S-1 1 d59949_s1.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on June 18, 2004 File No. ________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SBM CERTIFICATE COMPANY (Exact name of registrant as specified in charter) Maryland (State or other jurisdiction of incorporation or organization) 6725 (Primary Standard Industrial Classification Code Number) 52-2250397 (I.R.S. Employer Identification No.) 5101 River Road Suite 101 Bethesda, Maryland 20816 (301) 656-4200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Eric M. Westbury, President SBM Certificate Company 5101 River Road Suite 101 Bethesda, Maryland 20816 (301) 656-4200 (Address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to the public: As soon after the effective date of this registration statement as is practicable. The registrant has registered an indefinite amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. PROSPECTUS SBM CERTIFICATE COMPANY SERIES 503 CERTIFICATES SERIES 505 CERTIFICATES SERIES 507 CERTIFICATES SERIES 510 CERTIFICATES This Prospectus offers fully paid fixed-rate face-amount certificates ("Certificates") issued by SBM Certificate Company (the "Company" or "SBM"). When you purchase a Certificate, you make a single payment to us in exchange for our promise to pay the amount you have invested ("Face Amount"), plus accrued interest on a future date. The Series 503, Series 505, Series 507 and Series 510 Certificates have fixed interest guarantee periods ("Guarantee Periods") of three, five, seven and ten years, respectively, from the date of issue. The Certificates automatically continue for additional Guarantee Periods of the same duration, unless you notify us in writing to the contrary. Your Certificate will mature no later than thirty years from the date it was issued ("Maturity Date"). Your Certificate will earn a fixed interest rate that is declared in advance for the duration of a Guarantee Period, but never is less than 2.5%. You may choose to have your interest: o COMPOUNDED ANNUALLY and paid at the end of the Guarantee Period, when the Certificate matures, or when you make a withdrawal o PAID ANNUALLY o PAID QUARTERLY The following initial interest rates are in effect, as of the date of this prospectus, for the Guarantee Period of each Series. Interest Interest Interest Paid Paid Compounded Certificate Quarterly Annually Annually ----------------------- --------- -------- -------- Series 503 ............ 4.50% 4.60% 4.75% Series 505 ............ 5.00% 5.10% 5.25% Series 507 ............ 5.50% 5.60% 5.75% Series 510 ............ 6.15% 6.25% 6.40% These rates may or may not have changed when you apply to purchase your Certificate. New interest rates for each of the Guarantee Periods are declared periodically. See "Description of the Certificates" for a more detailed description of the Certificates, including applicable charges for early withdrawals. THERE IS NO SALES CHARGE WHEN YOU PURCHASE YOUR CERTIFICATE. IF YOU WITHDRAW ALL OR A PORTION OF YOUR CERTIFICATE INVESTMENT PRIOR TO THE END OF A GUARANTEE PERIOD, A WITHDRAWAL CHARGE WILL APPLY. This Prospectus contains information about the Certificates that you should know before investing. You should read this Prospectus and any supplements, and retain them for future reference. PLEASE SEE "CERTAIN RECENT DEVELOPMENTS" BELOW, AND "RISK FACTORS" AT PAGE 3 FOR A DESCRIPTION OF THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE CERTIFICATES. CERTAIN RECENT DEVELOPMENTS On December 5, 2003, Geneva Capital Partners, LLC ("Geneva"), a Delaware limited liability company wholly-owned by Eric M. Westbury, Chairman of the Board and Chief Executive Officer of the Company, acquired control of the Company. This resulted from Geneva's purchase of a majority of the outstanding shares of common stock (the "Shares") of 1st Atlantic Guaranty Corporation ("1st Atlantic"), a Maryland corporation, the Company's then indirect parent, from the bankruptcy estate of John Lawbaugh. Mr. Lawbaugh had previously controlled the Company through his ownership of the Shares. The change in control of the Company ultimately resulted from certain facts that came to the attention of members of the Company's management in 2002 concerning transactions (the "Questioned Transactions") involving 1st Atlantic and the Company and Mr. Lawbaugh. Please see "Change in Control of Company" under "Certain Significant Events" in the prospectus for further details. The Questioned Transactions raised concerns that Mr. Lawbaugh failed to comply with provisions of the Investment Company Act of 1940 (the "1940 Act") prohibiting transactions with affiliated persons of registered investment companies, caused the Company to fail to comply with disclosure requirements of the Securities Act of 1933 (the "1933 Act"); and caused the diversion of 1st Atlantic and Company assets to himself directly and indirectly. 1st Atlantic and the Company each are registered investment companies under the 1940 Act. As a result of the Questioned Transactions, 1st Atlantic and the Company incurred significant legal and accounting expenses, as well as a reduction in the carrying value of certain assets including "qualified investments" required as certificate reserves under the 1940 Act. Mr. Lawbaugh, who also was Chairman of the Board and Chief Executive Officer of 1st Atlantic and the Company, is no longer affiliated with 1st Atlantic or the Company in any capacity. Because of the Questioned Transactions, the Company suspended the sale of its Certificates in August 2002. In October 2002, the Securities and Exchange Commission (the "SEC") staff (the "Staff") initiated a regulatory examination of 1st Atlantic. In January 2003, the Staff advised 1st Atlantic that it believed 1st Atlantic's reserves required to be maintained under the 1940 Act to support 1st Atlantic's outstanding face-amount certificates were inadequate. In particular, the Staff took the position that 1st Atlantic's indirect investment in the Company could not be treated as a qualified investment under the 1940 Act and, therefore, could not be used to satisfy the face-amount certificate reserve requirements of the 1940 Act. In March 2003, the Staff advised 1st Atlantic that in the absence of satisfactory evidence of an imminent transaction that would restore 1st Atlantic's reserves, the Staff would recommend to the SEC that a civil injunctive action be brought against 1st Atlantic seeking emergency relief, including among other things, the appointment of a receiver. On April 23, 2003, the SEC filed a complaint in the United States District Court for the District of Maryland (the "District Court") alleging that 1st Atlantic was in violation of Sections 28(a) and 28(b) of the 1940 Act because it was not maintaining sufficient certificate reserves (the "Complaint"). Without admitting or denying the allegations of the Complaint, 1st Atlantic agreed to the entry of a temporary restraining order enjoining 1st Atlantic from violating Sections 28(a) and 28(b) of the 1940 Act relating to reserves and qualified investments. On November 7, 2003, 1st Atlantic, Geneva, the trustee of Mr. Lawbaugh's bankruptcy estate and certain of Mr. Lawbaugh's creditors agreed to a settlement proposal and filed an emergency motion in bankruptcy court on November 10, 2003 for the approval of the sale of the Shares to Geneva under that proposal. The terms and consummation of a stock purchase agreement that implemented the settlement proposal and resulted in the December 5, 2003 sale of 1st Atlantic to Geneva. The settlement, among other things, included restitution to 1st Atlantic and the Company of assets diverted by Mr. Lawbaugh, and infusions of capital to both companies. ---------- THE CERTIFICATES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY ANY BANK, NOR ARE THEY INSURED BY THE FDIC. THE COMPANY IS REGISTERED AS A FACE-AMOUNT CERTIFICATE COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940. THE CERTIFICATES ARE FIXED-INCOME SECURITIES THAT ARE BACKED SOLELY BY THE ASSETS OF THE COMPANY, INCLUDING REQUIRED RESERVES. AS WITH ALL INVESTMENT COMPANIES, NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAVE APPROVED OR DISAPPROVED THE CERTIFICATES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. JULY ___, 2004 (Cover Page Continued) TABLE OF CONTENTS

2 SBM CERTIFICATE COMPANY The Company, a Maryland corporation, is a registered face-amount certificate company under the 1940 Act. The Company and its predecessors have been engaged in the issuance and servicing of face-amount certificates since 1914. The Company is a wholly-owned subsidiary of SBM Financial, LLC ("SBM Financial"), formerly named State Bond & Mortgage Company, L.L.C. ("State Bond"), a Maryland limited liability company. The Company's executive offices are located at 5101 River Road, Suite 101, Bethesda, Maryland 20816; its telephone number is 301-656-4200. The Company maintains an Administrative Office at 125 North Minnesota Street, New Ulm, MN 56073; its toll-free telephone number is 1-888-749-4353 or 1-800-965-4999. Unless otherwise indicated or required by the context, the terms "Company," "we," "us" or "ours," as used in this Prospectus, refer solely to SBM Certificate Company and do not include any of its affiliated companies. As a result of the change in control of 1st Atlantic on December 5, 2003, the Company's ultimate parent company, which was 1st Atlantic, now is Geneva, which is owned by Eric M. Westbury, the Company's Chairman of the Board and Chief Executive Officer. On December 31, 2003, SBM Financial became a direct wholly-owned subsidiary of Geneva through a dividend to Geneva of the 100% ownership interest of SBM Financial by 1st Atlantic. 1st Atlantic was previously the sole member of SBM Financial and its subsidiaries. See "History" under "About SBM Certificate Company" and "Certain Significant Events" later in this Prospectus. RISK FACTORS We are not a bank, broker-dealer or insurance company. The Certificates are not bank products, annuities or life insurance, and are not guaranteed or insured by any governmental agency or fund or private third party. We have not applied for or received a rating for the Certificates from any nationally recognized statistical rating organization. The Certificates are fixed-income securities that are backed solely by the assets of the Company, including reserves required by the 1940 Act. RELATIONSHIP WITH SBM FINANCIAL Although we are an independent operating entity, we rely upon SBM Financial and its affiliates to provide us with management, marketing and administrative services, as well as office facilities and personnel, for the conduct of our business. See "Relationship with SBM Financial and Certain Transactions." EFFECTS OF CHANGES IN INTEREST RATES AND LIQUIDITY RISKS Economic and market conditions and fluctuations in interest rates affect the market value of our investment portfolio, which consists primarily of government and corporate bonds, real estate, real estate mortgage notes and mortgage interests, and money market accounts. Although we seek to control this interest rate risk, the value of our investment portfolio may decrease during periods of sharp changes in interest rates. If we had to sell assets to meet liquidity needs 3 at such a time, we could recognize losses on the sale of these assets. These losses could reduce our overall capital resources available to us to provide a source of funds for our operations. In addition, our operating expenses presently represent a relatively significant percentage of our investment portfolio. Although there is no assurance, this percentage is expected to be reduced with an increase in the Company's investment portfolio that would result from increases in the sales of certificates. As discussed under "Certain Recent Developments," we suspended sales of the Certificates on August 16, 2002. Certificate sales were resumed as of the date of this Prospectus. Our failure to increase our investment portfolio to generate adequate earnings to cover operating expenses may limit our ability to pay competitive interest rates and could prevent us from fully meeting our obligations under the Certificates. Historically, the Company has not defaulted on any payments due on Certificates. WITHDRAWALS DURING A GUARANTEE PERIOD You may make withdrawals under a Certificate during any Guarantee Period. However, we assess a withdrawal charge when you withdraw some or all of your account value prior to the end of a Guarantee Period. We assess the withdrawal charge on the amount of the withdrawal. Your "account value" includes the amount you invest in a Certificate at the outset less any prior partial principal withdrawals (your "principal"), together with accrued interest at the full stated rate. The withdrawal charge will be deducted from your remaining account value or, in the case of a complete surrender, deducted from your account value. It is possible that you may receive less upon a withdrawal than the amount of your investment. See "Guarantee Periods and Maturity" and "Withdrawals" under "Description of Certificates," below. We assess the withdrawal charge largely because of the negative impact that early withdrawals of principal investments could have on our reserves and our ability to offer competitive interest rates to investors. The withdrawal charge also helps us cover part of our cost of marketing the Certificates under which withdrawals are made. You also may be subject to penalties if you withdraw amounts held in a Certificate from an IRA or other tax-qualified plan. Please consult your tax adviser. INTEREST RATES FOR GUARANTEE PERIODS The initial interest rates applicable to the Certificates are payable for the initial three, five, seven and ten-year Guarantee Periods of the Series 503, Series 505, Series 507 and Series 510 Certificates, respectively. Although we intend to declare in advance interest rates above the 2.5% minimum rate for Certificate years beyond the initial Guarantee Period, we have no obligation to do so, nor do you have any obligation to continue your Certificate beyond the initial Guarantee Period. 4 DESCRIPTION OF THE CERTIFICATES MINIMUM INVESTMENT The minimum amount you may invest is (a) $1,000 if you choose to have interest compounded or paid annually, or (b) $5,000 if you choose to have interest paid quarterly. The amount you invest in a Certificate is its face amount. INTEREST RATES The Company declares the interest rates payable for the Guarantee Period of newly-issued Certificates and continued Certificates on the 1st and 15th day of each month. The interest rates declared will be applicable for the entire Guarantee Period. The Company intends to never declare an annual interest rate of less than 2.5%. To confirm the Company's current rates at any time, please contact the Company's Administrative Office by calling toll-free at 1-888-749-4353 or 1-800-965-4999 or visit our website at www.sbmcertificate.com. The interest rates applicable to your Certificate during its initial Guarantee Period will be the rates in effect on the date your application is received at the Company's Administrative Office. The prevailing interest rates available on interest-bearing instruments of a quality comparable to that of our Certificates are a primary consideration in deciding upon the interest rates declared by the Company. However, the Company has complete discretion as to what interest rates it declares for the Certificates. When a Certificate is outstanding, the interest rates in effect for the succeeding Guarantee Period will be the declared rates at the end of the Guarantee Period that is expiring. The interest rates upon continuance may be greater or lesser than the rates in effect for the expiring Guarantee Period. The certificate holder is under no obligation to continue a Certificate beyond the end of a Guarantee Period. INTEREST PAYMENT OPTIONS You may choose to: o compound your interest annually and receive it at the end of a Guarantee Period, when the Certificate matures or when you make a withdrawal o receive annual interest payments o receive quarterly interest payments Your interest rates may be different depending on the interest payment option you choose. You may not change your interest payment option once your Certificate has been issued. Interest on the Certificates accrues monthly and compounds annually. 5 GUARANTEE PERIODS AND MATURITY At the end of a Guarantee Period, you will be entitled to receive the original amount you invested plus any unpaid interest that has accrued if you elect to receive interest payments annually or quarterly. If you elect to have interest compounded, you will be entitled to receive the amount originally invested plus interest. In all cases, the amount you receive will be reduced by the amount of any prior partial withdrawals or loans (see "Loans") from your account value and applicable withdrawal charges. You may partially or fully redeem your Certificate at the end of any Guarantee Period and incur no withdrawal charge. See "Withdrawals." The Company will notify you in writing at least fifteen days prior to the end of your Certificate's Guarantee Period. Unless you notify the Company in writing to the contrary, your Series 503 Certificate, Series 505 Certificate, Series 507 Certificate, or Series 510 Certificate, pursuant to its terms, automatically will continue for an additional three, five, seven or ten-year Guarantee Period, respectively. Your Series 503, Series 505, Series 507 and Series 510 Certificate may be continued for a total of nine, five, three and two additional periods, respectively, until the Maturity Date of the Certificate. The terms of your initial Certificate will continue in effect, except that as explained above under "Interest Rates," new interest rates may apply. You should contact the Company to determine whether a new interest rate will apply to your new Guarantee Period. Series 503, Series 505 and Series 510 Certificates mature 30 years after original issuance. Series 507 Certificates mature 28 years after original issuance. The date on which a Certificate matures is the Maturity Date of the Certificate. WITHDRAWALS The Company will deduct a withdrawal charge if you withdraw any amount of your account value prior to the end of a Guarantee Period. In the case of a partial withdrawal, the charge will be deducted from your remaining account value, and in the case of a complete surrender of your Certificate, the withdrawal will be deducted from the amount withdrawn. Withdrawal charges are charged according to the following schedule: Charge Based on Amount Withdrawn

The minimum amount you may withdraw is $1,000. The minimum amount remaining must be at least $1,000, if you chose to have interest compounded to maturity or paid annually, and at least $5,000 if you chose to have interest paid quarterly. The entire account value will be withdrawn if the amount otherwise remaining is less than the applicable minimum amount. 6 The withdrawal charge does not apply to scheduled payments of interest. In addition, the charge does not apply if the withdrawal is made to meet expenses resulting from your death. You must submit a written request for withdrawal to the Company at its Administrative Office. The amount requested will be withdrawn first from accrued interest and then from principal. Withdrawal requests will be processed on the business day that they are received, and a check will be disbursed to you generally within seven business days. For mutual protection, a signature guarantee may be required if: (1) you request a withdrawal of an amount in excess of $50,000, (2) you request that your withdrawal proceeds be disbursed to someone other than the registered owners, (3) you request that your withdrawal proceeds be disbursed to an address other than the address of record, a preauthorized bank account, or a preauthorized brokerage firm account, (4) withdrawal instructions are received from an agent, not the registered owners, or (5) we believe a signature guarantee would protect against potential claims based on the instructions received. A signature guarantee verifies the authenticity of your signature. You can obtain a signature guarantee from certain banks, brokers or other eligible guarantors. You should verify that the institution is an eligible guarantor prior to signing. A notarized signature is not sufficient. LOANS You may borrow up to 50% of your account value for a term not to exceed five years, but not beyond the Maturity Date of your Certificate. Loans are subject to an annual interest charge of up to 6% of the amount withdrawn, but are not subject to the withdrawal charge. You will not earn interest on the amount borrowed. The Company will treat a loan that you do not repay as a permanent withdrawal. The Company will assess the withdrawal charge that would have applied at the date the loan was due but not repaid. DEFERRED PAYMENT The Company reserves the right, prior to a Certificate's maturity, to defer any payment for up to thirty days. During any such period, interest will accrue on the deferred amount at not less than the minimum annual interest rate of 2.5%. FEDERAL INCOME TAX TREATMENT Under Internal Revenue Service rules and regulations, certificate holders realize current income for tax purposes. Under these guidelines, you must report interest accrued on a Certificate as taxable ordinary income each year on a current basis. If you have elected to have interest compounded annually, you must recognize interest income for income tax purposes in 7 the years in which it is accrued even though you won't receive the interest payment until the end of the Certificate's Guarantee Period or until the Certificate matures. The Company will report to you annually the amount of your income from the Certificate for tax purposes. Please consult your tax adviser for information about any tax consequences in your individual circumstances. If you hold your certificate in an IRA or other tax-qualified plan, your tax treatment will be different from that otherwise applicable. Pursuant to federal law, you must provide the Company with a correct taxpayer identification number. Generally, this number is your Social Security or employer identification number. Failure to provide such number may make it necessary for the Company to withhold a portion of any accrued interest. TRANSFER OF OWNERSHIP You may transfer ownership of your Certificate by submitting a completed transfer request form to the Administrative Office. Please note that transfers of ownership from a tax-qualified plan may have adverse tax consequences. Please consult your tax adviser. You should sign the written transfer request exactly as the Certificate is registered. For transfers of $20,000 or more, your signature or signatures must be guaranteed by a national securities exchange, a member firm of a principal stock exchange, a registered securities association, a clearing agency, a bank or trust company, a savings association, a credit union, a broker or dealer, a municipal securities broker or dealer, or a government securities broker or dealer. Further documentation may be required from corporations, executors, partnerships, administrators, trustees or custodians. RESERVES AND DEPOSITS WITH CUSTODIAN The Company accrues liabilities under its face-amount certificates for which it is required to maintain reserves in accordance with the 1940 Act. In general, the Company establishes its certificate liability monthly in an amount equal to the account value of its outstanding certificates less any withdrawal charges otherwise applicable at that date. The 1940 Act requires the Company to have capital stock in an amount not less than $250,000 and to keep on deposit, with a qualified custodian, certain kinds of investments having a value not less than the amount of its certificate reserves as calculated under the 1940 Act plus $250,000. Most of the Company's investments are on deposit pursuant to the terms of a custody agreement with U.S. Bank Trust N.A., a national banking association located in Minneapolis, Minnesota. The Company also maintains separate deposits as required by certain states. The custody agreement requires the Company to maintain investments on deposit with a value (calculated in accordance with the provisions of the 1940 Act) in excess of its reserves for outstanding certificate obligations. If the Company fails to make a required payment on a Certificate, the custodian is required, at the request of a certificate holder, to make the payment from its investments. The Company has received an order of the SEC under provisions of the 1940 Act allowing its investments to be deposited with other qualified custodians. 8 USE OF PROCEEDS FROM SALE OF CERTIFICATES The Company backs the Certificates by investing money received from the sale of Certificates and keeping the invested assets on deposit. The Company's investments are diversified and of generally high quality. The composition and quality of its investments is subject to change from time to time at the Company's sole discretion, subject to requirements of the 1940 Act. INVESTMENTS Under provisions of the 1940 Act, we are permitted to invest our reserves only in assets that constitute qualified investments under the Insurance Code of the District of Columbia, and such other assets as the SEC may permit under the 1940 Act. Set out below is a summary of the types of investments in which we expect to invest, as well as a description of certain investment policies established by management and our Board of Directors. TYPES OF INVESTMENTS We intend to invest our reserves, as well as the amount that we hold in excess of the reserves, primarily in the types of securities and other investments described below. Except as specifically noted, we may invest our reserves in such investments without limitation. In addition, except as specifically noted, the limitations described below apply only at the time of investment. The assets that we hold in excess of reserves are not subject to the limitations described below. U.S. Government Securities. We may invest in direct obligations of the U.S. Government ("U.S. Government securities"). These include bills (which have maturities of one year or less), notes (which have maturities of between 2 and 10 years), and bonds (which have maturities greater than 10 years) issued by the U.S. Treasury ("Treasury"). The market value of U.S. Government securities will fluctuate with changes in interest rate levels. Thus, if interest rates increase from the time the security was purchased, the market value of the security will decrease. Conversely, if interest rates decrease, the market value of the security will increase. U.S. Government Agency Securities. We may invest in securities issued by certain federal agencies that are (i) backed by the full faith and credit of the United States, (ii) guaranteed by the Treasury, (iii) or are supported by the agency's right to borrow from the Treasury. Issuing agencies may include, for example, the Government National Mortgage Association ("GNMA" or "Ginnie Mae"), Federal National Mortgage Association ("FNMA" or "Fannie Mae"), or Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"). Although their close relationship with the U.S. Government is believed to make them high-quality securities with minimal credit risks, the U.S. Government is not obligated by law to support either FNMA or FHLMC. 9 Bank Obligations. We may invest in CDs, bankers' acceptances, and other short-term debt obligations of banks. CDs are short-term obligations that commercial banks issue for a specified period of time and at a specified interest rate. Banker's acceptances are time drafts drawn on a commercial bank by a borrower, usually in connection with international commercial transactions. Commercial Paper And Other Corporate Debt. We may invest in commercial paper issued by companies that meet the criteria for investment by life insurance companies under the laws of the District of Columbia ("qualified corporations"). Commercial paper consists of short-term unsecured promissory notes that qualified corporations issue to finance short-term credit needs. We also may invest in longer-term debt obligations of qualified corporations. We will not invest more than two percent of our reserves in any one issue of such obligations of any one qualified corporation. In addition, we do not intend to invest in any debt securities rated below investment grade by any nationally recognized statistical rating organization. Equipment Related Instruments. We may invest in equipment trust certificates and similar instruments (collectively, "equipment related instruments") that are secured by transportation equipment (e.g., railroad cars, trucks, and airplanes) that has been sold or leased to a common carrier. Equipment related instruments are a means of financing the acquisition of equipment. A trustee, such as a bank, holds the title to the equipment, collects purchase or lease payments from the purchaser, and, in turn, makes principal and interest payments to the instrument holders for a specified term. In case of default, the trustee is authorized to sell the equipment to protect the instrument holders. We will not invest more than two percent of our reserves in any one issue of an equipment-related instrument by any one qualified corporation. Municipal Securities. We may invest in various types of municipal securities, which are debt securities issued by a state, its political subdivisions, agencies, authorities, school districts, and other governmental instrumentalities for various public purposes, including, for example, the construction of public facilities, hospitals, highways, and schools. We will only invest in municipal securities that (i) represent direct and general obligations of the issuing governmental entity, or (ii) are payable from designated revenues pledged to the payment of the principal and interest on such securities. Preferred and Common Stock. We may invest in preferred and common stock of qualified corporations. Preferred stock has priority over common stock as to income and generally as to the assets of an issuer, but usually has limited voting rights. We may invest in the common stocks of qualified corporations whose debt and preferred stock, if any, also meet our criteria for investment. We will not invest more than one percent of our reserves in the preferred or common stock of any single qualified corporation. Real Estate and Investments Secured by Real Estate. We may invest directly in real estate or in investments secured by real estate such as mortgage notes. We generally will only purchase or hold real estate if it is income producing. We may, however, also receive real estate in satisfaction of debts owed to us, and may improve or develop any real estate that we acquire. We will not invest or agree to invest in real estate if such investment would cause us to: (i) invest more than two percent of our reserves in real estate or improvements thereon during any period of 12 consecutive months; (ii) invest or hold more than five percent of our reserves in real estate 10 or improvements thereon for the purpose of producing income; or (iii) hold more than fifteen percent of our reserves in real estate. We may invest in notes or loans secured by a first lien on real estate, provided such note or loan does not exceed 80% of the fair market value of the real estate securing such note, or 97% of the fair market value of the real estate if acceptable private mortgage insurance has been obtained. These investments may include tax lien certificates issued by municipalities to satisfy delinquent tax bills on real estate. These certificates evidence the indebtedness of the property owner for the tax due, bear interest payable by the property owner and are secured by a first priority lien on the property on which the tax is owed. The greatest risk with these investments is the time and costs of a foreclosure process when amounts remain unpaid beyond the Company's aging policy. This risk is mitigated by the Company's first priority lien on the property on which the tax is owed, and the certificates being significantly over-collateralized by the underlying property. INVESTMENT POLICIES The Company's management and Board of Directors have established the investment policies set out below. Changes, if any, in these policies may be made without Certificate owner approval. Borrowing. We may borrow money to a limited extent from banks (including the Company's custodian bank) as we deem necessary or appropriate to our business. We currently do not intend to borrow amounts equal to more than 25% of our total assets (including the amount borrowed). We will not buy securities on margin or sell securities short. Commodities. We do not currently intend to engage in the purchase or sale of commodities. Concentration. Except as noted below, we will not invest more than 25% of our assets in the securities of issuers in any one industry. The foregoing limitation does not apply to investments in U.S. Government and U.S. Government agency securities, nor to investments secured by real estate. Loans. In addition to real estate loans, described above, we may make loans of varying terms to financial institutions and individuals in amounts up to 85% of the value of the securities pledged as collateral for the loans at the time we make the loans. The securities pledged as collateral must be of a type in which we can invest. Portfolio Turnover. We will buy, sell, or hold our assets in the manner that we deem prudent, without regard to the impact on the turnover rate of our portfolio. Underwriting Securities. We do not intend to act as an underwriter of securities issued by other persons. We may, however, be deemed to be an underwriter when we purchase and later sell unregistered securities. 11 MANAGEMENT OF SECURITIES INVESTMENTS Subject to the oversight of the Board of Directors and its Investment Committee, the Company's management is responsible for selecting and managing the Company's securities investments to ensure that the Company has, in cash or qualified investments, as defined in Section 28(b) of the 1940 Act, assets having an aggregate value not less than that required by the 1940 Act. Qualified investments are defined as investments of a kind which life insurance companies are permitted to invest in or hold under provisions of the Insurance Code of the District of Columbia. Management also is responsible for placing orders for the purchase and sale of the Company's securities investments with brokers and dealers. The Company may in the future engage one or more investment advisers to assist the Company in the management of its investments. REAL ESTATE LOAN PORTFOLIO Atlantic Capital Funding Corporation ("ACFC"), a 100% owned subsidiary of the Company, performs underwriting and closing services for the Company, which acquires mortgage notes through ACFC. ACFC is FHA approved and may originate and process real estate loans directly as well as offer its loan programs to outside mortgage brokers and bankers on a wholesale basis. In the latter case, outside brokers will originate and process loans and ACFC will underwrite and close the loans that meet its investment requirements. ACFC may enter into agreements with select outside mortgage brokers, bankers and mortgage loan servicing companies to service certain types of mortgages that may require special servicing treatment because of various factors, such as the unique features of the underlying real estate or the credit quality of the borrowers. In addition to acquiring mortgage loans through ACFC, we may acquire whole loans or loan pools from other mortgage companies, banks or mortgage brokers and through secondary mortgage markets. YIELDS From time to time, the Company may quote current and historical yields on its Certificates in advertisements and in sales literature. The availability of the current yields quoted will depend on when you purchase your Certificate, interest payment method, and the Guarantee Period you select. Quotations of historical yields are not indicative of future yields. The Company also may compare its yield to those offered by competing products, such as CDs and Treasuries, as well as other fixed income securities. HOW TO PURCHASE CERTIFICATES You may purchase Certificates through one of the methods described below. You must complete an application and submit it, along with payment at the time of purchase. THE COMPANY RESERVES THE RIGHT TO ACCEPT OR REJECT ANY APPLICATION AT ITS SOLE DISCRETION. 12 THROUGH THE COMPANY BY MAIL. You may purchase Certificates directly from the Company by mailing a completed application together with a check, to our Administrative Office. Your envelope should be addressed: SBM Certificate Company, 125 North Minnesota Street, New Ulm, MN 56073, or SBM Certificate Company, 5101 River Road, Suite 101, Bethesda, MD 20816. BY WIRE. You may also wire payments for Certificates from your financial institution to the Company's wire receiving bank account. Before wiring funds, please notify Client Services at 1-888-749-4353 or 1-800-965-4999 to advise the Company of your investment and to receive instructions as to how and where to wire your investment funds. The minimum amount you may wire is $1,000. Please remember to return your completed application to Client Services at the address above. A copy of the application must coincide with your wire funds that day. On the day you wire funds you may fax the copy of your application to the Company at 507-354-9548 or 301-656-4204. The original application must be delivered to the Company within three business days following the transaction to ensure the Effective Date of your Certificate. The Company may offer one or more other series of face-amount certificates in the future, or under other prospectuses of the Company. Various products may have different features including interest rates and withdrawal charges. THROUGH AUTHORIZED SELLERS You may purchase Certificates through broker-dealers that have selling agreements with the Company. Broker-dealers will receive compensation based on the amount of the purchase payment for a Certificate. Please call Client Services at 1-888-749-4353 to find out if your broker-dealer is on the Company's list of authorized sellers. Any compensation to authorized sellers is paid from the Company's general fund, so that all of your money will be invested whether you purchase your Certificate directly from us or through an authorized seller. AFFINITY GROUPS From time to time, the Company may seek to introduce Certificates to members of affinity groups, including service organizations, non-profit associations, and other types of membership organizations (collectively, "affinity groups") through various programs. Although affinity groups are not permitted to sell Certificates, they may provide the Company with mailing lists and other information to enhance the marketing of Certificates to their members. For their cooperation, the Company may compensate affinity groups in an amount that is mutually agreed upon. Please call Client Services at 1-888-749-4353 for further information. INVESTMENT AMOUNTS For an explanation of the minimum and maximum investments in each type of Certificate, see "Description of the Certificates." Certain additional restrictions may apply if you use the Certificates to fund your Individual Retirement Account ("IRA") or other qualified retirement plan account. 13 CANCELING YOUR ORDER You can, without incurring a withdrawal charge or other penalty, cancel your investment in a Certificate within five business days after the date on which you purchased your Certificate. Simply call or write Client Services at the same telephone number or address as indicated above. You will not earn any interest on Certificates that you cancel under this provision. The Company will send a full refund check to you within 30 days of your cancellation request. APPLICATION ACCEPTANCE All applications to purchase Certificates are subject to the Company's acceptance or rejection at its sole discretion. If your application to purchase a Certificate is accepted, you will receive a confirmation of such acceptance. You will also receive an annual statement reflecting all account activity. We do not issue paper certificates to evidence the purchase of Certificates. Instead, your Certificate purchase is registered with the Company in book registration form, thereby relieving you of the responsibility for the safekeeping of paper certificates and the need to deliver them to the Company upon redemption. Please refer to our Face-Amount Certificate Confirmation Statement, in addition to your application, for terms and conditions and detailed information about your Certificate. The date we accept your application at our Administration Office and have received cleared funds is the "Effective Date" of your Certificate. ABOUT SBM CERTIFICATE COMPANY HISTORY On July 19, 2000, State Bond completed the purchase of all of the outstanding common stock of SBM Certificate Company, a Minnesota corporation ("SBM MN"), from ARM Financial Group, Inc. ("ARM"), a Delaware corporation (the "Purchase"). State Bond effected the Purchase as assignee under a Stock Purchase Agreement, dated March 28, 2000, by and among 1st Atlantic, State Bond's then parent, and ARM ("Stock Purchase Agreement"). As part of the Purchase transactions, SBM MN was merged into the Company, which became a subsidiary of State Bond, now SBM Financial. The Company was formed for purposes of redomestication from Minnesota to Maryland. The Company succeeded SBM MN, which was a registered face-amount certificate company, as the "registrant" in all filings made by SBM MN under the 1933 Act, Securities Exchange Act of 1934 (the "Exchange Act") and the 1940 Act. The Company's predecessors, including the predecessors of SBM-MN, have been engaged in the face-amount certificate business since 1914. On December 17, 2000, 1st Atlantic contributed its then 100% ownership of ACFC to the Company. On December 5, 2003, the controlling shareholder interest in 1st Atlantic was acquired by Geneva pursuant to a Stock Purchase Agreement, dated December 2, 2003, by and between Mark D. Taylor, Bankruptcy Trustee of the John Lawbaugh bankruptcy estate (the "Trustee") and Geneva. Pursuant to a reorganization effected through a stock distribution made on 14 December 31, 2003, SBM Financial became a direct subsidiary of Geneva, and the Company is no longer a subsidiary of 1st Atlantic. See "Certain Significant Events" below. BUSINESS We issue and service fixed rate face-amount certificates. A face-amount certificate is an obligation of the issuer to pay a face, or principal, amount, plus specified interest, to the holder of the certificate. Under the Certificates, the face amount may be paid at the end of a Certificate's Guarantee Period or at its Maturity Date. Lesser amounts are paid at such times if all or part of an investment in the Certificate is withdrawn prior to maturity or the end of any Guarantee Period. Interest, as described above, may be paid quarterly or annually, or may be compounded. We currently offer various series of single-payment investment Certificates. Our face-amount certificate operations include issuance of single-payment certificates and the servicing of outstanding single-payment and installment certificates, the investment of related funds, and other related service activities. We may offer one or more other series of face-amount certificates in the future, or under other prospectuses of the Company. Our gross income is derived primarily from the margin between earnings on its investments and amounts paid or credited on its fixed rate certificate liability ("investment spread"). The investment spread is affected principally by general economic conditions, government monetary policy, the policies of regulatory authorities that influence market interest rates, and our ability to respond to changes in such rates. Changes in market interest rates may have a negative impact on its earnings. The Company's subsidiary, ACFC, originates and sells residential and commercial real estate loans. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Risk Factors". SBM Financial provides us with management, marketing and various administrative services, as well as office facilities and personnel, pursuant to an Amended and Restated Administrative Services Agreement dated as of July 1, 2001, (the "Administrative Services Agreement") between the Company and its parent, SBM Financial. See "Relationship with SBM Financial and Certain Transactions." COMPETITION Our face-amount certificate business competes in general with various types of individual savings products which offer a fixed rate of return on investors' money, including insurance, bank and thrift products, and other face-amount certificate issuers. Our ability to offer competitive interest rates, attractive terms, and efficient service are its primary basis for meeting competition. CAPITAL STRUCTURE The Company has 10,000,000 shares of authorized common stock, $1 par value, of which 250,000 shares are currently issued and outstanding. SBM Financial owns all of the Company's issued and outstanding shares. 15 We are restricted by law from issuing any securities other than face-amount certificates, common stock, and promissory notes or other instruments related to our borrowings. REGULATION Like many financial service companies that offer investment opportunities to the public, the Company is subject to governmental regulation. In particular, the 1940 Act and rules issued by the SEC specify certain terms for face-amount certificates, the method for calculating reserve liabilities on outstanding certificates, the minimum amounts and types of investments to be deposited with a qualified custodian to support such reserve liabilities, and a variety of other restrictions. See "Description of the Certificates," "Reserves and Deposits with Custodian" and Note 20 of Notes to Consolidating Financial Statements of the Company. DESCRIPTION OF PROPERTY The Company's executive offices (the "Corporate Offices") are located at 5101 River Road, Suite 101, Bethesda, Maryland. The main telephone number for the Corporate Offices is (301) 656-4200. The Corporate Offices are the primary location for SBM Financial's and the Company's executive management, administrative services, investment, accounting, corporate accounting, and marketing activities and other support personnel. These offices are leased by SBM Financial, which makes them available to the Company under the Administrative Services Agreement. We also maintain an administrative office at 125 Minnesota Street, New Ulm, Minnesota. This property is owned by the Company. LEGAL PROCEEDINGS The Company is not a party to, nor is any of its property the subject of, any material pending legal proceedings, other than ordinary litigation routine to its business. 16 EXECUTIVE OFFICERS AND DIRECTORS Certain information about the Company's directors and officers, including their principal occupations for the past five years, is set out below. Members of the Board who are considered "interested persons" of the Company under the 1940 Act are indicated by an asterisk (*). Officers are appointed annually at the annual meeting of the Company's Board of Directors. Each of the directors named below became a director of the Company in May 2000, upon the organization of the Company, except that Eric M. Westbury became a director and Chairman of the Board on January 28, 2004.

The Company has no employees. Its officers are compensated for their services to the Company by SBM Financial from the fees it receives from the Administrative Services Agreement described under "Relationship with SBM Financial and Certain Transactions." BOARD OF DIRECTORS The Board of Directors is responsible for the overall management of the Company's business. Directors are elected annually at the Company's annual meeting of shareholders. Each Director of the Company receives a $1,250 fee for each regular or special Board meeting he or she attends. A Director who is also an officer of the Company, however, receives no additional compensation for service as a Director of the Company. Directors also are reimbursed for their expenses incurred in attending any meeting of the Board. The Board generally meets quarterly. AUDIT COMMITTEE The members of the Audit Committee consult with the Company's independent auditors and meet as a committee at least four times annually to discuss the scope and results of the annual audit of the Company and such other matters as required by law or as the Committee members deem appropriate or desirable. Iraline G. Barnes, Kumar Barve and Marialice B.Williams are members of the Audit Committee. Members of the Audit Committee receive a fee of $750 for each meeting and also receive a fee for time incurred related to Audit Committee duties outside of scheduled meetings. Such a fee is based on a predetermined hourly rate. INVESTMENT COMMITTEE The Board of Directors has recently formed an Investment Committee whose members are Iraline G. Barnes, Brian Murphy and Marialice B. Williams. The Investment Committee is responsible for ongoing oversight of the Company's investment portfolio and its investment activities and practices, consistent with the requirements of the Insurance Code of the District of 18 Columbia as applicable to face-amount certificate companies. The Investment Committee will meet with the Company's management periodically to review the Company's investment portfolio, activities and practices, and will receive reports from management on at least a quarterly basis. At this time members of the Investment Committee receive no compensation for their services in addition to their compensation as members of the Audit Committee. RELATIONSHIP WITH SBM FINANCIAL AND CERTAIN TRANSACTIONS Unless otherwise indicated by the context, the terms "Company," "we," "us," or "ours" in the sections "Relationship With SBM Financial and Certain Transactions," "Certain Significant Events," "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" refers to the consolidated entities of SBM, ACFC and SBM Securities I, LLC ("SBMS I"). On December 5, 2003, the Acquisition by Geneva closed as described more fully in Note 1 to the Notes to the Consolidating Financial Statements. Geneva's sole member is SBM's President and Chief Executive Officer, Eric M. Westbury. SBM Financial provides the Company with administrative services pursuant to an Administrative Services Agreement. This agreement stipulates that SBM Financial shall provide certain administrative and support services for the Company. Services include use of SBM Financial's property and equipment, facilities and personnel, including all salaries and benefits, needed for SBM's daily operations. For providing such services, SBM Financial earns an annual fee from the Company calculated at either 1% of the Company's average certificate liability balances, or, alternatively, an amount not to exceed $2,500,000. The charge is determined monthly by SBM Financial and the Company's management based on the costs incurred by SBM Financial for such administrative and support services. The fee paid may never cause the qualified assets of the Company to be less than the reserves required by the 1940 Act. During 2003, 2002 and 2001, a fee was charged and paid totaling $1,029,800, $1,794,700 and $1,078,839, respectively. From time-to-time the Company makes dividend payments to SBM Financial, which, in turn, may make dividend payments to Geneva, SBM Financial's parent since December 5, 2003. There have been no dividends paid to Geneva since the Acquisition by Geneva. During 2001, the Company paid $579,934 of cash dividends to SBM Financial. On December 12, 2003, Geneva contributed as additional paid in capital a $500,000 interest in a real estate partnership and $1,000,000 cash to the Company. In addition, on December 31, 2003, Geneva contributed as additional paid in capital a $320,000 limited partner interest in a real estate partnership. On December 19, 2002, the Company made a mortgage loan in the amount of $88,638, with interest at the rate of 12.5% per annum, to James M. Barnes, husband of Iraline G. Barnes, a director of the Company. The loan, by its terms, matured on May 1, 2003, and remains 19 outstanding. However, the Company has been advised by Mr. Barnes that he is in the process of seeking a refinancing of the mortgage note held by the Company. On September 30, 2001, SBM Financial contributed as additional paid in capital a mortgage note to the Company in the amount of $1,136,047. On June 30, 2002 SBM Financial contributed an additional mortgage note which totaled $639,227. On September 30, 2001, SBM Financial through its then sole member, 1st Atlantic, contributed as additional paid in capital to the Company a beneficial interest in a property consisting of land and building held for sale in the amount of $410,087. The basis in the property at the contribution date is the original cost basis of the shareholders of 1st Atlantic at the date of the original contribution to 1st Atlantic (September 30, 1998), increased for the expenditures made by 1st Atlantic and subsequently by the Company in connection with the investment in the property held for sale. As of December 31, 2001, the carrying amount of the property was $419,923. On December 31, 2002, this property was sold. See Note 12 to the Notes to Consolidating Financial Statements. The Company made a mortgage loan to a partnership in which an affiliate owned a 51% interest. As of December 31, 2001, the outstanding principal balance of the mortgage note was $378,950 and accrued interest totaled $59,104. In April 2002, the outstanding principal balance of the mortgage note and accrued interest was paid in full satisfaction on the receivable in the amount of $533,120. Related party receivable and related party payable represents certain advances made by the Company to its affiliated companies and advances the Company has received from its affiliated companies. Most advances relate to operational transactions. As of December 31, 2003 and 2002, related party receivables total $219,371 and $129,351 respectively. As of December 31, 2003 and 2002, related party payables total $49,130 and $117,925, respectively. A warehouse line of credit has been established between SBM and ACFC (See Note 8 to the Notes to Consolidating Financial Statements). CERTAIN SIGNIFICANT EVENTS In 2002, certain facts came to the attention of members of management of the Company concerning the Questioned Transactions that involved the Company and its former Chairman of the Board, Chief Executive officer and majority stockholder, John Lawbaugh. The Questioned Transactions raised concerns that Mr. Lawbaugh failed to comply with provisions of the 1940 Act prohibiting transactions with affiliated persons of registered investment companies, caused the Company to fail to comply with disclosure requirements of the 1933 Act, caused the Company to improperly report asset balances, and diverted, or attempted to divert, cash assets of the Company totaling $1,768,917 to himself directly or indirectly during 2000, 2001 and 2002. Of the cash assets diverted by Mr. Lawbaugh, $900,000 was recovered by the Company in 2002 shortly after discovery of its attempted diversion. As a result of the Questioned Transactions, on August 16, 2002, the Company's Board of Directors removed Mr. 20 Lawbaugh from his position as Chairman of the Board and Chief Executive Officer and suspended his authority to act for or bind the Company with respect to any transactions. The Board also authorized an investigation into the Questioned Transactions by members of management, who were assisted by the Company's independent auditors and counsel, with oversight by a Special Committee of the Board. In addition, the Company suspended the sale of its face-amount certificates on August 16, 2002 and did not resume sales until the date of this prospectus. See Note 14 and Note 15 of the Notes to the Consolidating Financial Statements for more detailed information regarding the Questioned Transactions and their impact on the Company. On November 12, 2002, Mr. Lawbaugh resigned from the Board of Directors of the Company and on November 14, 2002, entered into an Escrow Agreement ("Escrow Agreement"). The Escrow Agreement placed Mr. Lawbaugh's 7,500,000 shares of 1st Atlantic capital stock ("the Shares"), representing majority ownership of 1st Atlantic, into escrow and transferred his voting rights to 1st Atlantic's Board of Directors. As provided in the Escrow Agreement, Mr. Lawbaugh and, later, the Company, undertook efforts to find a buyer for the Shares, which represented indirect control of the Company. CHANGE IN CONTROL OF COMPANY On May 29, 2003, Mr. Lawbaugh filed a petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland. On November 7, 2003, 1st Atlantic, Geneva, the Trustee and certain creditors of Mr. Lawbaugh's bankruptcy estate agreed to a settlement proposal and on December 5, 2003, the sale of the Shares closed pursuant to the terms of a Stock Purchase Agreement by and between the Trustee and Geneva dated December 2, 2003. The Trustee sold the Shares to Geneva for $2,532,981 (the "Acquisition"), which was distributed to 1st Atlantic and the Company in the amounts of $1,175,955 and $1,357,206, respectively, to repay the amounts ultimately determined to be due from Mr. Lawbaugh. In addition, Geneva contributed $3,200,000 as additional paid-in capital to 1st Atlantic to resolve certain concerns of the SEC regarding 1st Atlantic's compliance with the reserve requirements of Section 28 of the 1940 Act. Further, SBM Financial issued debt instruments secured by the common stock of the Company totaling $1,616,772 to certain creditors of the Estate. The debt matures ten years from the date of issuance and has principal and interest payments due semi-annually with interest accruing at the rate of 1.5% per annum. A total of $125,000 was also paid by Geneva to the Trustee and certain other creditors of the Estate. Immediately after closing, Geneva made additional contributions to the Company of $1,000,000 cash and partnership interests in two separate real estate investment funds totaling $820,000. These contributions were treated as additional paid-in capital. See Note 1, Note 14 and Note 15 of the Notes to the Consolidating Financial Statements for further disclosure regarding the Questioned Transactions, the sale of the Shares to Geneva, and certain related matters. Mr. Lawbaugh is no longer associated with the Company or any of its affiliated companies in any capacity. 21 INDEPENDENT AUDITORS The Company's financial statements included herein at December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003, have been audited by Reznick Fedder & Silverman, as set forth in their audit report included in this prospectus. These financial statements are included in reliance on such reports given upon the authority of such firm as experts in accounting and auditing. SELECTED FINANCIAL DATA

---------------- * Earnings (loss) per share based on 250,000 shares issued and outstanding. Proforma Financial Information Related to the Change of Control The Acquisition discussed under "Certain Significant Events" was accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards ("SFAS") 141, "Accounting for Business Combinations." Certain items within the financial statements had a material change due to the Acquisition. The following proforma consolidated balance sheet reflects the impact of the Acquisition on the financial statements of the Company: 22 SBM Certificate Company and Subsidiaries PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET

1 - Adjust assets and liabilities to fair value in accordance with SFAS 141 2 - Record receipt of cash for repayment of due from shareholder 3 - To push down unallocated purchase price to reporting unit of value, SBM, in accordance with SFAS 141 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL SBM's predecessor, SBN MN, was incorporated in June 1990 to assume the face-amount certificate business of SBM Company, which began in 1914. ARM purchased most of the assets of SBM Company in June 1995 and continued the issuance of face-amount certificates through SBM MN, then a wholly-owned subsidiary of ARM. As a result of the Purchase on July 19, 2000, SBM assumed the obligations of SBM MN's outstanding face-amount certificates. On December 5, 2003 a change of control of ownership of 1st Atlantic occurred as disclosed in "Certain Significant Events." As of the Acquisition date, SBM Financial, the parent company of SBM, was a 100% owned subsidiary of 1st Atlantic. Effective December 31, 2003, Geneva became the sole member of SBM Financial through a dividend by 1st Atlantic to Geneva of the 100% ownership interest of SBM Financial. 1st Atlantic was previously the sole member of SBM Financial and its subsidiaries. SBM issues and services fixed rate face-amount certificates and provides related services to holders of the certificates. ACFC performs mortgage lender and mortgage broker activities and SBMS I is an entity newly formed for the purpose of issuing privately placed investment notes to accredited investors. SBMS I has yet to issue any investment notes or generate any revenue. The Questioned Transactions involving John J. Lawbaugh, referred to in "Certain Significant Events," that are more fully described in Note 14 and Note 15 of the Notes to Consolidating Financial Statements have had a materially adverse impact upon the Company's financial condition, operations and ability to carry on the sale of its face-amount certificates, which were suspended on August 16, 2002. Financial Condition, Changes in Financial Condition and Results Of Operations 2003 compared with 2002 During 2003, total assets increased $16.1 million from $35.1 million in 2002 to $51.2 million in 2003, while certificate liability increased $2.8 million from $33.2 million in 2002 to $36.0 million in 2003. As of December 31, 2003, subscription and notes payable totaling $4.9 million were outstanding. The increase in total assets during 2003 was mainly from cash and other assets received by us from the Acquisition and the goodwill that resulted from the Acquisition. Cash of $1,357,026 as repayment of the due from shareholder was received in connection with the Acquisition. In addition, cash of $1,000,000 and non-cash assets of $820,000 were received as additional paid in capital, which occurred after the Acquisition as described in Note 1 to the Notes to the Consolidating Financial Statements. Goodwill with a carrying value of $9,032,609 as of December 31, 2003 resulted from the Acquisition. Goodwill was due to the fair value of the purchase price being greater than the net 24 assets acquired. The purchase price was comprised of the following components, which are detailed by the consideration's cost and fair value: Description Cost Fair Value -------------- ---------- ---------- Cash for purchase of shares $2,532,981 $2,532,981 Required 1940 Act reserve contribution (cash) 3,200,000 3,200,000 Debt issued by SBM Financial 1,616,772 781,414 Legal costs to creditors of Estate 125,000 125,000 ---------- ---------- Total consideration $7,474,753 $6,639,395 ---------- ---------- The cost of the purchase price of $7,474,753 is less than the fair value of the purchase price of $6,639,395 due to the notes issued by SBM Financial totaling $1,616,772 having a fair value of $781,414. The fair value of the notes is less than the cost due to the risk associated with the notes and the low stated interest rate on the debt (1.5%). Since the notes are secured by the common stock of SBM and will possibly be repaid from excess cash flow from the operations of SBM, there is significant risk to the holder of these notes. This risk, coupled with an interest rate that does not compensate for such risk, would cause the fair value of the notes to be at a discount from their face value. Net liabilities assumed through the Acquisition, including 1st Atlantic and its subsidiaries, was $4,041,715, resulting in a purchase price in excess of net liabilities assumed of $10,681,110. Of this amount, $1,648,501 was assigned to intangible assets and $9,032,609 was assigned to goodwill. The increase in certificate liability of $2,753,596 is primarily due to the change in the estimate for early surrender of the liability following the Acquisition. This change in the estimate resulted in an increase of certificate liability at the Acquisition date of $2,008,015. The new estimate of certificate liability is the account value less an estimate for early surrender charges based on our history with regards to early surrender charges, which we estimate to be approximately 4% of outstanding certificates will have early withdrawal charges applied. We previously estimated that 100% of outstanding certificates would have early withdrawal charges. The change in estimate is a result of our operating history. During 2003, qualified assets increased $1.3 million. The increase was a result of the $2,357,026 of cash and $820,000 of non-cash assets received at the time of Acquisition and thereafter. This increase in qualified assets was decreased by operating losses of $1,805,032 for the year ended December 31, 2003. Certificate reserve deposits required by the 1940 Act increased $1,501,779 in 2003 due to interest credited on the certificate reserve liability. Our earnings are derived primarily from net investment income and net other operating income. Net investment income is income earned from invested assets less investment and other expenses and interest credited on the certificate reserve liability. Net other operating income is income earned from the origination of loans in the mortgage lender/broker business less operating expenses. Changes in net investment income are largely due to changes in the rate of return on investments.Changes in net other operating income is attributable to changes in the volume and pricing of loans originated. 25 We had a net loss of $1,805,032 and $1,676,316 for the years ended December 31, 2003 and 2002, respectively. The net loss for the years ended December 31, 2003 and 2002, stemmed mainly from the net investment loss before income tax of $1,367,253 and $1,388,507, respectively. The net other operating loss before income taxes of $281,197 and reserve for losses - shareholder receivable of $141,392 for the year ended December 31, 2003 also attributed to the net loss for 2003. The reserve for losses - shareholder receivable of $405,963 for the year ended December 31, 2002 added further to the net loss for 2002. See "Certain Significant Events" and Note 14 and Note 15 of the Notes to the Consolidating Financial Statements for further description of the reserve for losses - shareholder receivable. The net investment loss before income taxes for 2003 and 2002 was due to the combination of investment and other expenses and interest credited on certificate liability exceeding the income generated from the investment portfolio. During 2003 and 2002, we held several non-revenue producing assets, which had a negative impact on the income generated from the investment portfolio. However, the primary reason for the net losses was the income generated from the investment portfolio was not sufficient to cover the certificate interest costs and the fixed operational costs related to the administrative services fee and legal and accounting fees. When sales resume and the investment portfolio increases, the fixed operational costs will have less of a negative impact on SBM as there would be a larger portfolio of assets generating income to cover the fixed costs. We do not expect a significant increase in fixed costs as the investment portfolio increases. Investment income (excluding realized investment gains and losses) in 2003 was $2,765,689 compared to investment income of $2,438,503 for 2002. Total investment income plus realized gains for 2003 and 2002 was $3,213,775 and $2,911,224, respectively. Investment income plus realized investment gains represents annualized investment yields of 10.17% and 10.69% on average cash and investments of $31.6 million and $27.2 million for 2003 and 2002, respectively. The increase in investment income is attributable to an increase in cash and investments being held by the Company. The increase in average qualified assets in 2003 was the result of the increased assets from the sale of face-amount certificates in 2002, which were maintained throughout 2003. Net investment spread, which is the difference between investment income and interest credited on certificate liability, was $341,228 for 2003 compared to $1,089,179 in 2002. On an annualized yield basis, these amounts reflect net investment spread for 2003 and 2002 of 0.99% and 3.82%, respectively. Interest credited on certificate liability for 2003 and 2002 was $2,424,461 and $1,349,324, respectively. These amounts represent annualized average rates of interest credited of 7.01% and 4.73% on average certificate liability of $34.6 million and $28.5 million for 2003 and 2002, respectively. We monitor credited interest rates for new and renewal issues against competitive products, such as bank certificates of deposit. Credited interest rate adjustments (up or down) on new face-amount certificates are made periodically by SBM. In addition, during 2002 there were surrender charges recognized on 100% sales of new face-amount certificates that reduced interest credited on certificate liability for 2002. 26 Investment and other expenses were $2,156,567 and $2,950,407 for 2003 and 2002, respectively. The decrease in investment and other expenses was mainly the result of a decrease in advertising expense and a decrease in the administrative services fee to SBM's parent, SBM Financial. Legal and accounting fees increased from 2002 to 2003 as did other expenses. There were no advertising expenses in 2003 as compared to $361,739 for 2002. The decrease in advertising expense in 2003 was due to the halting of advertising as certificate sales were suspended. The administrative services fee for the year ended December 31, 2003 and 2002 was $1,029,800 and $1,794,700, respectively. The decrease in the administrative services fee of $715,861 was due to SBM Financial lowering its operational costs, which are funded through the administrative services fee. Legal and accounting fees for 2003 and 2002 were $553,747 and $371,090, respectively. The increase in legal and accounting fees was due to legal and accounting costs related to the Questioned Transactions being charged to due from shareholder during 2002. In 2003 legal and accounting costs were charged to due from shareholder until Mr. Lawbaugh filed for bankruptcy on May 29, 2003. After the bankruptcy filing, any legal and accounting costs could not be charged to Mr. Lawbaugh under Bankruptcy Law. Other expenses for 2003 and 2002 were $378,450 and $231,880, respectively. The increase in other expenses was attributable to higher insurance costs and trail commissions paid to brokers. An increase in directors' fees as a result of more Board meetings related to the Questioned Transactions and the Acquisition by Geneva added further to the increase in other expenses. Net other operating income (loss) before income tax for the years ended December 31, 2003 and 2002, was ($281,197) and $118,154, respectively. This consists of the mortgage lender/broker operations of ACFC. For the years ended December 31, 2003 and 2002, other operating income was $2,738,902 and $2,261,801, respectively. This income is derived from loan origination fees, gain on sale to investor and other processing and underwriting loan fees relating to originating and brokering loans. The increase in other operating income for 2003 as compared to 2002 was due to an increase in the volume of loans originated. The first seven months of 2003 resulted in a higher volume of loan originations from the same period in 2002. This increased loan origination volume in 2003 was due to a low interest rate environment resulting in a high volume of mortgage refinances. ACFC experienced a sharp decline in loan origination volume in the last five months of 2003 as compared to the first seven months of 2003. This was the result of an increase in market interest rates, as well as, the management of the mortgage operations was restructured, which resulted in a significant reduction of loan sales staff. Both of these events had a material negative impact on the financial results of ACFC in the last five months of 2003, causing the net loss for 2003. By early 2004, ACFC had replaced a significant portion of the loan sales staff that was lost in 2003 and intends to continue increasing the sales staff throughout 2004 to increase revenues. For the years ended December 31, 2003 and 2002, other operating expenses were $3,020,099 and $2,143,647, respectively. These expenses consist of salaries and commissions paid in relation to originating and brokering loans and other costs in operating the mortgage company. The increase in other operating expenses for 2003 as compared to 2002, was mainly due to higher commissions paid on the increased revenues generated and higher interest expense from an increase in the use of the warehouse line of credit. Realized investment gains were $448,086 and $472,721 for 2003 and 2002, respectively. The realized investment gains for 2003 were the result of a gain of $828,503 recognized from the 27 sale of property (see Note 12 to the Notes to the Consolidating Financial Statements), loss on the sale of a loan of $20,474 and losses of $359,943 from the sale of available for sale securities. The realized investment gains of $472,721 for 2002 was due to the sale of certain available-for-sale securities, which had significant increases in their market value from their amortized cost. Realized investment gains and losses are primarily interest-rate related and attributable to our asset/liability management strategies. We invest in a mixture of investments ranging from fixed maturity securities, equity securities, mortgage notes, real estate, and real estate tax lien certificates. The objective of each investment is to provide reasonable returns while limiting liquidity and credit risks. In the event that SBM experiences higher than historical levels of certificate surrenders, SBM might need to liquidate investments other than in accordance with its normal asset/liability management strategy and, as a result, SBM could experience substantial realized investment losses. For the year ended December 31, 2003 and 2002, reserve for losses - shareholder receivable was $141,392 and $405,963, respectively. See "Certain Significant Events" and Note 14 of the Notes to Consolidating Financial Statements for further descriptions of this item. 2002 compared with 2001 During 2002, total assets increased $11.2 million from $23.9 million in 2001 to $35.1 million in 2002, while certificate liability increased $9.4 million from $23.8 million in 2001 to $33.2 million in 2002. The increase in total assets and certificate liability is primarily due to certificate sales exceeding certificate maturities, redemptions and early surrenders. Our earnings are derived primarily from net investment income and net other operating income. Net investment income is income earned from invested assets less investment and other expenses and interest credited on certificate reserve liability. Net other operating income is income earned from the origination of loans in the mortgage lender/broker business less operating expenses. Changes in net investment income are largely due to changes in the rate of return on investments. Changes in net other operating income is attributable to changes in the volume and pricing of loans originated. We had a net loss of $1,676,316 and $1,681,812 for the years ended December 31, 2002 and 2001, respectively. The net loss for the years ended December 31, 2002 and 2001, stemmed mainly from the net investment loss before income tax of $1,388,507 and $1,462,053, respectively, and the reserve for losses - shareholder receivable of $405,963 and $469,982, respectively. See "Certain Significant Events" and Note 14 and Note 15 of the Notes to the Consolidating Financial Statements for further description of the reserve for losses - shareholder receivable. The net investment loss before income tax for 2002 and 2001 was due mainly to the combination of investment and other expenses and interest credited on certificate liability exceeding the income generated from the investment portfolio. During 2002 and 2001, we held several non-revenue producing assets, which had a negative impact on the income generated from the investment portfolio. In addition, high operational costs related to the administrative services fee, legal fees and advertising resulted in an operating loss. The reserve for losses - 28 shareholder receivable contributed further to the net loss for the years ended December 31, 2002 and 2001. Investment income (excluding realized investment gains and losses) in 2002 was $2,438,503 compared to investment income of $1,615,128 for 2001. Total investment income plus realized gains for 2002 and 2001 was $2,911,224 and $1,683,825, respectively. Investment income plus realized investment gains represents annualized investment yields of 10.69% and 7.90% on average cash and investments of $27.2 million and $21.3 million for 2002 and 2001, respectively. The increase in investment income is attributable to an increase in cash and investments being held by us and an increase in the yield of the investment portfolio. The increase in investment portfolio yield was primarily due to realized gains totaling $472,721 resulting from the sale of available-for-sale securities. Net investment spread, which is the difference between investment income and interest credited on certificate liability, was $1,089,179 for 2002 compared to $442,576 in 2001. On an annualized yield basis, these amounts reflect net investment spread for 2002 and 2001 of 3.82% and 1.98%, respectively. Interest credited on certificate liability for 2002 and 2001 was $1,349,324 and $1,172,552, respectively. These amounts represent annualized average rates of interest credited of 4.73% and 5.24% on average certificate liability of $28.5 million and $22.4 million for 2002 and 2001, respectively. The Company monitors credited interest rates for new and renewal issues against competitive products, such as bank certificates of deposit. Credited interest rate adjustments (up or down) on new face-amount certificates are made by SBM periodically. In addition, there are surrender charges on new face-amount certificates resulting in the overall decrease in the average crediting rate. Investment and other expenses were $2,950,407 and $1,973,326 for 2002 and 2001, respectively. The increase in investment and other expenses was the result of an increase in the administrative services fee to SBM's parent, SBM Financial, and an increase in other operating expenses. The increase in the administrative services fee was due to the payment of the fee to SBM Financial in 2002 being classified solely as an administrative services fee, whereas, in 2001, the payment to SBM Financial was in the form of both an administrative services fee totaling $1,078,839 and dividends of $579,934. Total dividends paid plus the administrative services fee in 2002 and 2001 was $1,794,700 and $1,658,773, respectively. Investment and other expenses were further increased by higher advertising costs for the year ended December 31, 2002, as compared to the year ended December 31, 2001. Advertising expense for the year ended December 31, 2002 was $361,739 as compared to $93,422 for the year ended December 31, 2001. The increase in advertising expense in 2002 was due to SBM's advertising campaign associated with its retail sales division. Net other operating income (loss) before income tax for the years ended December 31, 2002 and 2001, was $118,154 and ($38,041), respectively. This consists of the mortgage lender/broker operations of ACFC. For the years ended December 31, 2002 and 2001, other operating income was $2,261,801 and $897,267, respectively. This income is derived from loan origination fees, gain on sale to investor and other processing and underwriting loan fees relating 29 to originating and brokering loans. The increase in other operating income for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was due to an increase in the volume of loans originated. For the years ended December 31, 2002 and 2001, other operating expenses were $2,143,647 and $935,808, respectively. These expenses consist of salaries and commissions paid in relation to originating and brokering loans and other costs in operating the mortgage company. The increase in other operating expenses for the year ended December 31, 2002 as compared to the year ended December 31, 2001, was mainly due to higher commissions paid on the increased revenues generated. Realized investment gains were $472,721 and $68,697 for 2002 and 2001, respectively. The increase in realized investment gains was due to the sale of certain available-for-sale securities, which had significant increases in their market value over their amortized cost. Realized investment gains and losses are primarily interest-rate related and attributable to our asset/liability management strategies. We invest in a mixture of investments ranging from fixed maturity securities, equity securities, mortgage notes, real estate, and real estate tax lien certificates. The objective of each investment is to provide reasonable returns while limiting liquidity and credit risks. In the event that SBM experiences higher than historical levels of certificate surrenders, SBM might need to liquidate investments other than in accordance with its normal asset/liability management strategy and, as a result, SBM could experience substantial realized investment losses. For the year ended December 31, 2002 and 2001, reserve for losses - shareholder receivable was $405,963 and $469,982, respectively. See "Certain Significant Events" and Note 14 of the Notes to Consolidating Financial Statements for further descriptions of this item. Asset Portfolio Review We invest our assets in accordance with the provisions of the 1940 Act, which permits the investment of reserves only in cash or "qualified investments." Qualified investments are investments of a kind which life insurance companies may hold under the Insurance Code of the District of Columbia as amended in 2003, and other such assets as the SEC may permit under the 1940 Act. Our investment policy is to invest reserves in a variety of investments that diversify risk, provide a reasonable return on investment and allow for liquidity consistent with our cash requirements. We have various investment types as of December 31, 2003, which include fixed maturity securities, equity securities, mortgage notes, real estate, real estate partnerships, a residual mortgage certificate and real estate tax lien certificates. We monitor our short-term liquidity needs to ensure that cash flow from investments allows for the payment of all of our obligations due, including expected cash outflow to certificate holders, with the goal of maintaining an adequate level of liquidity for maturing face-amount certificates. In addition, the investment strategy also is designed to provide protection of the investment portfolio from adverse changes in interest rates. 30 Our investments in available-for-sale securities totaled $6,900,227 at December 31, 2003, 20.51% of the investment portfolio (28.44% at December 31, 2002). Available-for-sale securities consist of fixed maturity securities and equity securities. Fixed maturity securities consist of US Treasuries, municipal bonds, mortgage-backed securities, corporate debt and closed-end mutual funds. As of December 31, 2003, the Company held one fixed maturity security that had defaulted on interest payments, which was sold in the first quarter of 2004 with a realized loss of $9,000. The market value of available-for-sale securities fluctuates with changing economic conditions. Fixed maturity securities are influenced greatly by market interest rates. Corporate debt market value is effected by market interest rates and is also weighed by the performance of the company that issues the debt. Upgrades or downgrades in the rating of a corporate bond will increase or decrease the market value of such investment. Our investments in equity securities are subject to market risk and fluctuations in the market value of the securities. Fluctuations in market value of equity securities affect the yield on the investment and could result in a reduction in the principal amount invested in the security. We take into account the current and expected future market environment in evaluating investment risk and investment yields. Based on the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," we classify our fixed maturity and equity securities as available-for-sale. Such securities are carried at fair value and changes in fair value, net of deferred income taxes, are charged or credited directly to shareholder's equity. During 2003, the fair value of available-for-sale securities increased by $2,252,250. Due to the Acquisition, the market value of the available for sale securities at the Acquisition date, December 5, 2003, is now the cost basis of the securities. Any changes in market value subsequent to the Acquisition date are adjusted to the carrying value of the security with a corresponding charge to unrealized gains (losses). Unrealized gain (loss), net of tax at December 31, 2003 and 2002 was $194,902 and ($2,055,348), respectively. Volatility in reported shareholder's equity occurs as a result of the application of SFAS No. 115, which requires some assets to be carried at fair value while other assets and all liabilities are carried at historical values. As a result, adjusting the shareholder's equity for changes in the fair value of our available-for-sale securities without reflecting offsetting changes in the value of our liabilities or other assets creates volatility in reported shareholder's equity but does not reflect the underlying economics of the Company's business. Our investments in residential and commercial real estate mortgage notes receivable totaled $15,991,009 at December 31, 2003, 47.54% of the investment portfolio (40.73% at December 31, 2002). These real estate mortgage notes accrue interest at rates ranging from 4.125% to 14.5% per annum and are secured by the underlying real property. Our intention is to sell the mortgage notes held for sale to a buyer under certain favorable market conditions. See Note 6 to the Notes to Consolidating Financial Statements. We hold investments in certain real estate partnerships with a carrying value of $9,736,335 as of December 31, 2003. These partnerships directly acquire or develop residential and commercial real estate and as of December 31, 2003 we are obligated for future funding commitments to the partnerships of $4,902,802. As of December 31, 2003, we have invested $4,820,000 of our portfolio funds into the partnerships, 14.33% of the investment portfolio. See Note 13 to the Notes to the Consolidating Financial Statements. 31 Our investment in real estate tax lien certificates are comprised of delinquent real estate tax bills purchased from municipalities at a premium. They accrue interest at the rate of 20% per annum on the outstanding principal and are secured by a first lien on the property on which the tax is owed. In all cases, the certificates are significantly over-collateralized by the underlying property. As of December 31, 2003, the real estate tax lien certificates had a balance of $460,252, 1.37% of the investment portfolio (5.05% at December 31, 2002). See Note 9 to the Notes to Consolidating Financial Statements. We hold an investment in a residual mortgage certificate with a principal balance of $2,685,180 as of December 31, 2003, 7.98% of the investment portfolio (12.50% at December 31, 2002). The investment was purchased in 2002 and represents an ownership interest in a trust (the "Trust") that owns a securitized pool of mortgage loans. The residual interest we own is a subordinate interest in the Trust. The individual mortgage notes held in the Trust generate income to the Trust, which then pays certain operating costs of the Trust and pays the owners with a guaranteed interest in the Trust. Any excess income generated after these payments is then paid to us. We will only receive payments if there is cash generated by the Trust in excess of operating costs and payments to guaranteed interest holders. The weighted average coupon rate of the underlying pool of mortgages is approximately 10.50% and the weighted average pass-through rate paid to guaranteed interest holders is 4.70%, the difference being the excess income generated by the Trust to pay operating expenses, cover reserve losses and then make payments to us. See Note 10 to the Notes to Consolidating Financial Statements. We also own two parcels of real estate totaling $2,285,509 as of December 31, 2003, 6.80% of the investment portfolio (8.19% at December 31, 2002). These properties were acquired through foreclosure of delinquent mortgage notes held by us and are currently held for sale. See Note 11 to the Notes to Consolidating Financial Statements. One of the properties was determined to have a decrease in fair value of $475,000 as of the Acquisition date and the carrying value was therefore adjusted. The fair value was based on a contract with a third party to purchase the property. Liquidity and Financial Resources As of December 31, 2003, we had $542,410 of qualified assets in excess of the minimum amount required by the 1940 Act and the rules and regulations promulgated thereunder by the SEC, as computed in accordance with the 1940 Act. The primary liquidity requirement of SBM relates to its payment of certificate maturities and surrenders and payment of its legal costs and administrative services fee. The principal sources of cash to meet such liquidity requirements are investment income and proceeds from maturities and redemptions of investments. SBM has $12.4 million of certificate obligations coming due in 2004. In 2003, SBM experienced an 84% continuation rate; therefore, management expects principal and interest payments to certificate holders to be approximately $1.9 million in 2004. In connection with the Acquisition, SBM Financial issued debt instruments totaling $1,616,772 with interest payable semi-annually at a rate of 1.5% per annum. Cash flows generated from the Company may be used to service the debt payments in 2004 and 32 in subsequent years. Principal and interest payments to be made for such debt in 2004 total $185,322. See Note 1 to the Notes to the Consolidating Financial Statements. At December 31, 2003, cash and cash equivalents totaled $1.4 million, a decrease of $0.8 million from December 31, 2002. We aim to manage our cash and cash equivalents position so as to satisfy short-term liquidity needs. In connection with this management of cash and cash equivalents, we may invest idle cash in short duration fixed maturities to capture additional yield when short-term liquidity requirements permit. Cash flows of $5.8 million, ($6.1) million and ($1.2) million were generated from (used in) operating activities in 2003, 2002, and 2001, respectively. These cash flows resulted principally from investment income, less management fees, changes in mortgage notes held for sale, and commissions paid. Proceeds from investing activities generated $16.0 million, $8.9 million, and $9.7 million in cash flows during 2003, 2002, and 2001, respectively, which were offset by purchases of investments of $20.6 million, $16.6 million, and $7.9 million, respectively. 33 INDEX TO AUDITED FINANCIAL STATEMENTS

F-01 INDEPENDENT AUDITORS' REPORT To the Board of Directors SBM Certificate Company We have audited the accompanying consolidating balance sheets of SBM Certificate Company and Subsidiaries as of December 31, 2003 and 2002, and the related consolidating statements of operations, shareholder's equity, and cash flows for the years ended December 31, 2003, 2002 and 2001. These consolidating financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidating financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 consolidating financial statements referred to above present fairly, in all material respects, the financial position of SBM Certificate Company and Subsidiaries at December 31, 2003 and 2002, and the results of their operations and cash flows for the years ended December 31, 2003, 2002 and 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the supplemental financial statement schedules, when considered in relation to the basic consolidating financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Reznick, Fedder & Silverman Bethesda, Maryland January 23, 2004 F-02 SBM Certificate Company and Subsidiaries CONSOLIDATING BALANCE SHEET December 31, 2003

See accompanying summary of accounting policies and notes to consolidating financial statements F-03 SBM Certificate Company and Subsidiary CONSOLIDATING BALANCE SHEET December 31, 2002

See accompanying summary of accounting policies and notes to consolidating financial statements F-04 SBM Certificate Company and Subsidiaries CONSOLIDATING STATEMENT OF OPERATIONS Year ended December 31, 2003

See accompanying summary of accounting policies and notes to consolidating financial statements F-05 SBM Certificate Company and Subsidiary CONSOLIDATING STATEMENT OF OPERATIONS Year ended December 31, 2002

See accompanying summary of accounting policies and notes to consolidating financial statements F-06 SBM Certificate Company and Subsidiary CONSOLIDATING STATEMENT OF OPERATIONS Year ended December 31, 2001

See accompanying summary of accounting policies and notes to consolidating financial statements F-07 SBM Certificate Company and Subsidiaries CONSOLIDATING STATEMENTS OF SHAREHOLDER'S EQUITY Years ended December 31, 2003, 2002 and 2001

See accompanying summary of accounting policies and notes to consolidating financial statements F-08 SBM Certificate Company and Subsidiaries CONSOLIDATING STATEMENT OF CASH FLOWS Year ended December 31, 2003

See accompanying summary of accounting policies and notes to consolidating financial statements F-09 SBM Certificate Company and Subsidiary CONSOLIDATING STATEMENT OF CASH FLOWS Year ended December 31, 2002

See accompanying summary of accounting policies and notes to consolidating financial statements F-10 SBM Certificate Company and Subsidiary CONSOLIDATING STATEMENT OF CASH FLOWS Year ended December 31, 2001

See accompanying summary of accounting policies and notes to consolidating financial statements F-11 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 1 - ORGANIZATION AND BUSINESS Organization and Acquisitions SBM Certificate Company and Subsidiaries (the "Company") consists of SBM Certificate Company, a Maryland Corporation ("SBM"), Atlantic Capital Funding Corporation, a Maryland Corporation ("ACFC"), and SBM Securities I, LLC, a Delaware limited liability company ("SBMS I"). SBM was formed on May 24, 2000 under the laws of the State of Maryland. SBM is a wholly-owned subsidiary of SBM Financial, LLC ("SBM Financial"), formerly known as State Bond and Mortgage Company, LLC ("State Bond"). Effective December 31, 2003, Geneva Capital Partners, LLC, a Delaware limited liability company ("Geneva"), became the sole member of SBM Financial through a dividend to Geneva of the 100% ownership interest of SBM Financial by 1st Atlantic Guaranty Corporation ("1st Atlantic"). 1st Atlantic was previously the sole member of SBM Financial and its subsidiaries. SBM is an issuer of face-amount certificates and is registered under the Investment Company Act of 1940 (the "1940 Act"). ACFC and SBMS I are both wholly owned subsidiaries of SBM. ACFC was formed on March 27, 1997 under the laws of the state of Maryland and SBMS I was formed on July 1, 2003 under the laws of the state of Delaware. On May 29, 2003, John Lawbaugh, 1st Atlantic's majority shareholder at the time, filed a petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland ("Bankruptcy Court"). On November 7, 2003, 1st Atlantic, Geneva and the Chapter 11 Bankruptcy Trustee (the "Trustee"), as representative of the bankruptcy estate of John J. Lawbaugh (the "Estate"), agreed to a settlement proposal for the sale of John J. Lawbaugh's 7,500,000 shares of 1st Atlantic common stock (the "Shares") to Geneva. An emergency motion was filed in Bankruptcy Court on November 10, 2003 for the approval of the sale of the Shares to Geneva under such proposal. On December 2, 2003, the Bankruptcy Court granted the motion approving the settlement proposal for the sale of the Shares free and clear of all liens and ordered the sale of the Shares to take place immediately. On December 5, 2003, the sale of the Shares closed pursuant to the terms of the Stock Purchase Agreement by and between the Trustee and Geneva dated December 2, 2003 (the "Sale Agreement") (the "Acquisition"). The Trustee sold the Shares to Geneva for $2,532,981, which was distributed to 1st Atlantic and the Company in the amounts of $1,175,955 and $1,357,026, respectively, to repay the amounts due from Mr. Lawbaugh to 1st Atlantic and SBM (See Note 13). In addition, Geneva contributed $3,200,000 as additional paid in capital to 1st Atlantic to resolve the SEC's F-12 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 1 - ORGANIZATION AND BUSINESS (Continued) Organization and Acquisitions (Continued) concerns regarding 1st Atlantic's compliance with the reserve requirements of Section 28 of the 1940 Act. Further, SBM Financial issued debt instruments secured by the common stock of SBM totaling $1,616,772 to certain creditors of the Estate. The debt matures ten years from the date of issuance and has principal and interest payments due semi-annually with interest accruing at the rate of 1.5% per annum. Cash flows generated from the operations of the Company may be used to pay the interest and principal of the debt as it becomes due. A total of $125,000 was also paid by Geneva to the Trustee and certain other creditors of the Estate. Immediately after closing, Geneva made an additional cash and non-cash contribution to the Company of $1,000,000 cash and a $820,000 partnership interest in two separate real estate investment funds, which was treated as additional paid in capital. Geneva obtained funds to acquire the Shares from the issuance of privately placed investment notes to unaffiliated investors. The investment notes provide for a fixed interest rate of 3.75%, payable quarterly, and mature in 2006, three years from the date of the issuance. The funds obtained to acquire the Shares and the additional capital contributed by Geneva after the sale of the Shares are projected to be repaid at their maturity from excess cash flows generated from the operations of the Company. The acquisition was accounted for using the purchase method of accounting in accordance with Statements of Financial Accounting Standards ("SFAS") 141, "Accounting for Business Combinations." The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the Acquisition and the significant non-cash investing and financing activities related to the Acquisition: At December 5, 2003 Qualified Assets $36,599,242 Other Assets 612,440 Due From Shareholder 1,357,026 Intangible Assets 1,648,501 Goodwill 9,032,609 ----------- Total Assets Acquired $49,249,818 ----------- F-13 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 1 - ORGANIZATION AND BUSINESS (Continued) Organization and Acquisitions (Continued) Certificate Liability $35,796,218 Warehouse Line of Credit 2,068,000 Other Liabilities 4,340,520 ----------- Total Liabilities Assumed $42,204,738 ----------- Net Assets Acquired $ 7,045,080 ----------- Of the $1,648,501 of intangible assets, $755,202 was assigned to SBM's registration statement to sell face-amount certificates, which is not subject to amortization, and $893,299 was assigned to SBM's existing client list and will be amortized over the expected remaining life of the client list of 10 years. As a result of the Acquisition, goodwill of $9,032,609 was assigned to the Company, which is not deductible for tax purposes. Nature of Operations SBM is engaged in the business of issuing and servicing face-amount certificates. A face-amount certificate is an obligation of the issuer to pay a face, or principal amount, plus specified interest, to the holder of the certificate. Under the certificates, the face-amount may be paid at the end of a certificate's Guarantee Period or at its Maturity Date. Lesser amounts are paid at such times if all or part of an investment in the Certificate is withdrawn prior to maturity or the end of any Guarantee Period. Interest, as described above, may be paid quarterly or annually, or compounded. SBM offers various series of single-payment investment certificates. SBM's face-amount certificate operations include issuance of single-payment certificates and the servicing of outstanding single-payment and installment certificates, the investment of related funds, and other related service activities. ACFC is a mortgage broker and lender that originates residential and commercial loans. SBMS I is an issuer of privately placed investment notes to accredited investors, but has not yet completed any offerings to investors. F-14 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The preparation of consolidating financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidating The consolidating financial statements include the accounts of SBM and its wholly-owned subsidiaries, ACFC and SBMS I. SBM and SBMS I are presented in consolidated form and ACFC is separately presented in the consolidating financial statements. All significant intercompany balances and transactions have been eliminated. Reclassification Certain balances on the December 31, 2001 Statements of Operations have been reclassified to conform to the December 31, 2003 and 2002 financial statement presentation. Cash and Available-for-Sale Securities Fixed maturity and equity securities are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of taxes, reported as a separate component of shareholder's equity in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The amortized cost of fixed maturity securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization or accretion is computed using the interest method and is included in investment income. Anticipated prepayments on mortgage-backed securities are considered in determining the effective yield on such securities. If a difference arises between anticipated and actual prepayments, the carrying value of the investment is adjusted with a corresponding charge or credit to investment income. Interest and dividends are included in investment income. F-15 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash and Available-for-Sale Securities (Continued) Cash and cash equivalents consist of highly liquid investments with maturities of three months or less from the time of purchase. Security transactions are accounted for on the date the order to buy or sell is executed. Realized gains and losses on the sale of investments are determined based upon the specific identification method. Mortgage Notes Held for Sale Mortgage notes receivable held for sale are carried at the lower of cost or market value. Loan origination fees and discount points paid by borrowers and the incremental direct costs of originating the loans are capitalized until the loans are sold or paid off. The market value is determined by evaluating, on a loan by loan basis, the note receivable expected loan payments and the market value of the real estate securing the loan. Mortgage Notes Held for Investment Mortgage notes held for investment are carried at amortized cost net of loan origination fees and discount points paid by borrowers and the incremental direct costs of originating the loans. These fees and costs are capitalized and amortized through maturity. If necessary, a loan loss reserve is recognized for management's estimate of unrecoverable amounts. Unrecoverable balances are determined by management based on an evaluation of the borrower and the value of the real estate securing the loan. Investment in Real Estate Partnerships Investment in real estate partnerships consists of ownership in three partnerships that directly acquire or develop real estate. The Company is a limited partner in all three partnerships and, therefore, accounts for the investment using the equity method. Profits and losses and distributions are governed by the individual partnership agreements. The investment in real estate partnerships is recorded in accordance with the equity method of accounting. Under the equity method of accounting, the investment in the partnerships is carried at cost and is adjusted for the Company's share of the partnerships' results of operations, is increased by the cash contributions made and commitments to make future additional contributions and is decreased by the cash distributions received by the Company. F-16 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investment in Real Estate Partnerships (Continued) The equity in the loss of each partnership allocated to the Company is not recognized to the extent that the investment balance would become negative. Real Estate Tax Lien Certificates Real estate tax lien certificates are investments comprised of delinquent real estate tax bills purchased from municipalities. The investments are secured by a first lien on the respective properties on which the tax is owed. They are carried at cost and, if necessary, a reserve is recognized for management's estimates of unrecoverable amounts. Residual Mortgage Certificate The residual mortgage certificate represents an ownership interest in a securitization trust. The assets of the securitization trust consist of mortgage loans secured by first liens on residential real properties having original terms to stated maturity of not greater than 30 years. The residual mortgage certificate represents a subordinate right to receive excess cash flow, if any, generated by the related mortgage pool. A holder of a residual mortgage certificate has the right to receive the difference, if any, between the interest payments due on the mortgage loans sold to the securitization trust and the interest payments due, at the pass-through rates, to the holders of the pass-through certificates of the same series, less contractual servicing fees, trustee fees and any insurer premiums, reimbursements and other costs and expenses of administering the securitization trust. The Company will receive cash payments only if there are any amounts remaining following payment by the securitization trust of all amounts owing on all other securities issued by that securitization trust and the payment of expenses. The excess cash flow of a securitization trust in any month is applied: o first, to cover any losses on the mortgage loans in the related mortgage pool; o second, to reimburse the insurer, if any, of the related series of pass-through certificates for amounts paid by or otherwise owing to that insurer; o third, to build or maintain the overcollateralization for that securitization trust at the required level by being applied as an accelerated payment of principal to the holders of the pass-through certificates of the related series; F-17 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Residual Mortgage Certificate (Continued) o fourth, to reimburse holders of the subordinated certificates of the related series of pass-through certificates for unpaid interest and for any losses previously allocated to those certificates; o fifth, to the related residual mortgage certificate. The fair value of a residual mortgage certificate is determined by using certain assumptions regarding the underlying mortgage loans. These estimates primarily include: future rate of prepayment, credit losses, and the discount rate used to calculate present value. The value of the residual mortgage certificate represents the discounted future cash flows from such certificate based upon management's best estimate. Management monitors the performance of the loans underlying each certificate and any changes in the estimates and assumptions (and consequent changes in value of the certificate) is reflected in interest income in the quarter in which any such change in estimate is made. Although management believes that the assumptions it uses are reasonable, there can be no assurance as to accuracy of the assumptions or estimates. Interest is recognized based on an effective yield over the estimated life of the certificate. Cash in excess of the income earnings under the effective yield is either a reduction of principal or deferred and reflected as deferred revenue on the balance sheet based on management's estimates of future cash flows. Real Estate Owned Real estate properties acquired through, or in lien of, loan foreclosure are initially recorded at the lower of cost or market value at the date of foreclosure. After foreclosure, valuation analyses are periodically performed by management to determine whether subsequent write-downs to the carrying value are necessary. Additional expenditures related to maintaining the value of the property are capitalized to the basis of the real estate. Real estate owned by the Company is held for sale. Deferred Acquisition Costs Costs of issuing new face-amount certificates, principally commissions, have been deferred. These costs are amortized on a straight-line basis over the initial maturity period of the certificates. F-18 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Certificate Liability Face-amount certificates issued by the Company entitle certificate holders, who have made either single or installment payments, to receive a definite sum of money at maturity. The certificate liability accrues interest, and cash surrender values are less than the accumulated certificate liability prior to maturity dates. The certificate liability accumulation rates, cash surrender values, certificate liability and certificate reserves, among other matters, are governed by the 1940 Act. Following the acquisition of SBM's predecessor by State Bond on July 19, 2000, a methodology for calculating the certificate liability was adopted and implemented, whereby the certificate liability is carried at the certificate's surrender value. Application of this method of calculating the liability resulted in a reduction of the certificate liability, net of tax, of $1,259,530 at Acquisition. This amount is reflected as an adjustment to the accumulated deficit of shareholder's equity. Following the Acquisition by Geneva on December 5, 2003, the certificate liability is carried at the account value less an estimate for early surrender charges based on the Company's history with regard to early surrenders. These methods are in accordance with accounting principles generally accepted in the United States of America. Subscription and Note Payable Subscription and note payable represent contractual commitments of the Company to invest funds in real estate partnerships at a future date. Income Taxes The Company accounts for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying and tax bases of assets and liabilities. A valuation allowance is recorded if, based upon the evidence available, it is more likely than not that some portion or all of the deferred tax assets will not be realized. F-19 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill Goodwill for the year ended December 31, 2003 resulted from the Acquisition transaction that closed on December 5, 2003 (See Note 1). Goodwill for the year ended December 31, 2002 resulted from a previous acquisition transaction, which closed on July 19, 2000. Beginning in fiscal year 2002 with the adoption of SFAS No. 142, goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. The Company adopted the provisions of SFAS No. 142 on January 1, 2002. Fixed Assets Fixed assets are carried at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Revenue Recognition The Company recognizes interest and dividend income on investments and mortgage interest income when earned on an accrual basis. Income from investment on the residual mortgage certificate is earned on an effective yield method. Revenue earned from the origination and brokering of loans is recognized upon the sale of the loan to an investor or third party. Gains and losses from the sales of investments are recognized at the date of sale of the investment. Advertising Costs The Company expenses the costs of advertising as incurred. Advertising expense for the years ended December 31, 2003, 2002 and 2001 was $0, $361,739, and $93,422, respectively. F-20 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 3 - AVAILABLE-FOR-SALE SECURITIES The amortized cost and estimated fair values of available-for-sale securities were as follows:

F-21 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 3 - AVAILABLE-FOR-SALE SECURITIES (Continued) The amortized cost and estimated fair value of fixed maturity available-for-sale securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties and because mortgage-backed securities provide for periodic payments throughout their life.

Gains of $71,757, $389,709, and $64,966 were realized on sales of fixed maturities classified as available-for-sale for the years ended December 31, 2003, 2002, and 2001, respectively. Gains (losses) of ($431,700), $83,012, and $3,731 were recognized on equity securities sold during 2003, 2002 and 2001, respectively. F-22 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 4 - COMPREHENSIVE INCOME Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including net income and the change in unrealized gains or losses on the Company's available-for-sale securities. The following table reconciles, for available-for-sale securities, the net unrealized gain (loss) arising during the period and the change in net unrealized gains (losses) as reported on the accompanying consolidating statements of shareholder's equity. Amounts are reported net of related tax.

F-23 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 5 - FIXED ASSETS Fixed assets are as follows as of December 31, 2003 and 2002: 2003 2002 -------- -------- Land and building $125,236 $129,887 Furniture and fixtures 22,085 23,512 Computer equipment 84,084 108,152 -------- -------- Total cost 231,405 261,551 Less accumulated depreciation 1,078 46,134 -------- -------- $230,327 $215,417 ======== ======== NOTE 6 - MORTGAGE NOTES HELD FOR SALE At December 31, 2003, the Company held residential and commercial mortgage notes for sale of $8,195,803. Mortgage notes held for sale totaling $2,009,750 have purchase commitments from investors and in 2004 the Company sold these mortgage notes. As a result of the sale of these mortgage notes, the Company received funds totaling $2,029,592 from the sale, recognized income in the amount of $19,842, and repaid borrowings from the warehouse lines of credit of $2,009,750. The remaining $6,186,053 of mortgage notes held for sale do not have purchase commitments from investors, but it is the Company's intention to sell the notes to a buyer under certain favorable market conditions. The notes accrue interest at rates ranging from 4.125% to 14.5%, are secured by real property and have maturity dates through February 2033. The Company has begun foreclosure proceedings on mortgage notes held for sale totaling $382,110. At December 31, 2002, the Company held residential and commercial mortgage notes receivable for sale of $13,163,828, net of capitalized origination fees of $153,509 and deferred direct loan costs of $48,204. F-24 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 7 - MORTGAGE NOTES HELD FOR INVESTMENT The Company holds mortgage notes receivable as of December 31, 2003 as long-term investments with a total carrying value of $7,795,206. These notes are serviced by the Company and are secured by real property. The notes accrue interest at rates ranging from 6% to 12% with maturity dates through November 2006. NOTE 8 - WAREHOUSE FACILITIES As part of its mortgage lender operations, ACFC has established warehouse lines of credit . The warehouse facilities provide funds to ACFC to purchase mortgage notes in connection with ACFC's mortgage lender operations. SBM Certificate Company A warehouse line of credit was established on May 21, 2002 between SBM-MD and ACFC. The available line of credit is for an amount up to $4,500,000. Interest is payable at the Wall Street Journal's Prime plus 2% (prime was 4.0% at December 31, 2003). Borrowings under the line are secured by the mortgage note receivable purchased with the funds advanced. Borrowings are repaid to SBM when ACFC sells the loans to investors. As of December 31, 2003, the outstanding principal on the line of credit is $934,750. Mortgage notes receivable held for sale with an aggregate carrying value of $934,798 are collateral for the line of credit. Such amount has been eliminated in consolidation. Provident Bank ACFC established a warehouse line of credit with Provident Bank for an amount up to $3,000,000. Interest is payable at the earlier of 45 days from when funded or when the mortgage notes are sold. Interest is payable at the 30-day LIBOR Rate plus 2% (30-day LIBOR Rate was 1.12% at December 31, 2003). As of December 31, 2003, the outstanding balance of this warehouse line of credit is $1,222,000, which is secured by mortgage notes held for sale with an aggregate carrying value of $1,225,939. F-25 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 9 - REAL ESTATE TAX LIEN CERTIFICATES The Company held investments in real estate tax lien certificates at December 31, 2003 in the amount of $460,252. These certificates are purchased at a premium and interest is earned based on a fixed rate of 20% on the outstanding taxes owed. Interest income on these investments for the year ended December 31, 2003 and 2002, was $106,289 and $259,768, respectively, and accrued interest at December 31, 2003 and 2002, was $121,803 and $195,877, respectively. The Company recovers the cost of its investment plus unpaid accrued interest from pass through payments from the municipality, which receives payments directly from the taxpayers. The Company may also recover the cost of its investment plus accrued interest by exercising its rights to foreclose on the underlying properties within a two-year period from the date of investment purchase. NOTE 10 - RESIDUAL MORTGAGE CERTIFICATE The Company holds a residual mortgage certificate in the amount of $2,685,180 as of December 31, 2003. The fair value of the investment represents the discounted cash flows the Company expects to receive in the future from the investment based on management's estimate. The primary factors in determining future cash flows are future rate of prepayment of the mortgage loans in the securitization trust, credit losses on these mortgage loans, the unpaid principal balance of the mortgage loans, and the discount rate used to calculate present value. Interest income from the residual mortgage certificate for the year ended December 31, 2003 was $869,601. Interest is calculated based on the Company's estimates of the effective yield of the investment. Factors in determining the effective yield include the weighted average coupon rate of the underlying mortgage notes, the interest rate of the pass-through certificates in the securitization trust, and the rate of default on interest payments. Cash received from the securitization trust in excess of the estimated effective yield is recorded as deferred revenue or applied to principal, based on management's estimates of future cash flows. NOTE 11 - REAL ESTATE OWNED As of December 31, 2003 and 2002, the Company has real estate owned consisting of two properties with a total carrying value of $2,285,509 and $2,647,095, respectively. These properties are held for sale. F-26 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 12 - PROPERTY HELD FOR SALE On September 30, 2001, SBM Financial through its sole member, 1st Atlantic, contributed a beneficial interest in a property consisting of land and building held for sale as additional paid in capital to the Company which totaled $410,087 at the date of contribution to the Company. The basis in the property at the contribution date is the original cost basis of the shareholders of 1st Atlantic at the date of the original contribution to 1st Atlantic (September 30, 1998), increased for the expenditures made by 1st Atlantic and subsequently by the Company in connection with the investment in the property held for sale. As of December 31, 2001, the carrying amount of the property was $419,923. On December 31, 2002, the Company closed on a contract with an unrelated third party for the sale of this property, which had a carrying value of $524,648 at December 31, 2002. Under the terms of the contract, the sales price was $2,332,000. Proceeds were received in the form of mortgage notes of $1,742,000 and $490,000 and cash held in an escrow in the amount of $100,000. In connection with the sale, the Company paid $979,065 for real estate tax liens and other costs during 2003. The amount of $865,000 was accrued as a real estate liability at December 31, 2002. The gain on the sale of the property was not realized in 2002 and was classified as deferred revenue as of December 31, 2002 in accordance with SFAS 66, "Accounting for Sales of Real Estate." The gain is recognized under the installment method as cash is received in accordance with SFAS 66. On June 17, 2003, net proceeds of $1,624,174 were received by the Company as payment for the outstanding mortgage notes. This payment was net of certain real estate tax liens and other closing costs. In addition, the Company paid an additional $271,473 of real estate liabilities, resulting in a realized gain of $828,053 from the sale of the property during 2003. NOTE 13 - INVESTMENT IN REAL ESTATE PARTNERSHIPS On December 12, 2003, Geneva contributed, as additional paid in capital, its limited partner interest in a real estate partnership to the Company. Geneva had funded $500,000 to the real estate partnership as of December 12, 2003 and also had a subscription commitment to fund an additional $1,000,000 at a future date. At the date of this contribution, the Company assumed the interest in the partnership of $1,500,000 and the subscription payable of $1,000,000. The $1,000,000 subscription payable was funded by the Company in 2004. The Company is a member of a partnership formed for the purpose of developing certain commercial real estate. The Company's ownership percentage is 16% of the partnership and under the terms of the operating agreement the Company is obligated to make total equity contributions totaling $8,000,000. The Company is also entitled to a preferred distribution of F-27 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 13 - INVESTMENT IN REAL ESTATE PARTNERSHIPS (Continued) 4% per annum on its total funds contributed to the partnership. On August 31, 2003 the Company funded $2,000,000 of its equity contribution obligation and entered into a note agreement with a total principal due of $5,900,000 and interest accruing at the rate of 4% per annum for its remaining equity contributions. Total principal and interest payments to be made under the note agreement are $6,000,000. On December 4, 2003 the Company made its first payment obligation of principal and interest under the note totaling $2,000,000. As of December 31, 2003, the carrying value of the investment is $7,916,335 and the note payable plus accrued interest is $3,902,802. The note bears interest at 4% per annum and the entire note obligation becomes due in 2004. Principal and interest payments to be made by the Company in 2004 for the note obligation will total $4,000,000. The Company's partnership interest secures the note payable. For the year ended December 31, 2003, the partnership had a net loss of $443,849. As of December 31, 2003, the partnership had assets of $11,814,628, liabilities of $373,469 and equity of $11,441,159. On December 31, 2003, Geneva contributed to the Company as additional paid in capital a limited partner interest in a partnership formed to acquire certain commercial real estate. Geneva had funded $320,000 to the real estate partnership as of December 31, 2003, which is the Company's carrying value of the investment as of December 31, 2003. NOTE 14 - DUE FROM SHAREHOLDER During 2002, members of management of the Company discovered facts regarding several transactions which raised concerns that certain conduct by the Company's Chairman of the Board and Chief Executive Officer, John J. Lawbaugh, failed to comply with provisions of the 1940 Act prohibiting transactions with affiliated persons of registered investment companies, caused the Company to fail to comply with disclosure requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934, and diverted cash assets of the Company during 2000, 2001, and 2002 to himself directly or indirectly in the amount of approximately $1,769,000, of which $900,000 was repaid by him to the Company. As a result, on August 16, 2002, the Board of Directors removed Mr. Lawbaugh from his position as Chairman of the Board and Chief Executive Officer and suspended his authority to act for or bind the Company with respect to any transactions. The Company filed its Form 8-K, Current Report dated October 3, 2002, with the SEC on October 4, 2002. The Form 8-K summarizes the nature of the transactions and discusses various related matters. The financial statements for 2001 and 2000 were reissued to give effect to the transactions discussed below in the financial statements of the respective years. F-28 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 14 - DUE FROM SHAREHOLDER (Continued) Due from shareholder represents amounts paid to John J. Lawbaugh, directly or through companies affiliated with Mr. Lawbaugh and other costs incurred by the Company as a result of these transactions. As of December 31, 2002, and 2001, these amounts totaled $1,218,181 and $812,218, respectively. An allowance for uncollectible amounts due from shareholder has been recorded for the full amount due as of December 31, 2002 and 2001 with a corresponding charge to operations. The allowance totaled $1,218,181, and $812,218, as of December 31, 2002 and 2001, respectively. For the year ended December 31, 2003, the charge for reserve for losses for the due from shareholder totaled $141,392. In conjunction with the Acquisition, the Company received $1,357,026 as payment for the due from shareholder amount of $1,359,573 outstanding as of the date of the Acquisition (See Note 1). Due from shareholder consists of the following transactions: (a) During 2002, origination and other fees totaling $56,700 were paid to other entities controlled by Mr. Lawbaugh with respect to two loans held by the Company. $16,500 was previously recorded in the mortgage notes receivable balance and was adjusted as a reduction of the mortgage notes held for sale and a corresponding amount due from shareholder. The remaining $40,200 was credited to income and a corresponding amount due from shareholder. (b) During 2001, origination and other fees totaling $154,952 were paid to other entities controlled by Mr. Lawbaugh with respect to two loans originated by the Company. The amounts were previously recorded in the mortgage notes receivable balance and are adjusted to record a reduction of the mortgage notes held for sale and a corresponding amount due from shareholder. (c) During 2001, pursuant to the instructions of Mr. Lawbaugh, a cash payment of $84,000 was made to Mr. Lawbaugh's personal bank account by an escrow agent from funds provided by the Company to the escrow agent for the purchase of a mortgage note. The amounts were previously recorded in the mortgage notes receivable balance and are adjusted to record a reduction of the mortgage notes held for sale and a corresponding amount due from shareholder. With respect to the origination fees of $111,279 on one of the loans discussed in (b) above and the $84,000 discussed in (c) above, the borrower sold the property out of bankruptcy court to an unrelated third party in 2002. The Company entered into a new loan agreement with the purchaser in the amount of $1,050,000. This note was subsequently paid in full in 2003. F-29 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 14 - DUE FROM SHAREHOLDER (Continued) (d) An interest escrow account was established for the benefit of a borrower in the amount of $42,286. This amount was funded by the Company in connection with a mortgage loan at the closing of the loan. Mr. Lawbaugh subsequently transferred the interest escrow account to his personal control. The liability to the borrower was previously omitted from the Company's financial statements and is adjusted to record an amount due from shareholder and a corresponding liability for the benefit of the borrower. (e) Cash payments of $188,744 were made to a bank account controlled by Mr. Lawbaugh in connection with the purchase of real estate tax lien certificates held for investment by the Company. The payment was made to an account controlled by Mr. Lawbaugh by the settlement agent pursuant to the instructions of Mr. Lawbaugh. The amount was previously recorded as an investment in real estate tax lien certificates and is adjusted to record a reduction of the tax lien certificates and a corresponding amount due from shareholder. (f) During 2000, an escrow held by a title company in the amount of $250,000 was transferred, pursuant to the instructions of Mr. Lawbaugh, to a bank account controlled by Mr. Lawbaugh. The amount was reflected as a cash escrow as of December 31, 2000 and was adjusted to record a reduction of the escrow and a corresponding amount due from shareholder. (g) During 2000, origination fees totaling $42,236 with respect to two loans originated by the Company were diverted from the Company to bank accounts controlled by Mr. Lawbaugh. The amounts were previously recorded in the mortgage notes receivable balance and are adjusted to record a reduction of the mortgage notes held for sale and mortgage notes held for investment and a corresponding amount due from shareholder. (h) During 2000, extension fees of $50,000 paid by a borrower related to the purchase of a mortgage loan from a third party by the Company were diverted from the Company and deposited to a bank account controlled by Mr. Lawbaugh. An adjustment has been made to record the fees as income to the Company during 2000 with a corresponding amount due from shareholder. (i) The Company has incurred legal, accounting and other costs in connection with the above transactions. These costs total $490,655 and have been billed to Mr. Lawbaugh and recorded to due from shareholder. F-30 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 14 - DUE FROM SHAREHOLDER (Continued) The following summarizes the impact of those transactions on the Company for the respective periods:

NOTE 15 - SIGNIFICANT EVENTS During 2002, management of the Company discovered facts that came to its attention regarding several transactions involving the Company (See Note 14). Due to the discovery of these transactions, on August 16, 2002, the Company's Board of Directors removed Mr. Lawbaugh from his position as Chairman of the Board and Chief Executive Officer. The Board of Directors also authorized an investigation to determine the scope and impact of the transactions on the financial statements and to determine if there were any other inappropriate transactions involving the Company. The investigation was performed by the Company's management and overseen by two independent directors and the Company's independent auditors. As a result of this investigation, it was determined that assets of the Company were diverted to Mr. Lawbaugh, directly or indirectly, in the amount of approximately $1,769,000, of which $900,000 was repaid by Mr. Lawbaugh to the Company, and certain federal securities laws were violated (See Note 14). Based on these facts, the Company amended and restated its financial statements for the years ended December 31, 2001 and 2000, and amended all annual and quarterly SEC filings affected to properly disclose the nature and affects of these transactions. Also, due to the discovery of these transactions, the Company suspended the sale of its face-amount certificates on August 16, 2002 and sales have not yet resumed as of the date of the audit report. F-31 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 16 - CERTIFICATE LIABILITY The Company's certificate liability consists of the statutory certificate liability and the additional certificate liability. The statutory certificate liability is calculated based on Section 28(a) of the 1940 Act. The Company maintains an additional certificate liability amount in excess of the statutory liability. This additional liability plus the statutory liability is equal to the certificates' account value, less an estimate for early surrender charges. The total certificate liability at December 31 is summarized as follows:

F-32 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair values of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment was required to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts which could be realized in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.

The following methods and assumptions were used in estimating fair values: Available-for-sale Securities Fair values for investments in securities are based on quoted market prices, where available. For available-for-sale securities for which a quoted market price is not available, fair values are estimated using internally calculated estimates or quoted market prices of comparable instruments. F-33 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) Mortgate Notes Held for Sale Fair value is estimated by evaluating, on a loan-by-loan basis, the note receivable's stated interest rate compared to current market interest rates for a comparable note. Mortgate Notes Held for Investment Fair value of mortgage notes held for investment is estimated by evaluating, on a loan-by-loan basis, the note receivable's stated interest rate compared to current market interest rates for a comparable note. Investment in Real Estate Partnerships Estimated fair value of the investments in real estate partnerships approximates its carrying value. Real Estate Tax Lien Certificates Estimated fair value of real estate tax lien certificates approximates their carrying value. Real Estate Owned Fair value is estimated based on the appraised market value of the real estate. Residual Mortgage Certificate Estimated fair value of the residual mortgage certificate approximates its carrying value. Property Held for Sale Estimated fair value of property held for sale is based on a contract for the sale of the property to an unrelated third party. Certificate Loans The carrying value of certificate loans approximates their fair value. Cash and Cash Equivalents The carrying amounts of cash and cash equivalents approximate their fair value given the short-term nature of these assets. Certificate Liability The fair value and carrying value of the certificate liability is based on the cumulative account value of certificateholders less an estimate for early surrender charges. F-34 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 18 - INCOME TAXES Deferred income taxes reflect the net tax effects of (i) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (ii) operating and capital losses. Significant components of the deferred tax liabilities and assets as of December 31, 2003 and 2002 were:

In 2003 and 2002, the Company has provided a valuation allowance for deferred tax assets for net operating loss carryforwards and capital loss carryforwards in which realization of these future benefits cannot be reasonably assured as a result of recurring operating losses and the uncertainty of the Company's ability to realize the capital loss carryforwards. If the Company has capital gains, these capital loss carryforwards would be available to offset such gain, subject to certain limitations. If the Company achieves profitability, these deferred tax assets would be available to offset future income tax liabilities and expense, subject to certain limitations. F-35 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 18 - INCOME TAXES (Continued) As of December 31, 2003 and 2002, the Company had net operating loss carryforwards of approximately $7,146,158 and $5,053,059, respectively, for income tax purposes which expire in various years through 2023. The Company had capital loss carryforward at December 31, 2003 of approximately $315,625, which will expire in 2007. The components of the provision for federal income tax expense consist of the following: Year Ended December 31, ----------------------------------- 2003 2002 2001 --------- --------- --------- Current $ -- $ -- $ -- Deferred -- -- (288,264) --------- --------- --------- Total federal income tax benefit $ -- $ -- $(288,264) ========= ========= ========= Federal income tax expense differs from that computed by using the income tax rate of 34%, as shown below.

F-36 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 19 - RELATED PARTY TRANSACTIONS SBM Financial provides the Company with administrative services pursuant to an Administrative Services Agreement. This agreement stipulates that SBM Financial shall provide certain administrative and support services for the Company. Services include use of SBM Financial's property and equipment, facilities and personnel needed for SBM-MD's daily operations. For providing such services, SBM Financial earns an annual fee from the Company calculated at either 1% of the Company's average certificate liability balances, or an amount not to exceed $2,500,000. The charge is determined monthly by SBM Financial and the Company's management based on the costs incurred by SBM Financial for such administrative and support services. During 2003, 2002 and 2001, a fee was charged totaling $1,029,800, $1,794,700 and $1,078,839, respectively, and payments for such fees were $1,029,800, $1,794,700 and $1,119,128, respectively. On December 12, 2003, Geneva contributed as additional paid in capital a $500,000 interest in a real estate partnership and $1,000,000 cash to the Company. In addition, on December 31, 2003, Geneva contributed as additional paid in capital a $320,000 limited partner interest in a real estate partnership. On September 30, 2001, SBM Financial contributed as additional paid in capital a mortgage note to the Company which totaled $1,136,047 at that date. On June 30, 2002 SBM Financial contributed an additional mortgage note which totaled $639,227. On September 30, 2001, SBM Financial through its sole member, 1st Atlantic, contributed as additional paid in capital to the Company a beneficial interest in a property consisting of land and building held for sale which totaled $410,087 at the date of the contribution. The basis in the property at the contribution date is the original cost basis of the shareholders of 1st Atlantic at the date of the original contribution to 1st Atlantic (September 30, 1998), increased for the expenditures made by 1st Atlantic and subsequently by the Company in connection with the investment in the property held for sale. As of December 31, 2001, the carrying amount of the property was $419,923. On December 31, 2002, this property was sold (See Note 12). The Company made a mortgage loan to a partnership in which an affiliate owned a 51% interest. As of December 31, 2001, the outstanding principal balance of the mortgage note was $378,950 and accrued interest totaled $59,104. In April 2002, the outstanding principal balance of the mortgage note and accrued interest was paid in full satisfaction on the receivable in the amount of $533,120. A director of the Company provided legal services to the Company throughout 2001 totaling $8,150. F-37 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 19 - RELATED PARTY TRANSACTIONS (Continued) Due from shareholder totaling $1,218,181 as of December 31, 2002, represents amounts paid to John J. Lawbaugh, the majority shareholder of 1st Atlantic, directly or through companies affiliated with the shareholder and other costs incurred by the Company related to those transactions. An allowance has been recorded in the full amount due from shareholder (See Notes 14 and 15). Related party receivable and related party payable represents certain advances made by the Company to affiliates and advances the Company has received from affiliates. Most advances relate to operational transactions. As of December 31, 2003 and 2002, related party receivables total $219,371 and $129,351 respectively. As of December 31, 2003 and 2002, related party payables total $49,130 and $117,925, respectively. A warehouse line of credit has been established between SBM and ACFC (See Note 8). NOTE 20 - SHAREHOLDER'S EQUITY AND REGULATORY MATTERS The Company is subject to restrictions relating to its regulatory capital requirements under the 1940 Act. The Company is required to establish and maintain qualified assets (as defined in Section 28(b) of the 1940 Act) having a value not less than the aggregate of certificate reserves (as calculated under Section 28(a)) plus $250,000 ($33.1 million and $31.6 million at December 31, 2003 and 2002, respectively). The Company had qualified assets (at amortized cost) of $33.6 million and $32.3 million at those respective dates. For purposes of determining compliance with the foregoing provisions, qualified assets are valued in accordance with District of Columbia Insurance Laws (the "D.C. Laws") as required by the 1940 Act. Qualified assets for which no provision for valuation is made in the D.C. Laws are valued in accordance with rules, regulations, or orders prescribed by the SEC. These values are the same as the financial statement carrying values, except that for financial statement purposes, available-for-sale securities are carried at fair value. For qualified asset purposes, available-for-sale securities are valued at amortized cost. Pursuant to the required calculations of various states, the provisions of the certificates, depository agreements, and the 1940 Act, qualified assets of the Company were deposited with independent custodians and invested in certain investments to meet certificate liability requirements as of December 31, 2003 and 2002, as shown in the following table. Certain assets on deposit are not considered qualified assets for the purposes of this calculation because they are reserved for the repayment of existing liabilities. Certificate loans, secured by applicable certificate liabilities, are deducted from certificate reserves in computing deposit requirements. F-38 SBM Certificate Company and Subsidiaries NOTES TO CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED December 31, 2003, 2002, and 2001 NOTE 20 - SHAREHOLDER'S EQUITY AND REGULATORY MATTERS (Continued) December 31, ------------------------------- 2003 2002 ------------ ------------ Qualified assets on deposit: Central depositories $ 39,496,410 $ 35,182,213 State governmental authorities 263,516 270,899 ------------ ------------ Total qualified assets on deposit $ 39,759,926 $ 35,453,112 Less: Qualified assets reserved by Provident warehouse line $ (1,222,000) $ (2,547,954) Less: Qualified assets reserved by subscription and note payable $ (4,902,802) $ -- Less: Qualified assets reserved for real estate liens -- (590,000) ------------ ------------ Total qualified assets $ 33,635,124 $ 32,315,158 ============ ============ Certificate reserve under Section 28(a) $ 32,912,452 $ 31,418,457 Less: Certificate loans (69,738) (77,462) Plus: Base capital requirement 250,000 250,000 ------------ ------------ Required deposits $ 33,092,714 $ 31,590,995 ============ ============ F-39 Appendix A - Interim Financial Information For the Period Ended March 31, 2004 SBM Certificate Company and Subsidiaries CONSOLIDATED BALANCE SHEETS

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A-01 SBM Certificate Company and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A-02 SBM Certificate Company and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, (Unaudited)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A-03 SBM CERTIFICATE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2004 1. REGULATORY MATTERS The Company is subject to restrictions relating to its regulatory capital requirements under the 1940 Act. The Company is required to establish and maintain qualified assets (as defined in Section 28(b) of the 1940 Act) having a value not less than the aggregate of certificate reserves (as calculated under Section 28(a)) plus $250,000 ($32.7 million and $33.1 million at March 31, 2004 and December 31, 2003, respectively). The Company had qualified assets (at amortized cost) of $33.1 million and $33.6 million at those respective dates. For purposes of determining compliance with the foregoing provisions, qualified assets are valued in accordance with District of Columbia Insurance Laws (the "D.C. Laws") as required by the 1940 Act. Qualified assets for which no provision for valuation is made in the D.C. Laws are valued in accordance with rules, regulations, or orders prescribed by the SEC. These values are the same as the financial statement carrying values, except that for financial statement purposes, available-for-sale securities are carried at fair value. For qualified asset purposes, available-for-sale securities are valued at amortized cost. Pursuant to the required calculations of various states, the provisions of the certificates, depository agreements, and the 1940 Act, qualified assets of the Company were deposited with an independent custodian and invested in certain investments to meet certificate liability requirements as of March 31, 2004 and December 31, 2003, as shown in the following table. Certain assets on deposit are not considered qualified assets for the purposes of this calculation because they are reserved for the repayment of existing liabilities. Certificate loans, secured by applicable certificate liabilities, are deducted from certificate reserves in computing deposit requirements.

A-04 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition, Changes in Financial Condition and Results of Operations For the three months ended March 31, 2004 compared with the three months ended March 31, 2003 As of March 31, 2004, total qualified assets decreased from $33.6 million at December 31, 2003 to $33.1 million, while required certificate reserves decreased approximately $400,000 from $33.1 million as of December 31, 2003 to $32.7 million as of March 31, 2004. Our earnings are derived primarily from net investment income and net other operating income. Net investment income is income earned from invested assets less investment and other expenses and interest credited on the certificate liability. Net other operating income is income earned from the origination of loans in the mortgage lender/broker business less operating expenses. Changes in net investment income are largely due to changes in the rate of return on investments.Changes in net other operating income is attributable to changes in the volume and pricing of loans originated. We had net income (loss) of $(480,028) and $37,949 for the three months ended March 31, 2004 and 2003, respectively. The net loss for the three months ended March 31, 2004 stemmed mainly from the net investment loss before income tax of $298,877 and the net other operating loss before income taxes of $181,151. The net investment loss before income taxes for the three months ended March 31, 2004 was due to the combination of investment and other expenses and interest credited on certificate liability exceeding the income generated from the investment portfolio. During the first quarter of 2004, we held several non-revenue producing assets, which had a negative impact on the income generated from the investment portfolio. However, the primary reason for the net losses was the income generated from the investment portfolio was not sufficient to cover the certificate interest costs and the fixed operational costs related to the administrative services fee and legal and accounting fees. When certificate sales resume and the investment portfolio increases, the fixed operational costs will have less of a negative impact on us as there would be a larger portfolio of assets generating income to cover the fixed costs. We do not expect a significant increase in fixed costs as the investment portfolio increases. The net income of $37,949 for the three months ended March 31, 2003 was mainly the result of net other operating income before income taxes of $103,511, which was generated from the mortgage company operations. Investment income (excluding realized investment gains and losses) for the three months ended March 31, 2004 was $478,100 compared to investment income of $705,579 for 2003. The decrease in investment income was mainly due to the investments in real estate partnerships not producing any return on the investment and one partnership producing a negative return. These partnerships currently are non-revenue producing since they are in their development stage. Upon completion of their development, these assets are expected to begin producing revenue. The development stage for each project varies by project, but ranges from six to eighteen months. We factored in this development stage into the total expected return of the investment prior to investing the funds and determined the risk and return suited our long-term goals. Total A-05 investment income plus realized gains for the three months ended March 31, 2004 and 2003 was $743,686 and $705,490, respectively. Investment income plus realized investment gains represents annualized investment yields of 8.91% and 8.53% on average cash and investments of $33.4 million and $33.1 million for the three months ended March 31, 2004 and 2003, respectively. Net investment spread, which is the difference between investment income and interest credited on certificate liability, was ($51,672) for the three months ended March 31, 2004 compared to $320,693 in 2003. On an annualized yield basis, these amounts reflect net investment spread of (0.14%) and 3.88%, respectively. Interest credited on certificate liability for the three months ended March 31, 2004 and 2003 was $529,772 and $384,886, respectively. These amounts represent annualized average rates of interest credited of 5.92% and 4.65% on average certificate liability of $35.8 million and $33.1 million for 2004 and 2003, respectively. We monitor credited interest rates for new and renewal issues against competitive products, such as bank certificates of deposit. Credited interest rate adjustments (up or down) on new face-amount certificates are made periodically by SBM. Investment and other expenses were $512,791 and $248,321 for the three months ended March 31, 2004 and 2003, respectively. The increase in investment and other expenses was mainly the result of an increase in legal and accounting fees and an increase in the administrative services fee paid to SBM's parent, SBM Financial. Legal and accounting fees for the first quarter of 2004 were $123,907 and there was no accrual for legal and accounting fees for the three months ended March 31, 2003. The increase in legal and accounting fees was due to accounting costs increasing for the 2003 year end audit, which was performed and invoiced in first quarter 2004, compared to the 2002 year end audit which was invoiced in the second quarter 2003. After Mr. Lawbaugh's bankruptcy filing on May 29, 2003, any legal and accounting costs could not be charged to Mr. Lawbaugh under Bankruptcy Law. The administrative services fee for 2004 and 2003 was $228,200 and $113,000, respectively. The increase in the administrative services fee was due to SBM Financial receiving cash in the first quarter of 2003 from a subsidiary for an outstanding receivable. The cash received for this receivable was used to fund SBM Financial operating costs, which in turn allowed SBM Financial to lower its administrative services fee for the three months ended March 31, 2003. Other expenses for the three months ended March 31, 2004 and 2003 were $95,106 and $61,107, respectively. Net other operating income (loss) before income tax for the three months ended March 31, 2004 and 2003, was ($181,151) and $103,511, respectively. This consists of the mortgage lender/broker operations of ACFC. For the three months ended March 31, 2004 and 2003, other operating income was $260,560 and $901,151, respectively. This income is derived from loan origination fees, gain on sale to investor and other processing and underwriting loan fees relating to originating and brokering loans. The decrease in other operating income for the first quarter 2004 as compared to the first quarter 2003 was due to a decrease in the volume of loans originated. This decreased loan origination volume in 2004 was due to a slight increase in market interest rates from the first quarter 2003, as well as the sales division of the mortgage operations was restructured in late 2003, which resulted in a significant reduction of staff. Both A-06 of these events had a material negative impact on the financial results of ACFC in the first quarter of 2004, causing the net loss. In the first quarter of 2004, ACFC had begun replacing a significant portion of the loan sales staff that was lost in 2003 and intends to continue increasing the sales staff throughout 2004 to increase revenues. For the three months ended March 31, 2004 and 2003, other operating expenses were $441,711 and $797,640, respectively. These expenses consist of salaries and commissions paid in relation to originating and brokering loans and other costs in operating the mortgage company. The decrease in other operating expenses for the three months ended March 31, 2004 as compared to the three months ended March 31, 2003, was mainly due to lower commissions paid as a result of a decrease in loan revenues. Realized investment gains (losses) were $265,586 and ($89) for the three months ended March 31, 2004 and 2003, respectively. The realized investment gains for the three months ended March 31, 2004 were the result of gains recognized from the sale of certain available for sale securities, which had significant increases in their market value from their amortized cost. Realized investment gains and losses are primarily interest-rate related and attributable to our asset/liability management strategies. We invest in a mixture of investments ranging from fixed maturity securities, equity securities, mortgage notes, real estate, and real estate tax lien certificates. The objective of each investment is to provide reasonable returns while limiting liquidity and credit risks. In the event that SBM experiences higher than historical levels of certificate surrenders, SBM might need to liquidate investments other than in accordance with its normal asset/liability management strategy and, as a result, SBM could experience substantial realized investment losses. Liquidity and Financial Resources As of March 31, 2004, we had $418,890 of qualified assets in excess of the minimum amount required by the 1940 Act and the rules and regulations promulgated thereunder by the SEC, as computed in accordance with the 1940 Act. The primary liquidity requirement of SBM relates to its payment of certificate maturities and surrenders and payment of its legal and accounting costs and administrative services fee. The principal sources of cash to meet such liquidity requirements are investment income and proceeds from maturities and redemptions of investments. SBM will have $9.3 million of certificate principal and interest obligation payments due for the remainder of 2004. However, in 2003, SBM experienced an 84% renewal rate and management expects principal and interest payments to certificate holders to be approximately $1.5 million for the remainder of 2004. In connection with the Acquisition, SBM Financial issued debt instruments totaling $1,616,772 with interest payable semi-annually, beginning June 2, 2004, at a rate of 1.5% per annum. Cash flows generated from the Company may be a source of funds for the service of SBM Financial's A-07 debt payments in future years. Principal and interest payments under such debt total $185,322 annually. At March 31, 2004, cash and cash equivalents totaled $901,884, a decrease of $490,231 from December 31, 2003. We aim to manage our cash and cash equivalents position as to satisfy short-term liquidity needs. In connection with this management of cash and cash equivalents, we may invest idle cash in short duration fixed maturities to capture additional yield when short-term liquidity requirements permit. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our investments are represented by a mixture of available-for-sale securities (comprised of government and corporate bonds, mortgage-backed securities, closed-end mutual funds and equity securities), mortgage notes, real estate, real estate partnerships and real estate tax lien certificates. Managing interest rates between those earned on our investments and those paid under the face-amount certificates is fundamental to our investment decisions. Both rates are sensitive to changes in the general level of interest rates in the economy, as well as to competitive factors in the case of the certificates. We have a portion of our portfolio invested in real estate and real estate loans, which, at March 31, 2004, includes $14.2 million of mortgage notes and $2.3 million of real estate owned. Defaults by the borrower on payments due and fluctuations in the value of the underlying real estate represent the greatest risk factor for this investment strategy. However, we mitigate the risk associated with the mortgage notes by investing only in those loans that have a history of producing income, are of high quality by industry standards or have underlying properties that represent excellent values and safety relative to the market. The mortgage notes must have a loan to value ratio no higher than 80% for the investment to be a qualified asset as defined by the provisions of the Insurance Code at the District of Columbia. As of March 31, 2004 we also have investments in real estate partnerships with a carrying value of $10,348,492 and future funding commitments of $1,980,645, which are reflected as subscription and notes payable in the financial statements. These partnerships were formed for the purpose of acquiring and developing residential and commercial real estate. Acquiring or developing commercial and residential real estate has risk related to the construction and the leasing and rental market for the respective properties, since leasing and rental revenue is the source of cash flows for the properties. A strong leasing and rental market could have a positive impact on projected performance, while a weaker leasing and rental market could have a negative impact on future projected cash flows from the investment. The partnership guidelines have certain requirements on the type and quality of the real estate to be acquired or developed. By investing in markets with low leasing vacancy rates, high quality real estate and partnering with other groups with extensive building management experience, we are able to moderate the risk for such investments in relation to the expected return. We also invest in real estate tax lien certificates, which have a balance of $365,682 at March 31, 2004. The greatest risk associated with this investment is the time and costs of the A-08 foreclosure process when amounts remain unpaid beyond the Company's aging policy. The risk is mitigated by our first priority lien on the property on which the tax is owed, and our general policy of securing these investments, in most circumstances, only with properties in which the amount paid by us to acquire the certificates is less than 10% of the market value of the property that secures the investment. Our ownership in residual mortgage certificates was $2.9 million at March 31, 2004 and represents a subordinate ownership interest in a trust (the "Trust") that owns a pool of residential mortgages. We assume the risk of default on the mortgages held within the Trust. Defaults of principal and interest by borrowers will adversely affect our return on this investment. A reserve for defaults was calculated into the original purchase price to account for the risk of loss on the investment. In addition, risk of loss is lessened by the weighted average loan to value ratio on the underlying mortgage notes as compared to the real estate securing the note being approximately 60%. We regularly analyze interest rate sensitivity and the potential impact of interest rate fluctuations based on a range of different interest rate models. These provide "benchmarks" for assessing the impact on our earnings if rates moved higher or lower than the expected targets set in our investment guidelines. We will continue to formulate strategies directed at protecting earnings for the potential negative effects of changes in interest rates. A-09 PART II Item 13. Other Expenses of Issuance and Distribution The Registrant pays registration fees pursuant to Rule 24f-2 of the Investment Company Act of 1940. The securities covered by this Registration Statement will be offered by Registrant on a continuous basis. All expenses of issuance and distribution, including printing, legal, accounting and related miscellaneous expenses, are paid by the Registrant. Item 14. Indemnification of Directors and Officers Under Section 2-418 of Maryland General Corporation Law, a corporation may indemnify certain directors, officers, employees, or agents. Consistent with Maryland Law, Article Seventh (E) (viii) of Registrant's Articles of Incorporation ("Articles") permits it to indemnify its Directors and officers to the fullest extent permitted by law. In addition, Article X of Registrant's By-Laws permits it to insure and indemnify its Directors, officers, and employees and agents to the fullest extent permitted by law. The above-cited provisions of Registrant's Articles and By-Laws, which have been filed as exhibits to this Registration Statement, are incorporated by reference into this Item to the extent necessary to respond to this item. Various agreements that Registrant has entered or will enter into contain provisions for the indemnification of Registrant's officers and directors to the extent permitted by applicable law. These agreements have been filed as exhibits to this Registration statement, and are hereby incorporated by reference into this Item to the extent necessary to respond to this item. Item 15. Recent Sales of Unregistered Securities None Item 16. Exhibits and Financial Statement Schedules (a) Exhibits (2)(a) Stock Purchase Agreement dated March 28, 2000 by and among 1st Atlantic Guaranty Corporation, SBM Certificate Company, and ARM Financial Group (Exhibits omitted), incorporated by reference to Exhibit (2) to form 8-K dated March 28, 2000 of 1st Atlantic Guaranty Corporation (File No. 333-41361). (2)(b) Stock Purchase Agreement By and Between Mark D. Taylor, Bankruptcy Trustee, in his Capacity as Representative of John J. Lawbaugh Bankruptcy Estate and Geneva Capital Partners, LLC dated as of December 2, 2003, incorporated by reference to Exhibit 99.3 to Company's Form 8-K dated December 2, 2003 (File No. 811-6268). II-1 (2)(c) Term Sheet Between Trustee, 1st Atlantic, Geneva, APT Creditors, SBM Financial, SBM Certificate Company, ACFC, and Escrow Agent dated November 7, 2003, incorporated by reference to Exhibit 99.2 to Company's Form 8-K dated December 2, 2003 (File No. 811-6268). (3)(a) Articles of Incorporation of the Company, incorporated by reference to Exhibit (3)(a) to Post-Effective Amendment No. 11 to Registration Statement No. 33-38066 filed on September 28, 2000. (3)(a)(i) Certificate of Correction of Articles of Incorporation of the Company, incorporated by reference to Exhibit (3)(a) of Post-Effective Amendment No. 13 to Registration Statement No. 33-38066 filed on January 2, 2001. (3)(b) By-Laws of the Company incorporated by reference to Exhibit (3)(b) of Post-Effective Amendment No. 11 to Registration Statement No. 33-38066 filed on September 28, 2000. (4)(a) Form of Application incorporated by reference to Exhibit (4)(a) of Form 10-K for the year ended December 31, 2003 of SBM Certificate Company (File No. 811-6268). (4)(b) Form of Account Statement incorporated by reference to Exhibit (4)(b) of Form 10-K for the year ended December 31, 2003 of SBM Certificate Company (File No. 811-6268). (5) Opinion of Griffin Farmer & Murphy LLP. (10)(a) Amended and Restated Administrative Services Agreement dated as of the 1st day of July, 2001, by and between the Company and State Bond & Mortgage Company, L.L.C., incorporated by reference to Exhibit (10)(a) to the Company's Form 10-K for the year ended December 31, 2001 (Form No. 811-6268). (10)(b) Custody Agreement, as amended and supplemented, between the Company (as successor to SBM Certificate Company (Minnesota)) and First Trust National Association (now U.S. Bank Trust N.A.) dated December 20, 1990, incorporated by reference to Exhibit 10(b) to Form S-1 Registration Statement No. 33-38066 filed on January 2, 1991. (21) Subsidiaries of the Company, incorporated by reference to Exhibit (21) to the Company's Form 10-K for the year ended December 31, 2003 (Form No. 811-6268). (23)(a) Consent of Reznick, Fedder & Silverman dated June 17, 2004 (23)(b) Consent of Counsel (See Exhibit (5)) II-2 (99.1) Escrow Agreement dated November 14, 2002, among 1st Atlantic Guaranty Corporation, John J. Lawbaugh and Baker Botts, as escrow agent, incorporated by reference to Exhibit (99.1) to the Company's Form 8-K dated November 12, 2002 (File No. 811-6268). (99.2) Order Approving Settlement Agreement Between Chapter 11 Trustee, 1st Atlantic Guaranty Corporation, Geneva Capital Partners, LLC, APT Creditors, SBM Financial, LLC, SBM Certificate Company, Atlantic Capital Funding Corporation and Escrow Agent dated December 2, 2003, incorporated by reference to Exhibit (99.1) to Company's Form 8-K dated December 2, 2003 (File No. 811-6268). (99.3) Settlement and Release Agreement By and Between the Trustee, APT Creditors and Geneva dated December 2, 2003, incorporated by reference to Exhibit (99.4) to Company's Form 8-K dated December 2, 2003 (File No. 811-6268). (99.4) Secured Promissory Notes By and Between SBM Financial, LLC, formerly State Bond & Mortgage, LLC, and APT Creditors, incorporated by reference to Exhibit (99.5) to Company's Form 8-K dated December 2, 2003 (File No. 811-6268). (99.5) Security Agreement By and Between SBM Financial, LLC (formerly State Bond & Mortgage, LLC), Escrow Agent and Noteholders pursuant to the Settlement Agreement, incorporated by reference to Exhibit (99.6) to Company's Form 8-K dated December 2, 2003 (File No. 811-6268). (99.6) Consent to Entry of Final Judgment and Permanent Injunction Between the Securities and Exchange Commission and 1st Atlantic Guaranty Corporation dated December 2, 2003, incorporated by reference to Exhibit (99.7) to Company's Form 8-K dated December 2, 2003 (File No. 811-6268). (99.7) Final Judgment as to Defendant 1st Atlantic Guaranty Corporation Entered by the United States District Court for the District of Maryland dated December 8, 2003, incorporated by reference to Exhibit (99.8) to Company's Form 8-K dated December 2, 2003 (File No. 811-6268). (99.8) Letter of Preferable Accounting Treatment from Reznick Fedder & Silverman dated January 23, 2004, incorporated by reference to Exhibit (99.10) of Form 10-K for the year ended December 31, 2003 of SBM Certificate Company (File No. 811-6268). (b) Financial Statement Schedules, See page S-01 for Index to Financial Statement Schedules. II-3 Item 17. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "1933 Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expresses in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other that the payment by the Company of expenses incurred or paid by a director, officer, or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. II-4 Signatures Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement, or amendment thereto, to be signed on its behalf by the undersigned, thereunto duly authorized, in Bethesda, Maryland, on this 18th day of June, 2004. SBM Certificate Company By: /s/ Eric M. Westbury ------------------------------ Eric M. Westbury Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement, or amendment thereto, has been signed by the following persons in the capacities on the dates indicated:

II-5 SBM CERTIFICATE COMPANY INDEX TO FINANCIAL STATEMENT SCHEDULES DECEMBER 31, 2003 REPORT OF INDEPENDENT AUDITORS S-02 SCHEDULE I - INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS S-03 SCHEDULE II - INVESTMENTS IN AND ADVANCES TO AFFILIATES AND INCOME THEREON S-05 SCHEDULE III - MORTGAGE LOANS ON REAL ESTATE AND INTEREST EARNED ON MORTGAGES S-06 SCHEDULE IV - REAL ESTATE OWNED AND RENTAL INCOME S-07 SCHEDULE V - QUALIFIED ASSETS ON DEPOSIT S-08 SCHEDULE VI - CERTIFICATE RESERVES S-09 SCHEDULE VII - VALUATION AND QUALIFYING ACCOUNTS S-15 S-01 REPORT OF INDEPENDENT AUDITORS To the Shareholder and Board of Directors SBM Certificate Company We have audited the financial statements of SBM Certificate Company as of December 31, 2003, and for the year then ended, and have issued our report thereon dated January 23, 2004. Our audit also includes the financial statement schedules referenced in Item 16(b) of this Registration Statement. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. 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 to the information set forth herein. /s/ Reznick Fedder & Silverman Bethesda, Maryland January 23, 2004 S-02 SBM Certificate Company and Subsidiaries SUPPLEMENTAL SCHEDULES SCHEDULE I - INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS December 31, 2003

(continued) S-03 SBM Certificate Company and Subsidiaries SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE I - INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS - CONTINUED December 31, 2003

S-04 SBM Certificate Company and Subsidiaries SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE II - INVESTMENTS IN AND ADVANCES TO AFFILIATES AND INCOME THEREON Year ended December 31, 2003

(1) During 2003, SBM-MD made additional contributions to ACFC totaling $196,000. S-05 SBM Certificate Company and Subsidiaries SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE III - MORTGAGE LOANS ON REAL ESTATE AND INTEREST EARNED ON MORTGAGES Year ended December 31, 2003

S-06 SBM Certificate Company and Subsidiaries SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE IV - REAL ESTATE OWNED AND RENTAL INCOME December 31, 2003

S-07 SBM Certificate Company and Subsidiaries SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE V - QUALIFIED ASSETS ON DEPOSIT December 31, 2003

(a) Represents amortized cost of bonds and securities. (b) Represents dividend and interest receivable on qualified assets and investments in real estate partnerships. S-08 SBM Certificate Company and Subsidiary SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE VI - CERTIFICATE RESERVES PART I - SUMMARY OF CHANGES Year ended December 31, 2003

NOTE (a) - December 5, 2003 Acquisition adjustment (continued) S-09 SBM Certificate Company and Subsidiary SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE VI - CERTIFICATE RESERVES - CONTINUED PART I - SUMMARY OF CHANGES - CONTINUED Year ended December 31, 2003

NOTE (a) - Rolled to other company products NOTE (b) - Interest payments to certificate holders (continued) S-10 SBM Certificate Company and Subsidiary SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE VI - CERTIFICATE RESERVES - CONTINUED PART II - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS Year ended December 31, 2003 BALANCE AT BEGINNING OF YEAR ----------------------------------------- NUMBER OF ACCOUNTS AGE WITH AMOUNT OF GROUPING IN SECURITY MATURITY AMOUNT OF YEARS HOLDERS VALUE RESERVES ----------- --------- --------- --------- Series 120 23 1 $ 6,000 $ 18,249 24 0 -- -- 25 0 -- -- 31 0 -- -- 32 0 -- -- 33 0 -- -- 34 1 5,000 17,685 35 0 -- -- 36 0 -- -- 37 2 12,000 45,261 38 1 3,000 12,654 40 1 6,000 27,520 -------- -------- -------- Total 6 $ 32,000 $121,369 ======== ======== ======== Series 220 23 0 $ -- $ -- 24 0 -- -- 29 0 -- -- 30 0 -- -- 31 1 4,000 10,453 32 0 -- -- 33 2 10,000 30,771 34 3 17,000 56,229 35 2 14,000 34,718 36 3 9,000 52,479 38 1 5,000 17,496 -------- -------- -------- Total 12 $ 59,000 $202,146 ======== ======== ======== (continued) S-11 SBM Certificate Company and Subsidiary SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE VI - CERTIFICATE RESERVES - CONTINUED PART II - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS - CONTINUED Year ended December 31, 2003

(continued) S-12 SBM Certificate Company and Subsidiary SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE VI - CERTIFICATE RESERVES - CONTINUED PART II - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS Year ended December 31, 2003 BALANCE AT BEGINNING OF YEAR ---------------------------------------- NUMBER OF ACCOUNTS AGE WITH AMOUNT OF GROUPING IN SECURITY MATURITY AMOUNT OF YEARS HOLDERS VALUE RESERVES ----------- --------- --------- --------- Series 315 12 0 $ -- $ -- 13 0 -- -- 14 2 7,700 8,335 15 0 -- -- 16 4 17,600 24,205 17 1 2,200 3,268 18 1 2,200 3,952 19 6 24,200 42,294 20 0 -- -- ------- ------- ------- Total 14 $53,900 $82,054 ======= ======= ======= (continued) S-13 SBM Certificate Company and Subsidiary SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE VI - CERTIFICATE RESERVES - CONTINUED PART II - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS - CONTINUED Year ended December 31, 2003

S-14 SBM Certificate Company and Subsidiaries SUPPLEMENTAL SCHEDULES - CONTINUED SCHEDULE VII - VALUATION AND QUALIFYING ACCOUNTS

(1) The valuation allowance was increased as a result of establishing a full valuation allowance on deferred tax assets for capital loss carryforwards and NOL carryforwards. (2) See Note 14 of the Notes to the Consolidating Financial Statements for the year ended December 31, 2003. S-15

SBM CERTIFICATE CO S-1