FROM THE PRESIDENT

Guaranty Income Life Insurance Company (Guaranty) had another successful year in 2007. Our strong financial performance and operational trends provide the basis for continued growth in 2008.

Guaranty is one of the most highly regarded life insurance companies in the United States because of our innovative products, 24/7 Web site assistance, producer training emphasis and efficient, friendly service.

Guaranty offers competitive annuity, life insurance and long-term care products and services to help families meet their financial needs, including wealth creation and protection, today and in the future.

Our AnnuiCare® riders, which package the benefits of LTC protection with our annuity products, are among the most creative in the industry. Sales of AnnuiCare® increased by 40% in 2007. This was attributable to our reinsurance agreement with Munich American Re and the passage of the Pension Protection Act ("PPA") which introduced new tax incentives for Annuity/LTC combination products. After 12/31/09, The PPA tax changes allow LTC premiums to be paid from untaxed annuity distributions and the LTC benefits paid remain tax free. AnnuiCare® and our other consumer-friendly products offer unique risk protection and satisfaction to our policyowners and have attracted quality producers to Guaranty.

We look forward to building on our 82-year history and proud tradition of caring for our policyowners, producers and other stakeholders. We will continue to deliver industry leading products and service to grow Guaranty's distinguished legacy.

John Lancaster, President

Financial Results

On a Generally Accepted Accounting Principle (GAAP) basis, we recorded net income of $0.9 million in 2007 compared to $1.8 million of net income for 2006. At December 31, 2007, GAAP capital and surplus, adjusted for Statement of Financial Accounting Standards No. 115 (SFAS 115), was $39.9 million, the highest level in our history, following last year's record of $38.9 million.

On a statutory basis (required reporting by state insurance departments), Guaranty posted net income of $0.9 million and $1.7 million for the year ended December 31, 2007 and 2006, respectively.

Statutory adjusted capital and surplus (including IMR and AVR) grew to $28.6 million. Guaranty's capital ratios have increased dramatically as the result of increased earnings and the financial support of our parent company. Guaranty's Risk-Based Capital (RBC) ratio remained strong at 598% at December 31, 2007.

Investments

Successful investment management requires constant vigilance in changing economic and interest rate environments. Guaranty's strategy is to optimize the return on our investments while maintaining a maximum degree of safety.

The foremost objective of Guaranty's investment philosophy is to provide policyowners a sound return on their money. Within this objective, we strive to generate the highest returns available on a diverse portfolio while maintaining acceptable parameters of safety.

Guaranty's bond portfolio has one of the highest quality ratings in the insurance industry of AAA. Guaranty maintained a short-term duration of approximately six years. Cash, short-term investments and bonds continue to provide a liquid portfolio representing 96% of invested assets. At December 31, 2007, investment grade bonds represent 98.1% of our bond portfolio.

Superior investment performance has allowed Guaranty to pay competitive interest rates to policyowners. Guaranty's net investment yield has exceeded the industry average yields in each of the last four years.

Guaranty Income Life Insurance Company was incorporated in 1926 and is a Legal Reserve Insurance Company. The Company is currently licensed in 31 states. Guaranty and its producers or representatives do not give tax, legal or accounting advice. Please consult your own attorney, accountant or tax advisor to determine the suitability of any life insurance, long-term care or annuity policy for your own situation.