1.3   |  |  |   |    |  |  |   | 52.5    |  |  |   | 0.3  | 
|Asset-backed bonds               |  |                    | 74.1    |             |  |                     | 0.5  |            |  |       | 4.6   |            |  |       |     |            |  |   | 18.5  |  |  |   | 1.0 |  |  |   | 97.2    |  |  |   | 1.5  | 
|CMBS                             |  |                    | 227.9   |             |  |                     | 2.7  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 227.9   |  |  |   | 2.7  | 
|Mortgage-backed bonds            |  |                    | 598.1   |             |  |                     | 5.2  |            |  |       | 135.8 |            |  |       | 2.7  |            |  |   | 0.2   |  |  |   |    |  |  |   | 734.1   |  |  |   | 7.9  | 
|Indexed Debt Instruments         |  |                    | 240.9   |             |  |                     | 3.7  |            |  |       | 157.6 |            |  |       | 4.6  |            |  |   |      |  |  |   |    |  |  |   | 398.5   |  |  |   | 8.3  | 
|Equity securities AFS            |  |                    |        |             |  |                     |     |            |  |       | 0.8   |            |  |       | 0.2  |            |  |   |      |  |  |   |    |  |  |   | 0.8     |  |  |   | 0.2  | 
|Short-term investments AFS       |  |                    | 3.7     |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 3.7     |  |  |   |     | 
|                                 |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|Total                            |  | $                  | 2,989.5 |             |  | $                   | 46.8 |            |  | $     | 574.7 |            |  | $     | 23.3 |            |  | $ | 129.8 |  |  | $ | 9.2 |  |  | $ | 3,694.0 |  |  | $ | 79.3 | 
|                                 |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 

F-24



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                           |  |                                                 |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|-------------------------- |  | ----------------------------------------------- | - | ----------- |  | ------------------- | - | ---------- |  | ----- | - | ---------- |  | ----- | - | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ----- |  |  | - | ---- | 
|                           |  |                                                
|                           |  | Unrealized Loss as a Percentage of Market Value
|                           |  | December 31, 2003                              
|                           |  |                                                
|                           |  |                                                
|                           |  | ($ in millions)                                
|                           |  |                                                 |   |             |  |                     |   |           
|                           |  | Less than 7 months                              |   | 7-12 months |  | More than 12 months |   | Total     
|                           |  |                                                 |   |             |  |                     |   |           
|                           |  |                                                 |   | Gross       |  |                     |   | Gross      |  |       |   | Gross      |  |       |   | Gross     
|                           |  | Fair                                            |   | unrealized  |  | Fair                |   | unrealized |  | Fair  |   | unrealized |  | Fair  |   | unrealized
|20%-50% Underwater:        |  | value                                           |   | loss        |  | value               |   | loss       |  | value |   | loss       |  | value |   | loss      
|                           |  |                                                 |   |             |  |                     |   |            |  |       |   |            |  |       |   |           
|Corporate bonds            |  | $                                               |  |             |  | $                   |  |            |  | $     |  |            |  | $     |  |            |  | $ | 8.2   |  |  | $ | 2.4  |  |  | $ | 8.2   |  |  | $ | 2.4  | 
|Redeemable preferred stock |  |                                                 |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   | 104.6 |  |  |   | 37.1 |  |  |   | 104.6 |  |  |   | 37.1 | 
|Equity securities AFS      |  |                                                 |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   | 0.3   |  |  |   | 0.2  |  |  |   | 0.3   |  |  |   | 0.2  | 
|                           |  |                                                 |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|Total                      |  | $                                               |  |             |  | $                   |  |            |  | $     |  |            |  | $     |  |            |  | $ | 113.1 |  |  | $ | 39.7 |  |  | $ | 113.1 |  |  | $ | 39.7 | 
|                           |  |                                                 |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 

There were no available-for-sale securities that
were more than 50% underwater at December 31, 2003.

The evaluation of other-than-temporary impairment
(OTTI) for fixed income securities follows a three-step
process of 1) screen and identify; 2) assess and
document; 3) recommend and approve. In identifying
potential OTTIs, all securities that have a fair value
less than 80% of amortized cost are screened. In addition, we
monitor securities for general credit issues that have been
identified and included on a watch list which may result in the
potential impairment list including other securities that have a
fair value at or greater than 80% of amortized cost. For asset
backed securities, an impairment loss is established if the fair
value of the security is less than amortized costs and there is
an adverse change in estimated cash flows from the cash flows
previously projected.

The list of securities identified is subject to a
formal assessment to determine if an impairment is other than
temporary. Management makes certain assumptions or judgments in
its assessment of potentially impaired securities including but
not limited to:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | Industry characteristics and trends, company to
    industry profile, quality of management                                
|
| |  | Financial conditions and trends including
    strength of balance sheet and financial liquidity                            
|
| |  | Significant events affecting the company and/or
    industry                                                               
|
| |  | Viability of the business model incorporating an
    evaluation of default probability and associated recoverable
    value
|
| |  | Length of time the fair value was below 80% of
    amortized cost                                                          
|
| |  | Ability and intent to retain the investment to
    maturity or for a sufficient period of time for it to recover           

If the determination is that the security is
OTTI, it is written down to fair value. This is reviewed and
approved by senior management. The difference between amortized
cost and fair value is charged to net income.

As of December 31, 2003, we have recorded
impairments on twelve issuers of investments which were
considered to be OTTI amounting to $21.0 million.

Variable Interest Entities

The Company had investments in variable interest
entities as described by FIN 46 as of December 31,
2002, most of which were sold in 2003. The following is a
description of those interests for which the Company would have
been considered primary beneficiary as well as those for which
the Company would not have been the primary beneficiary. If an
enterprise is considered to be a primary beneficiary, the
variable interest entity would be consolidated upon adoption of
FIN 46. During 2003, most of the investments for which the
Company would have been considered a primary beneficiary were
redeemed.

F-25



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Interests as Primary
Beneficiary

The Company held investments in trusts that
contained a limited partnership interest and either
U.S. treasury strips or Aaa/ AAA rated corporate strips as
of December 31, 2002. The purpose of these entities was to
enable the Company to invest in limited partnerships in a
defeased form. The investments were made between 1998 and 2001.
The Companys carrying value of these fixed income
investments was $463.9 million at December 31, 2002.
The total assets of the entities at that date were
$472.1 million. In addition to the Companys
interests, there were $8.2 million of minority interests.
The holders of those minority interests had no recourse against
the Company. No Company assets were used to collateralize any
obligations. The Companys maximum exposure to loss at
December 31, 2002, was its carrying value of the
investment. At December 31, 2003, an investment in a
limited partnership, for which the Company provides indirect
management functions to a non-registered investment company that
invests in convertible securities, has been consolidated rather
than carried as an equity method investment resulting in an
increase in total assets, primarily fixed maturity securities,
and total liabilities, in other liabilities, of
$21.1 million and no change in stockholders equity or
net income. There is no recourse to the Company by creditors of
the partnership.

The Company issued a $250 million
collateralized bond obligation (CBO) in 1996 and 1997 and
held interests in several of the tranches, most of which were
held in trusts along with U.S. treasury strips. The purpose
of the CBO was to securitize high yield bonds and earn a spread
over the cost of the funds from the different tranches issued.
The collateral for this transaction was high yield and emerging
markets debt. The outstanding balance of all tranches was
$203.3 million at December 31, 2002, of which third
parties held $146.1 million. These third parties had no
recourse against the Company. The total value of the CBO assets
was $220.0 million at December 31, 2002. The total
carrying value of the Companys interests was
$60.7 million at December 31, 2002. The face amount of
these treasury strips exceeded the total carrying value of the
Companys interests. The remaining assets did not
collateralize any obligation other than the tranches of the CBO.
The CBO was liquidated in 2003.

Interests Not as Primary
Beneficiary

The Company holds residual interests in
structures that contain first and second lien residential
mortgages. The purpose of these structures is to provide a form
of financing for the lender. The investments were made in 1999,
2000 and 2001. As of December 31, 2003 and 2002, the total
assets of these structures are $168.6 million and
$291.6 million, respectively. The Companys maximum
exposure to loss is its carrying value of the residual
interests, which was $9.2 million and $22.1 million at
December 31, 2003 and 2002, respectively.

The Company held an investment in a limited
partnership which was formed to construct multifamily housing.
The investment was made in 2001 and terminated in 2003. As of
December 31, 2002, the total assets of the partnership were
approximately $45 million. The Companys maximum
exposure to loss was the carrying value of its asset which
amounted to $10.4 million at December 31, 2002.

F-26



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                                                  
|--- | -------------------------------------------------
|(4) | DERIVATIVE INSTRUMENTS AND HEDGING
    ACTIVITIES

The Companys outstanding derivative
positions shown in notional or contract amounts, along with
their carrying value and estimated fair values, are summarized
as follows:

|                     |  |                   |           |          |  |            |         |  |  |   |         | 
|-------------------- |  | ----------------- | --------- | -------- |  | ---------- | ------- |  |  | - | ------- | 
|                     |  |                  
|                     |  | December 31, 2003
|                     |  |                  
|                     |  | Notional          |           | Carrying |  |           
|                     |  | amount            |           | value    |  | Fair value
|                     |  |                   |           |          |  |           
|                     |  |                  
|                     |  | ($ in thousands) 
|Interest rate swaps  |  | $                 | 616,500   |          |  | $          | 3,166   |  |  | $ | 3,166   | 
|Credit default swaps |  |                   | 150,000   |          |  |            | 599     |  |  |   | 599     | 
|Options              |  |                   | 1,836,783 |          |  |            | 134,942 |  |  |   | 134,942 | 
|                     |  |                   |           |          |  |            |         |  |  |   |         | 
|                     |  | $                 | 2,603,283 |          |  | $          | 138,707 |  |  | $ | 138,707 | 
|                     |  |                   |           |          |  |            |         |  |  |   |         | 

|                     |  |                   |           |          |  |            |        |   |  |   |        |  
|-------------------- |  | ----------------- | --------- | -------- |  | ---------- | ------ | - |  | - | ------ | -
|                     |  |                  
|                     |  | December 31, 2002
|                     |  |                  
|                     |  | Notional          |           | Carrying |  |           
|                     |  | amount            |           | value    |  | Fair value
|                     |  |                   |           |          |  |           
|                     |  |                  
|                     |  | ($ in thousands) 
|Interest rate swaps  |  | $                 | 849,000   |          |  | $          | (5,571 | ) |  | $ | (5,571 | )
|Credit default swaps |  |                   | 145,000   |          |  |            | (231   | ) |  |   | (231   | )
|Options              |  |                   | 1,161,653 |          |  |            | 65,753 |   |  |   | 65,753 |  
|                     |  |                   |           |          |  |            |        |   |  |   |        |  
|                     |  | $                 | 2,155,653 |          |  | $          | 59,951 |   |  | $ | 59,951 |  
|                     |  |                   |           |          |  |            |        |   |  |   |        |  

The following table shows the maturities of
derivative products as of December 31, 2003:

|                      |                  |                                                   |   |           |   |      |   |         |   |      |   |        |   |      |   |         |   |      |   |        |   |  |   |       |  |  |   |        |  |  |   |        |  |  |   |         |   |  |   |       | 
|--------------------- | ---------------- | ------------------------------------------------- | - | --------- | - | ---- | - | ------- | - | ---- | - | ------ | - | ---- | - | ------- | - | ---- | - | ------ | - |  | - | ----- |  |  | - | ------ |  |  | - | ------ |  |  | - | ------- | - |  | - | ----- | 
|                      |                  |                                                  
|                      |                  | Maturity Schedule by Year for Derivative Products
|                      |                  |                                                  
|                      |                  | 2004                                              |   | 2005      |   | 2006 |   | 2007    |   | 2008 |   | 2009   |   | 2010 |   | 2011    |   | 2012 |   | 2013  
|                      |                  |                                                   |   |           |   |      |   |         |   |      |   |        |   |      |   |         |   |      |   |       
|                      |                  |                                                  
|                      |                  | ($ in thousands)                                 
|Interest rate swaps:  |                  |                                                   |   |           |   |      |   |         |   |      |   |        |   |      |   |         |   |      |   |        |   |  |   |       |  |  |   |        |  |  |   |        |  |  |   |         |   |  |   |      
|                      | Notional amount  |                                                   | $ | 177,500   |   |      | $ |        |   |      | $ |       |   |      | $ | 187,000 |   |      | $ |       |   |  | $ |      |  |  | $ |       |  |  | $ |       |  |  | $ | 252,000 |   |  | $ |      | 
|Weighted average:     |                  |                                                   |   |           |   |      |   |         |   |      |   |        |   |      |   |         |   |      |   |        |   |  |   |       |  |  |   |        |  |  |   |        |  |  |   |         |   |  |   |      
|                      | Receive rate (A) |                                                   |   | 3.504     | % |      |   | 3.379   | % |      |   | 3.379  | % |      |   | 3.379   | % |      |   |       |   |  |   |      |  |  |   |       |  |  |   |       |  |  |   | 3.495   | % |  |   |      | 
|                      | Pay rate (B)     |                                                   |   | 2.687     | % |      |   | 3.313   | % |      |   | 3.313  | % |      |   | 3.313   | % |      |   |       |   |  |   |      |  |  |   |       |  |  |   |       |  |  |   | 3.495   | % |  |   |      | 
|Credit default swaps: |                  |                                                   |   |           |   |      |   |         |   |      |   |        |   |      |   |         |   |      |   |        |   |  |   |       |  |  |   |        |  |  |   |        |  |  |   |         |   |  |   |      
|                      | Notional amount  |                                                   | $ | 80,000    |   |      | $ | 40,000  |   |      | $ |       |   |      | $ | 20,000  |   |      | $ | 10,000 |   |  | $ |      |  |  | $ |       |  |  | $ |       |  |  | $ |        |   |  | $ |      | 
|Weighted average:     |                  |                                                   |   |           |   |      |   |         |   |      |   |        |   |      |   |         |   |      |   |        |   |  |   |       |  |  |   |        |  |  |   |        |  |  |   |         |   |  |   |      
|                      | Receive rate (C) |                                                   |   | 0.660     | % |      |   | 0.600   | % |      |   | 0.460  | % |      |   | 0.460   | % |      |   | 0.440  | % |  |   |      |  |  |   |       |  |  |   |       |  |  |   |        |   |  |   |      | 
|Options:              |                  |                                                   |   |           |   |      |   |         |   |      |   |        |   |      |   |         |   |      |   |        |   |  |   |       |  |  |   |        |  |  |   |        |  |  |   |         |   |  |   |      
|                      | Notional amount  |                                                   | $ | 1,282,546 |   |      | $ | 438,324 |   |      | $ | 16,720 |   |      | $ | 10,706  |   |      | $ | 6,997  |   |  | $ | 5,905 |  |  | $ | 19,420 |  |  | $ | 22,263 |  |  | $ | 24,204  |   |  | $ | 9,698 | 






|    |                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | The actual variable rates in the agreements are
    based on a constant maturity treasury (CMT) plus a spread and
    one-month LIBOR and the table assumes that such rates will
    remain constant at December 31, 2003, levels. To the extent
    that actual rates change, the variable interest rate information
    will change accordingly.



|    |                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) | The actual rates in the agreements are either
    fixed or based on three-month LIBOR and the table assumes that
    such rate will remain constant at December 31, 2003 levels.
    To the extent that actual rates change, the variable interest
    rate information will change accordingly.
|   
|(C) | The actual rates in the agreements are fixed
    based on the amount of risk assumed at the time of the
    transaction.                                                                                                                                                                        

F-27



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Company has equity-indexed life and annuity
products that guarantee the return of principal to the customer
and credit interest based on certain indices, primarily the
Standard & Poors 500 Composite Stock Price
Index® (S&P 500 Index). A portion of the premium from
each customer is invested in investment grade fixed income
securities and is intended to cover the minimum guaranteed value
due the customer at the end of the term. A portion of the
premium is used to purchase call options to hedge the growth in
interest credited to the customer as a direct result of
increases in the related indices. The amounts to be paid or
received pursuant to these agreements are accrued and recognized
in income over the life of the agreements. Both call options
held by the Company and the options embedded in the policy,
which the Company has designated as a natural hedge, are valued
at fair value. The change in fair value for the call options is
included in realized/unrealized gains (losses) on investments
and the change in fair value of the embedded options is included
in policyowner benefits in the consolidated statements of income.

The Company has certain products that credit
interest based on a total return strategy. Under the total
return strategy, the policyowner is allowed to allocate their
premium payments to different asset classes within the
Companys general account assets to which the selected
strategy is linked, less certain charges. The total return
adjustment is paid when a policyowner accesses the funds. The
Company guarantees a minimum return of premium plus
approximately 3% interest per annum over the life of the
contract. The general account assets backing the total return
strategy of these products are fixed maturity securities and are
designated by the Company as held for trading. Both the trading
securities held by the Company and the product contracts are
valued at fair value. The change in fair value for the trading
securities is included in realized/unrealized gains (losses) on
investments and the change in fair value of the contracts is
included in policyowner benefits in the consolidated statements
of income.

To manage interest rate risk, the Company entered
into interest rate swaps that effectively fixed the interest
payments of a floating rate funding agreement liability and
other interest swaps that hedged market risk from fixed income
securities. These interest rate swap agreements were accounted
for as cash flow and fair value hedges, respectively. Generally
credit default swaps are coupled with a bond to synthetically
create an investment cheaper than the equivalent instrument
traded in the cash market.

The Company documents its hedge relationships,
including identification of the hedging instruments and the
hedged items, as well as its risk management objectives and
strategies for undertaking the hedge transaction. Free standing
derivatives are recorded in the consolidated balance sheets at
fair value in other investments and option derivatives embedded
in equity-indexed products are marked to fair value and
classified in the consolidated balance sheets as policy
reserves and policyowner funds. This process includes
linking derivatives that are designated as hedges of specific
assets, liabilities, firm commitments or forecasted
transactions. The Company also formally assesses at inception
and at least quarterly thereafter, whether the derivatives that
are used in hedging transactions, other than natural hedges, are
highly effective in offsetting changes in either the fair value
or cash flows of the hedged item. When a determination is made
that a derivative ceases to be a highly effective hedge, the
Company will discontinue hedge accounting for the derivative.

During 2003, 2002 and 2001, realized/unrealized
gains (losses) on investments included an unrealized gain of
$62.9 million, an unrealized loss of $40.0 million and
an unrealized loss of $54.2 million, respectively, from the
change in fair value on call options used as a natural hedge of
embedded options within equity-indexed products. Additionally,
an unrealized gain has been recognized amounting to
$26.8 million, an unrealized loss of $5.2 million and
an unrealized loss of $5.9 million for 2003, 2002, and
2001, respectively, from the change in fair value on the trading
securities backing the total return strategy products.
Policyowner benefits included an offsetting adjustment to
(increase) reduce contract liabilities for fair value changes in
options embedded within the equity-indexed products and fair
value changes on total return strategy annuity contracts of
($65.7) million, $28.8 million and $52.7 million
in 2003, 2002 and 2001, respectively. In addition, basis swaps
were terminated during 2001 and an increase in fair value of
$1.8 million on those swaps were

F-28



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

included in net investment income. AOCI included
an unrealized gain of $2.5 million, an unrealized gain of
$3.4 million and an unrealized loss of $5.9 million
from the fair value change in interest rate swaps used to hedge
the floating rate funding agreement liability during 2003, 2002
and 2001, respectively. In 2002, the Company undesignated a cash
flow hedge and is now amortizing the amount in AOCI to earnings
over the remaining life of the swap, which amounted to
$3.8 million and $4.4 million expense in 2003 and
2002, respectively, from the fair value change in interest rate
swaps used to hedge the floating rate funding agreement
liability. The Company estimates that $0.6 million
after-tax of derivative losses included in AOCI will be
reclassified into earnings within the next twelve months. The
ineffectiveness of the interest rate swap cash flow hedge was
not considered significant for 2001, 2002 or 2003.

The following table summarizes the income (loss)
impact of the market value adjustment on trading securities and
derivatives and the cash flow hedge amortization:

|                                                         |                 |                              |         |               |  |       |         |       |  |   |        |       |  |   |         |        | 
|-------------------------------------------------------- | --------------- | ---------------------------- | ------- | ------------- |  | ----- | ------- | ----- |  | - | ------ | ----- |  | - | ------- | ------ | 
|                                                         |                 |                             
|                                                         |                 | Year Ended December 31, 2003
|                                                         |                 |                             
|                                                         |                 | Total Return                 |         | Equity Linked |  |      
|                                                         |                 | Products                     |         | Products      |  | Other |         | Total
|                                                         |                 |                              |         |               |  |       |         |      
|                                                         |                 |                             
|                                                         |                 | ($ in thousands)            
|Fixed maturity securities held for trading               |                 | $                            | 24,593  |               |  | $     |        |       |  | $ | 2,227  |       |  | $ | 26,820  |       
|Options                                                  |                 |                              |        |               |  |       | 58,711  |       |  |   | 4,238  |       |  |   | 62,949  |       
|Equity-indexed and total return strategy
    liabilities |                 |                              | (17,894 | )             |  |       | (50,454 | )     |  |   | 2,607  |       |  |   | (65,741 | )     
|Cash flow hedge amortization                             |                 |                              |        |               |  |       |        |       |  |   | (3,827 | )     |  |   | (3,827  | )     
|DAC amortization impact of net adjustments above         |                 |                              | 751     |               |  |       | (4,563  | )     |  |   | (3,231 | )     |  |   | (7,043  | )     
|                                                         |                 |                              |         |               |  |       |         |       |  |   |        |       |  |   |         |       
|                                                         | Pre-tax total   |                              |         | 7,450         |  |       |         | 3,694 |  |   |        | 2,014 |  |   |         | 13,158 | 
|Income taxes                                             |                 |                              | (2,607  | )             |  |       | (1,293  | )     |  |   | (705   | )     |  |   | (4,605  | )     
|                                                         |                 |                              |         |               |  |       |         |       |  |   |        |       |  |   |         |       
|                                                         | After-tax total |                              | $       | 4,843         |  |       | $       | 2,401 |  |   | $      | 1,309 |  |   | $       | 8,553  | 
|                                                         |                 |                              |         |               |  |       |         |       |  |   |        |       |  |   |         |       

|                                                         |                 |                              |         |               |   |       |         |        |   |   |        |        |   |   |         |         |  
|-------------------------------------------------------- | --------------- | ---------------------------- | ------- | ------------- | - | ----- | ------- | ------ | - | - | ------ | ------ | - | - | ------- | ------- | -
|                                                         |                 |                             
|                                                         |                 | Year Ended December 31, 2002
|                                                         |                 |                             
|                                                         |                 | Total Return                 |         | Equity Linked |   |      
|                                                         |                 | Products                     |         | Products      |   | Other |         | Total 
|                                                         |                 |                              |         |               |   |       |         |       
|                                                         |                 |                             
|                                                         |                 | ($ in thousands)            
|Fixed maturity securities held for trading               |                 | $                            | (4,349  | )             |   | $     |        |        |   | $ | (841   | )      |   | $ | (5,190  | )      
|Options                                                  |                 |                              |        |               |   |       | (42,693 | )      |   |   | 2,674  |        |   |   | (40,019 | )      
|Equity-indexed and total return strategy
    liabilities |                 |                              | (10,816 | )             |   |       | 39,595  |        |   |   | (20    | )      |   |   | 28,759  |        
|Cash flow hedge amortization                             |                 |                              |        |               |   |       |        |        |   |   | (4,351 | )      |   |   | (4,351  | )      
|DAC amortization impact of net adjustments above         |                 |                              | (789    | )             |   |       | (1,418  | )      |   |   | 488    |        |   |   | (1,719  | )      
|                                                         |                 |                              |         |               |   |       |         |        |   |   |        |        |   |   |         |        
|                                                         | Pre-tax total   |                              |         | (15,954       | ) |       |         | (4,516 | ) |   |        | (2,050 | ) |   |         | (22,520 | )
|Income taxes                                             |                 |                              | 5,584   |               |   |       | 1,581   |        |   |   | 717    |        |   |   | 7,882   |        
|                                                         |                 |                              |         |               |   |       |         |        |   |   |        |        |   |   |         |        
|                                                         | After-tax total |                              | $       | (10,370       | ) |       | $       | (2,935 | ) |   | $      | (1,333 | ) |   | $       | (14,638 | )
|                                                         |                 |                              |         |               |   |       |         |        |   |   |        |        |   |   |         |        

F-29



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                         |                 |                              |        |               |   |       |         |        |   |   |     |     |  |   |         |        |  
|-------------------------------------------------------- | --------------- | ---------------------------- | ------ | ------------- | - | ----- | ------- | ------ | - | - | --- | --- |  | - | ------- | ------ | -
|                                                         |                 |                             
|                                                         |                 | Year Ended December 31, 2001
|                                                         |                 |                             
|                                                         |                 | Total Return                 |        | Equity Linked |   |      
|                                                         |                 | Products                     |        | Products      |   | Other |         | Total 
|                                                         |                 |                              |        |               |   |       |         |       
|                                                         |                 |                             
|                                                         |                 | ($ in thousands)            
|Fixed maturity securities held for trading               |                 | $                            | (6,113 | )             |   | $     |        |        |   | $ | 250 |     |  | $ | (5,863  | )     
|Options                                                  |                 |                              |       |               |   |       | (54,186 | )      |   |   |    |     |  |   | (54,186 | )     
|Equity-indexed and total return strategy
    liabilities |                 |                              | (1,353 | )             |   |       | 54,100  |        |   |   |    |     |  |   | 52,747  |       
|DAC amortization impact of net adjustments above         |                 |                              |       |               |   |       | (1,664  | )      |   |   |    |     |  |   | (1,664  | )     
|                                                         |                 |                              |        |               |   |       |         |        |   |   |     |     |  |   |         |       
|                                                         | Pre-tax total   |                              |        | (7,466        | ) |       |         | (1,750 | ) |   |     | 250 |  |   |         | (8,966 | )
|Income taxes                                             |                 |                              | 2,613  |               |   |       | 612     |        |   |   | (87 | )   |  |   | 3,138   |       
|                                                         |                 |                              |        |               |   |       |         |        |   |   |     |     |  |   |         |       
|                                                         | After-tax total |                              | $      | (4,853        | ) |       | $       | (1,138 | ) |   | $   | 163 |  |   | $       | (5,828 | )
|                                                         |                 |                              |        |               |   |       |         |        |   |   |     |     |  |   |         |       

Initially, upon adoption of the new derivative
accounting requirements, and prospectively, on the date a
derivative contract is entered into, the Company designates the
derivative as either (1) a hedge of a recognized asset or
liability or an unrecognized firm commitment (a fair value
hedge), (2) a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a
recognized asset or liability (a cash flow hedge), or (3) a
natural hedging instrument whose change in fair value is
recognized to act as an economic hedge against changes in the
values of the hedged item and which does not meet the accounting
hedge criteria for SFAS 133 (a natural hedge).

For fair value hedges, both the effective and
ineffective portion of the changes in the fair value of the
derivative, along with the gain or loss on the hedged item that
is attributable to the hedged risk, are recorded in earnings and
reported net in the consolidated statements of income. The
effective portion of the changes in the fair value of a
derivative that is designated as a cash flow hedge is recorded
in AOCI. When the hedged cash transaction is realized, the gain
or loss included in AOCI is reported net in the consolidated
statements of income with the hedged cash transaction item. In
addition, the ineffective portion of the changes in the fair
value of derivatives designated as cash flow hedges are reported
in net investment income in the consolidated statements of
income. For derivatives designated as a natural hedge, changes
in fair value are classified as realized/unrealized gains
(losses) on investments in the consolidated statement of income.

The Financial Accounting Standards Boards
Derivatives Implementation Group issued DIG Issue B36 which
applies to modified coinsurance and coinsurance with funds
withheld arrangements where interest is determined by reference
to a pool of fixed maturity assets or a total return debt index.
Such arrangements in which funds are withheld by the ceding
insurer cause the reinsurer to recognize a receivable from the
ceding insurer as well as a liability representing reserves for
the insurance coverage assumed under the reinsurance
arrangements. The terms of the ceding companys payable
provide for the future payment of principal plus a rate of
return on either its general account assets or a specified block
of those assets which is typically composed of fixed-rate debt
securities. DIG Issue B36 considers the payable from the ceding
company to contain an embedded derivative that must be
bifurcated and accounted for separately under SFAS 133. We
adopted DIG Issue B36 on October 1, 2003, which included
establishing an embedded derivative liability of
$6.5 million and the reclassification of certain securities
supporting the products being reinsured from available-for-sale
to held for trading. The net cumulative effect of the change in
accounting for DIG Issue B36 was a decrease of $2.0 million
($1.3 million after-tax) in net income and a decrease of
$5.2 million in accumulated other comprehensive income
(AOCI), net of tax. The basic and diluted earnings per common
share for the cumulative effect of the change in accounting for
derivatives in accordance with DIG Issue B36 amounted to $0.03
for 2003.

Effective January 1, 2001, the Company
adopted SFAS 133 which requires that all derivative
instruments, including certain derivative instruments embedded
in other contracts, be reported on the balance sheet at fair
value. Accounting for gains and losses resulting from changes in
the values of derivatives is

F-30



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

dependent upon the use of the derivative and its
qualification for special hedge accounting. In accordance with
the provisions of SFAS 133, the Company recorded a
transition adjustment as of January 1, 2001 upon adoption
of the standard to recognize its derivative instruments at fair
value resulting in a pre-tax reduction to income of
$12.4 million ($8.2 million after-tax) and an increase
to AOCI of $2.7 million, net of tax. The basic and diluted
earnings per common share for the cumulative effect of the
change in accounting for derivatives amounted to $0.22 for 2001.
The reduction to income, which is classified as a
cumulative effect of change in accounting for derivatives,
net of tax in the consolidated statements of income, is
attributable to losses on basis swaps that were natural hedges
and losses on interest rate swaps reclassified from AOCI that
have been redesignated as cash flow hedges of a floating rate
funding agreement liability effective January 1, 2001. In
addition, the reduction to income includes adjustments to fair
value for options being used as natural hedges of embedded
options contained within equity-indexed life and annuity
products. The increase in AOCI, which is classified as
change in

accounting for derivatives in the
consolidated statements of comprehensive income, is attributable
to the reclassification of the interest rate swaps fair
value adjustment from AOCI to the consolidated statements of
income.



|    |               
|--- | --------------
|(5) | MORTGAGE LOANS

Mortgage loans consisted of the following:

|                            |  |                  |         |      |  |   |         |  
|--------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | -
|                            |  |                 
|                            |  | December 31,    
|                            |  |                 
|                            |  | 2003             |         | 2002
|                            |  |                  |         |     
|                            |  |                 
|                            |  | ($ in thousands)
|Single-family real estate   |  | $                | 122,486 |      |  | $ | 1,671   |  
|Multi-family real estate    |  |                  | 76,151  |      |  |   | 63,805  |  
|Commercial real estate      |  |                  | 775,338 |      |  |   | 831,607 |  
|Commercial                  |  |                  | 1,247   |      |  |   | 1,324   |  
|                            |  |                  |         |      |  |   |         |  
|                            |  |                  | 975,222 |      |  |   | 898,407 |  
|Allowance for credit losses |  |                  | (6,650  | )    |  |   | (15,373 | )
|                            |  |                  |         |      |  |   |         |  
|                            |  | $                | 968,572 |      |  | $ | 883,034 |  
|                            |  |                  |         |      |  |   |         |  

The Company manages its credit risk associated
with these loans by diversifying its mortgage portfolio by
property type and geographic location and by seeking favorable
loan to value ratios on secured properties. At December 31,
2003, the states with the highest concentration of mortgage
loans were Texas, Florida, Ohio and California with principal
balances of $129.7 million, $114.5 million,
$87.5 million and $83.3 million, respectively.

The amounts the Company will ultimately realize
from these loans could differ materially from their carrying
values because of future developments affecting the underlying
collateral or the borrowers ability to repay the loans and
leases. As of December 31, 2003, there were no material
commitments to lend additional funds to customers whose loans
were classified as nonaccrual or restructured.

No mortgage loan on any one individual property
exceeded $9.0 million at December 31, 2003 and 2002.

F-31



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Provisions for losses are summarized as follows:

|                               |  |                          |        |      |  |      |        |   |  |   |        |  
|------------------------------ |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                               |  |                         
|                               |  | Years ended December 31,
|                               |  |                         
|                               |  | 2003                     |        | 2002 |  | 2001
|                               |  |                          |        |      |  |     
|                               |  |                         
|                               |  | ($ in thousands)        
|Balance at beginning of year   |  | $                        | 15,373 |      |  | $    | 17,250 |   |  | $ | 15,671 |  
|Charge offs, net of recoveries |  |                          |       |      |  |      |       |   |  |   | (3,690 | )
|Acquired during the year       |  |                          |       |      |  |      |       |   |  |   | 6,375  |  
|Provision for losses           |  |                          | (8,723 | )    |  |      | (1,877 | ) |  |   | (1,106 | )
|                               |  |                          |        |      |  |      |        |   |  |   |        |  
|Balance at end of year         |  | $                        | 6,650  |      |  | $    | 15,373 |   |  | $ | 17,250 |  
|                               |  |                          |        |      |  |      |        |   |  |   |        |  

Write downs on loans sold or transferred to real
estate fluctuate between periods in relation to foreclosure
activity and the related underlying collateral values.



|    |                                  
|--- | ---------------------------------
|(6) | DEFERRED POLICY ACQUISITION COSTS

A summary of the policy acquisition costs
deferred and amortized are as follows:

|                                                                              |  |                          |           |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ------------------------ | --------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                              |  |                         
|                                                                              |  | Years ended December 31,
|                                                                              |  |                         
|                                                                              |  | 2003                     |           | 2002 |  | 2001
|                                                                              |  |                          |           |      |  |     
|                                                                              |  |                         
|                                                                              |  | ($ in thousands)        
|Balance at beginning of year                                                  |  | $                        | 983,445   |      |  | $    | 672,690 |   |  | $ | 404,143 |  
|Policy acquisition costs deferred                                             |  |                          | 391,583   |      |  |      | 389,035 |   |  |   | 318,653 |  
|Policy acquisition costs amortized                                            |  |                          | (119,040  | )    |  |      | (67,698 | ) |  |   | (49,379 | )
|Reclassification of deferred VOBA expense                                     |  |                          |          |      |  |      | (10,582 | ) |  |   |        |  
|Amortization of cumulative effect of change in
    accounting for derivatives |  |                          |          |      |  |      |        |   |  |   | (727    | )
|                                                                              |  |                          |           |      |  |      |         |   |  |   |         |  
|                                                                              |  |                          | 1,255,988 |      |  |      | 983,445 |   |  |   | 672,690 |  
|Unrealized gain on available-for-sale securities                              |  |                          | (135,858  | )    |  |      | (99,206 | ) |  |   | (30,010 | )
|                                                                              |  |                          |           |      |  |      |         |   |  |   |         |  
|Balance at end of year                                                        |  | $                        | 1,120,130 |      |  | $    | 884,239 |   |  | $ | 642,680 |  
|                                                                              |  |                          |           |      |  |      |         |   |  |   |         |  

F-32



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                           
|--- | --------------------------
|(7) | VALUE OF BUSINESS ACQUIRED

A summary of VOBA established and amortized is as
follows:

|                                                                              |  |                          |         |      |  |      |          |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                                              |  |                         
|                                                                              |  | Years ended December 31,
|                                                                              |  |                         
|                                                                              |  | 2003                     |         | 2002 |  | 2001
|                                                                              |  |                          |         |      |  |     
|                                                                              |  |                         
|                                                                              |  | ($ in thousands)        
|Balance at beginning of the year                                              |  | $                        | 571,926 |      |  | $    | 614,028  |   |  | $ | 479,695 |  
|VOBA established during the year                                              |  |                          | 9,219   |      |  |      | 19,183   |   |  |   | 6,422   |  
|Amortization of VOBA asset                                                    |  |                          | (74,300 | )    |  |      | (71,867  | ) |  |   | (83,520 | )
|Amortization of cumulative effect of change in
    accounting for derivatives |  |                          |        |      |  |      |         |   |  |   | (400    | )
|Acquired during the year                                                      |  |                          |        |      |  |      |         |   |  |   | 211,831 |  
|Reclassification from deferred DAC expense                                    |  |                          |        |      |  |      | 10,582   |   |  |   |        |  
|                                                                              |  |                          |         |      |  |      |          |   |  |   |         |  
|                                                                              |  |                          | 506,845 |      |  |      | 571,926  |   |  |   | 614,028 |  
|Unrealized gain on available-for-sale securities                              |  |                          | (87,263 | )    |  |      | (117,767 | ) |  |   | (30,199 | )
|                                                                              |  |                          |         |      |  |      |          |   |  |   |         |  
|Balance at end of year                                                        |  | $                        | 419,582 |      |  | $    | 454,159  |   |  | $ | 583,829 |  
|                                                                              |  |                          |         |      |  |      |          |   |  |   |         |  

Amortization is recognized in proportion to
expected future gross profits over a 20 year period and is
based on the average interest crediting rates which range from
3.07% to 7.00% for 2003 and over the next five years. Interest
accrued on the unamortized VOBA amounted to $30.8 million,
$32.1 million and $28.5 million in 2003, 2002 and
2001, respectively, which is netted with the VOBA amortization
expense.

The estimated amortization for in force business
for the next five years is as follows ($ in thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2004 |  | $ | 56,437 | 
|2005 |  |   | 52,912 | 
|2006 |  |   | 51,079 | 
|2007 |  |   | 46,581 | 
|2008 |  |   | 43,026 | 

F-33



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |              
|--- | -------------
|(8) | NOTES PAYABLE

Notes payable consist of the following:

|                                                                                                                                                                                                                                                   |  |                  |         |      |  |   |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | 
|                                                                                                                                                                                                                                                   |  |                 
|                                                                                                                                                                                                                                                   |  | December 31,    
|                                                                                                                                                                                                                                                   |  |                 
|                                                                                                                                                                                                                                                   |  | 2003             |         | 2002
|                                                                                                                                                                                                                                                   |  |                  |         |     
|                                                                                                                                                                                                                                                   |  |                 
|                                                                                                                                                                                                                                                   |  | ($ in thousands)
|Optionally Convertible Equity-linked Accreting
    Notes due on March 6, 2032(A)                                                                                                                                                                   |  | $                | 187,723 |      |  | $ | 186,233 | 
|PRIDES notes(B)                                                                                                                                                                                                                                    |  |                  | 143,750 |      |  |   |        | 
|Senior notes bearing interest at 6.95% due June
    2005                                                                                                                                                                                           |  |                  | 125,000 |      |  |   | 125,000 | 
|AmerUs Capital I 8.85% Capital Securities Series
    A due February 1, 2027(C)                                                                                                                                                                     |  |                  | 50,755  |      |  |   | 48,095  | 
|Revolving credit agreement due December 2007 (D)                                                                                                                                                                                                   |  |                  | 27,000  |      |  |   | 113,000 | 
|Surplus notes bearing interest at 8.66% due on
    April 11, 2011(E)                                                                                                                                                                               |  |                  | 25,000  |      |  |   | 25,000  | 
|Federal Home Loan Bank community investment
    long-term and short-term advances with a weighted average
    interest rate of 3.04% at December 31, 2003 and 6.37% at
    December 3, 2002 maturing at various dates through
    June 12, 2012(F) |  |                  | 36,873  |      |  |   | 13,871  | 
|AmerUs Capital II 7.00% Quarterly Income
    Preferred Securities due July 27, 2003                                                                                                                                                                |  |                  |        |      |  |   | 154     | 
|                                                                                                                                                                                                                                                   |  |                  |         |      |  |   |         | 
|                                                                                                                                                                                                                                                   |  | $                | 596,101 |      |  | $ | 511,353 | 
|                                                                                                                                                                                                                                                   |  |                  |         |      |  |   |         | 



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | On March 6, 2002, the Company issued
    $185 million aggregate original principal amount of OCEANs.
    The OCEANs are senior subordinated debt and were issued and sold
    in an original principal amount of $1,000 per OCEAN, with a
    principal amount at maturity of $1,270 per OCEAN. The
    maturity date of the OCEANs is March 6, 2032. The OCEANs
    will have aggregate principal amount at maturity of
    $235 million. The notes are convertible into shares of the
    Companys common stock at an initial conversion price
    (subject to adjustment) of $37.60 per share only if the
    sale price of the common stock exceeds $47.85 per share for
    at least 20 trading days in a 30-day trading period or in
    certain other limited circumstances. The yield on the OCEANs
    (without taking into account contingent interest) is
    3.83% per annum compounded semiannually through
    March 6, 2007 and 2.28% per annum compounded
    semiannually from March 6, 2007 through maturity. A portion
    of the yield is paid semiannually at a rate of 2.00% per
    annum on the issue price. The difference between the yield and
    the interest paid is accreted to the OCEANs principal. In
    addition, contingent interest will be paid quarterly based on
    the regular cash dividend on the Companys common stock.
    The Company has agreed, with certain limited exceptions, not to
    declare or pay dividends on or make distributions with respect
    to the Companys capital stock during any period in which
    the stated interest on the OCEANs has been deferred.
|   
|(B) |  | On May 28, 2003, the Company issued
    $125.0 million of PRIDES which were registered on
    Form S-3 filed with the Securities and Exchange Commission.
    On June 5, 2003, the underwriters exercised their over-
    allotment option in full and the Company issued an additional
    $18.8 million of PRIDES. The PRIDES initially consist of a
    $25 senior note and a contract requiring the holder to purchase
    the Companys common stock. The note has a minimum term of
    4.75 years, which may be extended by the Company in certain
    circumstances. The PRIDES have quarterly payments of interest at
    an annual rate of 5.5% and quarterly contract adjustment
    payments at an annual rate of 0.75%, both payable on
    February 16, May 16, August 16, and
    November 16 of each year, commencing August 16, 2003.
    Under the purchase contract, holders of each contract are
    required to purchase the Companys common stock on the
    settlement date of August 16, 2006 based on a specified
    settlement rate, which will vary according to the applicable
    market value of the Companys common stock at the
    settlement date. The value of the common stock to be issued upon
    settlement of each purchase contract will not exceed $25, the
    stated value of the PRIDES, unless the applicable market value
    of the Companys common stock (which is                                                                                                                                                                                                             

F-34



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

measured by the common stock price over a 20-day
trading day period) increases to more than $33.80 per
share. The present value of the contract adjustment payment,
amounting to $2.9 million, has been reflected as an other
liability with a corresponding charge to additional paid-in
capital. Subsequent contract adjustment payments will be
allocated between the liability and interest expense based on a
constant rate over the life of the PRIDES. Expenses incurred
with the offering were allocated between the senior notes and
the purchase contracts. The expenses allocated to the senior
notes, amounting to $0.8 million, have been capitalized and
will be recognized as interest expense over the term of the
notes. The expenses allocated to the purchase contracts,
totaling $4.4 million, was charged to additional paid-in
capital. The Company has agreed, with certain limited
exceptions, not to declare or pay dividends on or make
distributions with respect to the Companys capital stock
during any period in which the contract adjustment payments to
holders have been deferred.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(C) |  | The Capital Securities were issued through a
    wholly-owned subsidiary trust, AmerUs Capital I. The sole asset
    of the trust is the junior subordinated debentures of the
    Company in the principal amount of $88.66 million with
    interest at 8.85% maturing February 1, 2027. The Company
    has fully and unconditionally guaranteed the obligation of the
    trust under the Capital Securities and is obligated to
    mandatorily redeem the securities on February 1, 2027. The
    Company may prepay the securities at anytime after
    February 1, 2007. On March 26, 2002,
    $20.8 million of the Capital Securities were repurchased
    which did not result in a material gain. Dividends on capital
    stock cannot be paid until all accrued interest on the Capital
    Securities has been paid. AmerUs Capital I is a finance
    subsidiary which was deconsolidated in accordance with
    FIN 46 in 2003, as the securities holders are considered
    the primary beneficiaries rather than AmerUs Group Co. The
    deconsolidation of AmerUs Capital I resulted in an increase
    in total assets and total liabilities of $2.7 million and
    no change in stockholders equity or net income.
|   
|(D) |  | The revolving credit agreement provides for a
    maximum borrowing of $200 million with the balance maturing
    in December 2007. The interest rate is variable; however, the
    Company may elect to fix the rate for periods from 30 days
    to six months. The loan agreement contains various financial and
    operating covenants which, among other things, limit future
    indebtedness and restrict the amount of future dividend payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(E) |  | Payment of interest and principal on the surplus
    note, may only be paid from ILICs earnings, subject to
    approval by the Indiana Department of Insurance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(F) |  | The Company has multiple credit arrangements with
    the Federal Home Loan Bank (FHLB). The carrying value of
    the securities pledged to the FHLB under all agreements was
    $38.7 million at December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Maturities of notes payable are as follows for
each of the next five years is as follows ($ in thousands):

|                         |            |      |         |         |         | 
|------------------------ | ---------- | ---- | ------- | ------- | ------- | 
|Year ending December 31, |            |      |         |        
|                         |            | 2004 |         | $       | 24,103  | 
|                         |            | 2005 |         |         | 125,606 | 
|                         |            | 2006 |         |         | 647     | 
|                         |            | 2007 |         |         | 27,690  | 
|                         |            | 2008 |         |         | 144,487 | 
|                         | Thereafter |      |         | 273,568 |        
|                         |            |      |         |        
|                         |            | $    | 596,101 |        
|                         |            |      |         |        

F-35



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |             
|--- | ------------
|(9) | INCOME TAXES

Comprehensive federal income tax expense
(benefit) is summarized as follows:

|                             |                                           |                          |        |        |   |      |        |        |  |   |        |        | 
|---------------------------- | ----------------------------------------- | ------------------------ | ------ | ------ | - | ---- | ------ | ------ |  | - | ------ | ------ | 
|                             |                                           |                         
|                             |                                           | Years ended December 31,
|                             |                                           |                         
|                             |                                           | 2003                     |        | 2002   |   | 2001
|                             |                                           |                          |        |        |   |     
|                             |                                           |                         
|                             |                                           | ($ in thousands)        
|Income tax expense (benefit) |                                           |                          |        |        |   |      |        |        |  |   |        |       
|                             | Continuing operations                     |                          | $      | 78,610 |   |      | $      | 28,375 |  |   | $      | 39,522 | 
|                             | Other comprehensive income                |                          |        | 647    |   |      |        | 40,844 |  |   |        | 14,645 | 
|                             | Cumulative effect of change in accounting |                          |        | (698   | ) |      |        |       |  |   |        | 4,202  | 
|                             | Discontinued operations                   |                          |        | 1,238  |   |      |        | 1,389  |  |   |        | 859    | 
|                             |                                           |                          |        |        |   |      |        |        |  |   |        |       
|                             |                                           | $                        | 79,797 |        |   | $    | 70,608 |        |  | $ | 59,228 |       
|                             |                                           |                          |        |        |   |      |        |        |  |   |        |       

The effective income tax rate on pre-tax income
varies from the prevailing corporate federal income tax rate and
is summarized as follows:

|                                               |                    |                          |       |       |   |      |       |       |   |  |       |       |  
|---------------------------------------------- | ------------------ | ------------------------ | ----- | ----- | - | ---- | ----- | ----- | - |  | ----- | ----- | -
|                                               |                    |                         
|                                               |                    | Years ended December 31,
|                                               |                    |                         
|                                               |                    | 2003                     |       | 2002  |   | 2001
|                                               |                    |                          |       |       |   |     
|Corporate federal income tax rate              |                    |                          | 35.00 | %     |   |      | 35.00 | %     |   |  | 35.00 | %    
|Acquisitions costs and reorganization expenses |                    |                          |      |       |   |      | 0.53  | %     |   |  | 0.64  | %    
|Net benefit of tax credits                     |                    |                          |      |       |   |      | (0.19 | %)    |   |  | (1.59 | %)   
|Goodwill amortization                          |                    |                          |      |       |   |      |      |       |   |  | 2.37  | %    
|Dividend received deduction                    |                    |                          | (0.80 | %)    |   |      | (0.42 | %)    |   |  | (1.23 | %)   
|Tax exempt income                              |                    |                          | (2.14 | %)    |   |      | (5.37 | %)    |   |  | (2.50 | %)   
|Other items, net                               |                    |                          | 0.80  | %     |   |      | 2.28  | %     |   |  | 0.42  | %    
|                                               |                    |                          |       |       |   |      |       |       |   |  |       |      
|                                               | Effective tax rate |                          |       | 32.86 | % |      |       | 31.83 | % |  |       | 33.11 | %
|                                               |                    |                          |       |       |   |      |       |       |   |  |       |      

The Companys federal income tax expense
(benefit) from continuing operations is summarized as follows:

|                         |  |                          |        |      |  |      |         |   |  |   |        |  
|------------------------ |  | ------------------------ | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                         |  |                         
|                         |  | Years ended December 31,
|                         |  |                         
|                         |  | 2003                     |        | 2002 |  | 2001
|                         |  |                          |        |      |  |     
|                         |  |                         
|                         |  | ($ in thousands)        
|Current                  |  | $                        | 11,841 |      |  | $    | 41,958  |   |  | $ | 43,661 |  
|Deferred                 |  |                          | 66,769 |      |  |      | (13,583 | ) |  |   | (4,139 | )
|                         |  |                          |        |      |  |      |         |   |  |   |        |  
|Total income tax expense |  | $                        | 78,610 |      |  | $    | 28,375  |   |  | $ | 39,522 |  
|                         |  |                          |        |      |  |      |         |   |  |   |        |  

F-36



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The significant components of net deferred income
tax assets (liabilities) are summarized as follows:

|                                 |                                                                                                                            |                                           |         |          |          |   |         |          |          |  
|-------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                 |                                                                                                                            |                                          
|                                 |                                                                                                                            | December 31,                             
|                                 |                                                                                                                            |                                          
|                                 |                                                                                                                            | 2003                                      |         | 2002    
|                                 |                                                                                                                            |                                           |         |         
|                                 |                                                                                                                            |                                          
|                                 |                                                                                                                            | ($ in thousands)                         
|Deferred income tax assets:      |                                                                                                                            |                                           |         |          |          |   |         |         
|                                 | Policy reserves, policyowner funds and dividends                                                                           |                                           | $       | 728,015  |          |   | $       | 699,964  |         
|                                 | DAC and VOBA related to unrealized appreciation
    on available-for-sale securities and investments reflected in
    AOCI |                                           |         | 78,092   |          |   |         | 75,941   |         
|                                 | Employee benefits and deferred compensation                                                                                |                                           |         | 26,202   |          |   |         | 22,024   |         
|                                 | Credit carryover                                                                                                           |                                           |         | 62,738   |          |   |         | 58,607   |         
|                                 | Other                                                                                                                      |                                           |         | 5,989    |          |   |         | 21,063   |         
|                                 |                                                                                                                            |                                           |         |          |          |   |         |         
|                                 |                                                                                                                            | Total gross deferred income tax asset     |         |          | 901,036  |   |         |          | 877,599  |  
|                                 |                                                                                                                            | Valuation allowance                       |         |          | 15,773   |   |         |          | 15,773   |  
|                                 |                                                                                                                            |                                           |         |          |          |   |         |         
|                                 |                                                                                                                            |                                           | 885,263 |          |          |   | 861,826 |         
|                                 |                                                                                                                            |                                           |         |          |          |   |         |         
|Deferred income tax liabilities: |                                                                                                                            |                                           |         |          |          |   |         |         
|                                 | DAC                                                                                                                        |                                           |         | (333,321 | )        |   |         | (246,214 | )       
|                                 | Net unrealized appreciation on available-for-sale
    securities and investments reflected in AOCI                         |                                           |         | (123,339 | )        |   |         | (123,595 | )       
|                                 | VOBA                                                                                                                       |                                           |         | (178,204 | )        |   |         | (200,175 | )       
|                                 | Reinsurance receivables                                                                                                    |                                           |         | (246,979 | )        |   |         | (265,856 | )       
|                                 | Other invested assets                                                                                                      |                                           |         | (55,872  | )        |   |         | (36,800  | )       
|                                 | Other                                                                                                                      |                                           |         | (28,409  | )        |   |         | (5,685   | )       
|                                 |                                                                                                                            |                                           |         |          |          |   |         |         
|                                 |                                                                                                                            | Total gross deferred income tax liability |         |          | (966,124 | ) |         |          | (878,325 | )
|                                 |                                                                                                                            |                                           |         |          |          |   |         |         
|                                 |                                                                                                                            | Net deferred income tax asset (liability) |         | $        | (80,861  | ) |         | $        | (16,499  | )
|                                 |                                                                                                                            |                                           |         |          |          |   |         |         

The Company is required to establish a
valuation allowance for any portion of the deferred
tax asset that management believes will not be realized. A
valuation allowance has been established at December 31,
2003 and 2002 for certain credit carryovers which may not be
realized.

Federal income tax returns for the Company for
years through 1996 are closed to further assessment of taxes.
The Internal Revenue Service is examining federal income tax
returns of the Company for 1997 through 2001. Management
believes adequate provisions have been made for any additional
taxes which may become due with respect to open years.



|     |                       
|---- | ----------------------
|(10) | EMPLOYEE BENEFIT PLANS

Defined Benefit Plans

The Company has a defined benefit pension plan
which covered substantially all of the Companys employees.
The plan provided for benefits based upon years of service and
the employees compensation. The Company froze the plan
effective December 31, 1995. Effective January 1,
1996, the plan was replaced by a defined contribution savings
and retirement plan which also replaced the Companys
defined contribution pension plans.

In addition, ILICO had a noncontributory
defined benefit pension plan, which generally covered all
qualified employees that had attained the age of twenty-one.
Benefits were based on years of service and compensation levels
during employment. All plan assets consisted primarily of
deposit administration funds

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

and group annuity contracts held by ILICO. The
Company froze the plan effective December 31, 2001 and
merged this plan into the Companys defined benefit pension
plan. Effective January 1, 2002, the plan participants are
included in the Companys defined contribution savings and
retirement plan.

The Company also has nonqualified defined benefit
pension plans to provide supplemental retirement benefits to
certain agents and executives. The measurement date for all
defined benefit plans is December 31. The Company expects
to contribute $0.6 million for the defined benefit plans in
2004. The defined benefit plans funded status, reconciled
to amounts recognized in the consolidated financial statements
is as follows:

|                                |                                                |                                          |   |         |        |  |   |         |        | 
|------------------------------- | ---------------------------------------------- | ---------------------------------------- | - | ------- | ------ |  | - | ------- | ------ | 
|                                |                                                |                                         
|                                |                                                | December 31,                            
|                                |                                                |                                         
|                                |                                                | 2003                                     |   | 2002   
|                                |                                                |                                          |   |        
|                                |                                                |                                         
|                                |                                                | ($ in thousands)                        
|Change in benefit obligation:   |                                                |                                          |   |         |        |  |   |        
|                                | Benefit obligation at beginning of year        |                                          | $ | 79,913  |        |  | $ | 78,619  |       
|                                | Service cost                                   |                                          |   |        |        |  |   |        |       
|                                | Interest cost                                  |                                          |   | 5,178   |        |  |   | 5,368   |       
|                                | Actuarial loss                                 |                                          |   | 5,604   |        |  |   | 1,131   |       
|                                | Settlements and termination benefits           |                                          |   | 1,570   |        |  |   |        |       
|                                | Actual benefits paid                           |                                          |   | (5,354  | )      |  |   | (5,205  | )     
|                                |                                                |                                          |   |         |        |  |   |        
|                                |                                                | Benefit obligation at end of year        |   | $       | 86,911 |  |   | $       | 79,913 | 
|                                |                                                |                                          |   |         |        |  |   |        
|Change in plan assets:          |                                                |                                          |   |         |        |  |   |        
|                                | Fair value of plan assets at beginning of year |                                          | $ | 67,713  |        |  | $ | 68,550  |       
|                                | Actual return on plan assets                   |                                          |   | 5,523   |        |  |   | 3,766   |       
|                                | Company contribution                           |                                          |   | 633     |        |  |   | 602     |       
|                                | Benefits paid and transfers                    |                                          |   | (5,354  | )      |  |   | (5,205  | )     
|                                |                                                |                                          |   |         |        |  |   |        
|                                |                                                | Fair value of plan assets at end of year |   | $       | 68,515 |  |   | $       | 67,713 | 
|                                |                                                |                                          |   |         |        |  |   |        
|Reconciliation of funded status |                                                |                                          |   |         |        |  |   |        
|                                | Accumulated benefit obligation                 |                                          | $ | (86,911 | )      |  | $ | (79,913 | )     
|                                |                                                |                                          |   |         |        |  |   |        
|                                | Projected benefit obligation                   |                                          | $ | (86,911 | )      |  | $ | (79,913 | )     
|                                | Market value of plan assets                    |                                          |   | 68,515  |        |  |   | 67,713  |       
|                                |                                                |                                          |   |         |        |  |   |        
|                                | Funded status                                  |                                          |   | (18,396 | )      |  |   | (12,200 | )     
|                                | Unrecognized transition obligation             |                                          |   | (4      | )      |  |   | (5      | )     
|                                | Unrecognized prior service cost                |                                          |   | 415     |        |  |   | 391     |       
|                                | Unrecognized net loss                          |                                          |   | 10,488  |        |  |   | 5,547   |       
|                                |                                                |                                          |   |         |        |  |   |        
|                                | Prepaid (accrued) benefit cost                 |                                          | $ | (7,497  | )      |  | $ | (6,267  | )     

F-38



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AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                                                              |                                        |                                    |  |        |         |   |  |       |        |  
|--------------------------------------------------------------------------------------------- | -------------------------------------- | ---------------------------------- |  | ------ | ------- | - |  | ----- | ------ | -
|                                                                                              |                                        |                                   
|                                                                                              |                                        | December 31,                      
|                                                                                              |                                        |                                   
|                                                                                              |                                        | 2003                               |  | 2002  
|                                                                                              |                                        |                                    |  |       
|                                                                                              |                                        |                                   
|                                                                                              |                                        | ($ in thousands)                  
|                                                                                              |                                        |                                    |  |        |         |   |  |      
|Amounts recognized in the consolidated balance
    sheet consist of:                          |                                        |                                    |  |        |         |   |  |      
|                                                                                              | Liabilities                            |                                    |  |        |         |   |  |       |       
|                                                                                              |                                        | Accrued pension cost               |  | $      | (9,385  | ) |  | $     | (7,762 | )
|                                                                                              |                                        | Additional minimum liability       |  |        | (10,899 | ) |  |       | (5,932 | )
|                                                                                              | Assets                                 |                                    |  |        |         |   |  |       |       
|                                                                                              |                                        | Prepaid pension cost               |  |        | 1,888   |   |  |       | 1,495  |  
|                                                                                              |                                        | Intangible asset                   |  |        | 431     |   |  |       | 457    |  
|                                                                                              | Accumulated other comprehensive income |                                    |  | 10,468 |         |   |  | 5,475 |       
|                                                                                              |                                        |                                    |  |        |         |   |  |      
|                                                                                              |                                        | Net prepaid (accrued) pension cost |  | $      | (7,497  | ) |  | $     | (6,267 | )
|                                                                                              |                                        |                                    |  |        |         |   |  |      
|Weighted-average assumptions used to determine
    obligations at December 31:                |                                        |                                    |  |        |         |   |  |      
|                                                                                              | Discount rate                          |                                    |  | 6.00   | %       |   |  | 6.50  | %     
|                                                                                              | Expected return on plan assets         |                                    |  | 7.50   | %       |   |  | 7.50  | %     
|                                                                                              | Rate of compensation increase          |                                    |  | N/A    |         |   |  | N/A   |       
|Weighted-average assumptions used to determine
    net periodic pension cost for fiscal year: |                                        |                                    |  |        |         |   |  |      
|                                                                                              | Discount rate                          |                                    |  | 6.50   | %       |   |  | 6.50  | %     
|                                                                                              | Expected return on plan assets         |                                    |  | 7.50   | %       |   |  | 7.50  | %     
|                                                                                              | Rate of compensation increase          |                                    |  | N/A    |         |   |  | N/A   |       

|                                         |                                       |                          |   |        |       |      |   |        |     |  |   |        |       | 
|---------------------------------------- | ------------------------------------- | ------------------------ | - | ------ | ----- | ---- | - | ------ | --- |  | - | ------ | ----- | 
|                                         |                                       |                         
|                                         |                                       | Years ended December 31,
|                                         |                                       |                         
|                                         |                                       | 2003                     |   | 2002   |       | 2001
|                                         |                                       |                          |   |        |       |     
|                                         |                                       |                         
|                                         |                                       | ($ in thousands)        
|Components of net periodic benefit cost: |                                       |                          |   |        |       |      |   |        |     |  |   |       
|                                         | Service cost                          |                          | $ |       |       |      | $ |       |     |  | $ | 1,035  |      
|                                         | Interest cost                         |                          |   | 5,178  |       |      |   | 5,368  |     |  |   | 4,154  |      
|                                         | Expected return on plan assets        |                          |   | (4,905 | )     |      |   | (4,934 | )   |  |   | (4,064 | )    
|                                         | Amortization of transition obligation |                          |   | (1     | )     |      |   | (1     | )   |  |   | (1     | )    
|                                         | Amortization of prior service cost    |                          |   | (24    | )     |      |   | (49    | )   |  |   | (49    | )    
|                                         | Amortization of actuarial loss        |                          |   | 44     |       |      |   | 39     |     |  |   |       |      
|                                         |                                       |                          |   |        |       |      |   |        |     |  |   |       
|                                         | Net periodic benefit cost             |                          | $ | 292    |       |      | $ | 423    |     |  | $ | 1,075  |      
|                                         | Settlement cost                       |                          |   | 1,570  |       |      |   |       |     |  |   |       |      
|                                         |                                       |                          |   |        |       |      |   |        |     |  |   |       
|                                         |                                       | Total expense            |   | $      | 1,862 |      |   | $      | 423 |  |   | $      | 1,075 | 
|                                         |                                       |                          |   |        |       |      |   |        |     |  |   |       

Three of the defined benefit pension plans, with
liabilities of $9.4 million, do not have separate plan
assets. The frozen pension plan, which has a prepaid benefit
cost of $1.9 million at December 31, 2003 has plan
assets.

The expected return on plan assets is determined
based on long-term investment yields effective at the valuation
date. The Moodys Aa bond rate, for example, is used as a
benchmark to determine a rate of return. Past rate assumptions
are compared to historical experience to identify potential
adjustments to the estimated return.

F-39



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AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The objectives of the plan assets are to provide
adequate returns for inflation protection and to meet future
increases in benefit payments that are expected to occur as
additional participants reach eligibility to draw benefits.
These long-term liabilities are funded through a mix of bonds
and equity securities. The fair value of plan assets at
December 31, 2003 is as follows:

|                                  |  |                  |        |            |  |  |       |  
|--------------------------------- |  | ---------------- | ------ | ---------- |  |  | ----- | -
|                                  |  | ($ in thousands) |        | % of total
|                                  |  |                  |        |           
|Corporate bonds                   |  | $                | 54,958 |            |  |  | 80.2  | %
|Equity securities                 |  |                  | 8,441  |            |  |  | 12.3  | %
|Cash and cash equivalents         |  |                  | 4,357  |            |  |  | 6.4   | %
|Accrued investment income         |  |                  | 759    |            |  |  | 1.1   | %
|                                  |  |                  |        |            |  |  |       |  
|Benefit obligation at end of year |  | $                | 68,515 |            |  |  | 100.0 | %
|                                  |  |                  |        |            |  |  |       |  

Defined Contribution Pension Plans

The Company has a defined contribution savings
and retirement plan. Company contributions are non-discretionary
and consist of a matching contribution of an amount equal to
125 percent of the first 4 percent of employee
contributions and an annual core contribution of an amount equal
to 4 percent of annual employee compensation. The Company uses a
combination of cash and Company common stock for the annual
contribution. The shares for this purpose are provided by the
Companys Employee Stock Ownership Plan (ESOP).
Compensation expense for the employer match and annual
contribution amounted to $5.4 million, $5.3 million
and $4.2 million, including $1.6 million,
$1.3 million and $0.9 million of ESOP compensation
expense, in 2003, 2002 and 2001, respectively.

In addition, ILICO had a defined
contribution savings plan. Company contributions were
non-discretionary and consisted of a matching contribution equal
to 50 percent of the first 3 percent of employee
contributions. This plan was merged in the Companys
defined contribution savings and retirement plan as of
October 1, 2001; however, certain provisions of the plan
remained in effect through December 31, 2001. Compensation
expense for the employer match amounted to $0.3 million in
2001.

Leveraged Employee Stock Ownership
Plan

The Company has a leveraged ESOP. The shares of
the ESOP are used to fund a portion of the annual core
contribution savings and retirement plan. The ESOP was
originally sponsored by AmVestors, an acquired subsidiary of the
Company. The ESOP acquired AmVestors stock, which was
subsequently exchanged for the Companys stock, through the
proceeds of a note payable to American, a subsidiary of
AmVestors. The note was repaid in December 2002. During 2002,
the ESOP purchased 80,000 shares of the Companys
stock which was funded by an employer loan from the Company.

The Company accounts for its ESOP in accordance
with Statement of Position 93-6. Accordingly, as unallocated
shares are allocated, compensation expense, or a reduction in
the annual defined contribution savings and retirement plan
liability, is reported equal to the current market price of the
shares, and the shares become outstanding for earnings-per-share
(EPS) computations. ESOP compensation expense was
$1.6 million, $1.3 million and $0.9 million for
2003, 2002 and 2001, respectively.

F-40



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AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The ESOP shares were as follows:

|                                                           |  |                          |         |      |  |      |         |  |  |   |         | 
|---------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                           |  |                         
|                                                           |  | Years ended December 31,
|                                                           |  |                         
|                                                           |  | 2003                     |         | 2002 |  | 2001
|                                                           |  |                          |         |      |  |     
|Allocated shares                                           |  |                          | 293,278 |      |  |      | 259,671 |  |  |   | 211,987 | 
|Unallocated shares                                         |  |                          |        |      |  |      | 45,773  |  |  |   | 12,912  | 
|                                                           |  |                          |         |      |  |      |         |  |  |   |         | 
|Total ESOP shares                                          |  |                          | 293,278 |      |  |      | 305,444 |  |  |   | 224,899 | 
|                                                           |  |                          |         |      |  |      |         |  |  |   |         | 
|Fair market value of unallocated shares (in
    thousands) |  | $                        |        |      |  | $    | 1,294   |  |  | $ | 463     | 
|                                                           |  |                          |         |      |  |      |         |  |  |   |         | 

Deferred Compensation Plans

The Company has deferred compensation plans
covering certain agents, directors and officers in addition to
the defined benefit plans previously described. Accumulated
benefits of these plans are unfunded and are included in other
liabilities at December 31, 2003 and 2002, amounting to
$76.0 million and $75.5 million, respectively. Total
deferred compensation plan expense for these plans amounted to
$12.7 million, $6.5 million and $9.3 million for
2003, 2002 and 2001, respectively.

Postretirement Benefit Plans

The Company has postretirement benefit plans
which provide eligible participants and dependents with certain
medical, dental and life insurance benefits. The medical and
dental plans are contributory with participants
contributions adjusted annually. The life insurance benefits are
noncontributory. The Company expects to contribute
$1.6 million to the postretirement benefit plans in 2004.
The plans obligations and funded status, using a
measurement date of December 31, reconciled to amounts
recognized in the consolidated financial statements are as
follows:

|                              |                                                |                                          |   |        |        |  |   |        |        | 
|----------------------------- | ---------------------------------------------- | ---------------------------------------- | - | ------ | ------ |  | - | ------ | ------ | 
|                              |                                                |                                         
|                              |                                                | December 31,                            
|                              |                                                |                                         
|                              |                                                | 2003                                     |   | 2002  
|                              |                                                |                                          |   |       
|                              |                                                |                                         
|                              |                                                | ($ in thousands)                        
|Change in benefit obligation: |                                                |                                          |   |        |        |  |   |       
|                              | Benefit obligation at beginning of year        |                                          | $ | 16,239 |        |  | $ | 14,698 |       
|                              | Service cost                                   |                                          |   | 283    |        |  |   | 345    |       
|                              | Interest cost                                  |                                          |   | 1,021  |        |  |   | 1,087  |       
|                              | Plan participants contributions               |                                          |   | 469    |        |  |   | 332    |       
|                              | Actuarial (gain) loss                          |                                          |   | 1,270  |        |  |   | 2,153  |       
|                              | Curtailments                                   |                                          |   |       |        |  |   | (796   | )     
|                              | Actual benefits paid                           |                                          |   | (1,635 | )      |  |   | (1,580 | )     
|                              |                                                |                                          |   |        |        |  |   |       
|                              |                                                | Benefit obligation at end of year        |   | $      | 17,647 |  |   | $      | 16,239 | 
|                              |                                                |                                          |   |        |        |  |   |       
|Change in plan assets:        |                                                |                                          |   |        |        |  |   |       
|                              | Fair value of plan assets at beginning of year |                                          | $ |       |        |  | $ |       |       
|                              | Company contribution                           |                                          |   | 1,166  |        |  |   | 1,248  |       
|                              | Plan participant contribution                  |                                          |   | 469    |        |  |   | 332    |       
|                              | Benefits paid                                  |                                          |   | (1,635 | )      |  |   | (1,580 | )     
|                              |                                                |                                          |   |        |        |  |   |       
|                              |                                                | Fair value of plan assets at end of year |   | $      |       |  |   | $      |       | 

F-41



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                                                          |                                               |                                              |   |         |         |   |   |         |         |  
|----------------------------------------------------------------------------------------- | --------------------------------------------- | -------------------------------------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                          |                                               |                                             
|                                                                                          |                                               | December 31,                                
|                                                                                          |                                               |                                             
|                                                                                          |                                               | 2003                                         |   | 2002   
|                                                                                          |                                               |                                              |   |        
|                                                                                          |                                               |                                             
|                                                                                          |                                               | ($ in thousands)                            
|                                                                                          |                                               |                                              |   |         |         |   |   |        
|Reconciliation of funded status:                                                          |                                               |                                              |   |         |         |   |   |        
|                                                                                          | Accumulated postretirement benefit obligation |                                              | $ | (17,647 | )       |   | $ | (16,239 | )      
|                                                                                          | Market value of plan assets                   |                                              |   |        |         |   |   |        |        
|                                                                                          |                                               |                                              |   |         |         |   |   |        
|                                                                                          | Funded status                                 |                                              | $ | (17,647 | )       |   | $ | (16,239 | )      
|                                                                                          | Unrecognized prior service cost               |                                              |   | 454     |         |   |   | 518     |        
|                                                                                          | Unrecognized net (gain)                       |                                              |   | 2,293   |         |   |   | 1,022   |        
|                                                                                          |                                               |                                              |   |         |         |   |   |        
|                                                                                          |                                               | Accrued benefit cost                         |   | $       | (14,900 | ) |   | $       | (14,699 | )
|                                                                                          |                                               |                                              |   |         |         |   |   |        
|Weighted-average assumptions for year end
    obligation determination as of December 31: |                                               |                                              |   |         |         |   |   |        
|                                                                                          |                                               | Discount rate                                |   |         | 6.00    | % |   |         | 6.50    | %
|                                                                                          |                                               | Initial weighted health care cost trend rate |   |         | 12.00   | % |   |         | 10.40   | %
|                                                                                          |                                               | Ultimate health care cost trend rate         |   |         | 5.00    | % |   |         | 5.00    | %
|                                                                                          |                                               | Years to ultimate trend                      |   |         | 7       |   |   |         | 9       |  
|Weighted-average assumptions for expense
    determination for fiscal year:               |                                               |                                              |   |         |         |   |   |        
|                                                                                          |                                               | Discount rate                                |   |         | 6.50    | % |   |         | 7.00    | %
|                                                                                          |                                               | Initial weighted health care cost trend rate |   |         | 10.40   | % |   |         | 11.00   | %
|                                                                                          |                                               | Ultimate health care cost trend rate         |   |         | 5.00    | % |   |         | 5.00    | %
|                                                                                          |                                               | Years to ultimate trend                      |   |         | 9       |   |   |         | 10      |  

|                                         |                                    |                          |   |       |  |      |   |       |  |  |   |     |  
|---------------------------------------- | ---------------------------------- | ------------------------ | - | ----- |  | ---- | - | ----- |  |  | - | --- | -
|                                         |                                    |                         
|                                         |                                    | Years ended December 31,
|                                         |                                    |                         
|                                         |                                    | 2003                     |   | 2002  |  | 2001
|                                         |                                    |                          |   |       |  |     
|                                         |                                    |                         
|                                         |                                    | ($ in thousands)        
|Components of net periodic benefit cost: |                                    |                          |   |       |  |      |   |       |  |  |   |    
|                                         | Service cost                       |                          | $ | 283   |  |      | $ | 345   |  |  | $ | 204 |  
|                                         | Interest cost                      |                          |   | 1,021 |  |      |   | 1,087 |  |  |   | 792 |  
|                                         | Amortization of prior service cost |                          |   | 64    |  |      |   | 63    |  |  |   | 53  |  
|                                         | Amortization of net (gain)         |                          |   |      |  |      |   |      |  |  |   | (61 | )
|                                         |                                    |                          |   |       |  |      |   |       |  |  |   |    
|                                         | Net periodic benefit cost          |                          | $ | 1,368 |  |      | $ | 1,495 |  |  | $ | 988 |  
|                                         |                                    |                          |   |       |  |      |   |       |  |  |   |    

Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care
plans. A one-percentage-point change in the assumed health care
cost trend rates would have the following effects in 2003:

|                                                            |  |                  |       |            |  |   |        |  
|----------------------------------------------------------- |  | ---------------- | ----- | ---------- |  | - | ------ | -
|                                                            |  | 1% Point         |       | 1% Point  
|                                                            |  | Increase         |       | (Decrease)
|                                                            |  |                  |       |           
|                                                            |  |                 
|                                                            |  | ($ in thousands)
|Effect on total of service and interest cost
    components |  | $                | 56.2  |            |  | $ | (50.9  | )
|Effect of postretirement benefit obligation                 |  | $                | 944.1 |            |  | $ | (841.7 | )

In December 2003, the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (Act) was
signed into law. In accordance with FASB Staff Position
(FSP) No. FAS 106-1, the Company has elected to
defer recognition of the effects, if any, of the Act in its
disclosures as of December 31, 2003 as the Company has not
yet determined the impact, if any, on its plan. Specific
authoritative guidance regarding

F-42



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

recognition of the effects is pending. According
to the FSP, that guidance, when issued, could require the
Company to change previously reported information.



|     |            
|---- | -----------
|(11) | REINSURANCE

The Company has indemnity reinsurance agreements
with various companies whereby life insurance in excess of its
retention limits is reinsured. The Companys retention of
the net amount at risk is generally between $150,000 and
$500,000. Insurance in force ceded to nonaffiliated companies
under risk sharing arrangements at December 31, 2003 and
2002, totaled approximately $63.7 billion and
$59.7 billion, respectively. The Company has entered into
modified coinsurance arrangements to cede between 70% and 80% of
certain annuity products. Under this arrangement, the Company
transfers the risks and rewards of the business to the assuming
company; however, the ceding company retains the assets and
liabilities associated with the business.

Net premiums and amounts earned were as follows:

|                                                               |  |                          |          |      |  |      |          |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                               |  |                         
|                                                               |  | Years ended December 31,
|                                                               |  |                         
|                                                               |  | 2003                     |          | 2002 |  | 2001
|                                                               |  |                          |          |      |  |     
|                                                               |  |                         
|                                                               |  | ($ in thousands)        
|Direct premiums and amounts assessed against
    policyholders |  | $                        | 377,588  |      |  | $    | 419,503  |   |  | $ | 373,421 |  
|Reinsurance assumed                                            |  |                          | 45,854   |      |  |      | 49,544   |   |  |   | 26,351  |  
|Reinsurance ceded                                              |  |                          | (126,254 | )    |  |      | (117,747 | ) |  |   | (93,867 | )
|                                                               |  |                          |          |      |  |      |          |   |  |   |         |  
|Net premiums and amounts earned                                |  | $                        | 297,188  |      |  | $    | 351,300  |   |  | $ | 305,905 |  
|                                                               |  |                          |          |      |  |      |          |   |  |   |         |  

Reinsurance recoveries on ceded reinsurance
contracts were $222.1 million, $134.2 million and
$98.4 million during 2003, 2002 and 2001, respectively.



|     |                              
|---- | -----------------------------
|(12) | COMMITMENTS AND CONTINGENCIES

At December 31, 2003, the Company is
obligated to make future capital contributions to various
partnerships of up to $1.3 million. In addition, at
December 31, 2003, the Company had loan guarantees which
totaled approximately $1.3 million.

The Company has an agreement with Bank One, N.A.
whereby the Company guarantees the payment of loans made to
certain of the Companys managers and executives for the
purpose of purchasing Common Stock pursuant to the Stock
Purchase Program. The liability of the Company in respect of the
principal amount of loans is limited to $3.3 million as of
December 31, 2003, which is due to be repaid in March 2004.
The Company has also guaranteed interest and all other fees and
obligations owing on the loans. Each participant in the program
has agreed to repay the Company for any amounts paid by the
Company under the guarantee in accordance with a reimbursement
agreement entered into between the participant and the Company.

AmerUs and its joint venture partner are
contingently liable in the event Ameritas Variable Life
Insurance Company (AVLIC) cannot meet its obligations. At
December 31, 2003, AVLIC had statutory assets of
$2,379 million, liabilities of $2,282 million, and
surplus of $97 million.

The Company leases office space under various
operating leases with terms through 2007. Rental expense for
operating leases amounted to $5.4 million,
$5.3 million and $4.8 million in 2003, 2002 and 2001,

F-43



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

respectively. At December 31, 2003, future
minimum annual lease commitments under these non-cancelable
operating leases were as follows ($ in thousands):

|                         |            |      |        |     |       | 
|------------------------ | ---------- | ---- | ------ | --- | ----- | 
|Year ending December 31, |            |      |        |    
|                         |            | 2004 |        | $   | 6,131 | 
|                         |            | 2005 |        |     | 5,596 | 
|                         |            | 2006 |        |     | 3,029 | 
|                         |            | 2007 |        |     | 2,465 | 
|                         |            | 2008 |        |     | 872   | 
|                         | Thereafter |      |        | 570 |      
|                         |            |      |        |    
|                         |            | $    | 18,663 |    
|                         |            |      |        |    

In recent years, the life insurance industry,
including the Company and its subsidiaries, have been subject to
an increase in litigation pursued on behalf of purported classes
of insurance purchasers, questioning the conduct of insurers in
the marketing of their products. The Company is routinely
involved in litigation and other proceedings, including class
actions, reinsurance claims and regulatory proceedings, arising
in the ordinary course of its business. Some of these claims and
legal actions are in jurisdictions where juries are given
substantial latitude in assessing damages, including punitive
damages. Although no assurances can be given and no
determinations can be made at this time, the Company believes
that the ultimate liability, if any, with respect to these
claims and legal actions, would have no material effect on its
results of operations and financial position.



|     |                     
|---- | --------------------
|(13) | STOCKHOLDERS EQUITY

Generally, the stockholders equity of the
Companys insurance subsidiaries available for distribution
to the Company is limited to the amounts that the insurance
subsidiaries net assets, as determined in accordance with
statutory accounting practices, exceed minimum statutory capital
requirements; however, payments of such amounts as dividends may
be subject to approval by regulatory authorities. In 2004, the
Companys insurance subsidiaries can distribute
approximately $78 million in the form of dividends to the
Company without prior approval of such regulatory authorities.

Stock Option Plans

The Company has four stock incentive plans
authorizing the issuance of incentive and non-qualified stock
options to employees, officers and non-employee directors of the
Company. The Company has reserved 4,650,000 shares of
Common Stock for issuance under these plans.

In conjunction with the acquisition of AmVestors,
the Company has two additional plans in which no additional
shares may be granted. They are a non-qualified stock option
plan and an incentive stock option plan.

The date of grant and the term of the option may
not be longer than ten years. The 2003 stock incentive plan,
which has 1,500,000 of Common Stock reserved, provides for a
five-year vesting schedule with one-fifth of the options granted
vesting at the end of each of the five years. Generally, the
remaining option plans have a three-year vesting schedule with
one-third of the options granted vesting at the end of each of
the three years.

F-44



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

A summary of the Companys stock option plan
follows:

|                               |  |                          |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|------------------------------ |  | ------------------------ | --------- | -------- |  | --------- | ----- | -------- |  | --------- | --------- | -------- |  | - | ----- |  |  |  | --------- | - |  | - | ----- | 
|                               |  |                         
|                               |  | Years Ended December 31,
|                               |  |                         
|                               |  |                          |           |          |  |          
|                               |  | 2003                     |           | 2002     |  | 2001     
|                               |  |                          |           |          |  |          
|                               |  |                          |           | Weighted |  |           |       | Weighted |  |           |           | Weighted
|                               |  |                          |           | average  |  |           |       | average  |  |           |           | average 
|                               |  | Number of                |           | exercise |  | Number of |       | exercise |  | Number of |           | exercise
|                               |  | shares                   |           | price    |  | shares    |       | price    |  | shares    |           | price   
|                               |  |                          |           |          |  |           |       |          |  |           |           |         
|Outstanding, beginning of year |  |                          | 2,735,363 |          |  | $         | 27.64 |          |  |           | 2,370,134 |          |  | $ | 24.64 |  |  |  | 1,942,054 |   |  | $ | 22.65 | 
|Granted at market price        |  |                          | 531,082   |          |  |           | 27.03 |          |  |           | 626,086   |          |  |   | 37.95 |  |  |  | 776,250   |   |  |   | 31.73 | 
|Exercised                      |  |                          | (131,065  | )        |  |           | 17.10 |          |  |           | (151,501  | )        |  |   | 22.87 |  |  |  | (169,778  | ) |  |   | 24.99 | 
|Forfeited                      |  |                          | (610      | )        |  |           | 32.26 |          |  |           | (109,356  | )        |  |   | 26.90 |  |  |  | (178,392  | ) |  |   | 33.66 | 
|                               |  |                          |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Outstanding, end of year       |  |                          | 3,134,770 |          |  | $         | 27.91 |          |  |           | 2,735,363 |          |  | $ | 27.64 |  |  |  | 2,370,134 |   |  | $ | 24.64 | 
|                               |  |                          |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Exercisable, end of year       |  |                          | 2,159,777 |          |  | $         | 26.48 |          |  |           | 1,859,471 |          |  | $ | 24.99 |  |  |  | 1,329,557 |   |  | $ | 23.35 | 
|                               |  |                          |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |           |   |  |   |       | 

The following table summarizes information about
stock options outstanding under the Companys option plan
as of December 31, 2003:

|                    |  |             |           |               |  |          |     |  |  |   |       | 
|------------------- |  | ----------- | --------- | ------------- |  | -------- | --- |  |  | - | ----- | 
|                   
|Options Outstanding
|                   
|                    |  | Weighted    |           | Weighted     
|Range               |  | Remaining   |           | average       |  | average 
|of exercise         |  | options     |           | contractual   |  | exercise
|prices              |  | outstanding |           | life in years |  | price   
|                    |  |             |           |               |  |         
|$11.98 - $15.96     |  |             | 32,946    |               |  |          | 1.0 |  |  | $ | 15.63 | 
|$15.97 - $19.95     |  |             | 209,430   |               |  |          | 2.3 |  |  |   | 19.14 | 
|$19.96 - $23.94     |  |             | 724,656   |               |  |          | 5.8 |  |  |   | 20.56 | 
|$23.95 - $27.93     |  |             | 864,082   |               |  |          | 6.7 |  |  |   | 27.25 | 
|$27.94 - $31.92     |  |             | 599,268   |               |  |          | 6.8 |  |  |   | 30.20 | 
|$31.93 - $35.91     |  |             | 141,286   |               |  |          | 7.4 |  |  |   | 35.10 | 
|$35.92 - $39.90     |  |             | 563,102   |               |  |          | 7.9 |  |  |   | 38.09 | 
|                    |  |             |           |               |  |          |     |  |  |   |       | 
|                    |  |             | 3,134,770 |               |  |          | 6.4 |  |  | $ | 27.91 | 
|                    |  |             |           |               |  |          |     |  |  |   |       | 

The following table summarizes information about
stock options exercisable under the Companys option plan
as of December 31, 2003:

|                    |  |             |           |          |  |   |       | 
|------------------- |  | ----------- | --------- | -------- |  | - | ----- | 
|                   
|Options Exercisable
|                   
|                    |  | Weighted   
|Range               |  | average    
|of exercise         |  | Options     |           | exercise
|prices              |  | exercisable |           | price   
|                    |  |             |           |         
|$11.98 - $15.96     |  |             | 32,946    |          |  | $ | 15.63 | 
|$15.97 - $19.95     |  |             | 209,430   |          |  |   | 19.14 | 
|$19.96 - $23.94     |  |             | 724,656   |          |  |   | 20.56 | 
|$23.95 - $27.93     |  |             | 379,500   |          |  |   | 27.83 | 
|$27.94 - $31.92     |  |             | 455,442   |          |  |   | 30.28 | 
|$31.93 - $35.91     |  |             | 74,667    |          |  |   | 35.48 | 
|$35.92 - $39.90     |  |             | 283,136   |          |  |   | 38.05 | 
|                    |  |             |           |          |  |   |       | 
|                    |  |             | 2,159,777 |          |  | $ | 26.48 | 
|                    |  |             |           |          |  |   |       | 

F-45



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Company applies Accounting Principles Board
Opinion 25 and related Interpretations in accounting for its
stock option plans for employees, officers and non-employee
directors. Accordingly, no compensation expense has been
recognized for its option plans. See note 1 for pro forma
information if the Company had applied the fair value
recognition provisions of SFAS 123.

For pro forma purposes, the fair value of options
granted was estimated on the date of grant using the
Black-Scholes pricing model with an expected life equal to the
contractual expiration and the following weighted average
assumptions:

|                                               |  |      |       |      |  |      |       |   |  |   |       |  
|---------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                               |  | 2003 |       | 2002 |  | 2001
|                                               |  |      |       |      |  |     
|Expected Volatility                            |  |      | 34.00 | %    |  |      | 32.00 | % |  |   | 32.00 | %
|Risk-free Interest Rate                        |  |      | 4.31  | %    |  |      | 5.39  | % |  |   | 5.36  | %
|Dividend Yield                                 |  |      | 1.48  | %    |  |      | 1.06  | % |  |   | 1.27  | %
|Weighted average fair value of options granted |  | $    | 11.43 |      |  | $    | 17.57 |   |  | $ | 14.33 |  

Non-vested Stock

The Company has awarded common stock to eligible
employees and non-employee directors under the two stock
incentive plans. The plans have restriction periods of one to
five years tied to employment and/or service. The awards were
recorded at the market value on the date of the grant as
unearned compensation since common shares were legally issued on
that date. The initial values of these grants are amortized over
the restriction periods, net of forfeitures.

Non-vested stock and compensation expense
information is as follows:

|                                      |  |                          |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 
|------------------------------------- |  | ------------------------ | ------- | -------- |  | ------ | ----- | -------- |  | ------ | ------- | -------- |  | - | ----- |  |  |  | ------- | - |  | - | ----- | 
|                                      |  |                         
|                                      |  | Years Ended December 31,
|                                      |  |                         
|                                      |  |                          |         |          |  |       
|                                      |  | 2003                     |         | 2002     |  | 2001  
|                                      |  |                          |         |          |  |       
|                                      |  |                          |         | Weighted |  |        |       | Weighted |  |        |         | Weighted
|                                      |  | Number                   |         | average  |  | Number |       | average  |  | Number |         | average 
|                                      |  | of                       |         | exercise |  | of     |       | exercise |  | of     |         | exercise
|                                      |  | shares                   |         | price    |  | shares |       | price    |  | shares |         | price   
|                                      |  |                          |         |          |  |        |       |          |  |        |         |         
|Outstanding, beginning of year        |  |                          | 31,927  |          |  | $      | 33.51 |          |  |        | 51,635  |          |  | $ | 29.36 |  |  |  | 30,835  |   |  | $ | 24.35 | 
|Granted at market price               |  |                          | 36,110  |          |  |        | 27.39 |          |  |        | 13,149  |          |  |   | 33.70 |  |  |  | 34,803  |   |  |   | 33.78 | 
|Exercised                             |  |                          | (10,663 | )        |  |        | 33.15 |          |  |        | (23,857 | )        |  |   | 24.66 |  |  |  | (14,003 | ) |  |   | 29.32 | 
|Forfeited                             |  |                          |        |          |  |        |      |          |  |        | (9,000  | )        |  |   | 33.45 |  |  |  |        |   |  |   |      | 
|                                      |  |                          |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 
|Outstanding, end of year              |  |                          | 57,374  |          |  | $      | 29.72 |          |  |        | 31,927  |          |  | $ | 33.51 |  |  |  | 51,635  |   |  | $ | 29.36 | 
|                                      |  |                          |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 
|Compensation expense ($ in thousands) |  |                          |         |          |  | $      | 521   |          |  |        |         |          |  | $ | 554   |  |  |  |         |   |  | $ | 648   | 
|                                      |  |                          |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 

Stock Appreciation Rights

As part of the stock incentive plans for
employees and non-employees, the Human Resources and
Compensation Committee of the Board of Directors is authorized
to grant stock appreciation rights (SARs) to
non-employees. Issuance of SARs is made at the sole discretion
of the Human Resources and Compensation Committee of the Board
of Directors. The terms and conditions under this plan are the
same as under the employee stock incentive plans.

F-46



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Companys SARs are summarized as follows:

|                                      |  |                          |        |          |  |        |       |          |  |        |        |          |  |   |       |   |  |  |        |   |  |   |       | 
|------------------------------------- |  | ------------------------ | ------ | -------- |  | ------ | ----- | -------- |  | ------ | ------ | -------- |  | - | ----- | - |  |  | ------ | - |  | - | ----- | 
|                                      |  |                         
|                                      |  | Years Ended December 31,
|                                      |  |                         
|                                      |  |                          |        |          |  |       
|                                      |  | 2003                     |        | 2002     |  | 2001  
|                                      |  |                          |        |          |  |       
|                                      |  | Number                   |        | Weighted |  | Number |       | Weighted |  | Number |        | Weighted
|                                      |  | of                       |        | average  |  | of     |       | average  |  | of     |        | average 
|                                      |  | shares                   |        | value    |  | shares |       | value    |  | shares |        | value   
|                                      |  |                          |        |          |  |        |       |          |  |        |        |         
|Outstanding, beginning of year        |  |                          | 46,400 |          |  | $      | 27.28 |          |  |        | 39,233 |          |  | $ | 24.58 |   |  |  | 25,000 |   |  | $ | 22.22 | 
|Granted at market price               |  |                          | 16,000 |          |  |        | 27.80 |          |  |        | 12,000 |          |  |   | 35.30 |   |  |  | 16,900 |   |  |   | 27.77 | 
|Exercised                             |  |                          | (7,833 | )        |  |        | 21.80 |          |  |        | (2,833 | )        |  |   | 22.06 |   |  |  | (1,668 | ) |  |   | 22.73 | 
|Forfeited                             |  |                          |       |          |  |        |      |          |  |        | (2,000 | )        |  |   | 29.85 |   |  |  | (999   | ) |  |   | 22.67 | 
|                                      |  |                          |        |          |  |        |       |          |  |        |        |          |  |   |       |   |  |  |        |   |  |   |       | 
|Outstanding, end of year              |  |                          | 54,567 |          |  | $      | 28.20 |          |  |        | 46,400 |          |  | $ | 27.28 |   |  |  | 39,233 |   |  | $ | 24.58 | 
|                                      |  |                          |        |          |  |        |       |          |  |        |        |          |  |   |       |   |  |  |        |   |  |   |       | 
|Compensation expense ($ in thousands) |  |                          |        |          |  | $      | 166   |          |  |        |        |          |  | $ | (140  | ) |  |  |        |   |  | $ | 179   | 
|                                      |  |                          |        |          |  |        |       |          |  |        |        |          |  |   |       |   |  |  |        |   |  |   |       | 

MIP Deferral

The Company has a MIP deferral plan under which
eligible employees can elect to defer their year-end cash
bonuses. The Human Resources and Compensation Committee of the
Board of Directors determines each year the maximum amount of
deferral and percentage of match by the Company. Employees can
defer up to 100% of incentive payments received (50% for bonuses
received prior to May 10, 2001). Participant deferrals are
50% matched by the Company up to a maximum match of $10,000 in
2003 and a maximum match of $20,000 in 2002 and 2001. The total
deferrals, including participant deferrals and Company match,
have a restriction period of three years during which the
deferrals cannot be paid out except for certain specified events.

Prior to 2003, deferrals and match amounts were
valued based on the fair value of a share of the Companys
common stock and at settlement were paid in cash. Beginning in
2003, deferrals and match amounts are used to purchase units
equal in value to a share of the Companys common stock.
Shares of common stock are distributed at the end of the
restriction period. At December 31, 2003, the value of the
vested and partially vested units outstanding amounted to
$0.7 million which is included in unearned compensation in
stockholders equity in the consolidated balance sheet.

Stock Warrants

In conjunction with the acquisition of AmVestors,
the Company had outstanding warrants to purchase shares of the
Companys Common Stock. The warrants were exercisable at
$24.42 per share and expired on April 2, 2002. The
Companys stock warrant activity is summarized as follows:

|                                        |  |                          |          |      |  |   |          |  
|--------------------------------------- |  | ------------------------ | -------- | ---- |  | - | -------- | -
|                                        |  |                         
|                                        |  | Years Ended December 31,
|                                        |  |                         
|                                        |  | 2002                     |          | 2001
|                                        |  |                          |          |     
|Warrants outstanding, beginning of year |  |                          | 347,262  |      |  |   | 473,596  |  
|Exercise of warrants                    |  |                          | (344,154 | )    |  |   | (126,334 | )
|Forfeiture of warrants                  |  |                          | (3,108   | )    |  |   |         |  
|                                        |  |                          |          |      |  |   |          |  
|Warrants outstanding, end of year       |  |                          |         |      |  |   | 347,262  |  
|                                        |  |                          |          |      |  |   |          |  
|Compensation expense ($ in thousands)   |  | $                        |         |      |  | $ |         |  
|                                        |  |                          |          |      |  |   |          |  

F-47



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |                               
|---- | ------------------------------
|(14) | STATUTORY ACCOUNTING PRACTICES

The Companys insurance subsidiaries had
statutory net income of approximately $60 million for 2003,
statutory net loss of $30 million for 2002 and statutory
net loss of $7 million for 2001. The Companys
insurance subsidiaries statutory surplus and capital was
approximately $828 million and $797 million at
December 31, 2003 and 2002, respectively. The minimum
capital and surplus requirements are met in all the states in
which the insurance subsidiaries are domiciled.

The Companys insurance subsidiaries are
domiciled in Indiana, Iowa, Kansas and New York and
prepare their statutory-basis financial statements in accordance
with accounting practices prescribed or permitted by those
respective state insurance departments. The National Association
of Insurance Commissioners (NAIC) has codified statutory
accounting practices which have been adopted without exception
by the states in which the insurance subsidiaries are domiciled
and which constitute the only source of prescribed statutory
accounting practices. Codification was effective January 1,
2001 and changed prescribed statutory accounting practices and
resulted in changes to the accounting practices insurance
enterprises used to prepare statutory financial statements. The
impact of adopting Codification was an increase to statutory
surplus of approximately $25 million, excluding ILICO.

The respective insurance departments impose
minimum risk-based capital (RBC) requirements on insurance
enterprises that were developed by the NAIC. The formulas for
determining the amount of RBC specify various weighting factors
that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of the enterprises
regulatory total adjusted capital, to its authorized control
level RBC. The life insurance subsidiaries exceed the authorized
control level RBC requirements.



|     |             
|---- | ------------
|(15) | ACQUISITIONS

On May 18, 2001, the Company completed the
acquisition of ILICO for an amount of cash, policy credits and
shares of the Companys common stock equal to the value of
9.3 million shares of the Companys common stock. The
purchase price totaled a value of approximately
$326 million. The acquisition was accounted for using the
purchase method of accounting and accordingly the total purchase
price was allocated to the assets and liabilities of ILICO based
on the relative fair values as of May 18, 2001, with the
excess of the purchase price over the fair value of the assets
acquired less the fair value of the liabilities assumed recorded
as goodwill. The operations of ILICO for the period subsequent
to May 18, 2001 have been included in the consolidated
statement of income of the Company.

Demutualization costs for the ILICO
demutualization of $1.0 million have been included in
expenses in 2001. These costs consisted primarily of legal,
actuarial and consulting expenses associated with the
Companys and ILICOs demutualizations. As a
requirement of ILICs demutualization, the Company
undertook a commission-free program under which shareholders
with less than one hundred shares were permitted to redeem those
shares for cash or purchase additional shares, commission-free,
to reach a holding of at least one hundred shares. The 2002
costs amounting to $1.2 million were primarily for
commissions, postage and printing under this program.

On March 28, 2001, ALIC acquired an
additional 5% ownership interest in AMAL Corporation
(AMAL) for $7.2 million increasing its ownership to
39%. During 2002, AVLIC made additional contributions to AMAL
which diluted ALICs ownership percentage in AMAL to 34%.
In December 2002, both Ameritas and ALIC contributed additional
cash, amounting to $5 million by ALIC, which maintained
ALICs 34% ownership.

F-48



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |                      
|---- | ---------------------
|(16) | RESTRUCTURING CHARGES

During the third quarter of 2001, the Company
began consolidating various functions in connection with a
restructuring of its protection products and accumulation
products operations and investment activities. The objective of
the restructuring plan was to eliminate duplicative functions
for all business units and to reduce ongoing costs. Corporate
administrative functions were transitioned so they are performed
primarily in Des Moines, Iowa. Protection products
administration processes were transitioned so they are performed
primarily in Des Moines; Woodbury, New York; or outsourced.
Accumulation products functions were transitioned so they are
primarily performed in Topeka, Kansas. Investment activities
were restructured to eliminate certain real estate management
services which have been outsourced.

The Company listed its office building located in
Indianapolis, Indiana, with a real estate broker in 2003,
and the Company substantially vacated this location as a result
of staff reductions. In addition, the Company moved those
employees who are going to continue to work in Indianapolis to a
new location. The Company determined that the plan of sale
criteria in SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, had been meet.
Accordingly, the carrying value of the building was adjusted to
its fair value less costs to sell, amounting to
$15.5 million, which was based upon comparable properties
recently marketed in Indianapolis. The resulting
$7.7 million pre-tax impairment loss was recorded as
restructuring cost in the consolidated statement of income in
2003. The carrying value of the building that is held for sale
is included in the other assets line item of the consolidated
balance sheet and is an asset of the protection products segment.

During 2003, the Company initiated and executed a
restructuring plan to merge one of its subsidiaries, IL
Annuity, into its parent, ILIC. The merger was effective
June 30, 2003 and total restructuring costs associated with
this plan amounted to $2.5 million pre-tax, which primarily
consisted of legal, accounting, and printing costs and the write
off of $2.2 million of insurance licenses.

Restructuring charges have been included as a
separate item in the consolidated statement of income and
include severance and termination benefits associated with the
elimination of approximately 10 positions, 240 positions and 80
positions in 2003, 2002 and 2001, respectively. The other costs
in 2003 primarily related to the impairment loss on the
Indianapolis office building, expenses associated with the
merger of IL Annuity into ILIC, and systems conversion costs.
Other costs in 2002 and 2001 primarily consisted of systems
conversion and relocation of employees. Charges for all
restructuring activities were completed in 2003. A summary of
the pre-tax structuring charges are as follows:

|                                   |  |                  |       |        |  |             |        |             |  |              |      |   |  |   |         |   |  |   |       | 
|---------------------------------- |  | ---------------- | ----- | ------ |  | ----------- | ------ | ----------- |  | ------------ | ---- | - |  | - | ------- | - |  | - | ----- | 
|                                   |  | Accrual at       |       |        |  |             |        | Payments    |  | Accrual at  
|                                   |  | December 31,     |       | 2003   |  | Other       |        | and         |  | December 31,
|                                   |  | 2002             |       | Charge |  | Adjustments |        | Write-downs |  | 2003        
|                                   |  |                  |       |        |  |             |        |             |  |             
|                                   |  |                 
|                                   |  | ($ in thousands)
|Severance and termination benefits |  | $                | 5,133 |        |  | $           | 3,494  |             |  | $            | (486 | ) |  | $ | (5,342  | ) |  | $ | 2,799 | 
|Other costs                        |  |                  | 1,012 |        |  |             | 20,332 |             |  |              | (46  | ) |  |   | (20,084 | ) |  |   | 1,214 | 
|                                   |  |                  |       |        |  |             |        |             |  |              |      |   |  |   |         |   |  |   |       | 
|                                   |  | $                | 6,145 |        |  | $           | 23,826 |             |  | $            | (532 | ) |  | $ | (25,426 | ) |  | $ | 4,013 | 
|                                   |  |                  |       |        |  |             |        |             |  |              |      |   |  |   |         |   |  |   |       | 

|                                   |  |                  |       |        |  |             |        |          |  |              |      |   |  |   |         |   |  |   |       | 
|---------------------------------- |  | ---------------- | ----- | ------ |  | ----------- | ------ | -------- |  | ------------ | ---- | - |  | - | ------- | - |  | - | ----- | 
|                                   |  | Accrual at       |       |        |  |             |        |          |  | Accrual at  
|                                   |  | December 31,     |       | 2002   |  | Other       |        | Cash     |  | December 31,
|                                   |  | 2001             |       | Charge |  | Adjustments |        | Payments |  | 2002        
|                                   |  |                  |       |        |  |             |        |          |  |             
|                                   |  |                 
|                                   |  | ($ in thousands)
|Severance and termination benefits |  | $                | 2,065 |        |  | $           | 9,869  |          |  | $            | (342 | ) |  | $ | (6,459  | ) |  | $ | 5,133 | 
|Other costs                        |  |                  | 36    |        |  |             | 11,936 |          |  |              | (238 | ) |  |   | (10,722 | ) |  |   | 1,012 | 
|                                   |  |                  |       |        |  |             |        |          |  |              |      |   |  |   |         |   |  |   |       | 
|                                   |  | $                | 2,101 |        |  | $           | 21,805 |          |  | $            | (580 | ) |  | $ | (17,181 | ) |  | $ | 6,145 | 
|                                   |  |                  |       |        |  |             |        |          |  |              |      |   |  |   |         |   |  |   |       | 

F-49



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                   |  |                  |   |        |  |             |       |          |  |              |   |  |  |   |        |   |  |   |       | 
|---------------------------------- |  | ---------------- | - | ------ |  | ----------- | ----- | -------- |  | ------------ | - |  |  | - | ------ | - |  | - | ----- | 
|                                   |  | Accrual at       |   |        |  |             |       |          |  | Accrual at  
|                                   |  | December 31,     |   | 2001   |  | Other       |       | Cash     |  | December 31,
|                                   |  | 2000             |   | Charge |  | Adjustments |       | Payments |  | 2001        
|                                   |  |                  |   |        |  |             |       |          |  |             
|                                   |  |                 
|                                   |  | ($ in thousands)
|Severance and termination benefits |  | $                |  |        |  | $           | 6,717 |          |  | $            |  |  |  | $ | (4,652 | ) |  | $ | 2,065 | 
|Other costs                        |  |                  |  |        |  |             | 1,849 |          |  |              |  |  |  |   | (1,813 | ) |  |   | 36    | 
|                                   |  |                  |   |        |  |             |       |          |  |              |   |  |  |   |        |   |  |   |       | 
|                                   |  | $                |  |        |  | $           | 8,566 |          |  | $            |  |  |  | $ | (6,465 | ) |  | $ | 2,101 | 
|                                   |  |                  |   |        |  |             |       |          |  |              |   |  |  |   |        |   |  |   |       | 



|     |                     
|---- | --------------------
|(17) | ADOPTION OF SFAS 142

SFAS 142, Goodwill and Other
Intangible Assets, changed the accounting for goodwill and
other intangible assets and became effective January 1,
2002. SFAS 142 adopts a nonamortization, impairment-only
model for the Companys goodwill and indefinite-lived
intangible assets. This includes a more stringent impairment
test methodology for measuring and recognizing impairment
losses. The Company accordingly discontinued amortization of
goodwill on January 1, 2002. As of December 31, 2003,
goodwill of $35.5 million is in the protection products
segment and $188.6 million is in the accumulation products
segment. The only intangible asset other than goodwill is VOBA,
which is being amortized and amounted to a gross carrying amount
of $847.2 million and accumulated amortization of
$340.4 million at December 31, 2003. Goodwill changed
from $219.0 million at December 31, 2002 to
$224.1 million at December 31, 2003 primarily due to
contingent acquisition costs associated with an independent
marketing organization of approximately $5.1 million. The
Company evaluated the transitional impairment analysis for
goodwill and other intangible assets and determined such assets
were not impaired as of January 1, 2002. In addition, the
Company has completed its annual impairment analysis for
goodwill and other intangible assets as of October 1, 2002
and 2003, with no impairment indicated.

A reconciliation of net income and basic and
diluted earnings per share reported for 2001 to exclude
amortization expense of goodwill is as follows:

|                                       |                                     |                                     |         |         |  |      |        |        |  |   |        |        | 
|-------------------------------------- | ----------------------------------- | ----------------------------------- | ------- | ------- |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                       |                                     |                                    
|                                       |                                     | For The Years Ended December 31,   
|                                       |                                     |                                    
|                                       |                                     | 2003                                |         | 2002    |  | 2001
|                                       |                                     |                                     |         |         |  |     
|                                       |                                     |                                    
|                                       |                                     | ($ in thousands, except share data)
|Net income as reported                 |                                     | $                                   | 161,147 |         |  | $    | 62,866 |        |  | $ | 72,907 |       
|Goodwill amortization expense          |                                     |                                     |        |         |  |      |       |        |  |   | 8,324  |       
|                                       |                                     |                                     |         |         |  |      |        |        |  |   |        |       
|                                       | Adjusted net income                 |                                     | $       | 161,147 |  |      | $      | 62,866 |  |   | $      | 81,231 | 
|                                       |                                     |                                     |         |         |  |      |        |        |  |   |        |       
|Basic earnings per share as reported   |                                     | $                                   | 4.11    |         |  | $    | 1.57   |        |  | $ | 1.97   |       
|Goodwill amortization expense          |                                     |                                     |        |         |  |      |       |        |  |   | 0.23   |       
|                                       |                                     |                                     |         |         |  |      |        |        |  |   |        |       
|                                       | Adjusted basic earnings per share   |                                     | $       | 4.11    |  |      | $      | 1.57   |  |   | $      | 2.20   | 
|                                       |                                     |                                     |         |         |  |      |        |        |  |   |        |       
|Diluted earnings per share as reported |                                     | $                                   | 4.07    |         |  | $    | 1.56   |        |  | $ | 1.95   |       
|Goodwill amortization expense          |                                     |                                     |        |         |  |      |       |        |  |   | 0.22   |       
|                                       |                                     |                                     |         |         |  |      |        |        |  |   |        |       
|                                       | Adjusted diluted earnings per share |                                     | $       | 4.07    |  |      | $      | 1.56   |  |   | $      | 2.17   | 
|                                       |                                     |                                     |         |         |  |      |        |        |  |   |        |       

F-50



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |                         
|---- | ------------------------
|(18) | EARNINGS PER SHARE (EPS)

|                              |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |        |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |       |  
|----------------------------- | ------------------------------------- | ----------------------------------- | ------- | --------- |  | --------- | ------ | ---------- |  | --------- | ---- | --------- | - | ---------- | ------ | --------- |  | --------- | ------ | ------ |  | - | ---- | ----- | - | - | ------ | ------ |  |  | ------ | ------ |  | - | ---- | ----- | -
|                              |                                       |                                    
|                              |                                       | For The Years Ended December 31,   
|                              |                                       |                                    
|                              |                                       |                                     |         |           |  |          
|                              |                                       | 2003                                |         | 2002      |  | 2001     
|                              |                                       |                                     |         |           |  |          
|                              |                                       |                                     |         | Number of |  | Per Share |        |            |  | Number of |      | Per Share |   |            |        | Number of |  | Per Share
|                              |                                       | Net Income                          |         | Shares    |  | Amount    |        | Net Income |  | Shares    |      | Amount    |   | Net Income |        | Shares    |  | Amount   
|                              |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |        |           |  |          
|                              |                                       |                                    
|                              |                                       | ($ in thousands, except share data)
|Basic EPS                     |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |        |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |      
|                              | Net Income from Continuing Operations |                                     | $       | 160,628   |  |           |        | 39,176     |  |           | $    | 4.10      |   |            | $      | 60,782    |  |           |        | 39,972 |  |   | $    | 1.52  |   |   | $      | 79,855 |  |  |        | 36,949 |  |   | $    | 2.16  |  
|Effect of dilutive securities |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |        |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |      
|                              | Options                               |                                     |         |          |  |           |        | 370        |  |           |      | (0.04     | ) |            |        |          |  |           |        | 404    |  |   |      | (0.02 | ) |   |        |       |  |  |        | 395    |  |   |      | (0.02 | )
|                              | PRIDES                                |                                     |         |          |  |           |        | 72         |  |           |      | (0.01     | ) |            |        |          |  |           |        |       |  |   |      |      |   |   |        |       |  |  |        |       |  |   |      |      |  
|                              | Warrants                              |                                     |         |          |  |           |        |           |  |           |      |          |   |            |        |          |  |           |        | 22     |  |   |      |      |   |   |        |       |  |  |        | 109    |  |   |      | (0.01 | )
|                              |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |        |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |      
|Diluted EPS                   |                                       | $                                   | 160,628 |           |  |           | 39,618 |            |  | $         | 4.05 |           |   | $          | 60,782 |           |  |           | 40,398 |        |  | $ | 1.50 |       |   | $ | 79,855 |        |  |  | 37,453 |        |  | $ | 2.13 |      
|                              |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |        |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |      



|     |                                    
|---- | -----------------------------------
|(19) | FAIR VALUE OF FINANCIAL INSTRUMENTS

The following describes the methodologies and
assumptions used to determine the fair values of the
Companys financial instruments. The fair values for all
other assets and liabilities have been reported at their
carrying amounts. The aggregate fair value amounts presented
herein do not represent the underlying value of the Company and,
accordingly, care should be exercised in deriving conclusions
about the Companys business or financial condition based
on the fair value information presented.

Valuation Methods and Assumptions

The following methods and assumptions were used
to estimate the fair value of each class of financial
instruments:

Cash and cash equivalents, short-term
investments, policy loans and other
investments:the carrying amounts for
these instruments approximate their fair values.

Fixed maturities and equity
securities:fair values for bonds are
based on quoted market prices or dealer quotes. If a quoted
market price is not available, fair value is estimated using
values obtained from independent pricing services or, in the
case of private placements, are estimated by discounting
expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the
investments. The fair values for preferred and common stocks are
based on quoted market prices.

Mortgage loans:for
all performing fixed interest rate loans, the estimated net cash
flows to maturity were discounted to derive an estimated market
value. The discount rate used was based on the individual
loans remaining weighted average life and a basis point
spread based on the market conditions for the type of loan and
credit quality. These spreads were over the United States
Treasury yield curve as of each respective year end. Performing
variable rate commercial loans and residential loans were valued
at the current outstanding balance. Loans which have been
restructured, in foreclosure or significantly delinquent were
valued primarily at the lower of the estimated net cash flows to
maturity discounted at a market rate of interest or the current
outstanding principal balance.

Derivative
instruments:fair values for
derivative securities are based on broker prices or internal
models using current assumptions and are classified as other
investments or policy reserves.

F-51



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Policy reserves:fair values of the Companys liabilities under contracts
not involving significant mortality or morbidity risks
(primarily annuities) are stated at the cost the Company would
incur to extinguish the liability (i.e., the cash surrender
value). The fair values for insurance contracts other than
investment-type contracts are not required to be disclosed.

Notes payable:fair
values for notes payable are estimated using discounted cash
flow analysis based on the Companys current incremental
borrowing rate for similar types of borrowing arrangements.

Separate account assets and
liabilities:fair values of separate
account assets and liabilities are based on the carrying values
of the underlying funds.

The estimated fair values of the Companys
significant financial instruments are as follows:

|                       |                                           |                           |   |                |            |          |   |                |            |  |   |            |            |   |   |            |            |  
|---------------------- | ----------------------------------------- | ------------------------- | - | -------------- | ---------- | -------- | - | -------------- | ---------- |  | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                       |                                           |                          
|                       |                                           | December 31,             
|                       |                                           |                          
|                       |                                           |                           |   |               
|                       |                                           | 2003                      |   | 2002          
|                       |                                           |                           |   |               
|                       |                                           | Carrying                  |   | Estimated fair |            | Carrying |   | Estimated fair
|                       |                                           | amount                    |   | value          |            | amount   |   | value         
|                       |                                           |                           |   |                |            |          |   |               
|                       |                                           |                          
|                       |                                           | ($ in thousands)         
|Financial assets:      |                                           |                           |   |                |            |          |   |                |            |  |   |            |            |   |   |           
|                       | Securities available-for-sale:            |                           |   |                |            |          |   |                |            |  |   |            |            |   |   |            |           
|                       |                                           | Fixed maturity securities |   | $              | 13,944,961 |          |   | $              | 13,944,961 |  |   | $          | 13,328,902 |   |   | $          | 13,328,902 |  
|                       |                                           | Equity securities         |   |                | 74,890     |          |   |                | 74,890     |  |   |            | 63,345     |   |   |            | 63,345     |  
|                       |                                           | Short-term investments    |   |                | 28,556     |          |   |                | 28,556     |  |   |            | 32,318     |   |   |            | 32,318     |  
|                       | Securities held for trading purposes:     |                           |   |                |            |          |   |                |            |  |   |            |            |   |   |            |           
|                       |                                           | Fixed maturity securities |   |                | 2,089,502  |          |   |                | 2,089,502  |  |   |            | 1,843,868  |   |   |            | 1,843,868  |  
|                       |                                           | Equity securities         |   |                | 1,652      |          |   |                | 1,652      |  |   |            |           |   |   |            |           |  
|                       |                                           | Short-term investments    |   |                | 591        |          |   |                | 591        |  |   |            |           |   |   |            |           |  
|                       | Mortgage loans                            |                           |   | 968,572        |            |          |   | 1,034,373      |            |  |   | 883,034    |            |   |   | 978,291    |           
|                       | Policy loans                              |                           |   | 494,646        |            |          |   | 494,646        |            |  |   | 496,753    |            |   |   | 496,753    |           
|                       | Other investments (excluding derivatives) |                           |   | 200,729        |            |          |   | 200,729        |            |  |   | 223,843    |            |   |   | 223,843    |           
|                       | Derivatives:                              |                           |   |                |            |          |   |                |            |  |   |            |            |   |   |            |           
|                       |                                           | Interest rate swaps       |   |                | 3,166      |          |   |                | 3,166      |  |   |            | (5,571     | ) |   |            | (5,571     | )
|                       |                                           | Credit default swaps      |   |                | 599        |          |   |                | 599        |  |   |            | (231       | ) |   |            | (231       | )
|                       |                                           | Options                   |   |                | 134,942    |          |   |                | 134,942    |  |   |            | 65,753     |   |   |            | 65,753     |  
|                       | Cash and cash equivalents                 |                           |   | 274,150        |            |          |   | 274,150        |            |  |   | 102,612    |            |   |   | 102,612    |           
|                       | Separate account assets                   |                           |   | 261,657        |            |          |   | 261,657        |            |  |   | 235,913    |            |   |   | 235,913    |           
|Financial liabilities: |                                           |                           |   |                |            |          |   |                |            |  |   |            |            |   |   |           
|                       | Policy reserves for annuities             |                           | $ | 11,715,783     |            |          | $ | 10,893,778     |            |  | $ | 11,942,022 |            |   | $ | 11,259,523 |           
|                       | Notes payable                             |                           |   | 596,101        |            |          |   | 481,998        |            |  |   | 511,353    |            |   |   | 404,344    |           
|                       | Separate account liabilities              |                           |   | 261,657        |            |          |   | 261,657        |            |  |   | 235,913    |            |   |   | 235,913    |           



|     |                        
|---- | -----------------------
|(20) | DISCONTINUED OPERATIONS

In November 2003, the Company entered into an
agreement to sell a wholly-owned subsidiary which conducts
residential financing operations. The assets, liabilities and
results of the residential financing operations have been
classified as discontinued operations. The sale was completed in
January 2004, resulting

F-52



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

in an after-tax gain of approximately
$3.9 million to be recognized in 2004. Operating income
from discontinued operations was as follows ($ in thousands,
except per share data):

|                                                                                                                |         |                          |       |            |  |      |       |            |  |   |       |            | 
|--------------------------------------------------------------------------------------------------------------- | ------- | ------------------------ | ----- | ---------- |  | ---- | ----- | ---------- |  | - | ----- | ---------- | 
|                                                                                                                |         |                         
|                                                                                                                |         | Years Ended December 31,
|                                                                                                                |         |                         
|                                                                                                                |         | 2003                     |       | 2002       |  | 2001
|                                                                                                                |         |                          |       |            |  |     
|                                                                                                                |         |                         
|                                                                                                                |         | ($ in thousands)        
|Operating income from discontinued operations,
    net of income taxes of $1,238, $1,389 and $859, respectively |         | $                        | 1,815 |            |  | $    | 2,084 |            |  | $ | 1,288 |           
|                                                                                                                |         |                          |       |            |  |      |       |            |  |   |       |           
|Net income from discontinued operations per
    common share:                                                   |         |                          |       |            |  |      |       |            |  |   |       |           
|                                                                                                                | Basic   |                          | $     | 0.05       |  |      | $     | 0.05       |  |   | $     | 0.03       | 
|                                                                                                                | Diluted |                          | $     | 0.05       |  |      | $     | 0.06       |  |   | $     | 0.03       | 
|Weighted average common shares outstanding:                                                                     |         |                          |       |            |  |      |       |            |  |   |       |           
|                                                                                                                | Basic   |                          |       | 39,175,924 |  |      |       | 39,972,328 |  |   |       | 36,949,198 | 
|                                                                                                                | Diluted |                          |       | 39,618,217 |  |      |       | 40,398,378 |  |   |       | 37,453,428 | 



|     |                   
|---- | ------------------
|(21) | OPERATING SEGMENTS

The Company has two operating segments:
Protection Products and Accumulation Products. Products
generally distinguish a segment. A brief description of each
segment follows:

Protection Products

The primary product offerings consist of
interest-sensitive whole life, term life, universal life and
equity-indexed life insurance policies. These products are
marketed on a national basis primarily through a Preferred
Producer agency system, a Personal Producing General Agent
distribution system and Independent Marketing Organizations
(IMOs).

Accumulation Products

The primary product offerings consist of
traditional fixed annuities and equity-indexed annuities,
marketed on a national basis primarily through IMOs and
independent brokers, and insurance contracts issued through
funding agreements.

The Company uses the same accounting policies and
procedures to measure operating segment income and assets as it
uses to measure its consolidated income from operations and
assets with the exception of the elimination of certain items
which management believes are not necessarily indicative of
overall operating trends. These items are shown between segment
pre-tax operating income and net income on the following
operating segment tables and are as follows:



| |    |                                                                                                                                 
| | -- | --------------------------------------------------------------------------------------------------------------------------------
| | 1) | Realized gains and losses on open block
    investments.                                                                        
|
| | 2) | Market value changes and amortization of assets
    and liabilities associated with the accounting for derivatives,
    such as:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | Unrealized gains and losses on open block options
    and securities held for trading.                                
|
| |  | Change on option value of equity-indexed products
    and market value adjustments on total return strategy annuities.
|
| |  | Cash flow hedge amortization.                                                                                         



| |    |                                                                                                                                           
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------
| | 3) | Amortization of DAC and VOBA related to the
    realized gains and losses on the open block investment and the
    derivative adjustments.

F-53



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |    |                                            
| | -- | -------------------------------------------
| | 4) | Certain reinsurance adjustments.           
|
| | 5) | Demutualization costs.                     
|
| | 6) | Restructuring costs.                       
|
| | 7) | Income from discontinued operations.       
|
| | 8) | Other income from non-insurance operations.
|
| | 9) | Cumulative effect of change in accounting. 

These items will fluctuate from period to period
depending on the prevailing interest rate and economic
environment, or are not continuing in nature, or are not part of
the core insurance operations. As a result, management believes
they do not reflect the ongoing earnings capacity of the
Companys operating segments.

Premiums, product charges, policyowner benefits,
insurance expenses, amortization of DAC and VOBA and dividends
to policyowners are attributed directly to each operating
segment. Net investment income and Closed Block realized gains
and losses on investments are allocated based on
directly-related assets required for transacting the business of
that segment. Other revenues and benefits and expenses which are
deemed not to be associated with any specific segment are
grouped together in the All Other category. These
items primarily consist of holding company revenues and
expenses, operations of the Companys real estate
management subsidiary, and accident and health insurance.

Assets are segmented based on policy liabilities
directly attributable to each segment. There are no significant
intersegment transactions. Depreciation and amortization,
excluding amortization of DAC and VOBA as previously discussed,
are not significant.

F-54



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Operating Segment Income

($ in thousands)


|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |           |         | 
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------- | ------------ |  | --------- | ------- | ------------ |  | - | ------ | ------ | - |  | --------- | --------- | ------- | 
|                                                          |                                                                                                                       |                             
|                                                          |                                                                                                                       | Year Ended December 31, 2003
|                                                          |                                                                                                                       |                             
|                                                          |                                                                                                                       | Protection                   |         | Accumulation |  |           |         | Total       
|                                                          |                                                                                                                       | Products                     |         | Products     |  | All Other |         | Consolidated
|                                                          |                                                                                                                       |                              |         |              |  |           |         |             
|Revenues:                                                 |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          | Insurance premiums                                                                                                    |                              | $       | 290,707      |  |           | $       | 4,114        |  |   | $      | 787    |   |  | $         | 295,608   |        
|                                                          | Product charges                                                                                                       |                              |         | 138,215      |  |           |         | 43,139       |  |   |        |       |   |  |           | 181,354   |        
|                                                          | Net investment income                                                                                                 |                              |         | 321,532      |  |           |         | 672,141      |  |   |        | 8,241  |   |  |           | 1,001,914 |        
|                                                          | Realized gains (losses) on closed block
    investments                                                               |                              |         | 9,326        |  |           |         |             |  |   |        |       |   |  |           | 9,326     |        
|                                                          | Other income                                                                                                          |                              |         | 4,224        |  |           |         | 61,849       |  |   |        | 988    |   |  |           | 67,061    |        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          |                                                                                                                       |                              | 764,004 |              |  |           | 781,243 |              |  |   | 10,016 |        |   |  | 1,555,263 |          
|Benefits and expenses:                                    |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          | Policyowner benefits                                                                                                  |                              |         | 387,068      |  |           |         | 478,256      |  |   |        | (626   | ) |  |           | 864,698   |        
|                                                          | Underwriting, acquisition, and other expenses                                                                         |                              |         | 76,042       |  |           |         | 69,225       |  |   |        | 18,367 |   |  |           | 163,634   |        
|                                                          | Amortization of DAC and VOBA, net of open block
    gain/loss adjustment of $16,257                                   |                              |         | 74,211       |  |           |         | 102,872      |  |   |        |       |   |  |           | 177,083   |        
|                                                          | Dividends to policyowners                                                                                             |                              |         | 98,393       |  |           |         |             |  |   |        |       |   |  |           | 98,393    |        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          |                                                                                                                       |                              | 635,714 |              |  |           | 650,353 |              |  |   | 17,741 |        |   |  | 1,303,808 |          
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|Segment pre-tax operating income                          |                                                                                                                       | $                            | 128,290 |              |  | $         | 130,890 |              |  | $ | (7,725 | )      |   |  | 251,455   |          
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          | Realized gains (losses) on open block
    investments                                                                 |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | 32,196    |        
|                                                          | Unrealized gains (losses) on open block
    options and trading investments                                           |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | 89,769    |        
|                                                          | Change in option value of equity-indexed products
    and market value adjustments on total return strategy annuities |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | (65,741   | )      
|                                                          | Cash flow hedge amortization                                                                                          |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | (3,827    | )      
|                                                          | Amortization of DAC and VOBA due to open block
    gains and losses                                                   |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | (16,257   | )      
|                                                          | Restructuring costs                                                                                                   |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | (23,294   | )      
|                                                          | Reinsurance adjustments                                                                                               |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | 3,854     |        
|                                                          | Other income from non-insurance operations                                                                            |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | 1,237     |        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|Income from continuing operations                         |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | 269,392   |          
|Interest (expense)                                        |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | (30,154   | )        
|Income tax (expense)                                      |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | (78,610   | )        
|Income from discontinued operations, net of tax           |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | 1,815     |          
|Cumulative effect of change in accounting, net of
    tax |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | (1,296    | )        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          |                                                                                                                       | Net income                   |         |              |  |           |         |              |  |   |        |        |   |  |           | $         | 161,147 | 
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          

F-55



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Operating Segment Income

($ in thousands)


|                                                |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |           |         |        | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------- | ------------ | ------- | --------- | ------- | ------------ | ------- | - | ------ | ----- | ------ |  | --------- | --------- | ------- | ------ | 
|                                                |                                                                                                                       |                                                                                      
|                                                |                                                                                                                       | Year Ended December 31, 2002                                                         
|                                                |                                                                                                                       |                                                                                      
|                                                |                                                                                                                       | Protection                                                                            |            | Accumulation |         |           |         | Total       
|                                                |                                                                                                                       | Products                                                                              |            | Products     |         | All Other |         | Consolidated
|                                                |                                                                                                                       |                                                                                       |            |              |         |           |         |             
|Revenues:                                       |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |          
|                                                | Insurance premiums                                                                                                    |                                                                                       | $          | 341,602      |         |           | $       | 8,702        |         |   | $      | 996   |        |  | $         | 351,300   |        
|                                                | Product charges                                                                                                       |                                                                                       |            | 103,145      |         |           |         | 41,349       |         |   |        |      |        |  |           | 144,494   |        
|                                                | Net investment income                                                                                                 |                                                                                       |            | 335,111      |         |           |         | 660,470      |         |   |        | 5,676 |        |  |           | 1,001,257 |        
|                                                | Realized gains (losses) on closed block
    investments                                                               |                                                                                       |            | (2,400       | )       |           |         |             |         |   |        |      |        |  |           | (2,400    | )      
|                                                | Other income                                                                                                          |                                                                                       |            | 4,026        |         |           |         | 60,420       |         |   |        | 2,675 |        |  |           | 67,121    |        
|                                                |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |          
|                                                |                                                                                                                       |                                                                                       | 781,484    |              |         |           | 770,941 |              |         |   | 9,347  |       |        |  | 1,561,772 |          
|Benefits and expenses:                          |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |          
|                                                |                                                                                                                       | Policyowner benefits                                                                  |            |              | 403,293 |           |         |              | 490,401 |   |        |       | 2,606  |  |           |           | 896,300 |       
|                                                |                                                                                                                       | Underwriting, acquisition, and other expenses                                         |            |              | 80,319  |           |         |              | 68,585  |   |        |       | 13,363 |  |           |           | 162,267 |       
|                                                |                                                                                                                       | Amortization of DAC and VOBA, net of open block
    gain/loss adjustment of ($15,002) |            |              | 63,267  |           |         |              | 91,300  |   |        |       |       |  |           |           | 154,567 |       
|                                                |                                                                                                                       | Dividends to policyowners                                                             |            |              | 104,866 |           |         |              |        |   |        |       |       |  |           |           | 104,866 |       
|                                                |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |          
|                                                |                                                                                                                       |                                                                                       | 651,745    |              |         |           | 650,286 |              |         |   | 15,969 |       |        |  | 1,318,000 |          
|                                                |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |          
|Segment pre-tax operating income                |                                                                                                                       | $                                                                                     | 129,739    |              |         | $         | 120,655 |              |         | $ | (6,622 | )     |        |  | 243,772   |          
|                                                |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |          
|                                                | Realized gains (losses) on open block
    investments                                                                 |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           | (102,310  | )      
|                                                | Unrealized gains (losses) on open block
    options and trading investments                                           |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           | (45,209   | )      
|                                                | Change in option value of equity-indexed products
    and market value adjustments on total return strategy annuities |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           | 28,759    |        
|                                                | Cash flow hedge amortization                                                                                          |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           | (4,351    | )      
|                                                | Amortization of DAC and VOBA due to open block
    gains and losses                                                   |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           | 15,002    |        
|                                                | Demutualization costs                                                                                                 |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           | (1,186    | )      
|                                                | Restructuring costs                                                                                                   |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           | (21,225   | )      
|                                                | Other income from non-insurance operations                                                                            |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           | 1,392     |        
|                                                |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |          
|Income from continuing operations               |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  | 114,644   |          
|Interest (expense)                              |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  | (25,487   | )        
|Income tax (expense)                            |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  | (28,375   | )        
|Income from discontinued operations, net of tax |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  | 2,084     |          
|                                                |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |          
|                                                |                                                                                                                       |                                                                                       | Net income |              |         |           |         |              |         |   |        |       |        |  |           |           | $       | 62,866 | 
|                                                |                                                                                                                       |                                                                                       |            |              |         |           |         |              |         |   |        |       |        |  |           |          

F-56



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Operating Segment Income

($ in thousands)


|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |         |        | 
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------- | ------------ |  | --------- | ------- | ------------ |  | - | ------ | ------ |  |  | --------- | ------- | ------ | 
|                                                          |                                                                                                                       |                             
|                                                          |                                                                                                                       | Year Ended December 31, 2001
|                                                          |                                                                                                                       |                             
|                                                          |                                                                                                                       | Protection                   |         | Accumulation |  |           |         | Total       
|                                                          |                                                                                                                       | Products                     |         | Products     |  | All Other |         | Consolidated
|                                                          |                                                                                                                       |                              |         |              |  |           |         |             
|Revenues:                                                 |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |        
|                                                          | Insurance premiums                                                                                                    |                              | $       | 300,690      |  |           | $       | 5,083        |  |   | $      | 132    |  |  | $         | 305,905 |       
|                                                          | Product charges                                                                                                       |                              |         | 110,403      |  |           |         | 35,652       |  |   |        |       |  |  |           | 146,055 |       
|                                                          | Net investment income                                                                                                 |                              |         | 283,330      |  |           |         | 577,913      |  |   |        | 11,931 |  |  |           | 873,174 |       
|                                                          | Realized gains (losses) on closed block
    investments                                                               |                              |         | 8,720        |  |           |         |             |  |   |        |       |  |  |           | 8,720   |       
|                                                          | Other income                                                                                                          |                              |         | 1,947        |  |           |         | 36,198       |  |   |        | 7,059  |  |  |           | 45,204  |       
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |        
|                                                          |                                                                                                                       |                              | 705,090 |              |  |           | 654,846 |              |  |   | 19,122 |        |  |  | 1,379,058 |        
|Benefits and expenses:                                    |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |        
|                                                          | Policyowner benefits                                                                                                  |                              |         | 384,159      |  |           |         | 419,132      |  |   |        | 2,459  |  |  |           | 805,750 |       
|                                                          | Underwriting, acquisition, and other expenses                                                                         |                              |         | 69,035       |  |           |         | 60,911       |  |   |        | 10,525 |  |  |           | 140,471 |       
|                                                          | Amortization of DAC and VOBA, net of open block
    gain/loss adjustment of ($2,988)                                  |                              |         | 56,996       |  |           |         | 78,891       |  |   |        |       |  |  |           | 135,887 |       
|                                                          | Dividends to policyowners                                                                                             |                              |         | 98,945       |  |           |         |             |  |   |        |       |  |  |           | 98,945  |       
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |        
|                                                          |                                                                                                                       |                              | 609,135 |              |  |           | 558,934 |              |  |   | 12,984 |        |  |  | 1,181,053 |        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |        
|Segment pre-tax operating income                          |                                                                                                                       | $                            | 95,955  |              |  | $         | 95,912  |              |  | $ | 6,138  |        |  |  | 198,005   |        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |        
|                                                          | Realized gains (losses) on open block
    investments                                                                 |                              |         |              |  |           |         |              |  |   |        |        |  |  |           | (39,299 | )     
|                                                          | Unrealized gains (losses) on open block
    options and trading investments                                           |                              |         |              |  |           |         |              |  |   |        |        |  |  |           | (60,050 | )     
|                                                          | Change in option value of equity-indexed products
    and market value adjustments on total return strategy annuities |                              |         |              |  |           |         |              |  |   |        |        |  |  |           | 52,747  |       
|                                                          | Amortization of DAC and VOBA due to open block
    gains and losses                                                   |                              |         |              |  |           |         |              |  |   |        |        |  |  |           | 2,988   |       
|                                                          | Demutualization costs                                                                                                 |                              |         |              |  |           |         |              |  |   |        |        |  |  |           | (969    | )     
|                                                          | Restructuring costs                                                                                                   |                              |         |              |  |           |         |              |  |   |        |        |  |  |           | (8,566  | )     
|                                                          | Other income from non-insurance operations                                                                            |                              |         |              |  |           |         |              |  |   |        |        |  |  |           | 532     |       
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |        
|Income from continuing operations                         |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  | 145,388   |        
|Interest (expense)                                        |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  | (26,011   | )      
|Income tax (expense)                                      |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  | (39,522   | )      
|Income from discontinued operations, net of tax           |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  | 1,288     |        
|Cumulative effect of change in accounting, net of
    tax |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  | (8,236    | )      
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |        
|                                                          |                                                                                                                       | Net income                   |         |              |  |           |         |              |  |   |        |        |  |  |           | $       | 72,907 | 
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |  |  |           |        

F-57



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Operating Segment Assets

($ in thousands)


|                  |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|----------------- |  | ---------- | --------- | ------------ |  | --------- | ---------- | ------------ |  | - | ------- |  |  | - | ---------- | 
|                  |  | Protection |           | Accumulation |  |           |            | Total       
|                  |  | Products   |           | Products     |  | All Other |            | Consolidated
|                  |  |            |           |              |  |           |            |             
|December 31, 2003 |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Investments       |  | $          | 5,143,441 |              |  | $         | 12,780,990 |              |  | $ | 18,408  |  |  | $ | 17,942,839 | 
|DAC and VOBA      |  |            | 789,725   |              |  |           | 749,987    |              |  |   |        |  |  |   | 1,539,712  | 
|Other assets      |  |            | 556,171   |              |  |           | 1,412,895  |              |  |   | 90,625  |  |  |   | 2,059,691  | 
|                  |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Total assets      |  | $          | 6,489,337 |              |  | $         | 14,943,872 |              |  | $ | 109,033 |  |  | $ | 21,542,242 | 
|                  |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|December 31, 2002 |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Investments       |  | $          | 4,966,449 |              |  | $         | 11,941,384 |              |  | $ | 24,657  |  |  | $ | 16,932,490 | 
|DAC and VOBA      |  |            | 691,849   |              |  |           | 646,549    |              |  |   |        |  |  |   | 1,338,398  | 
|Other assets      |  |            | 703,697   |              |  |           | 1,235,412  |              |  |   | 83,668  |  |  |   | 2,022,777  | 
|                  |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Total assets      |  | $          | 6,361,995 |              |  | $         | 13,823,345 |              |  | $ | 108,325 |  |  | $ | 20,293,665 | 
|                  |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|December 31, 2001 |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Investments       |  | $          | 4,595,113 |              |  | $         | 10,432,660 |              |  | $ | 24,660  |  |  | $ | 15,052,433 | 
|DAC and VOBA      |  |            | 613,945   |              |  |           | 612,564    |              |  |   |        |  |  |   | 1,226,509  | 
|Other assets      |  |            | 547,812   |              |  |           | 1,340,123  |              |  |   | 132,275 |  |  |   | 2,020,210  | 
|                  |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Total assets      |  | $          | 5,756,870 |              |  | $         | 12,385,347 |              |  | $ | 156,935 |  |  | $ | 18,299,152 | 
|                  |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 

F-58



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |                              
|---- | -----------------------------
|(22) | QUARTERLY RESULTS (UNAUDITED)

2003 Quarterly Data

|                                                 |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |            | 
|------------------------------------------------ | ------- | ----------------------------------- | ------- | ---------- |  | ------------ | ------- | ----------- |  | - | ------- | ---------- |  | - | ------- | ---------- | 
|                                                 |         |                                    
|                                                 |         | Quarter Ended                      
|                                                 |         |                                    
|                                                 |         | March 31                            |         | June 30    |  | September 30 |         | December 31
|                                                 |         |                                     |         |            |  |              |         |            
|                                                 |         |                                    
|                                                 |         | ($ in thousands, except share data)
|Total revenues                                   |         | $                                   | 407,759 |            |  | $            | 456,273 |             |  | $ | 374,656 |            |  | $ | 441,357 |           
|Total benefits and expenses                      |         | $                                   | 348,559 |            |  | $            | 383,519 |             |  | $ | 307,102 |            |  | $ | 371,473 |           
|Net income from continuing operations            |         | $                                   | 35,302  |            |  | $            | 43,178  |             |  | $ | 40,291  |            |  | $ | 41,857  |           
|Weighted average number of shares:               |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |           
|                                                 | Basic   |                                     |         | 38,984,807 |  |              |         | 39,161,780  |  |   |         | 39,208,151 |  |   |         | 39,268,068 | 
|                                                 | Diluted |                                     |         | 39,217,951 |  |              |         | 39,404,467  |  |   |         | 39,650,473 |  |   |         | 40,133,053 | 
|Net income from continuing operations per share: |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |           
|                                                 | Basic   |                                     | $       | 0.91       |  |              | $       | 1.10        |  |   | $       | 1.03       |  |   | $       | 1.06       | 
|                                                 | Diluted |                                     | $       | 0.90       |  |              | $       | 1.10        |  |   | $       | 1.02       |  |   | $       | 1.03       | 

2002 Quarterly Data

|                                                 |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |            | 
|------------------------------------------------ | ------- | ----------------------------------- | ------- | ---------- |  | ------------ | ------- | ----------- |  | - | ------- | ---------- |  | - | ------- | ---------- | 
|                                                 |         |                                    
|                                                 |         | Quarter Ended                      
|                                                 |         |                                    
|                                                 |         | March 31                            |         | June 30    |  | September 30 |         | December 31
|                                                 |         |                                     |         |            |  |              |         |            
|                                                 |         |                                    
|                                                 |         | ($ in thousands, except share data)
|Total revenues                                   |         | $                                   | 356,691 |            |  | $            | 322,885 |             |  | $ | 371,743 |            |  | $ | 364,326 |           
|Total benefits and expenses                      |         | $                                   | 314,674 |            |  | $            | 312,026 |             |  | $ | 326,642 |            |  | $ | 347,659 |           
|Net income from continuing operations            |         | $                                   | 24,558  |            |  | $            | 3,826   |             |  | $ | 25,815  |            |  | $ | 6,583   |           
|Weighted average number of shares:               |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |           
|                                                 | Basic   |                                     |         | 41,349,785 |  |              |         | 40,155,276  |  |   |         | 39,497,355 |  |   |         | 38,919,178 | 
|                                                 | Diluted |                                     |         | 41,968,570 |  |              |         | 40,661,337  |  |   |         | 39,835,426 |  |   |         | 39,168,989 | 
|Net income from continuing operations per share: |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |           
|                                                 | Basic   |                                     | $       | 0.59       |  |              | $       | 0.10        |  |   | $       | 0.65       |  |   | $       | 0.18       | 
|                                                 | Diluted |                                     | $       | 0.59       |  |              | $       | 0.09        |  |   | $       | 0.65       |  |   | $       | 0.17       | 

F-59



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

AMERUS GROUP CO.



INDEX TO CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES


|                                          |  |                                                                        |     |      |                 | 
|----------------------------------------- |  | ---------------------------------------------------------------------- | --- | ---- | --------------- | 
|Schedule                                  |  |                                                                        |     | Page
|                                          |  |                                                                        |     |     
|Independent Auditors Report on Schedules |  |                                                                        | S-2 |     
|I                                         |  | Summary of Investments  Other than
    Investments in Related Parties |     |      | S-3             | 
|II                                        |  | Condensed Financial Information of Registrant                          |     |      | S-4 through S-9 | 
|III                                       |  | Supplementary Insurance Information                                    |     |      | S-10            | 
|IV                                        |  | Reinsurance                                                            |     |      | S-11            | 

All other schedules are omitted for the reason
that they are not required, amounts are not sufficient to
require submission of the schedule, or that the equivalent
information has been included in the consolidated financial
statements and notes thereto.

S-1



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##### Table of Contents



REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS, ON SCHEDULES

The Board of Directors and Stockholders

AmerUs Group Co.


We have audited the consolidated balance sheets
of AmerUs Group Co. as of December 31, 2003 and 2002, and
the related consolidated statements of income, comprehensive
income, stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2003, and
have issued our report thereon dated February 6, 2004
(included elsewhere in this Annual Report on Form 10-K).
Our audits also included the financial schedules listed on
page S-1 of this Annual Report on Form 10-K. These
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion based on
our audits.

In our opinion, the financial statement schedules
referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein. As
discussed in note 1 to the consolidated financial
statement, in 2003 the Company changed its method of accounting
for embedded derivatives associated with certain reinsurance
agreements, in 2002 the Company changed its method of accounting
for goodwill and other intangibles and in 2001 the Company
changed its method of accounting for derivative instruments and
its method of accounting for its closed block of business.



| |                        
| | -----------------------
| | (ERNST & YOUNG LLP SIG)

Des Moines, Iowa

February 6, 2004


S-2



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##### Table of Contents



AMERUS GROUP CO.

SCHEDULE I

SUMMARY OF INVESTMENTS


OTHER THAN INVESTMENTS IN RELATED
PARTIES


|                   |                             |                            |                                                                      |             |         |                |  |         |         |            |   |            |         |            | 
|------------------ | --------------------------- | -------------------------- | -------------------------------------------------------------------- | ----------- | ------- | -------------- |  | ------- | ------- | ---------- | - | ---------- | ------- | ---------- | 
|                   |                             |                           
|                   |                             | December 31, 2003         
|                   |                             |                           
|                   |                             |                            |                                                                      | Amount at  
|                   |                             |                            |                                                                      | which Shown
|                   |                             | Amortized                  |                                                                      | Market      |         | in the Balance
|Type of Investment |                             | Cost (1)                   |                                                                      | Value       |         | Sheet         
|                   |                             |                            |                                                                      |             |         |               
|                   |                             |                           
|                   |                             | ($ in thousands)          
|Fixed Maturities:  |                             |                            |                                                                      |             |         |                |  |         |         |            |   |           
|                   |                             | Bonds                      |                                                                      |             |         |                |  |         |         |            |   |            |         |           
|                   |                             |                            | United States Government and government agencies
    and authorities |             | $       | 2,536,109      |  |         | $       | 2,725,992  |   |            | $       | 2,725,992  | 
|                   |                             |                            | States, municipalities and political subdivisions                    |             |         | 65,724         |  |         |         | 67,137     |   |            |         | 67,137     | 
|                   |                             |                            | Foreign governments                                                  |             |         | 123,360        |  |         |         | 128,543    |   |            |         | 128,543    | 
|                   |                             |                            | Public utilities                                                     |             |         | 1,473,996      |  |         |         | 1,546,582  |   |            |         | 1,546,582  | 
|                   |                             |                            | Convertibles and bonds with warrants attached                        |             |         | 988,475        |  |         |         | 1,020,189  |   |            |         | 1,020,189  | 
|                   |                             |                            | Indexed debt instruments                                             |             |         | 404,383        |  |         |         | 396,126    |   |            |         | 396,126    | 
|                   |                             |                            | All other corporate bonds                                            |             |         | 9,761,542      |  |         |         | 9,976,211  |   |            |         | 9,976,211  | 
|                   |                             | Redeemable preferred stock |                                                                      |             | 210,815 |                |  |         | 173,683 |            |   |            | 173,683 |           
|                   |                             |                            |                                                                      |             |         |                |  |         |         |            |   |           
|                   |                             |                            | Total fixed maturities                                               |             |         | 15,564,404     |  |         |         | 16,034,463 |   |            |         | 16,034,463 | 
|                   | Equity securities:          |                            |                                                                      |             |         |                |  |         |         |            |   |            |        
|                   |                             | Common stocks              |                                                                      |             |         |                |  |         |         |            |   |            |         |           
|                   |                             |                            | Banks, trust and insurance companies                                 |             |         | 58,428         |  |         |         | 58,438     |   |            |         | 58,438     | 
|                   |                             |                            | Industrial, miscellaneous and all other                              |             |         | 4,282          |  |         |         | 4,756      |   |            |         | 4,756      | 
|                   |                             |                            | Non-redeemable preferred stocks                                      |             |         | 11,738         |  |         |         | 13,348     |   |            |         | 13,348     | 
|                   |                             |                            |                                                                      |             |         |                |  |         |         |            |   |           
|                   |                             |                            | Total equity securities                                              |             |         | 74,448         |  |         |         | 76,542     |   |            |         | 76,542     | 
|                   | Mortgage loans              |                            |                                                                      | 968,572     |         |                |  |         |         |            |   | 968,572    |        
|                   | Real estate                 |                            |                                                                      | 33          |         |                |  |         |         |            |   | 33         |        
|                   | Policy loans                |                            |                                                                      | 494,646     |         |                |  |         |         |            |   | 494,646    |        
|                   | Other long-term investments |                            |                                                                      | 338,902     |         |                |  | 339,436 |         |            |   | 339,436    |        
|                   | Short-term investments      |                            |                                                                      | 28,473      |         |                |  | 29,147  |         |            |   | 29,147     |        
|                   |                             |                            |                                                                      |             |         |                |  |         |         |            |   |           
|                   | Total investments           |                            | $                                                                    | 17,469,478  |         |                |  |         |         |            | $ | 17,942,839 |        
|                   |                             |                            |                                                                      |             |         |                |  |         |         |            |   |           



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On the basis of cost adjusted for repayments and
    amortization of premiums and accrual of discounts for fixed
    maturities, other long-term investments and short-term
    investments; original cost for equity securities; unpaid
    principal balance for mortgage loans on real estate and policy
    loans; and original cost less accumulated depreciation for
    investment real estate.

S-3



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##### Table of Contents



AMERUS GROUP CO.

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT




CONDENSED BALANCE SHEETS


(Parent Company)


|                                       |                                                    |                  |           |        |           |  |           |        |           | 
|-------------------------------------- | -------------------------------------------------- | ---------------- | --------- | ------ | --------- |  | --------- | ------ | --------- | 
|                                       |                                                    |                 
|                                       |                                                    | December 31,    
|                                       |                                                    |                 
|                                       |                                                    | 2003             |           | 2002  
|                                       |                                                    |                  |           |       
|                                       |                                                    |                 
|                                       |                                                    | ($ in thousands)
|ASSETS                                 |                                                    |                  |           |        |           |  |           |       
|Investments:                           |                                                    |                  |           |        |           |  |           |       
|                                       | Equity securities available-for-sale at fair value |                  | $         | 270    |           |  | $         | 311    |          
|                                       | Other investments                                  |                  |           | 52,758 |           |  |           | 50,000 |          
|Investments in subsidiaries, at equity |                                                    |                  | 1,896,004 |        |           |  | 1,735,782 |       
|Cash and cash equivalents              |                                                    |                  | 7,574     |        |           |  | 15,512    |       
|Accrued investment income              |                                                    |                  | 1,125     |        |           |  | 1,161     |       
|Property and equipment                 |                                                    |                  | 14,485    |        |           |  | 13,534    |       
|Deferred income taxes                  |                                                    |                  |          |        |           |  | 12,902    |       
|Other assets                           |                                                    |                  | 28,707    |        |           |  | 11,335    |       
|                                       |                                                    |                  |           |        |           |  |           |       
|                                       |                                                    | Total assets     |           | $      | 2,000,923 |  |           | $      | 1,840,537 | 
|                                       |                                                    |                  |           |        |           |  |           |       

See accompanying notes to condensed financial
statements.

S-4



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##### Table of Contents



AMERUS GROUP CO.

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT



CONDENSED BALANCE SHEETS


(Parent Company)


|                                         |                                                                                                                                                                                                               |                                            |   |           |           |  |        |           |           | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | --------- | --------- |  | ------ | --------- | --------- | 
|                                         |                                                                                                                                                                                                               |                                           
|                                         |                                                                                                                                                                                                               | December 31,                              
|                                         |                                                                                                                                                                                                               |                                           
|                                         |                                                                                                                                                                                                               | 2003                                       |   | 2002     
|                                         |                                                                                                                                                                                                               |                                            |   |          
|                                         |                                                                                                                                                                                                               |                                           
|                                         |                                                                                                                                                                                                               | ($ in thousands)                          
|Liabilities and Stockholders
    Equity |                                                                                                                                                                                                               |                                            |   |           |           |  |        |          
|Liabilities:                             |                                                                                                                                                                                                               |                                            |   |           |           |  |        |          
|                                         | Accrued expenses and other liabilities                                                                                                                                                                        |                                            | $ | 42,424    |           |  | $      | 57,736    |          
|                                         | Income taxes payable                                                                                                                                                                                          |                                            |   | 4,872     |           |  |        | 6,709     |          
|                                         | Deferred income taxes                                                                                                                                                                                         |                                            |   | 5,105     |           |  |        |          |          
|                                         | Notes payable                                                                                                                                                                                                 |                                            |   | 538,711   |           |  |        | 479,626   |          
|                                         |                                                                                                                                                                                                               |                                            |   |           |           |  |        |          
|                                         |                                                                                                                                                                                                               | Total liabilities                          |   |           | 591,112   |  |        |           | 544,071   | 
|Minority interest                        |                                                                                                                                                                                                               |                                            |  |           |           |  | 33,518 |          
|Stockholders equity:                    |                                                                                                                                                                                                               |                                            |   |           |           |  |        |          
|                                         | Preferred Stock, no par value, 20,000,000 shares
    authorized, none issued                                                                                                                                  |                                            |   |          |           |  |        |          |          
|                                         | Common Stock, no par value, 230,000,000 shares
    authorized; 43,836,608 shares issued and 39,194,602 shares
    outstanding in 2003; 43,656,280 shares issued and 39,011,578
    shares outstanding in 2002 |                                            |   | 43,836    |           |  |        | 43,656    |          
|                                         | Paid-in capital                                                                                                                                                                                               |                                            |   | 1,184,237 |           |  |        | 1,179,646 |          
|                                         | Accumulated other comprehensive income                                                                                                                                                                        |                                            |   | 84,519    |           |  |        | 88,522    |          
|                                         | Unearned compensation                                                                                                                                                                                         |                                            |   | (1,361    | )         |  |        | (458      | )        
|                                         | Unallocated ESOP shares                                                                                                                                                                                       |                                            |   |          |           |  |        | (1,443    | )        
|                                         | Retained earnings                                                                                                                                                                                             |                                            |   | 255,006   |           |  |        | 109,517   |          
|                                         | Treasury stock                                                                                                                                                                                                |                                            |   | (156,426  | )         |  |        | (156,492  | )        
|                                         |                                                                                                                                                                                                               |                                            |   |           |           |  |        |          
|                                         |                                                                                                                                                                                                               | Total stockholders equity                 |   |           | 1,409,811 |  |        |           | 1,262,948 | 
|                                         |                                                                                                                                                                                                               |                                            |   |           |           |  |        |          
|                                         |                                                                                                                                                                                                               | Total liabilities and stockholders equity |   | $         | 2,000,923 |  |        | $         | 1,840,537 | 
|                                         |                                                                                                                                                                                                               |                                            |   |           |           |  |        |          

See accompanying notes to condensed financial
statements.

S-5



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##### Table of Contents



AMERUS GROUP CO.

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT



CONDENSED STATEMENTS OF INCOME


(Parent Company)


|                                                                |                                    |                          |         |         |   |      |        |        |   |   |        |        | 
|--------------------------------------------------------------- | ---------------------------------- | ------------------------ | ------- | ------- | - | ---- | ------ | ------ | - | - | ------ | ------ | 
|                                                                |                                    |                         
|                                                                |                                    | Years ended December 31,
|                                                                |                                    |                         
|                                                                |                                    | 2003                     |         | 2002    |   | 2001
|                                                                |                                    |                          |         |         |   |     
|                                                                |                                    |                         
|                                                                |                                    | ($ in thousands)        
|Revenues:                                                       |                                    |                          |         |         |   |      |        |        |   |   |        |       
|                                                                | Equity in earnings of subsidiaries |                          | $       | 186,633 |   |      | $      | 88,563 |   |   | $      | 88,829 | 
|                                                                | Net investment income              |                          |         | 4,647   |   |      |        | 4,739  |   |   |        | 5,191  | 
|                                                                | Realized investment gains (losses) |                          |         | (42     | ) |      |        | 874    |   |   |        |       | 
|                                                                | Other income (loss)                |                          |         | 274     |   |      |        | (178   | ) |   |        | 13     | 
|                                                                |                                    |                          |         |         |   |      |        |        |   |   |        |       
|                                                                |                                    |                          | 191,512 |         |   |      | 93,998 |        |   |   | 94,033 |       
|Expenses:                                                       |                                    |                          |         |         |   |      |        |        |   |   |        |       
|                                                                | Operating expenses                 |                          |         | 12,919  |   |      |        | 8,906  |   |   |        | 4,832  | 
|                                                                | Demutualization costs              |                          |         |        |   |      |        | 954    |   |   |        |       | 
|                                                                | Restructuring costs                |                          |         | 3,034   |   |      |        | 11,021 |   |   |        | 1,843  | 
|                                                                | Interest expense                   |                          |         | 26,635  |   |      |        | 22,165 |   |   |        | 23,583 | 
|                                                                |                                    |                          |         |         |   |      |        |        |   |   |        |       
|                                                                |                                    |                          | 42,588  |         |   |      | 43,046 |        |   |   | 30,258 |       
|                                                                |                                    |                          |         |         |   |      |        |        |   |   |        |       
|Income from continuing operations                               |                                    |                          | 148,924 |         |   |      | 50,952 |        |   |   | 63,775 |       
|Income tax (expense) benefit                                    |                                    |                          | 15,072  |         |   |      | 14,593 |        |   |   | 10,016 |       
|Minority interest                                               |                                    |                          | (2,849  | )       |   |      | (2,679 | )      |   |   | (763   | )     
|                                                                |                                    |                          |         |         |   |      |        |        |   |   |        |       
|Net income before cumulative effect of change in
    accounting |                                    |                          | 161,147 |         |   |      | 62,866 |        |   |   | 73,028 |       
|Cumulative effect of change in accounting, net of
    tax       |                                    |                          |        |         |   |      |       |        |   |   | (121   | )     
|                                                                |                                    |                          |         |         |   |      |        |        |   |   |        |       
|Net income                                                      |                                    | $                        | 161,147 |         |   | $    | 62,866 |        |   | $ | 72,907 |       
|                                                                |                                    |                          |         |         |   |      |        |        |   |   |        |       

See accompanying notes to condensed financial
statements.

S-6



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##### Table of Contents



AMERUS GROUP CO.

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT



CONDENSED STATEMENTS OF CASH FLOWS


(Parent Company)


|                                                                                      |                                           |                                                         |          |          |         |      |          |         |         |   |         |         |         |  
|------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------------- | -------- | -------- | ------- | ---- | -------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                                      |                                           |                                                        
|                                                                                      |                                           | Years ended December 31,                               
|                                                                                      |                                           |                                                        
|                                                                                      |                                           | 2003                                                    |          | 2002     |         | 2001
|                                                                                      |                                           |                                                         |          |          |         |     
|                                                                                      |                                           |                                                        
|                                                                                      |                                           | ($ in thousands)                                       
|Cash flows from operating
    activities:                                             |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|Net income                                                                            |                                           | $                                                       | 161,147  |          |         | $    | 62,866   |         |         | $ | 72,907  |        
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|                                                                                      | Cumulative effect of change in accounting |                                                         |          |         |         |      |          |        |         |   |         | 121     |        
|                                                                                      | Equity in undistributed earnings          |                                                         |          | (186,633 | )       |      |          | (88,563 | )       |   |         | (88,829 | )      
|                                                                                      | Dividends from subsidiaries               |                                                         |          | 83,758   |         |      |          | 45,332  |         |   |         | 75,900  |        
|                                                                                      | Realized investment gains                 |                                                         |          | 42       |         |      |          | (874    | )       |   |         |        |        
|                                                                                      | Minority interest                         |                                                         |          | 2,849    |         |      |          | 2,679   |         |   |         | 763     |        
|Change in:                                                                            |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|                                                                                      | Income taxes                              |                                                         |          | 16,265   |         |      |          | (8,463  | )       |   |         | 12,141  |        
|                                                                                      | Other, net                                |                                                         |          | (30,641  | )       |      |          | 12,783  |         |   |         | (19,997 | )      
|                                                                                      |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|                                                                                      |                                           | Net cash provided by operating activities               |          |          | 46,787  |      |          |         | 25,760  |   |         |         | 53,006  |  
|                                                                                      |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|Cash flows from investing
    activities:                                             |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|Purchase of investments                                                               |                                           |                                                         |         |          |         |      |         |         |         |   | (19,505 | )      
|Sale of investments                                                                   |                                           |                                                         |         |          |         |      | 37       |         |         |   | 18,000  |        
|Proceeds from repayment of loans                                                      |                                           |                                                         |         |          |         |      | 3        |         |         |   | 142     |        
|Acquisition of ILICO                                                                  |                                           |                                                         |         |          |         |      |         |         |         |   | (4,980  | )      
|Other assets, net                                                                     |                                           |                                                         |         |          |         |      | 403      |         |         |   | (387    | )      
|                                                                                      |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|                                                                                      |                                           | Net cash (used in) provided by investing
    activities |          |          |        |      |          |         | 443     |   |         |         | (6,730  | )
|                                                                                      |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|Cash flows from financing
    activities:                                             |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|Change in debt and capital securities, net                                            |                                           |                                                         | (84,664  | )        |         |      | (38,430  | )       |         |   | 75,747  |        
|Allocation of shares in leveraged ESOP                                                |                                           |                                                         | 1,597    |          |         |      | 1,333    |         |         |   | 939     |        
|Purchase of treasury stock, net of issuance                                           |                                           |                                                         |         |          |         |      | (114,638 | )       |         |   | (44,985 | )      
|Issuance of OCEANs                                                                    |                                           |                                                         |         |          |         |      | 179,593  |         |         |   |        |        
|Issuance of PRIDES                                                                    |                                           |                                                         | 135,701  |          |         |      |         |         |         |   |        |        
|Retirement of company-obligated mandatorily
    redeemable capital securities         |                                           |                                                         |         |          |         |      | (20,805  | )       |         |   |        |        
|Capital contribution to subsidiaries                                                  |                                           |                                                         | (102,696 | )        |         |      | (58,930  | )       |         |   | (39,306 | )      
|Dividends paid to stockholders                                                        |                                           |                                                         | (15,658  | )        |         |      | (15,536  | )       |         |   | (16,787 | )      
|Stock issued under various incentive plans, net
    of forfeitures                    |                                           |                                                         | 11,060   |          |         |      | 14,623   |         |         |   | 8,678   |        
|Other, net                                                                            |                                           |                                                         | (65      | )        |         |      | (109     | )       |         |   | 117     |        
|                                                                                      |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|                                                                                      |                                           | Net cash (used in) financing activities                 |          |          | (54,725 | )    |          |         | (52,899 | ) |         |         | (15,597 | )
|                                                                                      |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|Net increase (decrease) in cash                                                       |                                           |                                                         | (7,938   | )        |         |      | (26,696  | )       |         |   | 30,679  |        
|Cash at beginning of period                                                           |                                           |                                                         | 15,512   |          |         |      | 42,208   |         |         |   | 11,529  |        
|                                                                                      |                                           |                                                         |          |          |         |      |          |         |         |   |         |        
|Cash at end of period                                                                 |                                           | $                                                       | 7,574    |          |         | $    | 15,512   |         |         | $ | 42,208  |        
|                                                                                      |                                           |                                                         |          |          |         |      |          |         |         |   |         |        

See accompanying notes to condensed financial
statements.

S-7



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##### Table of Contents



AMERUS GROUP CO.

(Parent Company)




NOTES TO CONDENSED FINANCIAL
STATEMENTS



|    |                      
|--- | ---------------------
|(1) | Basis of Presentation

AmerUs Group Co. (the Company) is the parent
company of its primary subsidiaries, AmerUs Life Insurance
Company (ALIC), AmerUs Annuity Group Co. and its subsidiaries
(collectively, AAG), AmerUs Capital Management Group, Inc.
(ACM), and ILICO Holdings, Inc., the holding company of
Indianapolis Life Insurance Company (ILIC) and its
subsidiaries (collectively ILICO). Prior to 2003, ALIC had a
7.8 percent ownership in ILICO which was recorded as
minority interest. In 2003, ALIC dividended its ownership in
ILICO to the Company. The Companys investment in its
subsidiaries is stated at cost plus equity in undistributed
earnings of the subsidiaries. The Companys share of net
income of its unconsolidated subsidiaries is included in income
using the equity method. These financial statements should be
read in conjunction with AmerUs Group Co.s consolidated
financial statements.



|    |              
|--- | -------------
|(2) | Notes Payable

Notes payable consist of the following:

|                                                                 |  |                  |         |      |  |   |         | 
|---------------------------------------------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | 
|                                                                 |  |                 
|                                                                 |  | December 31,    
|                                                                 |  |                 
|                                                                 |  | 2003             |         | 2002
|                                                                 |  |                  |         |     
|                                                                 |  |                 
|                                                                 |  | ($ in thousands)
|OCEANS due on March 6, 2032 (A)                                  |  | $                | 187,723 |      |  | $ | 186,233 | 
|PRIDES notes (B)                                                 |  |                  | 143,750 |      |  |   |        | 
|Senior notes bearing interest at 6.95% due June
    2005         |  |                  | 125,000 |      |  |   | 125,000 | 
|Revolving Credit Agreement (C)                                   |  |                  | 27,000  |      |  |   | 113,000 | 
|Junior Subordinated debentures bearing interest
    at 8.85% (D) |  |                  | 50,755  |      |  |   | 50,755  | 
|Other intercompany (eliminated in consolidation)                 |  |                  | 4,483   |      |  |   | 4,638   | 
|                                                                 |  |                  |         |      |  |   |         | 
|                                                                 |  | $                | 538,711 |      |  | $ | 479,626 | 
|                                                                 |  |                  |         |      |  |   |         | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | On March 6, 2002, the Company issued
    $185 million aggregate original principal amount of OCEANs.
    The OCEANs are senior subordinated debt and were issued and sold
    in an original principal amount of $1,000 per OCEAN, with a
    principal amount at maturity of $1,270 per OCEAN. The
    maturity date of the OCEANs is March 6, 2032. The OCEANs
    will have aggregate principal amount at maturity of
    $235 million. The OCEANs were registered on Form S-3
    filed with the Securities and Exchange Commission on
    September 20, 2002.                                                                                                                                                                            
|   
|(B) | On May 28, 2003, the Company issued
    $125.0 million of PRIDES which were registered on
    Form S-3 filed with the Securities and Exchange Commission.
    The PRIDES initially consist of a $25 senior note and a contract
    requiring the holder to purchase the Companys common
    stock. The note has a minimum term of 4.75 years, which may
    be extended by the Company in certain circumstances. Under the
    purchase contract, holders of each contract are required to
    purchase the Companys common stock on the settlement date
    of August 16, 2006 based on a specified settlement rate,
    which will vary according to the applicable market value of the
    Companys common stock at the settlement date.
|   
|(C) | The revolving credit agreement provides for a
    maximum borrowing of $200 million with the balance maturing
    in December 2007. This agreement replaced the $175 million
    credit agreement in 2003. The interest rate is variable,
    however, the Company may elect to fix the rate for periods from
    30 days to six months. The loan agreement contains various
    financial and operating covenants which, among other things,
    limit future indebtedness and restrict the amount of future
    dividend payments.                                                                                                                                                                                                          

S-8



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##### Table of Contents



AMERUS GROUP CO.


(Parent Company)


NOTES TO CONDENSED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(D) | The Company issued $88.66 million of junior
    subordinated debentures to a wholly-owned subsidiary trust in
    connection with capital securities issued by the trust. The
    debentures bear interest at the rate of 8.85% and mature
    February 1, 2027.

Maturities of notes payable are as follows for
each of the next five years is as follows:

|           |  |                  |         | 
|---------- |  | ---------------- | ------- | 
|           |  | ($ in thousands)
|           |  |                 
|2004       |  | $                | 4,483   | 
|2005       |  |                  | 125,000 | 
|2006       |  |                  |        | 
|2007       |  |                  | 27,000  | 
|2008       |  |                  | 143,750 | 
|Thereafter |  |                  | 238,478 | 
|           |  |                  |         | 
|           |  | $                | 538,711 | 
|           |  |                  |         | 

S-9



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##### Table of Contents



AMERUS GROUP CO.

SCHEDULE III



SUPPLEMENTARY INSURANCE INFORMATION


FOR THE YEARS ENDED DECEMBER 31, 2003,
2002, AND 2001


($ in thousands)


|                      |  |       |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|--------------------- |  | ----- | --------- | ---------------- |  | -------- | ---------- | ------------ |  | ------- | - | ---------- |  | ---------- | ------ | ------------ |  | --------- | ------- | -------- |  | - | --------- |  |  | - | --------- |  |  | - | ------- |  |  | - | ------- |  |  |  | --- | 
|                      |  |       |           |                  |  |          |            |              |  |         |   |            |  | Benefits,  |        |              |  |           |         |         
|                      |  |       |           | Future policy    |  |          |            | Other policy |  |         |   |            |  | claims,    |        |              |  |           |         |         
|                      |  |       |           | benefits, losses |  |          |            | claims &     |  |         |   | Net        |  | losses &   |        | Amortization |  | Other     |         |         
|                      |  | DAC & |           | claims & loss    |  | Unearned |            | benefits     |  | Premium |   | investment |  | settlement |        | of DAC &     |  | operating |         | Premiums
|Segment               |  | VOBA  |           | expenses (1)     |  | premiums |            | payable (2)  |  | revenue |   | income     |  | expenses   |        | VOBA         |  | expenses  |         | written 
|                      |  |       |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |         
|Protection Products   |  |       |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|                     
|12/31/2003            |  | $     | 789,725   |                  |  | $        | 5,917,278  |              |  | $       |  |            |  | $          | 52,506 |              |  | $         | 292,287 |          |  | $ | 321,532   |  |  | $ | 501,229   |  |  | $ | 76,808  |  |  | $ | 76,048  |  |  |  | n/a | 
|12/31/2002            |  | $     | 691,849   |                  |  | $        | 5,428,918  |              |  | $       |  |            |  | $          | 36,058 |              |  | $         | 341,602 |          |  | $ | 335,111   |  |  | $ | 505,123   |  |  | $ | 62,523  |  |  | $ | 80,319  |  |  |  | n/a | 
|12/31/2001            |  | $     | 613,945   |                  |  | $        | 4,752,903  |              |  | $       |  |            |  | $          | 29,152 |              |  | $         | 300,690 |          |  | $ | 283,330   |  |  | $ | 482,362   |  |  | $ | 59,693  |  |  | $ | 69,035  |  |  |  | n/a | 
|                     
|Accumulation Products |  |       |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|12/31/2003            |  | $     | 749,987   |                  |  | $        | 12,614,576 |              |  | $       |  |            |  | $          | 5,868  |              |  | $         | 4,114   |          |  | $ | 672,141   |  |  | $ | 534,122   |  |  | $ | 116,532 |  |  | $ | 61,054  |  |  |  | n/a | 
|12/31/2002            |  | $     | 646,549   |                  |  | $        | 12,363,587 |              |  | $       |  |            |  | $          | 2,570  |              |  | $         | 8,702   |          |  | $ | 660,470   |  |  | $ | 464,678   |  |  | $ | 77,042  |  |  | $ | 68,585  |  |  |  | n/a | 
|12/31/2001            |  | $     | 612,564   |                  |  | $        | 10,925,389 |              |  | $       |  |            |  | $          | 3,505  |              |  | $         | 5,083   |          |  | $ | 577,913   |  |  | $ | 367,127   |  |  | $ | 73,206  |  |  | $ | 60,911  |  |  |  | n/a | 
|                     
|Other                 |  |       |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|12/31/2003            |  | $     |          |                  |  | $        | 89,794     |              |  | $       |  |            |  | $          | 506    |              |  | $         | 787     |          |  | $ | 8,241     |  |  | $ | 3,200     |  |  | $ |        |  |  | $ | 41,660  |  |  |  | n/a | 
|12/31/2002            |  | $     |          |                  |  | $        | 89,717     |              |  | $       |  |            |  | $          | 941    |              |  | $         | 996     |          |  | $ | 5,676     |  |  | $ | 6,957     |  |  | $ |        |  |  | $ | 35,774  |  |  |  | n/a | 
|12/31/2001            |  | $     |          |                  |  | $        | 77,874     |              |  | $       |  |            |  | $          | 490    |              |  | $         | 132     |          |  | $ | 11,931    |  |  | $ | 2,459     |  |  | $ |        |  |  | $ | 20,060  |  |  |  | n/a | 
|                     
|Total                 |  |       |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|12/31/2003            |  | $     | 1,539,712 |                  |  | $        | 18,621,648 |              |  | $       |  |            |  | $          | 58,880 |              |  | $         | 297,188 |          |  | $ | 1,001,914 |  |  | $ | 1,038,551 |  |  | $ | 193,340 |  |  | $ | 178,762 |  |  |  | n/a | 
|12/31/2002            |  | $     | 1,338,398 |                  |  | $        | 17,882,222 |              |  | $       |  |            |  | $          | 39,569 |              |  | $         | 351,300 |          |  | $ | 1,001,257 |  |  | $ | 976,758   |  |  | $ | 139,565 |  |  | $ | 184,678 |  |  |  | n/a | 
|12/31/2001            |  | $     | 1,226,509 |                  |  | $        | 15,756,166 |              |  | $       |  |            |  | $          | 33,147 |              |  | $         | 305,905 |          |  | $ | 873,174   |  |  | $ | 851,948   |  |  | $ | 132,899 |  |  | $ | 150,006 |  |  |  | n/a | 






|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(1) | Policy reserves, policyowner funds and dividends
    payable to policyowners
|   
|(2) | Policy and contract claims                                                  

S-10



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##### Table of Contents



AMERUS GROUP CO.

SCHEDULE IV

REINSURANCE


FOR THE YEARS ENDED DECEMBER 31, 2003,
2002, AND 2001


|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |       |  
|---------------------------- | -------------- | ---------------- | ---------- | --------- |  | ---------- | ---------- | ---------- |  | ---------- | ---------- | ------ |  | - | ---------- | ------- |  |  | ----- | ----- | -
|                             |                |                  |            |           |  |            |            |            |  | Percentage
|                             |                |                  |            | Ceded to  |  | Assumed    |            |            |  | of Amount 
|                             |                |                  |            | Other     |  | From Other |            |            |  | Assumed   
|                             |                | Gross Amount     |            | Companies |  | Companies  |            | Net Amount |  | to Net    
|                             |                |                  |            |           |  |            |            |            |  |           
|                             |                |                 
|                             |                | ($ in thousands)
|Year ended December 31, 2003 |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Life insurance in force      |                | $                | 83,441,177 |           |  | $          | 75,316,449 |            |  | $          | 14,826,361 |        |  | $ | 22,951,089 |         |  |  | 64.60 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Premiums                     |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|                             | Life insurance |                  | $          | 365,302   |  |            | $          | 118,644    |  |            | $          | 45,629 |  |   | $          | 292,287 |  |  |       | 15.61 | %
|                             | Annuities      |                  |            | 4,114     |  |            |            |           |  |            |            |       |  |   |            | 4,114   |  |  |       |      | %
|                             | Other          |                  |            | 8,172     |  |            |            | 7,610      |  |            |            | 225    |  |   |            | 787     |  |  |       | 28.59 | %
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Total premiums               |                | $                | 377,588    |           |  | $          | 126,254    |            |  | $          | 45,854     |        |  | $ | 297,188    |         |  |  | 15.43 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Year ended December 31, 2002 |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Life insurance in force      |                | $                | 78,828,540 |           |  | $          | 71,067,236 |            |  | $          | 16,211,471 |        |  | $ | 23,972,775 |         |  |  | 67.62 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Premiums                     |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|                             | Life insurance |                  | $          | 402,282   |  |            | $          | 109,846    |  |            | $          | 49,166 |  |   | $          | 341,602 |  |  |       | 14.39 | %
|                             | Annuities      |                  |            | 8,702     |  |            |            |           |  |            |            |       |  |   |            | 8,702   |  |  |       |      | %
|                             | Other          |                  |            | 8,519     |  |            |            | 7,901      |  |            |            | 378    |  |   |            | 996     |  |  |       | 37.95 | %
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Total premiums               |                | $                | 419,503    |           |  | $          | 117,747    |            |  | $          | 49,544     |        |  | $ | 351,300    |         |  |  | 14.10 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Year ended December 31, 2001 |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Life insurance in force      |                | $                | 66,268,038 |           |  | $          | 49,453,962 |            |  | $          | 4,206,218  |        |  | $ | 21,020,294 |         |  |  | 20.01 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Premiums                     |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|                             | Life insurance |                  | $          | 366,666   |  |            | $          | 92,327     |  |            | $          | 26,351 |  |   | $          | 300,690 |  |  |       | 8.76  | %
|                             | Annuities      |                  |            | 5,222     |  |            |            | 139        |  |            |            |       |  |   |            | 5,083   |  |  |       |      | %
|                             | Other          |                  |            | 1,533     |  |            |            | 1,401      |  |            |            |       |  |   |            | 132     |  |  |       |      | %
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Total premiums               |                | $                | 373,421    |           |  | $          | 93,867     |            |  | $          | 26,351     |        |  | $ | 305,905    |         |  |  | 8.61  | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      

S-11