LOGO(TM)
CONSECO(R)
Issued by
CONSECO VARIABLE INSURANCE COMPANY
Monument Series
Fixed and Variable Annuity
May 1, 1999
Prospectus
Conseco Variable Insurance Company
Variable Annuity Account G
This cover is not part of the prospectus.
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LOGO(TM)
CONSECO(R)
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The Fixed And Variable Annuity
issued by
CONSECO VARIABLE ANNUITY ACCOUNT G
(formerly Great American Reserve Variable Annuity Account G)
and
CONSECO VARIABLE INSURANCE COMPANY
(formerly Great American Reserve Insurance Company)
This prospectus describes the Group and Individual Fixed and Variable
Annuity Contract offered by Conseco Variable Insurance Company (Conseco
Variable). Prior to October 7, 1998, Conseco Variable Insurance Company's name
was Great American Reserve Insurance Company.
The annuity Contract has 43 investment choices -- three Guarantee Periods
of the market value adjustment account option (MVA Option) and 40 Investment
Portfolios listed below. You can put your money in any of the three Guarantee
Periods of the MVA Option and/or the Investment Portfolios. Currently, you can
invest in up to 15 Investment Portfolios at one time.
Conseco Series Trust
Managed by Conseco Capital Management, Inc.
o Balanced Portfolio (formerly, Asset Allocation Portfolio)
o Equity Portfolio (formerly, Common Stock Portfolio)
o Fixed Income Portfolio (formerly, Corporate Bond Portfolio)
o Government Securities Portfolio
o Money Market Portfolio
The Alger American Fund
Managed by Fred Alger Management, Inc.
o Alger American Growth Portfolio
o Alger American Leveraged AllCap Portfolio
o Alger American MidCap Growth Portfolio
o Alger American Small Capitalization Portfolio
American Century Variable Portfolios, Inc.
Managed by American Century Investment Management, Inc.
o VP Income & Growth
o VP International
o VP Value
Berger Institutional Products Trust
Managed by Berger Associates, Inc.
o Berger IPT--100 Fund
o Berger IPT--Growth and Income Fund
o Berger IPT--Small Company Growth Fund
Managed by BBOI Worldwide, LLC
o Berger/BIAM IPT--International Fund
The Dreyfus Socially Responsible Growth Fund, Inc.
Managed by The Dreyfus Corporation
Dreyfus Stock Index Fund
Managed by The Dreyfus Corporation
Dreyfus Variable Investment Fund
Managed by The Dreyfus Corporation
o Disciplined Stock Portfolio
o International Value Portfolio
Federated Insurance Series
Managed by Federated Investment Management Company
(formerly, Federated Advisers)
o Federated High Income Bond Fund II
o Federated Utility Fund II
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The Securities and Exchange Commission has not approved or disapproved
these securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
May 1, 1999
1
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Managed by Federated Global Investment Management Corp.
o Federated International Equity Fund II
INVESCO Variable Investment Funds, Inc.
Managed by INVESCO Funds Group, Inc.
o INVESCO VIF - High Yield Fund
o INVESCO VIF - Equity Income Fund (formerly, INVESCO VIF - Industrial
Income Portfolio)
Janus Aspen Series
Managed by Janus Capital Corporation
o Aggressive Growth Portfolio
o Growth Portfolio
o Worldwide Growth Portfolio
Lazard Retirement Series, Inc.
Managed by Lazard Asset Management
o Lazard Retirement Equity Portfolio
o Lazard Retirement Small Cap Portfolio
Lord Abbett Series Fund, Inc.
Managed by Lord, Abbett & Co.
o Growth and Income Portfolio
Mitchell Hutchins Series Trust
Managed by Mitchell Hutchins Asset Management, Inc.
o Growth and Income Portfolio
Neuberger Berman Advisers Management Trust
Managed by Neuberger Berman Management Inc.
o Limited Maturity Bond Portfolio
o Partners Portfolio
Strong Opportunity Fund II, Inc.
Managed by Strong Capital Management, Inc.
o Opportunity Fund II
Strong Variable Insurance Funds, Inc.
Managed by Strong Capital Management, Inc.
o Strong Mid Cap Growth Fund II (formerly, Growth Fund II)
Van Eck Worldwide Insurance Trust
Managed by Van Eck Associates Corporation
o Worldwide Bond Fund
o Worldwide Emerging Markets Fund
o Worldwide Hard Assets Fund
o Worldwide Real Estate Fund
Please read this prospectus before investing and keep it on file for
future reference. It contains important information about the Monument Series
Fixed and Variable Annuity Contract.
To learn more about the Monument Series Fixed and Variable Annuity
Contract, you can obtain a copy of the Statement of Additional Information (SAI)
dated May 1, 1999. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is legally a part of this prospectus. The SEC has a Web
site (http://www.sec.gov) that contains the SAI, material incorporated by
reference, and other information regarding companies that file electronically
with the SEC. The Table of Contents of the SAI is on Page 56 of this prospectus.
For a free copy of the SAI, call us at (800) 824-2726 or write us at our
administrative office: 11815 N. Pennsylvania Street, Carmel, Indiana 46032.
The Contracts:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed and may be subject to loss of principal
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
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Table of Contents
Page
Index of Special Terms...................................................... 5
Fee Table................................................................... 6
1. The Monument Series Annuity Contract.................................... 11
2. Annuity Payments (The Income Phase)..................................... 11
3. Purchase................................................................ 13
Purchase Payments..................................................... 13
Allocation of Purchase Payments....................................... 13
Free-Look............................................................. 13
Accumulation Units.................................................... 13
4. Investment Options...................................................... 14
Investment Portfolios................................................. 14
Voting Rights......................................................... 16
Substitution.......................................................... 16
The MVA Option........................................................ 16
Transfers............................................................. 16
Dollar Cost Averaging Program......................................... 17
Rebalancing Program................................................... 18
5. Expenses................................................................ 18
Insurance Charges..................................................... 18
Contract Maintenance Charge........................................... 18
Transfer Fee.......................................................... 19
Premium Taxes......................................................... 19
Income Taxes.......................................................... 19
Investment Portfolio Expenses......................................... 19
6. Taxes................................................................... 19
Annuity Contracts In General.......................................... 19
Qualified And Non-Qualified Contracts................................. 20
Withdrawals--Non-Qualified Contracts.................................. 20
Withdrawals--Qualified Contracts...................................... 20
Withdrawals--Tax Sheltered Annuities.................................. 20
Diversification....................................................... 20
Investor Control...................................................... 20
7. Access To Your Money.................................................... 21
Systematic Withdrawal Program......................................... 21
Suspension of Payments or Transfers................................... 21
8. Performance............................................................. 21
9. Death Benefit........................................................... 22
Upon Your Death....................................................... 22
Death Of Annuitant.................................................... 22
3
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Table Of Contents (cont'd)
Page
10. Other Information...................................................... 22
Conseco Variable.................................................... 22
The Separate Accounts............................................... 23
Distributor......................................................... 23
Ownership........................................................... 23
Beneficiary......................................................... 23
Assignment.......................................................... 24
Additional Information.............................................. 24
Selected Financial Information of Conseco Variable.................. 24
Business of Conseco Variable........................................ 25
Management's Discussion and Analysis of Financial Condition and
Results of Operations of Conseco Variable......................... 30
Directors And Executive Officers.................................... 39
Executive Compensation.............................................. 40
Independent Accountants............................................. 40
Legal Opinions...................................................... 40
Financial Statements................................................ 40
Table of Contents of the Statement of Additional Information................ 56
Appendix A--Condensed Financial Information................................. 56
Appendix B--Market Value Adjustment......................................... 60
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
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Index Of Special Terms
We have written this prospectus in plain English. By the very nature of
the Contract, however, certain technical words or terms are unavoidable. We have
identified the following as some of these words or terms. They are capitalized
in the text and the page that is indicated here is where we believe you will
find the best explanation for the word or term.
Page
Accumulation Phase.......................................................... 11
Accumulation Unit........................................................... 13
Annuitant................................................................... 12
Annuity Date................................................................ 12
Annuity Options............................................................. 12
Annuity Payments............................................................ 12
Annuity Unit................................................................ 13
Beneficiary................................................................. 23
Contract.................................................................... 11
Guarantee Period............................................................ 16
Income Phase................................................................ 11
Investment Portfolios....................................................... 14
Joint Owner................................................................. 23
MVA Option.................................................................. 16
Non-Qualified............................................................... 20
Owner....................................................................... 23
Purchase Payment............................................................ 13
Qualified................................................................... 20
Tax-Deferral................................................................ 19
5
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Fee Table
Owner Transaction Expenses
Contingent Deferred Sales Charge None
Transfer Fee
(see Note 2 under "Explanation of No charge for one transfer in each 30
Fee Table and Examples") day period during the Accumulation
Phase. Thereafter, we will charge a
fee of $25 or 2% of the amount
transferred (whichever is less). We
will not charge for the four transfers
allowed each year during the Income
Phase.
Contract Maintenance Charge $30 per Contract per year
(see Note 3 under "Explanation
of Fee Table and Examples")
Separate Account Annual Expenses
(as a percentage of average
account value)
Mortality and Expense Risk Charge 1.15%
Administrative Charge .15%
----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES 1.30%
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6
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
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INVESTMENT PORTFOLIO EXPENSES
(as a percentage of the average daily net assets of an Investment Portfolio)
<TABLE>
<CAPTION>
TOTAL ANNUAL
OTHER EXPENSES PORTFOLIO
(AFTER EXPENSE EXPENSES
REIMBURSEMENT (AFTER EXPENSE
MANAGEMENT 12b-1 FOR CERTAIN REIMBURSEMENT FOR
FEES FEES PORTFOLIOS) CERTAIN PORTFOLIOS)
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<S> <C> <C> <C> <C>
CONSECO SERIES TRUST (1)
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Balanced Portfolio (2) ................................. 0.75% -- 0.00% 0.75%
Equity Portfolio (2) ................................... 0.80% -- 0.00% 0.80%
Fixed Income Portfolio ................................. 0.70% -- 0.00% 0.70%
Government Securities Portfolio ........................ 0.70% -- 0.00% 0.70%
Money Market Portfolio (2) ............................. 0.45% -- 0.00% 0.45%
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THE ALGER AMERICAN FUND
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Alger American Growth Portfolio ........................ 0.75% -- 0.04% 0.79%
Alger American Leveraged AllCap Portfolio (3) ......... 0.85% -- 0.11% 0.96%
Alger American MidCap Growth Portfolio ................. 0.80% -- 0.04% 0.84%
Alger American Small Capitalization Portfolio .......... 0.85% -- 0.04% 0.89%
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AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
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VP Income & Growth ..................................... 0.70% -- 0.00% 0.70%
VP International ....................................... 1.50% -- 0.00% 1.50%
VP Value ............................................... 1.00% -- 0.00% 1.00%
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BERGER INSTITUTIONAL PRODUCTS TRUST
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Berger IPT--100 Fund (4) ............................... 0.00% -- 1.00% 1.00%
Berger IPT--Growth and Income Fund (4) ................. 0.00% -- 1.00% 1.00%
Berger IPT--Small Company Growth Fund (4) ............. 0.00% -- 1.15% 1.15%
Berger/BIAM IPT--International Fund (4) ................ 0.00% -- 1.20% 1.20%
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THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC....... 0.75% -- 0.05% 0.80%
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DREYFUS STOCK INDEX FUND ............................... 0.25% -- 0.01% 0.26%
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DREYFUS VARIABLE INVESTMENT FUND
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Disciplined Stock Portfolio ............................ 0.75% -- 0.13% 0.88%
International Value Portfolio .......................... 1.00% -- 0.29% 1.29%
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FEDERATED INSURANCE SERIES
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Federated High Income Bond Fund II ..................... 0.60% -- 0.18% 0.78%
Federated International Equity Fund II (5) ............. 0.53% -- 0.72% 1.25%
Federated Utility Fund II (5) .......................... 0.68% -- 0.25% 0.93%
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INVESCO VARIABLE INVESTMENT FUNDS, INC.
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INVESCO VIF - High Yield Fund (6) ..................... 0.60% -- 0.47% 1.07%
INVESCO VIF - Equity Income Fund (6)(7) ................ 0.75% -- 0.18% 0.93%
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JANUS ASPEN SERIES
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Aggressive Growth Portfolio ............................ 0.72% -- 0.03% 0.75%
Growth Portfolio (8) ................................... 0.65% -- 0.03% 0.68%
Worldwide Growth Portfolio (8) ......................... 0.65% -- 0.07% 0.72%
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LAZARD RETIREMENT SERIES, INC.
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Lazard Retirement Equity Portfolio (9) ................. 0.75% 0.25% 0.25% 1.25%
Lazard Retirement Small Cap Portfolio (9) .............. 0.75% 0.25% 0.25% 1.25%
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</TABLE>
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<TABLE>
<CAPTION>
TOTAL ANNUAL
OTHER EXPENSES PORTFOLIO
(AFTER EXPENSE EXPENSES
REIMBURSEMENT (AFTER EXPENSE
MANAGEMENT 12b-1 FOR CERTAIN REIMBURSEMENT FOR
FEES FEES PORTFOLIOS) CERTAIN PORTFOLIOS)
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<S> <C> <C> <C> <C>
LORD ABBETT SERIES FUND, INC.
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Growth and Income Portfolio ............................ 0.50% -- 0.26% 0.76%
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MITCHELL HUTCHINS SERIES TRUST
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Growth and Income Portfolio ............................ 0.70% -- 0.34% 1.04%
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NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST (10)
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Limited Maturity Bond Portfolio ........................ 0.65% -- 0.11% 0.76%
Partners Portfolio ..................................... 0.78% -- 0.06% 0.84%
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STRONG OPPORTUNITY FUND II, INC.
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Opportunity Fund II .................................... 1.00% -- 0.16% 1.16%
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STRONG VARIABLE INSURANCE FUNDS, INC
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Strong Mid Cap Growth Fund II (11) ..................... 1.00% -- 0.20% 1.20%
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VAN ECK WORLDWIDE INSURANCE TRUST (12)
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Worldwide Bond Fund .................................... 1.00% -- 0.15% 1.15%
Worldwide Emerging Markets Fund ........................ 1.00% -- 0.50% 1.50%
Worldwide Hard Assets Fund ............................. 1.00% -- 0.16% 1.16%
Worldwide Real Estate Fund ............................. 0.89% -- 0.00% 0.89%
</TABLE>
(1) The expense information in the table has been restated to reflect
current fees. Pursuant to a contractual arrangement with the Trust, Conseco
Capital Management, Inc., the adviser, has agreed to waive fees and/or reimburse
portfolio expenses through 4/30/00, so that the annual operating expenses of
each portfolio are limited to the Total Annual Expenses for each respective
portfolio, as set forth above. This arrangement does not cover interest, taxes,
brokerage commissions, and extraordinary expenses. The total percentages in the
above table are after reimbursement. In the absence of expense reimbursement,
the total estimated fees and expenses for 1999 would total: 0.83% for the Money
Market Portfolio; 0.97% for the Government Securities Portfolio; 0.89% for the
Fixed Income Portfolio; 1.01% for the Balanced Portfolio and 0.95% for the
Equity Portfolio.
(2) Conseco Capital Management, Inc., since January 1, 1993, has waived
its management fees in excess of the annual rates set forth above. Absent such
fee waivers, the management fees would be: .85% for the Balanced Portfolio; .85%
for the Equity Portfolio; and .70% for the Money Market Portfolio.
(3) The Alger American Leveraged AllCap Portfolio's "Other Expenses"
includes .03% of interest expense.
(4) The Funds' investment advisers have agreed to waive their advisory fee
and reimburse the Funds for additional expenses to the extent that normal
operating expenses in any fiscal year, including the investment advisory fee but
excluding brokerage commissions, interest, taxes and extraordinary expenses, of
each of the Berger IPT--100 Fund and the Berger IPT--Growth and Income Fund
exceed 1.00%, the normal operating expenses in any fiscal year of the Berger
IPT--Small Company Growth Fund exceed 1.15%, and the normal operating expenses
of the Berger/BIAM IPT--International Fund exceed 1.20% of the respective Fund's
average daily net assets. Absent the waiver and reimbursement, the Management
Fee for the Berger IPT--100 Fund, Berger IPT--Growth and Income Fund, the Berger
IPT--Small Company Growth Fund and the Berger/BIAM IPT--International Fund would
have been .75%, .75%, .90%, and .90% respectively, and their Total Annual
Portfolio Expenses would have been 2.88%, 1.99%, 2.19% and 2.85%, respectively.
8
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
(5) In the absence of a voluntary waiver by Federated Investment
Management Company, the Funds' investment adviser, the Management Fee and Total
Annual Portfolio Expenses would have been 0.75% and 1.00%, respectively, for
Utility Fund II. Absent a voluntary waiver of the management fee and the
voluntary reimbursement of certain other operating expenses by Federated
Investment Management Company, the Management Fee and Total Annual Portfolio
Expenses for International Equity Fund II would have been 1.00% and 1.72%,
respectively.
(6) The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown because its transfer agent and/or custodian fees were reduced
under expense offset arrangements. Because of an SEC requirement, the figures
shown do not reflect these reductions.
(7) Certain expenses of the Fund are being absorbed voluntarily by INVESCO
Funds Group, Inc. pursuant to a commitment to the Fund. In the absence of such
absorption, Other Expenses and Total Annual Fund Operating Expenses for the year
ended December 31, 1998 were 0.42% and 1.17%, respectively. This commitment may
be changed at any time following consultation with the board of directors.
(8) The expense figures shown are net of certain fee waivers or reductions
from Janus Capital Corporation, the investment adviser of the Janus Aspen
Series. Without such waivers or reductions, the total fees and expenses in 1998
would have totaled: 0.75% for Growth and 0.74% for Worldwide Growth.
(9) Lazard Asset Management, the Fund's investment adviser, has
voluntarily agreed to reimburse all expenses through December 31, 1999 to the
extent total annual portfolio expenses exceed in any fiscal year 1.25% of the
Portfolio's average daily net assets. Absent such an agreement with the adviser,
the total annual portfolio expenses for the year ended December 31, 1998 would
have been 21.32% for the Lazard Retirement Equity Portfolio and 16.20% for the
Lazard Retirement Small Cap Portfolio.
(10) Neuberger Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust. The figures reported
under "Management Fees" include the aggregate of the administration fees paid by
the Portfolio and the management fees paid by its corresponding Series.
Similarly, "Other Expenses" includes all other expenses of the Portfolio and its
corresponding Series.
(11) Strong Capital Management, Inc., the investment adviser of the Strong
Mid Cap Growth Fund II, has voluntarily agreed to cap the Fund's total operating
expenses at 1.20%. In the absence of the expense cap, total annual portfolio
expenses for the year ended December 31, 1998 were 1.55%. The Adviser has no
current intention to, but may in the future, discontinue or modify any waiver of
fees or absorption of expenses at its discretion with appropriate notification
to its shareholders.
(12) Van Eck Associates Corporation (the "Adviser") agreed to assume
expenses exceeding 1.50% of the Worldwide Emerging Markets Fund's average daily
net assets. Absent this expense reimbursement, Other Expenses would have been
0.61% and Total Portfolio Expenses would have been 1.61%. The Worldwide Hard
Assets Fund's Other Expenses was reduced by a fee arrangement based on cash
balances left on deposit with the custodian and a directed brokerage arrangement
where the Fund directs certain portfolio trades to a broker that, in turn, pays
a portion of the Fund's expenses. Absent these arrangements, the Other Expenses
would have been 0.20% and Total Portfolio Expenses would have been 1.20%. For
the Worldwide Real Estate Fund the Adviser agreed to waive its management fees
and assume certain expenses for the period January 1, 1998 to February 28, 1998.
The Adviser also agreed to assume expenses exceeding 1.00% of the Worldwide Real
Estate Fund's average daily net assets for the period March 1, 1998 to December
31, 1998. The Worldwide Real Estate Fund expenses were also reduced by a fee
arrangement based on cash balances left on deposit with the custodian and a
directed brokerage arrangement where the Fund directs certain portfolio trades
to a broker that, in turn, pays a portion of the Fund's expenses. Absent these
arrangements, the Management Fee would have been 1.00%, the Other Expenses would
have been 4.32% and Total Portfolio Expenses would have been 5.32% for the
Worldwide Real Estate Fund.
9
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EXAMPLES:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets regardless of whether you surrender your Contract:
<TABLE>
<CAPTION>
TIME PERIODS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Balanced ............................................. $21 $66 $113 $242
Equity ............................................... $22 $67 $115 $247
Fixed Income ......................................... $21 $64 $110 $237
Government Securities ................................ $21 $64 $110 $237
Money Market ......................................... $18 $57 $ 97 $211
THE ALGER AMERICAN FUND
Alger American Growth ................................ $22 $67 $115 $246
Alger American Leveraged AllCap ...................... $23 $72 $123 $264
Alger American MidCap Growth ......................... $22 $68 $117 $251
Alger American Small Capitalization .................. $23 $70 $120 $257
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC
VP Income & Growth ................................... $21 $64 $110 $237
VP International ..................................... $29 $88 $150 $317
VP Value ............................................. $24 $73 $125 $268
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--100 ...................................... $24 $73 $125 $268
Berger IPT--Growth and Income ........................ $24 $73 $125 $268
Berger IPT--Small Company Growth ..................... $25 $78 $133 $283
Berger/BIAM IPT--International ....................... $26 $79 $135 $287
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ... $22 $67 $115 $247
DREYFUS STOCK INDEX FUND ............................. $16 $51 $ 87 $191
DREYFUS VARIABLE INVESTMENT FUND
Disciplined Stock .................................... $23 $70 $119 $255
International Value .................................. $27 $82 $140 $296
FEDERATED INSURANCE SERIES
Federated High Income Bond II ........................ $22 $67 $114 $245
Federated International Equity II .................... $26 $81 $138 $292
Federated Utility II ................................. $23 $71 $122 $261
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - High Yield ............................. $24 $75 $129 $275
INVESCO VIF - Equity Income .......................... $23 $71 $122 $261
JANUS ASPEN SERIES
Aggressive Growth .................................... $21 $66 $113 $242
Growth ............................................... $21 $63 $109 $235
Worldwide Growth ..................................... $21 $65 $111 $239
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity ............................. $26 $81 $138 $292
Lazard Retirement Small Cap .......................... $26 $81 $138 $292
LORD ABBETT SERIES FUND, INC.
Growth and Income .................................... $21 $66 $113 $243
MITCHELL HUTCHINS SERIES TRUST
Growth and Income .................................... $24 $74 $127 $272
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond ................................ $21 $66 $113 $243
Partners ............................................. $22 $68 $117 $251
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II .................................. $25 $78 $133 $284
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth II ............................. $26 $79 $135 $287
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond ....................................... $25 $78 $133 $283
Worldwide Emerging Markets ........................... $29 $88 $150 $317
Worldwide Hard Assets ................................ $25 $78 $133 $284
Worldwide Real Estate ................................ $23 $70 $120 $257
</TABLE>
10
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
Explanation of Fee Table and Examples
1. The purpose of the Fee Table is to show you the various expenses you
will incur directly or indirectly with the Contract. The Fee Table reflects
expenses of the Separate Account as well as the Investment Portfolios.
2. Conseco Variable will not charge you the transfer fee even if there is
more than one transfer in a 30-day period during the Accumulation Phase if the
transfer is for the Dollar Cost Averaging or Rebalancing Programs. We will also
not charge you a transfer fee on transfers made at the end of the free look
period. All reallocations made on the same day count as one transfer.
3. Conseco Variable will not charge the contract maintenance charge if the
value of your Contract is $25,000 or more. However, if you make a complete
withdrawal, we will charge the contract maintenance charge.
4. Premium taxes are not reflected. Premium taxes may apply depending on
the state where you live.
5. The assumed average Contract size is $40,000.
6. The examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
There is Condensed Financial Information in Appendix A to this prospectus.
1. The Monument Series Annuity Contract
This Prospectus describes the Monument Series Fixed and Variable Annuity
Contract offered by Conseco Variable.
An annuity is a Contract between you, the Owner, and an insurance company
(in this case Conseco Variable), where the insurance company promises to pay you
an income, in the form of Annuity Payments. Until you decide to begin receiving
Annuity Payments, your annuity is in the Accumulation Phase. Once you begin
receiving Annuity Payments, your Contract switches to the Income Phase.
The Contract benefits from Tax-Deferral. Tax-Deferral means that you are
not taxed on earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
The Contract is a variable annuity. You can choose among 40 Investment
Portfolios and, depending upon market conditions, you can make or lose money in
any of these portfolios. If you select the variable annuity portion of the
Contract, the amount of money you are able to accumulate in your Contract during
the Accumulation Phase depends upon the investment performance of the Investment
Portfolio(s) you select. The amount of the Annuity Payments you receive during
the Income Phase from the variable annuity portion of the Contract also depends
upon the investment performance of the Investment Portfolios you select for the
Income Phase.
The Contract also contains 3 Guarantee Periods within the MVA Option. Your
money will earn interest at the rate set by Conseco Variable. The interest rate
is guaranteed by Conseco Variable for the time you agree to leave your money in
the Guarantee Period. We currently offer Guarantee Periods for 1, 3 and 5 years.
If you allocate money to a Guarantee Period, the amount of money you are able to
accumulate in your Contract during the Accumulation Phase depends upon the total
interest credited to your Contract. An adjustment to your Contract will apply to
withdrawals, transfers or annuitizations from the 1, 3 and 5 year Guarantee
Periods prior to the end of the selected period.
As Owner of the Contract, you exercise all rights under the Contract. You
can change the Owner at any time by notifying Conseco Variable in writing. You
and another person can be named Joint Owner. We have described more information
on this in Section 10--Other Information.
2. Annuity Payments (The Income Phase)
Under the Contract you can receive regular income payments. You can choose
the month and year in which those payments begin. We call that date the Annuity
Date. Your Annuity Date can be any date selected by you. Your Annuity Date
cannot be any earlier than 90 days after we issue the Contract. Your Annuity
Date must be the first day of a calendar month. Annuity Payments must begin by
the earlier of the Annuitant's 90th birthday or the maximum date allowed by law.
You can also choose among income plans. We call those Annuity Options.
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We ask you to choose your Annuity Date when you purchase the Contract.
With 30 days notice to us, you can change the Annuity Date or Annuity Option at
any time before the Annuity Date. The Annuitant is the person whose life we look
to when we determine Annuity Payments.
You can select an Annuity Option. You can change it at any time 30 days
before the Annuity Date. If you do not choose an Annuity Option, we will assume
that you selected Option 2 which provides a life annuity with 10 years of
guaranteed payments.
On the Annuity Date the value of your Contract, less any premium tax, plus
any market value adjustment (which may be positive or negative), and less any
contract maintenance charge will be applied under the Annuity Option you
selected.
During the Income Phase, you can choose to have fixed annuity payments
(these payments will come from Conseco Variable's general account), variable
annuity payments (these payments will come from the Investment Portfolios) or a
combination of both. Payments cannot come from the MVA Option during the Income
Phase. If you do not tell us otherwise, your Annuity Payments will be based on
the investment allocations that were in place on the Annuity Date.
If you choose to have any portion of your Annuity Payments come from the
Investment Portfolio(s), the dollar amount of your payment will depend upon 3
things:
1) the value of your Contract in the Investment Portfolio(s) on the
Annuity Date;
2) the 3% or 5% (as you selected) assumed investment rate used in the
annuity table for the Contract ; and
3) the performance of the Investment Portfolio(s) you selected.
You can choose either a 5% or a 3% assumed investment rate. If the actual
performance exceeds the 3% or 5% (as you selected) assumed investment rate, your
Annuity Payments will increase. Similarly, if the actual investment rate is less
than 3% or 5% (as you selected), your Annuity Payments will decrease.
Unless you notify us otherwise, we will pay the Annuity Payments to you.
You can change the payee at any time prior to the Annuity Date. Income from any
distribution will be reported to you for tax purposes.
You can choose one of the following Annuity Options or any other Annuity
Option which is acceptable to Conseco Variable. After Annuity Payments begin,
you cannot change the Annuity Option.
Option 1. Lifetime Only Annuity. We will pay monthly Annuity Payments
during the lifetime of the Annuitant. We will stop making payments when the
Annuitant dies.
Option 2. Lifetime Annuity With Guaranteed Payments. We will make monthly
Annuity Payments so long as the Annuitant is alive. However, when the Annuitant
dies, if we have made Annuity Payments for less than the selected guaranteed
period you selected (5, 10 or 20 years), we will then continue to make Annuity
Payments to the Beneficiary for the rest of the guaranteed period. Payments to
the Beneficiary will be made at least as rapidly as under the method of payment
being used at the time of the Annuitant's death.
Option 3. Installment Refund Life Annuity. We will make monthly Annuity
Payments for the installment refund period (the time required for the sum of the
payments to equal the amount applied to the Annuity Option) and thereafter for
the life of the Annuitant. When the Annuitant dies, any amount remaining will be
paid to the Beneficiary. Payments to the Beneficiary will be made at least as
rapidly as under the method of payment being used at the time of the Annuitant's
death.
Option 4. Payment for a Fixed Period. We will make monthly Annuity
Payments for a fixed period of time (3 to 20 years).
Option 5. Joint And Survivor Annuity. We will make monthly Annuity
Payments so long as the Annuitant and a joint Annuitant are both alive. When
either of these people die, the amount of the Annuity Payments we will make to
the survivor can be equal to 100%, 662/3% or 50% of the amount that we would
have paid if both were alive.
Annuity Payments are made monthly unless you have less than $5,000 to
apply toward a payment. In that case, Conseco Variable may make a single lump
sum payment to you. Likewise, if your Annuity Payments would be less than $50 a
month, Conseco Variable has the right to change the frequency of payments so
that your Annuity Payments are at least $50.
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3. Purchase
Purchase Payments
A Purchase Payment is the money you give us to buy the Contract. The
minimum we will accept is $50,000 when the Contract is bought as a NonQualified
Contract. If you are buying the Contract, as part of a Tax-Sheltered Annuity or
an Individual Retirement Annuity (IRA), the minimum we will accept is $10,000.
For each Guarantee Period of the MVA Option, a minimum of $2,000 is required.
The maximum we accept is $1,000,000 without our prior approval.
You can make additional Purchase Payments of $1,000 or more. However, if
you select the automatic premium check option, you can make additional payments
of $250 each month.
Allocation Of Purchase Payments
When you purchase a Contract, we will allocate your Purchase Payment to
the Guarantee Periods of the MVA Option and/or one or more of the Investment
Portfolios you have selected. Currently, you can allocate money to up to 15
Investment Portfolios at any one time. If you make additional Purchase Payments,
we will allocate them in the same way as your first Purchase Payment unless you
tell us otherwise. Currently, the minimum amount which can be allocated to any
of the Guarantee Periods of the MVA Option is $2,000. We reserve the right to
change this amount in the future.
Once we receive your Purchase Payment and the necessary information, we
will issue your Contract and allocate your first Purchase Payment within 2
business days. If you do not provide us all of the information needed, we will
contact you. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you add more money to
your Contract by making additional Purchase Payments, we will credit these
amounts to your Contract within one business day. Our business day closes when
the New York Stock Exchange closes, usually 4:00 P.M. Eastern time.
Free Look
If you change your mind about owning the Contract, you can cancel it
within 10 days after receiving it (or whatever period is required in your
state). On the day we receive your request we will return the value of your
Contract. In some states, we may be required to refund your Purchase Payment. If
you have purchased the Contract as an IRA, we are required to give you back your
Purchase Payment if you decide to cancel your Contract within 10 days after
receiving it (or whatever period is required in your state).
Accumulation Units
The Accumulation Unit value for each account was arbitrarily set initially
at $10.00. The value of the variable annuity portion of your Contract will
increase or decrease depending upon the investment performance of the Investment
Portfolio(s) you choose. In order to keep track of the value of your Contract,
we use a unit of measure we call an Accumulation Unit. (An Accumulation Unit
works like a share of a mutual fund.) During the Income Phase of the Contract we
call the unit an Annuity Unit.
Every business day we determine the value of an Accumulation Unit for each
of the Investment Portfolios by multiplying the Accumulation Unit value for the
previous period by a factor for the current period. The factor is determined by:
1. dividing the value of an Investment Portfolio share at the end of the
current period (and any charges for taxes) by the value of an Investment
Portfolio share for the previous period; and
2. subtracting the daily amount of the insurance charges. The value of an
Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with
Accumulation Units. The number of Accumulation Units credited is determined by
dividing the amount of the Purchase Payment allocated to an Investment Portfolio
by the value of the Accumulation Unit for that Investment Portfolio.
We calculate the value of an Accumulation Unit for each Investment
Portfolio after the New York Stock Exchange closes each day and then credit your
Contract.
Example: On Wednesday we receive an additional Purchase Payment of $10,000
from you. You have told us you want this to go to the Balanced Portfolio. When
the New York Stock Exchange closes on that Wednesday, we determine that the
value of an Accumulation Unit for the Balanced Portfolio is $12.50. We then
divide $10,000 by
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$12.50 and credit your Contract on Wednesday night with 800 Accumulation Units
for the Balanced Portfolio.
4. Investment Options
Investment Portfolios
The Contract offers 40 Investment Portfolios which are listed below. You
can invest in up to 15 Investment Portfolios at any one time. Additional
Investment Portfolios may be available in the future.
Shares of the funds are offered in connection with certain variable
annuity contracts and variable life insurance policies of various life insurance
companies which may or may not be affiliated with Conseco Variable. Certain
Investment Portfolios are also sold directly to Qualified plans. The funds do
not believe that offering their shares in this manner will be disadvantageous to
you.
Conseco Variable may enter into certain arrangements under which it is
reimbursed by the Investment Portfolios' advisers, distributors and/or
affiliates for the administrative services which it provides to the portfolios.
You should read the prospectuses for these funds carefully before
investing. Copies of these prospectuses are attached to this prospectus.
Conseco Series Trust
Conseco Series Trust is a mutual fund with multiple portfolios. Conseco
Series Trust is managed by Conseco Capital Management, Inc. The following
portfolios are available under the Contract :
Balanced Portfolio (formerly, Asset Allocation Portfolio)
Equity Portfolio (formerly, Common Stock Portfolio)
Fixed Income Portfolio (formerly, Corporate Bond Portfolio)
Government Securities Portfolio
Money Market Portfolio
The Alger American Fund
The Alger American Fund is a mutual fund with multiple portfolios. Fred
Alger Management, Inc. serves as the Fund's investment adviser. The following
portfolios are available under the Contract :
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
American Century Variable Portfolios, Inc.
American Century Variable Portfolios, Inc. is a series of funds managed by
American Century Investment Management, Inc. The following portfolios are
available under the Contract :
VP Income & Growth
VP International
VP Value (long-term capital growth with income as a secondary objective)
Berger Institutional Products Trust
Berger Institutional Products Trust is a mutual fund with multiple
portfolios. Berger Associates, Inc. is the investment adviser to all portfolios
except the Berger/BIAM IPT--International Fund. BBOI Worldwide, LLC is the
adviser to the Berger/BIAM IPT--International Fund. The following portfolios are
available under the Contract :
Berger IPT--100 Fund (long-term capital appreciation)
Berger IPT--Growth and Income Fund
Berger IPT--Small Company Growth Fund
Berger/BIAM IPT--International Fund
The Dreyfus Socially Responsible Growth Fund, Inc.
The Dreyfus Socially Responsible Growth Fund, Inc. is managed by The
Dreyfus Corporation. Dreyfus has hired NCM Capital Management Group, Inc. to
serve as sub-investment adviser and provide day-to-day management of the Fund's
investments.
Dreyfus Stock Index Fund
The Dreyfus Corporation serves as the Fund's manager. Dreyfus has hired
its affiliate, Mellon Equity Associates, to serve as the Fund's index fund
manager and provide day-to-day management of the Fund's investments.
Dreyfus Variable Investment Fund
The Dreyfus Variable Investment Fund is a mutual fund with multiple
portfolios. The Dreyfus Corporation serves as the investment adviser. The
following portfolios are available under the Contract :
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Disciplined Stock Portfolio (seeks to outperform the total return
performance of the Standard & Poor's 500 Composite Stock Price
Index)
International Value Portfolio
Federated Insurance Series
Federated Insurance Series is a mutual fund with multiple portfolios.
Federated Investment Management Company is the investment adviser. The adviser
changed its name from Federated Advisers to Federated Investment Management
Company on March 31, 1999. Federated Global Investment Management Corp. is the
sub-adviser of the Federated International Equity Fund II. The following
portfolios are available under the Contract :
Federated High Income Bond Fund II
Federated International Equity Fund II
Federated Utility Fund II
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Investment Funds, Inc. is a mutual fund with multiple
portfolios. INVESCO Funds Group, Inc. is the investment adviser. The following
portfolios are available under the Contract:
INVESCO VIF - High Yield Fund (seeks high level of current income)
INVESCO VIF - Equity Income Fund (formerly, INVESCO VIF - Industrial
Income Portfolio) (seeks high current income with growth of capital
as a secondary goal)
Janus Aspen Series
The Janus Aspen Series is a mutual fund with multiple portfolios which are
advised by Janus Capital Corporation. The following portfolios are available
under the Contract:
Aggressive Growth Portfolio
Growth Portfolio
Worldwide Growth Portfolio
Lazard Retirement Series, Inc.
Lazard Retirement Series, Inc. is a mutual fund with multiple portfolios.
Lazard Asset Management, a division of Lazard Freres & Co. LLC, is the
investment manager for each portfolio. The following portfolios are available
under the Contract:
Lazard Retirement Equity Portfolio
Lazard Retirement Small Cap Portfolio
Lord Abbett Series Fund, Inc.
Lord Abbett Series Fund, Inc. is a mutual fund managed by Lord, Abbett &
Co. The following portfolio is available under the Contract:
Growth and Income Portfolio
Mitchell Hutchins Series Trust
Mitchell Hutchins Series Trust is a mutual fund with multiple portfolios.
Mitchell Hutchins Asset Management Inc. provides advisory and administrative
services to the Fund. The following portfolio is available under the Contract:
Growth and Income Portfolio
Neuberger Berman Advisers Management Trust
Each portfolio of Neuberger Berman Advisers Management Trust invests in a
corresponding series of Advisers Managers Trust. All series of Advisers Managers
Trust are managed by Neuberger Berman Management Inc. The following are
available under the Contract:
Limited Maturity Bond Portfolio
Partners Portfolio (capital growth)
Strong Opportunity Fund II, Inc.
Strong Opportunity Fund II is a mutual fund managed by Strong Capital
Management, Inc. The following portfolio is available under the Contract:
Opportunity Fund II (capital growth)
Strong Variable Insurance Funds, Inc.
Strong Variable Insurance Funds, Inc. is a mutual fund with multiple
series. Strong Capital Management, Inc. serves as the investment adviser. The
following series is available under the Contract:
Strong Mid Cap Growth Fund II (formerly, Growth Fund II)
Van Eck Worldwide Insurance Trust
Van Eck Worldwide Insurance Trust is a mutual fund with multiple
portfolios which are managed by Van Eck Associates Corporation. The following
portfolios are available under the Contract:
Worldwide Bond Fund
Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
Worldwide Real Estate Fund
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Voting Rights
Conseco Variable is the legal owner of the Investment Portfolio shares.
However, Conseco Variable believes that when an Investment Portfolio solicits
proxies in conjunction with a vote of shareholders, it is required to obtain
from you and other Owners instructions as to how to vote those shares. When we
receive those instructions, we will vote all of the shares we own in proportion
to those instructions. Should Conseco Variable determine that it is no longer
required to comply with the above, we will vote the shares in our own right.
Substitution
Conseco Variable may, in the interest of shareholders, deem it necessary
to discontinue one or more of the Investment Portfolios or substitute a new
portfolio for an existing portfolio. In the event that such a situation might
occur, we will notify you in advance. We will obtain prior approval by the
Securities and Exchange Commission before any such change is made.
The MVA Option
The Contract also offers three Guarantee Periods of the market value
adjustment option (MVA Option). A Guarantee Period is the period of time for
which interest is credited in the market value adjustment option. Each
allocation or transfer to the MVA Option creates one or more new Guarantee
Periods. We currently offer Guarantee Periods of 1, 3 and 5 years. You can
allocate your Purchase Payment or transfer money to any of the currently
available periods.
The Guarantee Periods of the MVA Option offer interest rates that are
guaranteed by Conseco Variable. Interest rates may differ from time to time
because of changes in market conditions. The interest rates set for a Guarantee
Period for new Purchase Payments may be different from the interest rates
offered for money already in the Guarantee Periods. We set interest rates at our
discretion. Once we set an interest rate for a Guarantee Period, it will not
change during that period.
If you do not specify a Guarantee Period at the time of renewal, we will
select the same Guarantee Period that just finished as long as it does not
extend beyond the latest Annuity Date. If it does, we will choose the one year
period. If there is no Guarantee Period for the same period available, the one
year period will be selected. If it is not available, the next longest period
will be selected.
If you take money out (whether by withdrawal, transfer or annuitization)
of the Guarantee Period before the end of the period in excess of the free
amount (see below), an adjustment will be made to the amount withdrawn. This
adjustment is referred to as a market value adjustment. The market value
adjustment can increase or decrease the amount you take out of your Contract.
However, after the first year in a period, you can make one withdrawal each year
of up to a total of 10% of the value of your MVA Option in that period and no
market value adjustment will be made to that withdrawal (free amount).
We will not apply a market value adjustment for any withdrawals in the
following situations:
(1) to pay a death benefit;
(2) to pay fees or charges under the Contract ;
(3) amounts which you withdraw or transfer during the 30-day period before
the end of the Guarantee Period;
(4) when your Contract switches to the Income Phase if you select an
Annuity Option which provides for at least 5 years of Annuity Payments;
(5) withdrawals of the free amount.
The market value adjustment is determined by comparing the U.S. Treasury
rate which was in effect at the beginning of the Guarantee Period for the length
of the Guarantee Period selected versus the current U.S. Treasury Rate as of the
date of the withdrawal or transfer for the number of years remaining (rounded
up) plus .005. The U.S. Treasury Rate is the Bloomberg published Treasury rate
found in the Wall Street Journal or on the Bloomberg System, representing the
last trade made in the Treasury market for the applicable maturities related to
the product. In general, if interest rates have dropped between the time you
allocated your money to the Guarantee Period and the time you took it out, there
will be a positive adjustment to the value of your Contract. But, if interest
rates have increased between the time you allocated your money to the Guarantee
Period and the time you took it out, there will be a negative adjustment.
Appendix B contains more information regarding how Conseco Variable
calculates the market value adjustment, including examples.
Transfers
You can transfer money among the MVA Option and the Investment Portfolios.
However, you can-
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not be invested in more than 15 Investment Portfolios at any time.
Transfers During the Accumulation Phase. You can make one transfer in a
30-day period during the Accumulation Phase without charge. You can make a
transfer to or from the MVA Option and to or from any Investment Portfolio.
Transfers from a Guarantee Period of the MVA Option before the end of the period
may be subject to an adjustment. If you make more than one transfer in a 30-day
period, a transfer fee of $25 or 2% of the amount transferred (whichever is
less) may be deducted. The following apply to any transfer during the
Accumulation Phase:
1. The minimum amount which you can transfer is $500 or your entire value
in the Investment Portfolio. This requirement is waived if the transfer is
pursuant to the dollar cost averaging or rebalancing programs.
2. You must leave at least $500 in each Investment Portfolio or Guarantee
Period of the MVA Option after you make a transfer unless the entire amount is
being transferred.
3. Your request for a transfer must clearly state which Investment
Portfolio(s) or the Guarantee Period of the MVA Option are involved in the
transfer.
4. Your request for transfer must clearly state how much the transfer is
for.
Transfers During the Income Phase. You can only make four transfers every
year during the Income Phase. The four transfers are free. We measure a year
from the anniversary of the day we issued your Contract. The following apply to
any transfer during the Income Phase:
1. You can make transfers at least 30 days before the due date of the
first Annuity Payment for which the transfer will apply.
2. The minimum amount which you can transfer is $500 or your entire value
in the Investment Portfolio.
3. You must leave at least $500 in each Investment Portfolio (or $0 if you
are transferring the entire amount) after a transfer.
4. No transfers can be made between the general account and the Investment
Portfolios. You may only make transfers between the Investment Portfolios.
This product is not designed for professional market timing organizations.
Conseco Variable reserves the right to modify (including terminating) the
transfer privileges described above.
Telephone Transfers. You can elect to make transfers by telephone. You can
also authorize someone else to make transfers for you. If you own the Contract
with a Joint Owner, unless Conseco Variable is instructed otherwise, Conseco
Variable will accept instructions from either you or the other Owner. Conseco
Variable will use reasonable procedures to confirm that instructions given to us
by telephone are genuine. All telephone calls will be recorded and the caller
will be asked to produce personalized data about the Owner before we will make
the telephone transfer. We will send you a written confirmation of the transfer.
If Conseco Variable fails to use such procedures, we may be liable for any
losses due to unauthorized or fraudulent instructions.
Dollar Cost Averaging Program
The Dollar Cost Averaging Program allows you to systematically transfer a
set amount either monthly, quarterly, semi-annually or annually from the Money
Market Portfolio to any of the other Investment Portfolio(s). Currently, you can
select up to 15 Investment Portfolios for dollar cost averaging. You cannot
transfer to the MVA Option under this program. by allocating amounts on a
regular schedule as opposed to allocating the total amount at one particular
time, you may be less susceptible to the impact of market fluctuations.
You must have at least $2,000 in the Money Market Portfolio in order to
participate in the Dollar Cost Averaging Program.
All dollar cost averaging transfers will be made on the first business day
of the month. Dollar cost averaging must be for 6-60 months. Dollar cost
averaging will end when the value in the Money Market Portfolio is zero. We will
notify you when that happens.
If you participate in the Dollar Cost Averaging Program, the transfers
made under the program are not taken into account in determining any transfer
fee. If you are participating in the Dollar Cost Averaging Program, you cannot
participate in the systematic withdrawal program. Conseco Variable reserves the
right, at any time and without prior notice, to terminate, suspend or modify its
Dollar Cost Averaging Program. Currently, there is no charge for participating
in the Dollar Cost Averag-
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ing Program. However, Conseco Variable reserves the right to charge for this
program in the future.
Rebalancing Program
Once your money has been allocated among the Investment Portfolios, the
performance of each portfolio may cause your allocation to shift. If the value
of your Contract is at least $5,000, you can direct us to automatically
rebalance your Contract to return to your original percentage allocations by
selecting our Rebalancing Program. You can select up to 15 Investment Portfolios
for rebalancing. You can tell us whether to rebalance quarterly, semi-annually
or annually. We will measure these periods from the date you selected. You must
use whole percentages in 1% increments for rebalancing. There will be no
rebalancing within the MVA Option. You can discontinue rebalancing at any time.
You can change your rebalancing requests at any time in writing which we must
receive before the next rebalancing date. If you participate in the Rebalancing
Program, the transfers made under the program are not taken into account in
determining any transfer fee. Currently, there is no charge for participating in
the Rebalancing Program. Conseco Variable reserves the right, at any time and
without prior notice, to terminate, suspend or modify its Rebalancing Program.
Example: Assume that you want your initial Purchase Payment split between
2 Investment Portfolio. You want 40% to be in the Fixed Income Portfolio and 60%
to be in Growth Portfolio. Over the next 2 1/2 months the bond market does very
well while the stock market performs poorly. At the end of the first quarter,
the Fixed Income Portfolio now represents 50% of your holdings because of its
increase in value. If you had chosen to have your holdings rebalanced quarterly,
on the first day of the next quarter, Conseco Variable would sell some of your
units in the Fixed Income Portfolio to bring its value back to 40% and use the
money to buy more units in the Growth Portfolio to increase those holdings to
60%.
5. Expenses
There are charges and other expenses associated with the Contract that
reduce the return on your investment in the Contract. These charges and expenses
are:
Insurance Charges
Each day, Conseco Variable makes a deduction for its insurance charges.
Conseco Variable does this as part of its calculation of the value of the
Accumulation Units and the Annuity Units.
The insurance charge has two parts: 1) the mortality and expense risk
charge, and 2) the administrative charge.
Mortality And Expense Risk Charge. This charge is equal, on an annual
basis, to 1.15% of the average daily value of the Contract invested in an
Investment Portfolio, after expenses have been deducted. This charge may be
increased but it will not exceed 1.25% of the average daily value of the
Contract invested in an Investment Portfolio, after expenses have been deducted.
We will give you 90 days' notice if this charge is increased. This charge is for
the insurance benefits provided under the Contract and certain administrative
and distribution expenses associated with the Contract.
Administrative Charge. This charge is equal, on an annual basis, to .15%
of the average daily value of the Contract invested in an Investment Portfolio,
after expenses have been deducted. This charge may be increased but it will not
exceed .25% of the average daily value of the Contract invested in an Investment
Portfolio, after expenses have been deducted. We will give you 90 days' notice
if this charge is increased. This charge is for certain administrative expenses.
Contract Maintenance Charge
During the Accumulation Phase, every year on the anniversary of the date
when your Contract was issued, Conseco Variable deducts $30 from your Contract
as a contract maintenance charge. The charge is deducted from the Investment
Portfolio or MVA Option with the largest balance. Conseco Variable does not
deduct a contract maintenance charge during the Income Phase. This charge is for
certain administrative expenses associated with the Contract.
Under current practices, Conseco Variable does not deduct this charge if
the value of your Contract is $25,000 or more. Conseco Variable may some time in
the future discontinue this practice and deduct the charge.
If you make a complete withdrawal from your Contract, Conseco Variable
will deduct the contract maintenance charge. The charge will also be
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deducted if the Annuity Date is other than an anniversary.
Transfer Fee
You can make one free transfer every 30 days during the Accumulation
Phase. If you make more than one transfer in a 30-day period, you could be
charged a transfer fee of $25 or 2% of the amount transferred, whichever is
less. The transfer fee is deducted from the account from which the transfer was
made. If the entire amount in the account is transferred, the fee will be
deducted from the amount transferred. If you transfer money from more than one
account, the charge is deducted from the account with the largest balance. The
four transfers permitted each year during the Income Phase are free.
All reallocations made in the same day count as one transfer. Transfers
made at the end of the free look period by us are not counted in determining the
transfer fee. If the transfer is part of the Dollar Cost Averaging Program or
the Rebalancing Program it will not count in determining the transfer fee.
Transfers from a Guarantee Period of the MVA Option may also be subject to
a market value adjustment. (See Appendix B for information on the market value
adjustment.)
Premium Taxes
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Conseco Variable is responsible for the payment
of these taxes and will make a deduction from the value of the Contract for
them. These taxes are due either when the Contract is issued or when Annuity
Payments begin. It is Conseco Variable's current practice to deduct these taxes
when either Annuity Payments begin or upon partial or full surrender of the
Contract. Conseco Variable may in the future discontinue this practice and
assess the charge when the tax is due. Premium taxes currently range from 0% to
3.5%, depending on the state.
Income Taxes
Conseco Variable will deduct from the Contract for any income taxes which
it incurs because of the Contract. At the present time, we are not making any
such deductions.
Investment Portfolio Expenses
There are deductions from and expenses paid out of the assets of the
various Investment Portfolios, which are described in the attached fund
prospectuses.
6. Taxes
Note: Conseco Variable has prepared the following information on taxes as
a general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. Conseco Variable has included an additional discussion regarding
taxes in the Statement of Additional Information.
Annuity Contracts In General
Annuity contracts are a means of setting aside money for future needs,
usually retirement. Congress recognized how important saving for retirement was
and provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the
earnings on the money held in your annuity contract until you take the money
out. This is referred to as Tax-Deferral. There are different rules as to how
you will be taxed depending on how you take the money out and the type of
Contract --Qualified or Non-Qualified (see following sections).
You, as the Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs--either as a withdrawal or as Annuity
Payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For Annuity Payments, different rules apply. A
portion of each Annuity Payment is treated as a partial return of your Purchase
Payments and will not be taxed. The remaining portion of the Annuity Payment
will be treated as ordinary income. How the Annuity Payment is divided between
taxable and non-taxable portions depends upon the period over which the Annuity
Payments are expected to be made. Annuity Payments received after you have
received all of your Purchase Payments are fully includible in income.
When a Non-Qualified Contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the Contract as
an agent for a natural person), the Contract
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will generally not be treated as an annuity for tax purposes.
Qualified And Non-Qualified Contracts
If you purchase the Contract as an individual and not under an Individual
Retirement Annuity (IRA) or a Tax-Sheltered Annuity (TSA or 403(b) annuity),
your Contract is referred to as a Non-Qualified Contract.
If you purchase the Contract under an IRA or TSA, your Contract is
referred to as a Qualified Contract.
Withdrawals--Non-Qualified Contracts
If you make a withdrawal from your Contract, the Code generally treats
such a withdrawal as first coming from earnings and then from your Purchase
Payments. Such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract
which is included in income may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the
Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from Purchase Payments made prior to August 14, 1982.
Withdrawals--Qualified Contracts
The above information describing the taxation of Non-Qualified Contracts
does not apply to Qualified Contracts. There are special rules that govern with
respect to Qualified Contracts. We have provided a more complete discussion in
the Statement of Additional Information.
Withdrawals -- Tax-Sheltered Annuities
The Code limits the withdrawal of amounts attributable to purchase
payments made under a salary reduction agreement by owners from Tax-Sheltered
Annuities. Withdrawals can only be made under the following circumstances:
(1) when you reach age 59 1/2;
(2) when you leave your job;
(3) when you die;
(4) when you become disabled (as that term is defined in the Code);
(5) in the case of hardship; or
(6) made pursuant to a qualified domestic relations order, if otherwise
permitted.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings.
Diversification
The Code provides that the underlying investments for a variable annuity
must satisfy certain diversification requirements in order to be treated as an
annuity contract. Conseco Variable believes that the Investment Portfolios are
being managed so as to comply with the requirements.
Investor Control
Neither the Code nor the Internal Revenue Service Regulations issued to
date provide guidance as to the circumstances under which you, because of the
degree of control you exercise over the underlying investments, and not Conseco
Variable would be considered the owner of the shares of the Investment
Portfolios. If you are considered the owner of the shares, it will result in the
loss of the favorable tax treatment for the Contract. It is unknown to what
extent under federal tax law owners are permitted to select Investment
Portfolios, to make transfers among the Investment Portfolios or the number and
type of Investment Portfolios owners may select from without being considered
the owner of the shares. If any guidance is provided which is considered a new
position, then the guidance would generally be applied prospectively. However,
if such guidance is considered not to be a new position, it may be applied
retroactively. This would mean that you, as the Owner of the Contract, could be
treated as the Owner of the Investment Portfolios.
Due to the uncertainty in this area, Conseco Variable reserves the right
to modify the Contract as reasonably deemed necessary to maintain favorable tax
treatment.
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
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7. Access To Your Money
You can have access to the money in your Contract :
(1) by making a withdrawal (either a partial or a complete withdrawal);
(2) by electing to receive Annuity Payments; or
(3) when a death benefit is paid to your Beneficiary.
Withdrawals can only be made during the Accumulation Phase.
When you make a complete withdrawal, you will receive the value of the
Contract on the day you made the withdrawal, less any premium tax, less any
contract maintenance charge and plus or minus any market value adjustment (which
may be positive or negative). (See Section 5-- Expenses for a discussion of the
charges and Section 4--Investment Options--The MVA Option and Appendix B for a
discussion of withdrawals from the MVA Option.)
You must tell us which account (Investment Portfolio(s) and/or Guarantee
Periods of the MVA Option) you want the withdrawal to come from. Under most
circumstances, the amount of any partial withdrawal from any Investment
Portfolio or Guarantee Period of the MVA Option must be for at least $500.
Conseco Variable requires that after a partial withdrawal is made there must be
at least $500 left in your Contract and in any Investment Portfolio.
Conseco Variable will pay the amount of any withdrawal from the Investment
Portfolios within 7 days of your request in good order unless the suspension of
payments or transfers provision (see below) is in effect.
Income taxes, tax penalties and certain restrictions may apply to any
withdrawal you make.
Systematic Withdrawal Program
The Systematic Withdrawal Program allows you to choose to receive your
automatic payments either monthly, quarterly, semi-annually or annually. You
must have at least $5,000 in your Contract to start the program. Conseco
Variable reserves the right to change this amount. You cannot take systematic
withdrawals from any Guarantee Period of the MVA Option. You can instruct us to
withdraw a specific amount which can be a percentage of the value of your
Contract or a dollar amount. All systematic withdrawals will be withdrawn from
the Investment Portfolios on a pro-rata basis. Each withdrawal under the program
must be for at least $100. The systematic withdrawal program will end any time
you designate. If you make a partial withdrawal outside the program and the
value of your Contract is less than $5,000 the program will automatically
terminate. Conseco Variable does not have any charge for this program.
All systematic withdrawals will be paid on the last business day of the
month (beginning with the first full month after you bought your Contract).
You may not participate in the Systematic Withdrawal Program and the
Dollar Cost Averaging Program at the same time.
Income taxes, tax penalties and certain restrictions may apply to
systematic withdrawals.
There are limits to the amount you can withdraw from a Qualified plan
referred to as a 403(b) (tax-sheltered annuity) plan. For a more complete
explanation, see Section 6--Taxes and the discussion in the Statement of
Additional Information.
Suspension of Payments or Transfers
Conseco Variable may be required to suspend or postpone payments for
withdrawal or transfers from the Investment Portfolios for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
Investment Portfolios is not reasonably practicable or Conseco Variable cannot
reasonably value the shares of the Investment Portfolios;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Owners.
Conseco Variable has reserved the right to defer payment for a withdrawal
or transfer from the MVA Option for the period permitted by law but not for more
than six months.
8. Performance
Conseco Variable may periodically advertise performance of the annuity
investment in the various Investment Portfolios. Conseco Variable will calculate
performance by determining the percentage
21
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change in the value of an Accumulation Unit by dividing the increase (decrease)
for that unit by the value of the Accumulation Unit at the beginning of the
period. This performance number reflects the deduction of the insurance charges
and the fees and expenses of the investment portfolio. It does not reflect the
deduction of any applicable contract maintenance charge. The deduction of any
applicable contract maintenance charge would reduce the percentage increase or
make greater any percentage decrease. Any advertisement will also include
standardized average annual total return figures which reflect the deduction of
the insurance charges, contract maintenance charge and the fees and expenses of
the Investment Portfolio.
For periods starting prior to the date the Contracts were first offered,
the performance will be based on the historical performance of the corresponding
portfolios, modified to reflect the charges and expenses of the Contract as if
the Contract had been in existence during the period stated in the
advertisement. These figures should not be interpreted to reflect actual
historic performance.
Conseco Variable may, from time to time, include in its advertising and
sales materials, tax deferred compounding charts and other hypothetical
illustrations, which may include comparisons of currently taxable and tax
deferred investment programs, based on selected tax brackets.
9. Death Benefit
Upon Your Death
If you die before Annuity Payments begin, Conseco Variable will pay a
death benefit to your Beneficiary (see below). If you have a Joint Owner, the
death benefit will be paid when the first Owner dies. The surviving Joint Owner
will be treated as the Beneficiary.
If death occurs prior to age 80, the amount of the death benefit will be
the greater of:
(1) the value of your Contract at the time Conseco Variable receives proof
of death and a payment election; or
(2) the total Purchase Payments you have made, less any withdrawals.
If death occurs at age 80 or later, the death benefit will be the Contract
value at the time Conseco Variable receives proof of death and a payment
election.
The entire death benefit must be paid within 5 years of the date of death
unless the Beneficiary elects to have the death benefit payable under an Annuity
Option. The death benefit payable under an Annuity Option must be paid over the
Beneficiary's lifetime or for a period not extending beyond the Beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
Beneficiary is the spouse of the Owner, he/she can continue the Contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
Different rules may apply in the case of an Individual Retirement Annuity.
If you or any Joint Owner (who is not the Annuitant) dies during the
Income Phase, any remaining payments under the Annuity Option elected will
continue at least as rapidly as under the method of distribution prior to the
death of the Owner or Joint Owner. If you die during the Income Phase, the
Beneficiary becomes the Owner. If any Joint Owner dies during the Income Phase,
the surviving Joint Owner, if any, will be treated as the primary Beneficiary.
Any other Beneficiary on record at the time of death will be treated as a
contingent Beneficiary. Different rules may apply in the case of an Individual
Retirement Annuity.
Death Of Annuitant
If the Annuitant, who is not an Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. Unless another Annuitant is
named within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Owner is a non-natural person (for example, a
corporation), then the death of the Annuitant will be treated as the death of
the Owner, and a new Annuitant may not be named.
Upon the death of the Annuitant during the Income Phase, the death
benefit, if any, will be as provided for in the Annuity Option selected. The
death benefit will be paid at least as rapidly as under the method of
distribution in effect at the Annuitant's death.
10. Other Information
Conseco Variable
Conseco Variable Insurance Company was originally organized in 1937. Prior
to October 7, 1998,
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
Conseco Variable Insurance Company was known as Great American Reserve Insurance
Company. In certain states, we may still use the name Great American Reserve
Insurance Company until our name change is approved in the state. It is
principally engaged in the life insurance business in 49 states and the District
of Columbia. Conseco Variable is a stock company organized under the laws of the
state of Texas and is an indirect wholly-owned subsidiary of Conseco, Inc.
Headquartered in Carmel, Indiana, Conseco, Inc. is one of middle America's
leading sources for investment, insurance and lending products. Through its
subsidiaries and a nationwide network of insurance agents and finance dealers,
Conseco, Inc. provides solutions for both wealth protection and wealth creation
to more than 12 million customers.
There is more information about Conseco Variable below.
The Separate Accounts
Conseco Variable has established two separate accounts to hold the assets
that underlie the Contracts. One account, Conseco Variable Annuity Account G,
serves the variable annuity portion of the Contract. Prior to May 1, 1999,
Conseco Variable Annuity Account G was known as Great American Reserve Variable
Annuity Account G. The other separate account, Conseco Market Value Adjustment
Account, serves the portion of the Contract that may be subject to a market
value adjustment. Prior to May 1, 1999, Conseco Market Value Adjustment Account
was known as Great American Reserve Market Value Adjustment Account. The Board
of Directors of Conseco Variable adopted a resolution to establish the Separate
Accounts under Texas Insurance law on January 18, 1996. Conseco Variable Annuity
Account G is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. Conseco Variable
Annuity Account G is divided into sub-accounts. Conseco Market Value Adjustment
Account is not registered with the Securities and Exchange Commission.
The assets of the Separate Accounts are held in Conseco Variable's name on
behalf of the Separate Accounts and legally belong to Conseco Variable. However,
those assets that underlie the Contracts, are not chargeable with liabilities
arising out of any other business Conseco Variable may conduct. All the income,
gains and losses (realized or unrealized) resulting from these assets are
credited to or charged against the Contracts and not against any other Contracts
Conseco Variable may issue.
Distributor
Conseco Equity Sales, Inc. (CES), 11815 N. Pennsylvania Street, Carmel,
Indiana 46032, acts as the distributor of the Contracts. CES, an affiliate of
Conseco Variable, is registered as a broker-dealer under the Securities Exchange
Act of 1934. CES is a member of the National Association of Securities Dealers,
Inc.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers commissions may cost up to .75% of Purchase Payments plus an
annual trail commission in the amount of .75% of the value of the Contract for
promotional or distribution expenses associated with the marketing of the
Contracts. In addition, under certain circumstances, payments may be made to
certain sellers for other services not directly related to the sale of the
Contracts.
Ownership
The Contract is an allocated fixed and variable deferred annuity contract.
This group Contract is issued to a Contract holder, for the benefit of the
participants in the group. You are a participant in the group and will receive a
certificate evidencing your ownership. You, as the Owner of a certificate, are
entitled to all the rights and privileges of ownership. As used in this
prospectus, the term Contract refers to your certificate. In some states, an
individual fixed and variable deferred annuity contract may be available
instead, which is identical to the group Contract described in this prospectus
except that it is issued directly to the Owner.
Spousal Joint Owner are allowed with this Contract (except if it is issued
pursuant to a Qualified plan). Upon the death of either Joint Owner, the
surviving Owner will be the designated Beneficiary. Any other Beneficiary
designation at the time the Contract was issued or as may have been later
changed will be treated as a contingent Beneficiary unless otherwise indicated.
Beneficiary
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued. Unless
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an irrevocable Beneficiary has been named, you can change the Beneficiary at any
time before you die.
Assignment
You can assign the Contract at any time during your lifetime. Conseco
Variable will not be bound by the assignment until it receives the written
notice of the assignment. Conseco Variable will not be liable for any payment or
other action we take in accordance with the Contract before we receive notice of
the assignment. An assignment may be a taxable event.
If the Contract is issued pursuant to a Qualified plan, there are
limitations on your ability to assign the Contract.
Additional Information
Conseco Variable is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with such
requirements, we file reports and other information with the SEC. Such reports
and other information we file can be inspected and copied. Copies can be
obtained at the public reference facilities of the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at the regional offices in Chicago and
New York. The addresses of these regional offices are as follows: 500 West
Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material also can be obtained by mail
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the rules and
regulations of the SEC at prescribed rates.
Registration statements have been filed with the SEC, Washington, D.C.,
under the Securities Act of 1933 as amended, relating to the Contracts offered
by this prospectus. This prospectus does not contain all the information set
forth in the registration statements and the exhibits filed as part of the
registration statements. Reference should be made to such registration
statements and exhibits for further information concerning the Separate
Accounts, Conseco Variable and its general account, the Investment Portfolios
and the Contract.
Selected Financial Information of Conseco Variable
The selected financial information set forth below was derived from the
audited financial statements of Conseco Variable Insurance Company ("we" or
"Conseco Variable"). Our balance sheets at December 31, 1998 and 1997, and our
statements of operations, shareholder's equity and cash flows for the years
ended December 31, 1998, 1997 and 1996, and the notes thereto were audited by
PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere
herein. The selected financial information set forth below should be read in
conjunction with the financial statements and notes of Conseco Variable and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein. The financial information for all
periods reflects the effect of the December 31, 1994, merger of Jefferson
National Life Insurance Company ("Jefferson National") into Conseco Variable.
This merger has been accounted for as a pooling of interests; therefore, the
assets and liabilities of Jefferson National have been combined with Conseco
Variable at their book values and the financial data is presented as if the
merger had occurred prior to the periods presented.
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
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<TABLE>
<CAPTION>
PRIOR BASIS (a)
-------------------------
FOUR EIGHT
YEAR YEAR YEAR MONTHS MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1998 1997 1996 1995 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income .................... $ 73.6 $ 75.7 $ 81.4 $ 31.8 $ 60.5 $ 98.6
Net investment income ...................... 198.0 222.6 218.4 74.2 136.4 187.9
Net investment gains ....................... 18.5 13.3 2.7 12.5 7.3 .2
Total revenues. ............................ 290.1 311.6 302.5 118.5 204.2 286.7
Total benefits and expenses ................ 242.9 250.3 261.4 92.7 159.5 225.2
Income before income taxes. ................ 47.2 61.3 41.1 25.8 44.7 61.5
Net income ................................. 30.6 39.2 25.7 16.1 28.2 38.8
BALANCE SHEET DATA - PERIOD END
Investments ................................ $2,607.5 $2,500.5 $2,382.8 $2,484.8 $2,217.9
Total assets ............................... 2,911.7 2,771.7 2,680.5 2,756.8 2,625.0
Insurance liabilities ...................... 2,370.4 2,235.0 2,189.9 2,176.6 2,241.8
Total liabilities .......................... 2,506.6 2,354.8 2,283.6 2,314.2 2,260.1
Shareholder's equity ....................... 405.1 416.9 396.9 442.6 364.9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Financial data for the periods subsequent to August 31, 1995, reflect the
adoption of a new basis of accounting under the "push down" method as a
result of the acquisition of all of the common stock of Conseco Variable's
parent not previously owned by Conseco, Inc. Accordingly, data prior to
August 31, 1995, may not be comparable with subsequent data. Significant
accounting adjustments recorded as a result of the adoption of the new
basis include: (i) an increase of $59.0 million to cost of policies
purchased; (ii) a reduction of $27.0 million to cost of policies produced;
(iii) a reduction of $15.1 million to goodwill; (iv) an increase of $1.2
million to insurance liabilities; and (v) the establishment of a deferred
income tax liability to reflect the income tax effects of all of the
accounting adjustments.
Business of Conseco Variable
Background
Conseco Variable, with total assets of $2.9 billion at December 31, 1998,
markets tax-qualified annuities and certain employee benefit-related insurance
products through professional independent agents. Since August 1995, Conseco
Variable has been a wholly owned subsidiary of Conseco, Inc. ("Conseco"), a
financial services holding company engaged in business in the insurance and
consumer and commercial finance industries.
Our company was organized as a Texas corporation and commenced operations
in 1937. Prior to its name change in October 1998, Conseco Variable was named
Great American Reserve Insurance Company. Our main administrative offices are
located at 11825 N. Pennsylvania Street, Carmel, Indiana 46032, and our
telephone number is (317) 817-3700.
Marketing
We primarily utilize independent market specialists to distribute our
products. We do not have fixed costs associated with recruiting, training and
maintaining employee agents. Rather, in-house marketing personnel develop,
direct and support the external distribution channels through which our products
are marketed.
Collected Insurance Premiums
In accordance with generally accepted accounting principles, ("GAAP"),
insurance policy income as shown in our statement of operations consists of
premiums we receive for policies having life contingencies or morbidity
features. For annuity and universal life contracts without such features,
premiums collected are not reported as revenues, but as deposits to insurance
liabilities. We recognize revenues for these products over time in the form of
investment income and surrender or other charges.
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Total premiums collected were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Premiums collected:
Annuities:
Variable (first-year)................................................ $267.2 $126.9 $ 37.9
Variable (renewal)................................................... 43.8 46.1 43.6
- -------------------------------------------------------------------------------------------------------------------------
Subtotal - variable annuities...................................... 311.0 173.0 81.5
- -------------------------------------------------------------------------------------------------------------------------
Flexible-premium deferred annuities (first-year)..................... 6.7 17.0 15.4
Flexible-premium deferred annuities (renewal)........................ 26.8 28.4 27.9
- -------------------------------------------------------------------------------------------------------------------------
Subtotal - flexible premium deferred annuities..................... 33.5 45.4 43.3
- -------------------------------------------------------------------------------------------------------------------------
Single-premium immediate annuities................................... 31.1 10.6 17.2
- -------------------------------------------------------------------------------------------------------------------------
Total annuities.................................................. 375.6 229.0 142.0
- -------------------------------------------------------------------------------------------------------------------------
Life insurance:
First-year........................................................... 1.5 1.5 2.1
Renewal.............................................................. 37.3 40.9 45.0
- -------------------------------------------------------------------------------------------------------------------------
Total life insurance............................................ 38.8 42.4 47.1
- -------------------------------------------------------------------------------------------------------------------------
Accident and health and other:
First-year........................................................... 10.4 12.3 11.1
Renewal.............................................................. 15.6 16.6 18.2
- -------------------------------------------------------------------------------------------------------------------------
Total - accident and health and other............................ 26.0 28.9 29.3
- -------------------------------------------------------------------------------------------------------------------------
Total first-year premiums.............................................. 316.9 168.3 83.7
Total renewal premiums................................................. 123.5 132.0 134.7
- -------------------------------------------------------------------------------------------------------------------------
Total premiums collected......................................... $440.4 $300.3 $218.4
=========================================================================================================================
</TABLE>
Annuities
We market several basic types of annuities: variable annuities,
flexible-premium deferred annuities ("FPDAs") and single-premium immediate
annuities ("SPIAs").
Variable Annuities. Variable annuities accounted for $311.0 million, or
70.6 percent, of our total premiums collected in 1998. Variable annuities, sold
on a single-premium or flexible-premium basis, differ from fixed annuities in
that the original principal value may fluctuate, depending on the performance of
assets allocated pursuant to various investment options chosen by the contract
owner. Variable annuities offer contract owners a fixed interest option or a
variable rate of return based upon the specific investment portfolios into which
premiums may be directed.
Flexible-Premium Deferred Annuities. FPDAs accounted for $33.5 million, or
7.6 percent, of our total premiums collected in 1998. FPDAs allow more than one
premium payment, usually on a salary reduction basis. FPDAs are marketed through
networks of educator market specialists primarily to teachers and employees of
not-for-profit institutions as tax-qualified salary-reduction retirement
programs as permitted under Section 403(b) of the Code. A tax-qualified annuity
purchased under Section 403(b) is similar to contributions made to a 401(k)
plan, but with different (and somewhat more generous) rules on the maximum
amount of current income which may be contributed by the participant on a
pre-tax basis. Generally, a participant may elect to defer (through the purchase
of a tax-qualified annuity under a 403(b) plan) a percentage of includible
compensation limited by statute and subject to a maximum of $10,000 per year in
1998.
Our FPDAs typically have a guaranteed crediting rate for the first policy
year that exceeds the minimum annual guaranteed rate of at least 3 percent.
After the first year, the crediting rate may be changed at least annually. The
policyholder is permitted to withdraw all or part of the accumulation value,
less a surrender charge for withdrawals during an initial penalty period of up
to 12 years. The initial surrender charges range from 6 percent to
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CONSECO VARIABLE INSURANCE COMPANY
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12 percent of the accumulation value and decline over the penalty period.
Single-Premium Immediate Annuities. SPIAs accounted for $31.1 million, or
7.1 percent, of our total premiums collected in 1998. SPIAs are designed to
provide a series of periodic payments for a fixed period of time or for life,
according to the policyholder's choice at the time of issue. Once the payments
begin, the amount, frequency and length of time for which they are payable are
fixed. SPIAs often are purchased by persons at or near retirement age who desire
a steady stream of payments over a future period of years. The single premium is
often the payout from a terminated annuity contract. The implicit interest rate
on SPIAs is based on market conditions when the policy is issued and averaged 7
percent at December 31, 1998.
Life Insurance
Life insurance products, consisting of interest-sensitive life and
traditional life products, accounted for $38.8 million, or 8.8 percent, of our
total premiums collected in 1998. Although we no longer actively market these
products, we continue to have a substantial block of in-force policies on which
renewal premiums are collected.
Interest-sensitive life insurance products (including universal life
products) provide whole life insurance with adjustable rates of return related
to current interest rates. The principal differences between our universal life
products and other life insurance products are policy provisions affecting the
amount and timing of premium payments. Universal life policyholders may vary the
frequency and size of their premium payments, and policy benefits may also
fluctuate according to such payments. Premium payments under the other policies
may not be varied by the policyholders.
Life insurance products also include whole life and term life products.
Under whole life policies, the policyholder generally pays a level premium over
the policyholder's expected lifetime. The annual premium for a whole life policy
is generally higher than the premium for comparable term insurance coverage in
the early years of the policy's life, but is generally lower than the premium
for comparable term insurance coverage in the later years of the policy's life.
These policies combine insurance protection with a savings component that
increases in amount gradually over the life of the policy. The policyholder may
borrow against the savings generally at a rate of interest lower than that
available from other lending sources. The policyholder may also choose to
surrender the policy and receive the accumulated cash value rather than
continuing the insurance protection. Term life products offer pure insurance
protection for a specified period of time - typically 5, 10 or 20 years.
Accident and Health and Other Products
Accident and health and other products accounted for $26.0 million, or 5.9
percent, of our total premiums collected in 1998. We offer group dental, group
disability, blanket student accident and a limited amount of other health
insurance products. Group dental coverage provides a range of benefits for
dental care and related procedures. Disability products provide defined monthly
benefits up to specified levels in the case of disability. Student accident
products provide limited supplemental reimbursement coverage to students for
accidents and sickness. Our health business is subject to the risk that our
claim experience will deviate from the assumptions used in setting premium
rates. However, we have the right to change rates to correct for adverse
experience every six months on many group policies and annually on all others.
Experience may be adversely affected by increases in the cost of medical
treatment and the extent to which insureds utilize covered services.
Investments
Conseco Capital Management, Inc. ("CCM"), a registered investment adviser
wholly owned by Conseco, manages our investment portfolio. CCM's investment
philosophy is to maintain a largely investment-grade fixed-income portfolio,
provide adequate liquidity for expected liability durations and other
requirements and maximize total return through active investment management.
Investment activities are an integral part of our business; investment
income is a significant component of our total revenues. Profitability of many
of our insurance products is significantly affected by spreads between interest
yields on investments and rates credited on insurance liabilities. Although
substantially all credited rates on FPDAs may be changed annually, changes in
crediting rates may not be sufficient to maintain targeted investment spreads in
all economic and market environments.
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In addition, competition and other factors, including the impact of the level of
surrenders and withdrawals, may limit our ability to adjust or to maintain
crediting rates at levels necessary to avoid narrowing of spreads under certain
market conditions. As of December 31, 1998, the average yield, computed on the
cost basis of our investment portfolio, was 7.2 percent, and the average
interest rate credited or accruing to total insurance liabilities, excluding
interest bonuses guaranteed for the first year of the annuity contract only, was
5.1 percent.
For additional information regarding our investment portfolio, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Investments" and the notes to our financial statements.
Competition
Our business operates in a highly competitive environment. The life
insurance industry consists of a large number of insurance companies, many of
which are substantially larger and have greater financial resources, broader and
more diversified product lines and larger staffs than those of Conseco Variable.
An expanding number of banks, securities brokerage firms and other financial
intermediaries also market insurance products or offer competing products, such
as mutual fund products, traditional bank investments and other investment and
retirement funding alternatives. In most areas, competition is based on a number
of factors, including pricing, service provided to distributors and
policyholders, and ratings. We must also compete with other insurers to attract
and retain the allegiance of agents.
Marketing companies, agents who market insurance products, school
districts, financial institutions and policyholders use the financial strength
ratings assigned to an insurer by independent rating agencies as one factor in
determining which insurer's products to market or purchase. Conseco Variable has
received: (i) an "A (Excellent)" insurance company rating by A.M. Best Company
("A.M. Best"); (ii) an "AA-" claims-paying ability rating from Duff & Phelps'
Credit Rating Company ("Duff & Phelps"); and (iii) an "A+" claims-paying ability
rating from Standard & Poor's Corporation ("S&P"). A.M. Best insurance company
ratings for the industry currently range from "A++ (Superior)" to "F (In
Liquidation)". Publications of A.M. Best indicate that the "A" and "A-" ratings
are assigned to those companies that, in A.M. Best's opinion, have demonstrated
excellent overall performance when compared to the standards established by A.M.
Best and have demonstrated a strong ability to meet their obligations to
policyholders over a long period of time. Duff & Phelps' claims-paying ability
ratings range from "AAA (Highest claims-paying ability)" to "DD (Company is
under an order of liquidation)." An "AA-" rating represents "Very high
claims-paying ability." S&P claims-paying ability ratings range from "AAA
(Superior)" to "R (Regulatory Action)". An "A" is assigned by S&P to those
companies which, in its opinion, have a secure claims-paying ability and whose
financial capacity to meet policyholder obligations is viewed on balance as
sound, but their capacity to meet such policyholder obligations is somewhat more
susceptible to adverse changes in economic or underwriting conditions than more
highly rated insurers. A plus or minus sign attached to a S&P or Duff & Phelps
claims-paying rating shows relative standing within a ratings category. These
A.M. Best, Duff & Phelps and S&P ratings consider the claims paying ability of
the rated company and are not a rating of the investment worthiness of the rated
company.
We believe that we are able to compete effectively because: (i) we have
experience in establishing and cultivating relationships with independent market
specialists; (ii) we can offer competitive rates as a result of our
lower-than-average operating costs and higher-than-average investment yields
achieved by applying active investment portfolio management techniques; and
(iii) we have reliable policyholder administrative services, supported by
customized information technology systems.
Underwriting
Underwriting with respect to the annuity products we sell is minimal.
Substantially all life insurance policies we issue are underwritten
individually, although standardized underwriting procedures have been adopted
for certain low face-amount life insurance coverages. Our group accident and
health policies are underwritten based on the characteristics of a group and its
past claim experience.
Reinsurance
Consistent with the general practice of the life insurance industry, we
enter into reinsurance agreements in order to transfer a portion of the risk
assumed under our insurance contracts to other
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Individual and Group Annuity
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insurance companies. Indemnity reinsurance agreements are intended to limit a
life insurer's maximum loss on a large or unusually hazardous risk or to
diversify its risk. Indemnity insurance does not discharge the original
insurer's primary liability to the insured. Our reinsured business is ceded to
numerous companies. We believe the assuming companies are able to honor all
contractual commitments, based on periodic review of their financial statements,
insurance industry reports and reports filed with state insurance departments.
At December 31, 1998, the policy risk retention limit on the life of one
individual is $.5 million. Reinsurance ceded represented 7.6 percent of gross
life insurance in force and reinsurance assumed represented 4.4 percent of net
life insurance in force. At December 31, 1998, our largest reinsurer accounted
for less than .5 percent of total insurance liabilities and 35 percent of total
reinsurance receivables.
Employees
Conseco Variable has no full-time employees. Our day-to-day operations are
administered by Conseco pursuant to agreements between Conseco Variable and
Conseco.
Governmental Regulation
Our business is subject to regulation and supervision by the insurance
regulatory agencies of the states in which we transact business. State laws
generally establish supervisory agencies with broad regulatory authority,
including the power to: (i) grant and revoke business licenses; (ii) regulate
and supervise trade practices and market conduct; (iii) establish guaranty
associations; (iv) license agents; (v) approve policy forms; (vi) approve
premium rates for some lines of business; (vii) establish reserve requirements;
(viii) prescribe the form and content of required financial statements and
reports; (ix) determine the reasonableness and adequacy of statutory capital and
surplus; (x) perform financial, market conduct and other examinations; (xi)
define acceptable accounting principles; (xii) regulate the type and amount of
permitted investments; and (xiii) limit the amount of dividends and surplus
debenture payments that can be paid without obtaining regulatory approval.
Conseco Variable is subject to periodic examinations by state regulatory
authorities.
Most states have either enacted legislation or adopted administrative
regulations which affect the acquisition of control of insurance companies as
well as transactions between insurance companies and persons controlling them.
The nature and extent of such legislation and regulations vary from state to
state. Most states, however, require administrative approval of: (i) the
acquisition of 10 percent or more of the outstanding shares of an insurance
company domiciled in the state; or (ii) the acquisition of 10 percent or more of
the outstanding stock of an insurance holding company whose insurance subsidiary
is domiciled in the state. The acquisition of 10 percent of such shares is
generally deemed to be the acquisition of control for the purpose of the holding
company statutes. These regulations require the acquirer to file detailed
information concerning the acquiring parties and the plan of acquisition, and to
obtain administrative approval prior to the acquisition. In many states,
however, an insurance authority may determine that control does not exist, even
in circumstances in which a person owns or controls 10 percent or a greater
amount of securities.
The federal government does not directly regulate the insurance business.
However, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services
regulation, securities regulation and federal taxation, do affect the insurance
business. Legislation has been introduced from time to time in Congress that
could result in the federal government assuming some role in regulating the
companies or allowing combinations between insurance companies, banks and other
entities.
On the basis of statutory statements filed with state regulators annually,
the National Association of Insurance Commissioners ("NAIC") (an association of
state regulators and their staffs) calculates certain financial ratios to assist
state regulators in monitoring the financial condition of insurance companies. A
"usual range" of results for each ratio is used as a benchmark. In the past,
variances in certain ratios of Conseco Variable have resulted in inquiries from
insurance departments to which we have responded. Such inquiries did not lead to
any restrictions affecting our operations.
In recent years, the NAIC has developed several model laws and regulations
including: (i) investment reserve requirements; (ii) risk-based capital ("RBC")
standards; (iii) codification of insurance accounting principles; (iv)
additional investment restrictions; and (v) restrictions on an insurance
29
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company's ability to pay dividends. The NAIC is currently developing new model
laws or regulations, including: (i) product design standards; (ii) reserve
requirements; and (iii) product illustrations.
The RBC standards establish capital requirements for insurance companies
based on the ratio of the company's total adjusted capital (defined as the total
of its statutory capital, surplus, asset valuation reserve and certain other
adjustments) to its RBC. The standards are designed to help identify companies
which are under capitalized and require specific regulatory actions in the event
an insurer's RBC falls below specified levels. Conseco Variable has more than
enough statutory capital to meet the standards at December 31, 1998. The Texas
Insurance Department adopted different RBC requirements. Conseco Variable is in
compliance with Texas RBC requirements at December 31, 1998.
In addition, we are required under guaranty fund laws of most states in
which we transact business, to pay assessments up to prescribed limits to fund
policyholder losses or liabilities of insolvent insurance companies.
We cannot predict with certainty the effect that any proposals, if
adopted, or legislative developments could have on our business and operations.
Federal Income Taxation
The annuity and life insurance products we market generally provide the
policyholder with an income tax advantage, as compared to other savings
investments such as certificates of deposit and bonds, in that income taxation
on the increase in value of the product is deferred until it is received by the
policyholder. With other savings investments, the increase in value is taxed as
earned. Annuity benefits and life insurance benefits, which accrue prior to the
death of the policyholder, are generally not taxable until paid. Life insurance
death benefits are generally exempt from income tax. Also, benefits received on
immediate annuities (other than structured settlements) are recognized as
taxable income ratably, as opposed to the methods used for some other
investments which tend to accelerate taxable income into earlier years. The tax
advantage for annuities and life insurance is provided in the Code and is
generally followed in all states and other United States taxing jurisdictions.
From time to time, various tax law changes have been proposed that could
have an adverse effect on our business, including elimination of all or a
portion of the income tax advantage of certain insurance products. The Clinton
administration, in its Revenue Proposal as released in February 1999, has
proposed changes in how life insurance companies are taxed; such changes could
increase our current tax liability.
Conseco Variable is taxed under the life insurance company provisions of
the Code. Provisions in the Code require a portion of the expenses incurred in
selling insurance products to be deducted over a period of years, as opposed to
immediate deduction in the year incurred. As of December 31, 1998, the
cumulative taxes paid as a result of this provision were approximately $7
million.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Conseco Variable
In this section, we review the financial condition of Conseco Variable at
December 31, 1998 and 1997, the results of operations for the three years ended
December 31, 1998, and where appropriate, factors that may affect future
financial performance. Please read this discussion in conjunction with our
financial statements, notes and selected financial information.
All statements, trend analyses and other information contained in this
report and elsewhere (such as in filings by Conseco Variable or Conseco with the
Securities and Exchange Commission, press releases, presentations by Conseco
Variable, Conseco or its management or oral statements) relative to markets for
the Conseco Variable's products and trends in the Conseco Variable's operations
or financial results, as well as other statements including words such as
"anticipate," "believe," "plan," "estimate," "expect," "intend," and other
similar expressions, constitute forward-looking statements under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to known and unknown risks, uncertainties and other factors which may
cause actual results to be materially different from those contemplated by the
forward-looking statements. Such factors include, among other things: (i)
general economic conditions and other factors, including prevailing interest
rate levels, stock and credit market perfor-
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Individual and Group Annuity
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mance and health care inflation, which may affect (among other things) Conseco
Variable's ability to sell our products, our ability to access capital resources
and the costs associated therewith, the market value of Conseco Variable's
investments and the lapse rate and profitability of policies; (ii) Conseco
Variable's ability to achieve anticipated synergies and levels of operational
efficiencies; (iii) customer response to new products, distribution channels and
marketing initiatives; (iv) mortality, morbidity, usage of health care services
and other factors which may affect the profitability of Conseco Variable's
insurance products; (v) changes in the federal income tax laws and regulations
which may affect the relative tax advantages of some of Conseco Variable's
products; (vi) increasing competition in the sale of insurance and annuities;
(vii) regulatory changes or actions, including those relating to regulation of
financial services affecting (among other things) bank sales and underwriting of
insurance products, regulation of the sale, underwriting and pricing of
products, health care regulation affecting health insurance products; (viii) the
ability to achieve Year 2000 readiness for significant systems and operations on
a timely basis; (ix) the availability and terms of future acquisitions; and (x)
the risk factors or uncertainties listed from time to time in Conseco Variable's
or Conseco's filings with the Securities and Exchange Commission.
Results Of Operations
Year Ended December 31, 1998, Compared with Year Ended December 31, 1997
Insurance policy income consists of premiums received on traditional life
products and policy fund and surrender charges assessed against investment type
products. This account decreased slightly in 1998 compared with 1997 as a result
of decreases in surrender charges and sales of policies with mortality or
morbidity risks. Withdrawals from insurance liabilities were slightly lower in
1998 than 1997, resulting in lower surrender charges.
Net investment income includes both income earned on our general invested
assets and separate account assets related to variable annuities. Investment
income earned on separate account assets is offset by a corresponding charge to
insurance policy benefits. Excluding investment income on separate accounts, net
investment income in 1998 decreased 7.8 percent from 1997, to $153.9 million.
Average general invested assets decreased to $2.0 billion in 1998 from $2.1
billion in 1997, and the yield earned on such average invested assets decreased
to 7.8 percent from 7.9 percent. Cash flows received during 1998 and 1997
(including cash flows from the sales of investments) were invested in lower
yielding securities due to a general decline in interest rates.
Net investment income on separate account assets in 1998 decreased to
$44.1 million from $55.7 million in 1997. Such income fluctuates in relation to
total separate account assets and the return earned on such assets.
Net investment gains often fluctuate from period to period. We sold
$1,185.0 million of investments during 1998 compared with $755.2 million in
1997, which sales resulted in net investment gains of $18.5 million in 1998
compared with net investment gains of $13.3 million in 1997.
Selling securities at a gain and reinvesting the proceeds at a lower yield
may, absent other management action, tend to decrease future investment yields.
We believe, however, that certain factors will mitigate the adverse effect on
net income of such yield decreases as follows: (i) additional amortization of
the cost of policies purchased and the cost of policies produced is recognized
in the same period as the gain in order to reflect reduced future yields
(thereby reducing such amortization in future periods); (ii) interest rates
credited to some products can be reduced thereby diminishing the effect of the
yield decrease on the investment spread; and (iii) the investment portfolio
grows as a result of reinvesting the investment gains.
Insurance policy benefits include amounts related to policies with
mortality and morbidity features and amounts added to annuity and financial
product policyholder account balances. These amounts decreased to $170.6 million
in 1998 from $191.0 million in 1997. The decrease is primarily attributable to
decreases in: (i) amounts added to variable annuity product policyholder account
balances; and (ii) the policyholder account balances related to products other
than variable annuities due to withdrawals. Insurance policy benefits in 1998
included $44.1 million of amounts added to variable annuity product policyholder
account balances compared to $55.7 million in 1997.
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Amortization consists of the amortization of cost of policies purchased, cost
of policies produced and goodwill and increased to $33.6 million in 1998
compared with $27.1 million in 1997. Cost of policies produced represents the
cost of producing new business (primarily commissions and certain costs of
policy issuance and underwriting) which varies with and is primarily related to
the production of new business. Costs deferred may represent amounts paid in the
period new business is written (such as underwriting costs and first year
commissions) or in periods after the business is written (such as commissions
paid in subsequent years in excess of ultimate commissions paid). Cost of
policies purchased represents the cost to acquire Conseco Variable that is
attributable to the right to receive cash flows from insurance contracts in
force at the acquisition dates. Net investment gains (losses) affect the timing
of the amortization of the cost of policies purchased and the cost of policies
produced. The gains realized in 1998 were the primary reason for the increased
amortization.
Other operating costs and expenses increased 20 percent to $38.7 million in
1998 compared with $32.2 million in 1997. The increase primarily reflects the
additional marketing costs incurred under service agreements with Conseco which
are non-deferrable.
Income tax expense fluctuated primarily in relationship to income before
taxes.
Year Ended December 31, 1997, Compared with Year Ended
December 31, 1996
Insurance policy income consists of premiums received on traditional life
products and policy fund and surrender charges assessed against investment type
products. This account decreased in 1997 compared with 1996 as a result of a
decrease in sales of policies with mortality or morbidity risks. In addition,
withdrawals from insurance liabilities were higher in 1997 than 1996, however
fewer withdrawals were subject to surrender charges. Increases in withdrawals
were primarily due to increased competition from higher yielding alternative
investment products.
Net investment income includes both income earned on our general invested
assets and the separate account assets related to variable annuities. Investment
income earned on separate account assets is offset by a corresponding charge to
insurance policy benefits. Excluding investment income on separate accounts, net
investment income in 1997 decreased 8.7 percent from 1996, to $166.9 million.
Average general invested assets decreased to $2.1 billion in 1997 from $2.3
billion in 1996, and the yield earned on average invested assets decreased to
7.9 percent from 8.1 percent. Cash flows received during 1997 and 1996
(including cash flows from the sales of investments) were invested in
lower-yielding securities due to a general decline in interest rates.
Net investment income on separate account assets in 1997 increased to $55.7
million from $35.6 million in 1996. Such income fluctuates in relation to total
separate account assets and the return earned on such assets.
Net investment gains often fluctuate from period to period. We sold $755.2
million of investment securities during 1997 compared with $988.9 million in
1996, which sales resulted in net investment gains of $13.3 million in 1997
compared with net investment gains of $2.7 million in 1996.
Selling securities at a gain and reinvesting the proceeds at a lower yield
may, absent other management action, tend to decrease future investment yields.
We believe, however, that certain factors will mitigate the adverse effect on
net income of such yield decreases as follows: (i) additional amortization of
the cost of policies purchased and the cost of policies produced is recognized
in the same period as the gain in order to reflect reduced future yields
(thereby reducing such amortization in future periods); (ii) interest rates
credited to some products can be reduced thereby diminishing the effect of the
yield decrease on the investment spread; and (iii) the investment portfolio
grows as a result of reinvesting the realized gains.
Insurance policy benefits include amounts related to policies with mortality
and morbidity features and amounts added to annuity and financial product
policyholder account balances. These amounts increased to $191.0 million in 1997
from $180.6 million in 1996. Insurance policy benefits in 1997 included $55.7
million of amounts added to variable annuity product policyholder account
balances compared to $35.6 million in 1996. The increase in these benefits
(offset by a decrease in crediting rates on policyholder account balances other
than variable annuities) is the primary reason for the increased benefits in
1998.
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Amortization consists of the amortization of cost of policies purchased, cost
of policies produced and goodwill and increased to $27.1 million in 1997
compared with $20.3 million in 1996. Cost of policies produced represents the
cost of producing new business (primarily commissions and certain costs of
policy issuance and underwriting) which varies with and is primarily related to
the production of new business. Costs deferred may represent amounts paid in the
period new business is written (such as underwriting costs and first year
commissions) or in periods after the business is written (such as commissions
paid in subsequent years in excess of ultimate commissions paid). Cost of
policies purchased represents the cost to acquire Conseco Variable that is
attributable to the right to receive cash flows from insurance contracts in
force at the acquisition dates. Net investment gains (losses) affect the timing
of the amortization of the cost of policies purchased and the cost of policies
produced. The gains realized in 1997 were the primary reason for the increased
amortization.
Other operating costs and expenses decreased 47 percent to $32.2 million in
1997 compared with $60.5 million in 1996, primarily as a result of a reduction
in operating costs incurred under service agreements with Conseco.
Income tax expense fluctuated primarily in relationship to income before
taxes.
Investments
Our investment strategy is to: (i) maintain a predominately investment-grade
fixed income portfolio; (ii) provide adequate liquidity to meet our cash
obligations to policyholders and others; and (iii) maximize current income and
total investment return through active investment management. Consistent with
this strategy, investments in fixed maturity securities, mortgage loans, policy
loans, separate accounts and short-term investments made up 94 percent of our
$2.6 billion investment portfolio at December 31, 1998. The remainder of the
invested assets were equity securities and other invested assets.
Insurance statutes regulate the type of investments that our insurance
subsidiaries are permitted to make and limit the amount of funds that may be
used for any one type of investment. In light of these statutes and regulations
and our business and investment strategy, Conseco Variable generally seeks to
invest in United States government and government-agency securities and
corporate securities rated investment grade by established nationally recognized
rating organizations or in securities of comparable investment quality, if not
rated.
The following table summarizes investment yields earned over the past three
years:
<TABLE>
<CAPTION>
1998 1997 1996
=========================================================================================================================
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Weighted average invested assets (excluding separate account assets):....
As reported.......................................................... $2,004.9 $2,113.7 $2,237.9
Excluding unrealized appreciation (depreciation) (a)................. 1,981.1 2,121.2 2,258.9
Net investment income, excluding investment income
on separate accounts................................................... 153.9 166.9 182.8
Yields earned:
As reported.......................................................... 7.7% 7.9% 8.2%
Excluding unrealized appreciation (depreciation) (a) ................ 7.8% 7.9% 8.1%
</TABLE>
(a) Excludes the effect of reporting fixed maturities at fair value as
described in note 1 to the financial statements.
Although investment income is a significant component of total revenues,
the profitability of certain of our insurance products is determined primarily
by the spreads between the interest rates we earn and the rates we credit or
accrue to our insurance liabilities. At December 31, 1998, the average yield,
computed on the cost basis of our investment portfolio, was 7.2 percent, and the
average interest rate credited or accruing to our total insurance liabilities
was 5.1 percent, excluding interest bonuses guaranteed only for the first year
of the contract.
Actively Managed Fixed Maturities
Our actively managed fixed maturity portfolio at December 31, 1998,
included primarily debt securities of the United States government, public
utilities and other corporations, and mortgage-backed securities.
Mortgage-backed securities included collater-
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alized mortgage obligations ("CMOs") and mortgage-backed pass-through
securities.
At December 31, 1998, our fixed maturity portfolio had $31.0 million of
unrealized gains and $27.4 million of unrealized losses, for a net unrealized
gain of $3.6 million. Estimated fair values for fixed maturity investments were
determined based on: (i) estimates from nationally recognized pricing services
(81 percent of the portfolio); (ii) broker-dealer market makers (11 percent of
the portfolio); and (iii) internally developed methods (8 percent of the
portfolio).
At December 31, 1998, approximately 4.1 percent of our invested assets
(7.1 percent of fixed maturity investments) were rated below-investment grade by
nationally recognized statistical rating organizations (or, if not rated by such
firms, with ratings below Class 2 assigned by the NAIC). We plan to maintain
approximately the present level of below-investment-grade fixed maturities.
These securities generally have greater risks than other corporate debt
investments, including risk of loss upon default by the borrower, and are often
unsecured and subordinated to other creditors. Below-investment-grade issuers
usually have higher levels of indebtedness and are more sensitive to adverse
economic conditions, such as recession or increasing interest rates, than are
investment-grade issuers. We are aware of these risks and monitor our
below-investment-grade securities closely. At December 31, 1998, our
below-investment-grade fixed maturity investments had an amortized cost of
$116.8 million and an estimated fair value of $107.8 million.
We periodically evaluate the creditworthiness of each issuer whose
securities we hold. We pay special attention to those securities whose market
values have declined materially for reasons other than changes in interest rates
or other general market conditions. We evaluate the realizable value of the
investment, the specific condition of the issuer and the issuer's ability to
comply with the material terms of the security. Information reviewed may include
the recent operational results and financial position of the issuer, information
about its industry, recent press releases and other information. CCM employs a
staff of experienced securities analysts in a variety of specialty areas. Among
its other responsibilities, this staff is charged with compiling and reviewing
such information. If evidence does not exist to support a realizable value equal
to or greater than the carrying value of the investment, and such decline in
market value is determined to be other than temporary, we reduce the carrying
amount to its net realizable value, which becomes the new cost basis; we report
the amount of the reduction as a realized loss. We recognize any recovery of
such reductions in the cost basis of an investment only upon the sale, repayment
or other disposition of the investment. In 1998, there were no writedowns of
fixed maturity investments, equity securities or other invested assets. Our
investment portfolio is subject to the risks of further declines in realizable
value. However, we attempt to mitigate this risk through the diversification and
active management of our portfolio.
As of December 31, 1998, our fixed maturity investments in substantive
default (i.e., in default due to nonpayment of interest or principal) had an
amortized cost and carrying value of $.8 million and $.6 million, respectively.
Conseco Variable had no fixed maturity investments in technical (but not
substantive) default (i.e., in default, but not as to the payment of interest or
principal). There were no other fixed maturity investments about which we had
serious doubts as to the ability of the issuer to comply on a timely basis with
the material terms of the instrument.
When a security defaults, our policy is to discontinue the accrual of
interest and eliminate all previous interest accruals, if we determine that such
amounts will not be ultimately realized in full. Investment income forgone due
to defaulted securities was not significant in any of the three years ended
December 31, 1998.
At December 31, 1998, fixed maturity investments included $494.2 million
of mortgage-backed securities (or 32 percent of all fixed maturity securities).
CMOs are backed by pools of mortgages that are segregated into sections or
"tranches" that provide for sequential retirement of principal. Pass-through
securities receive principal and interest payments through their regular pro
rata share of the payments on the underlying mortgages backing the securities.
The yield characteristics of mortgage-backed securities differ from those of
traditional fixed-income securities. Interest and principal payments occur more
frequently, often monthly. Mortgage-backed securities are subject to risks
associated with variable prepayments. Prepayment rates are influenced by a
number of factors that cannot be predicted with certainty, including: the
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CONSECO VARIABLE INSURANCE COMPANY
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Individual and Group Annuity
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relative sensitivity of the underlying mortgages backing the assets to changes
in interest rates; a variety of economic, geographic and other factors; and the
repayment priority of the securities in the overall securitization structures.
In general, prepayments on the underlying mortgage loans and the
securities backed by these loans increase when the level of prevailing interest
rates declines significantly relative to the interest rates on such loans.
Mortgage-backed securities purchased at a discount to par will experience an
increase in yield when the underlying mortgages prepay faster than expected.
These securities purchased at a premium that prepay faster than expected will
incur a reduction in yield. When interest rates decline, the proceeds from the
prepayment of mortgage-backed securities are likely to be reinvested at lower
rates than we were earning on the prepaid securities. When interest rates
increase, prepayments on mortgage-backed securities decrease, because fewer
underlying mortgages are refinanced. When this occurs, the average duration of
the mortgage-backed securities increases, which decreases the yield on
mortgage-backed securities purchased at a discount, because the discount is
realized as income at a slower rate and increases the yield on those purchased
at a premium as a result of a decrease in annual amortization of the premium.
The degree to which a mortgage-backed security is susceptible to income
fluctuations is influenced by: (i) the difference between its cost and par; (ii)
the relative sensitivity of the underlying mortgages backing the security to
prepayment in a changing interest rate environment; and (iii) the repayment
priority of the security in the overall securitization structure. Conseco
Variable seeks to limit the extent of these risks associated with
mortgage-backed securities in our fixed maturity portfolio by: (i) purchasing
securities that are backed by collateral with lower prepayment sensitivity (such
as mortgages priced at a discount to par value and mortgages that are extremely
seasoned); (ii) avoiding the purchase of securities for our fixed maturity
portfolio whose values are heavily influenced by changes in prepayments (such as
interest-only and principal-only securities); (iii) investing in securities
structured to reduce prepayment risk (such as planned amortization class ("PAC")
and targeted amortization class ("TAC") CMOs); and (iv) actively managing the
entire portfolio of mortgage-backed securities to dispose of those which are
deemed more likely to be prepaid. PAC and TAC instruments represented
approximately 13 percent of our mortgage-backed securities at December 31, 1998.
The call-adjusted modified duration of our mortgage-backed securities at
December 31, 1998, was 3.6 years.
Mortgage-backed securities held in our fixed maturity portfolio at
December 31, 1998, summarized by interest rates on the underlying collateral
were as follows:
<TABLE>
<CAPTION>
PAR AMORTIZED ESTIMATED
VALUE COST FAIR VALUE
===========================================================================================================================
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Below 7 percent.......................................................... $281.6 $280.5 $283.7
7 percent - 8 percent.................................................... 120.9 124.6 125.8
8 percent - 9 percent.................................................... 59.2 58.2 60.2
9 percent and above...................................................... 23.3 24.1 24.5
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities.................................... $485.0 $487.4 $494.2
===========================================================================================================================
</TABLE>
Mortgage-backed securities held in our fixed maturity portfolio at December 31,
1998, summarized by security type, were as follows:
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE
=========================
% OF
AMORTIZED FIXED
TYPE COST AMOUNT MATURITIES
===========================================================================================================================
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Pass-throughs and sequential and targeted amortization classes........... $376.1 $382.3 25%
Planned amortization classes and accretion-directed bonds................ 52.2 53.0 3
Subordinated classes..................................................... 59.1 58.9 4
- ---------------------------------------------------------------------------------------------------------------------------
$487.4 $494.2 32%
===========================================================================================================================
</TABLE>
35
<PAGE>
================================================================================
Pass-throughs and sequential and targeted amortization classes have
similar prepayment variability. Pass-throughs have historically provided the
best liquidity among mortgage-backed securities and also provide the best
price/performance ratio in highly volatile interest rate environments. This type
of security is also frequently used as collateral in the dollar-roll market.
Sequential classes pay in a strict sequence; all principal payments received by
the CMO are paid to the sequential tranches in order of priority. Targeted
amortization classes provide a modest amount of prepayment protection when
prepayments on the underlying collateral increase from those assumed at pricing.
Thus, they offer slightly better call protection than sequential classes and
pass-throughs.
Planned amortization classes and accretion- directed bonds are some of the
most stable and liquid instruments in the mortgage-backed securities market.
Planned amortization class bonds adhere to a fixed schedule of principal
payments as long as the underlying mortgage collateral experiences prepayments
within a certain range. Changes in prepayment rates are first absorbed by
support classes. This insulates the planned amortization classes from the
consequences of both faster prepayments (average life shortening) and slower
prepayments (average life extension).
Subordinated CMO classes have both prepayment and credit risk. The
subordinated classes are used to enhance the credit quality of the senior
securities, and as such, rating agencies require that this support not
deteriorate due to the prepayment of the subordinated securities. The credit
risk of subordinated classes is derived from the negative leverage of owning a
small percentage of the underlying mortgage loan collateral while bearing a
majority of the risk of loss due to homeowner defaults.
If we decide to sell an investment held in the actively managed fixed
maturity category, we either sell the security or transfer it to the trading
account at its fair value and recognize the gain or loss immediately. We
transferred securities with a fair value of approximately $48.1 million into our
trading account during 1998: there was no material gain or loss on the transfer.
During 1998, we sold $1.2 billion of investments (primarily fixed
maturities), resulting in $34.0 million of investment gains and $12.4 million of
investment losses (both before related expenses, amortization and taxes). Such
securities were sold in response to changes in the investment environment, which
created opportunities to enhance the total return of the investment portfolio
without adversely affecting the quality of the portfolio or the matching of
expected maturities of assets and liabilities. As discussed in the notes to the
financial statements, the realization of gains and losses affects the timing of
the amortization of the cost of policies produced and the cost of policies
purchased related to universal life and investment products.
Other Investments
At December 31, 1998, we held mortgage loan investments purchased for our
investment portfolio with a carrying value of $110.2 million (or 4.2 percent of
total invested assets) and a fair value of $119.0 million. Mortgage loans were
substantially comprised of commercial loans. Noncurrent mortgage loans were
insignificant at December 31, 1998. Realized losses on mortgage loans were not
significant in any of the past three years. At December 31, 1998, we had a
mortgage loan loss reserve of $.8 million. Approximately 15 percent of the
mortgage loans were on properties located in California, 12 percent in Michigan,
12 percent in Florida, 11 percent in Texas and 8 percent in Georgia. No other
state accounted for more than 8 percent of the mortgage loan balance.
At December 31, 1998, we held $47.9 million of trading securities; they
are included in other invested assets. Trading securities are investments we
intend to sell in the near term. We carry trading securities at estimated fair
value; changes in fair value are reflected in the statement of operations.
Other invested assets include: (i) trading securities; and (ii) certain
nontraditional investments, including investments in venture capital funds,
limited partnerships, mineral rights and promissory notes.
Short-term investments totaled $48.4 million, or 1.9 percent of invested
assets at December 31, 1998, and consisted primarily of commercial paper and
repurchase agreements relating to government securities.
As part of our investment strategy, we enter into reverse repurchase
agreements and dollar-roll transactions to increase our return on investments
and improve our liquidity. Reverse repurchase agreements involve a sale of
securities and an agreement
36
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
to repurchase the same securities at a later date at an agreed-upon price.
Dollar rolls are similar to reverse repurchase agreements except that the
repurchase involves securities that are only substantially the same as the
securities sold. We enhance our investment yield by investing the proceeds from
the sales in short-term securities pending the contractual repurchase of the
securities at discounted prices in the forward market. We are able to engage in
such transactions due to the market demand for mortgage-backed securities to
form CMOs. Such investment borrowings averaged $66.0 million during 1998 and
were collateralized by investment securities with fair values approximately
equal to the loan value. The weighted average interest rate on short-term
collateralized borrowings was 4.4 percent in 1998. The primary risk associated
with short-term collateralized borrowings is that the counterparty will be
unable to perform under the terms of the contract. Our exposure is limited to
the excess of the net replacement cost of the securities over the value of the
short-term investments (which was not material at December 31, 1998). We believe
that the counterparties to our reverse repurchase and dollar-roll agreements are
financially responsible and that counterparty risk is minimal.
Liquidity
Conseco Variable generally produces adequate cash flow from premium
collections and investment income to meet its obligations. The liabilities
related to insurance policies are primarily long term and generally are paid
from future cash flows. Most of the assets, other than policy loans, are
invested in bonds and other securities, substantially all of which are readily
marketable. Although there is no present need or intent to dispose of such
investments, we could liquidate portions of our investments if the need arose.
We believe Conseco Variable has adequate short-term investments and
readily marketable investment-grade securities to cover the payments under
contracts containing fixed payment dates plus any likely cash needs for all
other contracts and obligations. Our investment portfolio at December 31, 1998
included $48.4 million of short-term investments and $1.4 billion of publicly
traded investment-grade bonds. We believe that such investments could be readily
sold at or near carrying value or used to facilitate borrowings under reverse
repurchase agreements.
Year 2000 Matters
Many computer programs were originally designed to identify each year
using two digits. If not corrected, these computer programs could cause system
failures or miscalculations in the year 2000, with possible adverse effects on
our operations. In 1996, Conseco (our parent company and the provider of all of
our day-to-day operations through various service agreements) initiated a
comprehensive corporate-wide program designed to ensure that our computer
programs function properly in the year 2000. A number of Conseco's employees
(including several officers), as well as external consultants and contract
programmers, are working on various year-2000 projects. Under the program,
Conseco is analyzing our application systems, operating systems, hardware,
networks, electronic data interfaces and infrastructure devices (such as
facsimile machines and telephone systems). Conseco has also been working with
vendors and other external business relations to help avoid year-2000 problems
related to the software or services they provide to us.
Our year-2000 projects are currently on schedule. Conseco is conducting
our year-2000 projects in three phases: (i) an audit and assessment phase,
designed to identify year-2000 issues; (ii) a modification phase, designed to
correct year-2000 issues; and (iii) a testing phase, designed to test the
modifications after they have been installed. Conseco has completed the audit
and assessment phase for all critical systems. The modification phase of our
program is substantially complete. The testing phase of our program is expected
to be completed by the end of the third quarter of 1999. We have provided for
significant time in order to complete any additional modifications, if
necessary, before December 31, 1999.
For some of our year-2000 issues, Conseco is working to complete the
previously planned conversions of older systems to the more modern,
year-2000-ready systems already used by other Conseco subsidiaries. In other
cases, we are purchasing new, more modern systems; these costs are being
capitalized as assets and amortized over their expected useful lives. In the
remaining cases, Conseco is modifying existing systems; these costs are being
charged to operating expense.
We currently estimate that the total expense of our year-2000 projects
will be approximately $16 million. This expense is not material to our finan-
37
<PAGE>
================================================================================
cial position and we are funding it through operating cash flows. Approximately
80 percent of this expense was incurred in 1996, 1997 and 1998, related
primarily to modifying existing software systems.
The impact of year-2000 issues will depend not only on the corrective
actions taken, but also on the way in which year-2000 issues are addressed by
governmental agencies, businesses and other third parties: (i) that provide
services, utilities or data to Conseco Variable; (ii) that receive services or
data from Conseco Variable; or (iii) whose financial condition or operating
capability is important to Conseco Variable. Conseco is in the process of
identifying risks and updating assessments of potential year-2000 risks
associated with our external business relationships, such as utilities and
financial institutions. These procedures are necessarily limited to matters over
which Conseco is able to reasonably exercise control. Conseco has been informed
by our key financial institutions and utilities that they will be year-2000
ready at year-end 1999.
Conseco is also assessing what contingency plans will be needed if any of
our critical systems or those of external business relationships are not
year-2000 ready at year-end 1999. We do not currently anticipate such a
situation, but Conseco's consideration of contingency plans will continue to
evolve as new information becomes available.
Our year-2000 projects are the highest priority for Conseco's information
technology and many other employees. Other systems projects continue while our
year-2000 projects are being completed, however, in many cases, Conseco has
accelerated system upgrades when the new systems address year-2000 issues.
The failure to correct a material year-2000 problem could result in an
interruption in, or failure of, a number of normal business activities or
operations. Such failures could materially and adversely affect Conseco
Variable's results of operations, liquidity and financial condition. Due to the
general uncertainty inherent in the year-2000 problem, including the uncertainty
of the preparedness of our external business relationships, we are not able to
currently determine whether the consequences of year-2000 failures will have a
material impact on Conseco Variable's results of operations, liquidity and
financial condition. However, we believe our year-2000 readiness efforts will
minimize the likelihood of a material adverse impact.
Market-Sensitive Instruments and Risk Management
We seek to invest our available funds in a manner that will maximize
shareholder value and fund future obligations to policyholders, subject to
appropriate risk considerations. We seek to meet this objective through
investments that: (i) have similar characteristics to the liabilities they
support; (ii) are diversified among industries, issuers and geographic
locations; and (iii) make up a predominantly investment-grade fixed maturity
securities portfolio. Many of our products incorporate surrender charges, market
interest rate adjustments or other features to encourage persistency.
We seek to maximize the total return on our investments through active
investment management. Accordingly, we have determined that our entire portfolio
of fixed maturity securities is available to be sold in response to: (i) changes
in market interest rates; (ii) changes in relative values of individual
securities and asset sectors; (iii) changes in prepayment risks; (iv) changes in
credit quality outlook for certain securities; (v) liquidity needs; and (vi)
other factors. From time to time, we invest in securities for trading purposes,
although such investments account for a relatively small portion of our total
portfolio.
The profitability of many of our products depends on the spreads between
the interest yield we earn on investments and the rates we credit on our
insurance liabilities. Although substantially all credited rates on our annuity
products may be changed annually (subject to minimum guaranteed rates), changes
in competition and other factors, including the impact of the level of
surrenders and withdrawals, may limit our ability to adjust or to maintain
crediting rates at levels necessary to avoid narrowing of spreads under certain
market conditions. Approximately 80 percent of our insurance liabilities were
subject to interest rates that may be reset annually: the remainder have no
explicit interest rates. As of December 31, 1998, the average yield, computed on
the cost basis of our investment portfolio, was 7.2 percent, and the average
interest rate credited or accruing to our total insurance liabilities was 5.1
percent, excluding interest bonuses guaranteed for the first year of the annuity
contract only.
38
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
We use computer models to simulate the cash flows expected from our
existing business under various interest rate scenarios. These simulations
enable us to measure the potential gain or loss in fair value of our interest
rate-sensitive financial instruments. With such estimates, we seek to closely
match the duration of our assets to the duration of our liabilities. When the
estimated durations of assets and liabilities are similar, exposure to interest
rate risk is minimized because a change in the value of assets should be largely
offset by a change in the value of liabilities. At December 31, 1998, the
adjusted modified duration of our fixed maturity securities and short-term
investments was approximately 6.0 years and the duration of our insurance
liabilities was approximately 7.5 years. If interest rates were to increase by
10 percent from their December 31, 1998 levels, we estimate that our fixed
maturity securities and short-term investments (net of corresponding changes in
the value of cost of policies purchased, cost of policies produced and insurance
liabilities) would decline in fair value by approximately $30 million. This
compares to a decline in fair value of $35 million based on a comparable
calculation at December 31, 1997. The calculations involved in our computer
simulations incorporate numerous assumptions, require significant estimates and
assume an immediate change in interest rates without any management of the
investment portfolio in reaction to such change. Consequently, potential changes
in value of our financial instruments indicated by the simulations will likely
be different from the actual changes experienced under given interest rate
scenarios, and the differences may be material. Because we actively manage our
investments and liabilities, our net exposure to interest rates can vary over
time.
Directors and Executive Officers
Conseco Variable's directors and executive officers as of May 1, 1999 are listed
below:
PRINCIPAL BUSINESS OCCUPATION
NAME DURING LAST FIVE YEARS
================================================================================
Stephen C. Hilbert Since 1979, Chairman of the Board, Chief Executive
(Age 53) Officer and Director and since 1988 President of
Conseco, Inc. Director and Chairman of the Board of
Conseco Variable.
Ngaire E. Cuneo Since 1992, Executive Vice President, Corporate
(Age 48) Development of Conseco, Inc. and various positions
with certain of its affiliates. Director of Conseco
Variable.
Rollin M. Dick Since 1986, Executive Vice President, Chief Financial
(Age 67) Officer and Director of Conseco, Inc. Director and
Executive Vice President and Chief Financial Officer
of Conseco Variable.
Thomas J. Kilian Since 1998, Executive Vice President, Chief
(Age 48) Operations Officer of Conseco, Inc. and from 1989
until 1998 Senior Vice President of various
subsidiaries of Conseco, Inc. Director and President
of Conseco Variable.
John J. Sabl Since 1997, Executive Vice President, General Counsel
(Age 47) and Secretary of Conseco, Inc. Prior thereto, Mr.
Sabl was a partner in the law firm of Sidley & Austin
in Chicago, Illinois. Director and Executive Vice
President, General Counsel and Secretary of Conseco
Variable.
James S. Adams Since 1997, Senior Vice President, Chief Accounting
(Age 39) Officer and Treasurer of Conseco, Inc. Since 1989,
Senior Vice President of various subsidiaries of
Conseco, Inc. Senior Vice President and Treasurer of
Conseco Variable.
39
<PAGE>
================================================================================
Executive Compensation
Conseco Variable has no full-time employees and does not compensate any
employee, officer or director of Conseco Variable.
Independent Accountants
The financial statements of Conseco Variable as of December 31, 1998 and
1997 and for the years ended December 31, 1998, 1997 and 1996, included in this
prospectus, have been audited by PricewaterhouseCoopers LLP, independent
accountants, as set forth in their report appearing herein.
Legal Opinions
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided
advice on certain matters relating to the federal securities and income tax laws
in connection with the Contracts described in this prospectus.
Financial Statements
The financial statements of Conseco Variable which are included in this
prospectus should be considered only as bearing on the ability of Conseco
Variable to meet its obligations under the Contracts. They should not be
considered as bearing on the investment performance of the Investment
Portfolios. The value of the Investment Portfolios is affected primarily by the
performance of the underlying investments.
The financial statements of Conseco Variable Annuity Account G are
included in the Statement of Additional Information.
40
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
Report Of Independent Accountants
To the Shareholders and Board of Directors
Conseco Variable Insurance Company
In our opinion, the accompanying balance sheet and the related statements
of operations, shareholder's equity and cash flows present fairly, in all
material respects, the financial position of Conseco Variable Insurance Company
(the "Company") at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Indianapolis, Indiana
March 30, 1999
<PAGE>
================================================================================
Conseco Variable Insurance Company
Balance Sheet
December 31, 1998 and 1997
(Dollars in millions)
Assets
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Actively managed fixed maturities at fair value (amortized cost:
1998 -- $1,520.5; 1997 - $1,705.2)....................................... $1,524.1 $1,734.0
Equity securities at fair value (cost: 1998 - $46.0 million;
1997 -- $25.1 million)................................................... 45.7 25.4
Mortgage loans............................................................. 110.2 146.1
Policy loans............................................................... 79.6 80.6
Other invested assets...................................................... 103.1 62.8
Short-term investments..................................................... 48.4 49.5
Assets held in separate accounts........................................... 696.4 402.1
- ----------------------------------------------------------------------------------------------------------------
Total investments...................................................... 2,607.5 2,500.5
Accrued investment income.................................................... 30.5 30.5
Cost of policies purchased................................................... 98.0 106.4
Cost of policies produced.................................................... 82.5 55.9
Reinsurance receivables...................................................... 22.2 21.9
Goodwill (net of accumulated amortization: 1998 - $14.7;
1997 -- $13.2)............................................................. 46.7 48.2
Other assets................................................................. 24.3 8.3
- ----------------------------------------------------------------------------------------------------------------
Total assets........................................................... $2,911.7 $2,771.7
</TABLE>
(continued on next page)
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
Conseco Variable Insurance Company
Balance Sheet (Continued)
December 31, 1998 and 1997
(Dollars in millions, except per share amount)
Liabilities And Shareholder's Equity
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Insurance liabilities:
Interest sensitive products.......................................... $1,365.2 $1,522.1
Traditional products................................................. 246.2 248.3
Claims payable and other policyholder funds.......................... 62.6 62.5
Liabilities related to separate accounts............................. 696.4 402.1
Income tax liabilities................................................... 37.5 44.2
Investment borrowings.................................................... 65.7 61.0
Other liabilities........................................................ 33.0 14.6
- ----------------------------------------------------------------------------------------------------------------
Total liabilities................................................ 2,506.6 2,354.8
- ----------------------------------------------------------------------------------------------------------------
Shareholder's equity:
Common stock and additional paid-in capital (par value $4.80 per share,
1,065,000 shares authorized, 1,043,565 shares
issued and outstanding).............................................. 380.8 380.8
Accumulated other comprehensive income:
Unrealized gains of fixed maturity securities (net of
applicable deferred income taxes: 1998 - $.5; 1997 - $4.4)....... 1.0 8.2
Unrealized gains (losses) of other investments (net of
applicable deferred income taxes: 1998 - $(.9); 1997 - $.3)...... (1.8) .5
Retained earnings........................................................ 25.1 27.4
- ----------------------------------------------------------------------------------------------------------------
Total shareholder's equity....................................... 405.1 416.9
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity....................... $2,911.7 $2,771.7
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
================================================================================
Conseco Variable Insurance Company
Statement Of Operations
for the years ended December 31, 1998, 1997 and 1996
(Dollars in millions)
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Insurance policy income.............................................. $ 73.6 $ 75.7 $ 81.4
Net investment income................................................ 198.0 222.6 218.4
Net investment gains................................................. 18.5 13.3 2.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues................................................... 290.1 311.6 302.5
- ------------------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Insurance policy benefits............................................ 170.6 191.0 180.6
Amortization......................................................... 33.6 27.1 20.3
Other operating costs and expenses................................... 38.7 32.2 60.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses...................................... 242.9 250.3 261.4
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes........................................... 47.2 61.3 41.1
Income tax expense................................................... 16.6 22.1 15.4
Net income....................................................... $ 30.6 $ 39.2 $ 25.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
Conseco Variable Insurance Company
Statement Of Shareholder's Equity
for the years ended December 31, 1998, 1997 and 1996
(Dollars in millions)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED OTHER
AND ADDITIONAL COMPREHENSIVE RETAINED
TOTAL PAID-IN CAPITAL INCOME (LOSS) EARNINGS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995....................................... $442.6 $380.8 $ 12.4 $ 49.4
Comprehensive income, net of tax:
Net income................................................. 25.7 -- -- 25.7
Change in unrealized appreciation (depreciation) of
securities (net of applicable income taxes of ($9.7) .... (17.0) -- (17.0) --
- ------------------------------------------------------------------------------
Total comprehensive income........................... 8.7
Dividends on common stock.................................... (54.4) -- -- (54.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996....................................... 396.9 380.8 (4.6) 20.7
Comprehensive income, net of tax:
Net income................................................. 39.2 -- -- 39.2
Change in unrealized appreciation (depreciation) of
securities (net of applicable income taxes of $7.2)...... 13.3 -- 13.3 --
- ------------------------------------------------------------------------------
Total comprehensive income........................... 52.5
Dividends on common stock.................................... (32.5) -- -- (32.5)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997....................................... 416.9 380.8 8.7 27.4
Comprehensive income, net of tax:
Net income................................................. 30.6 -- -- 30.6
Change in unrealized appreciation (depreciation) of
securities (net of applicable income taxes of ($5.1)) ... (9.5) -- (9.5) --
- ------------------------------------------------------------------------------
Total comprehensive income........................... 21.1
Dividends on common stock.................................... (32.9) -- -- (32.9)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998....................................... $405.1 $380.8 $ (.8) $ 25.1
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
================================================================================
Conseco Variable Insurance Company
Statement Of Cash Flows
for the years ended December 31, 1998, 1997 and 1996
(Dollars in millions)
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $30.6 $39.2 $25.7
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization................................................... 43.0 27.1 20.3
Income taxes................................................... (1.2) 6.7 (3.9)
Insurance liabilities.......................................... 120.0 95.2 112.5
Accrual and amortization of investment income.................... 1.6 .3 3.1
Deferral of cost of policies produced............................ (35.3) (31.8) (13.2)
Investment gains................................................. (18.5) (13.3) (2.7)
Other............................................................ (38.3) (4.6) (8.8)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities.................... 101.9 118.8 133.0
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sales of investments................................................. 1,185.0 755.2 988.9
Maturities and redemptions........................................... 145.5 150.4 101.7
Purchases of investments............................................. (1,420.7) (923.5) (1,049.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities............. (90.2) (17.9) 41.0
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Deposits to insurance liabilities.................................... 400.4 255.9 169.8
Investment borrowings................................................ 4.7 12.6 (35.8)
Withdrawals from insurance liabilities............................... (385.0) (302.2) (267.7)
Dividends paid on common stock....................................... (32.9) (32.5) (44.5)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities........................ (12.8) (66.2) (178.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in short-term investments............ (1.1) 34.7 (4.2)
Short-term investments, beginning of year................................ 49.5 14.8 19.0
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term investments, end of year...................................... $48.4 $49.5 $14.8
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
1. Significant Accounting Policies
Basis of Presentation
Conseco Variable Insurance Company ("we" or the "Company") markets
tax-qualified annuities and certain employee benefit-related insurance products
through professional independent agents. Prior to its name change in October
1998, the Company was named Great American Reserve Insurance Company. Since
August 1995, the Company has been a wholly owned subsidiary of Conseco, Inc.
("Conseco"), a financial services holding company operating throughout the
United States. Conseco's life insurance subsidiaries develop, market and
administer supplemental health insurance, annuity, individual life insurance,
individual and group major medical insurance and other insurance products.
Conseco's finance subsidiaries originate, purchase, sell and service consumer
and commercial finance loans.
The following summary explains the accounting policies we use to arrive at
the more significant numbers in our financial statements. We prepare our
financial statements in accordance with generally accepted accounting principles
("GAAP"). We follow the accounting standards established by the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants and the Securities and Exchange Commission. We reclassified certain
amounts in our 1997 and 1996 financial statements and notes to conform with the
1998 presentation.
Investments
Fixed maturities are securities that mature more than one year after
issuance and include bonds, notes receivable and redeemable preferred stock.
Fixed maturities that we may sell prior to maturity are classified as actively
managed and are carried at estimated fair value, with any unrealized gain or
loss, net of tax and related adjustments, recorded as a component of
shareholder's equity. Fixed maturity securities that we intend to sell in the
near term are classified as trading and included in other invested assets. We
include any unrealized gain or loss on trading securities in net investment
gains.
Equity securities include investments in common stocks and non-redeemable
preferred stock. We carry these investments at estimated fair value. We record
any unrealized gain or loss, net of tax and related adjustments, as a component
of shareholder's equity.
Mortgage loans held in our investment portfolio are carried at amortized
unpaid balances, net of provisions for estimated losses.
Policy loans are stated at their current unpaid principal balances.
Other invested assets include trading securities and certain
non-traditional investments. Non-traditional investments include investments in
venture capital funds, limited partnerships, mineral rights and promissory
notes; we account for them using either the cost method, or for investments in
partnerships over whose operations the Company exercises significant influence,
the equity method.
Short-term investments include commercial paper, invested cash and other
investments purchased with maturities of less than three months. We carry them
at amortized cost, which approximates their estimated fair value. We consider
all short-term investments to be cash equivalents.
We defer any fees received or costs incurred when we originate investments
(primarily mortgage loans). We amortize fees, costs, discounts and premiums as
yield adjustments over the Contractual lives of the investments. We consider
anticipated prepayments on mortgage-backed securities in determining estimated
future yields on such securities.
When we sell a security (other than a trading security), we report the
difference between our sale proceeds and its amortized cost (determined based on
specific identification) as an investment gain or loss.
We regularly evaluate all of our investments based on current economic
conditions, credit loss experience and other investee-specific developments. If
there is a decline in a security's net realizable value that is other than
temporary, we treat it as a realized loss and reduce our cost basis of the
security to its estimated fair value.
Separate Accounts
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policyholders. The assets of these accounts are
47
<PAGE>
================================================================================
legally segregated. They are not subject to the claims that may arise out of any
other business of the Company. We report separate account assets at market
value; the underlying investment risks are assumed by the Contract holders. We
record the related liabilities at amounts equal to the market value of the
underlying assets.
Cost of Policies Produced
The costs that vary with, and are primarily related to, producing new
insurance business are referred to as cost of policies produced. We amortize
these costs using the interest rate credited to the underlying policy; (I) in
relation to the estimated gross profits for universal life-type and
investment-type products; or (ii) in relation to future anticipated premium
revenue for other products.
When we sell investments backing our universal life or investment-type
product business at a gain or loss, we adjust the amortization to reflect the
change in future investment yields resulting from the sale (thereby changing the
future amortization to offset the change in yield). We also adjust the cost of
policies produced for the change in amortization that would have been recorded
if actively managed fixed maturity securities had been sold at their stated
aggregate fair value and the proceeds reinvested at current yields. We include
the impact of this adjustment in net unrealized appreciation (depreciation)
within shareholder's equity.
Each year, we evaluate the recoverability of the unamortized balance of
the cost of policies produced. We consider estimated future gross profits or
future premiums, expected mortality or morbidity, interest earned and credited
rates, persistency and expenses in determining whether the balance is
recoverable.
Cost of Policies Purchased
The cost assigned to the right to receive future cash flows from Contracts
existing at the date of an acquisition is referred to as cost of policies
purchased. This balance is amortized, evaluated for recoverability, and adjusted
for the impact of realized and unrealized gains (losses) in the same manner as
the cost of policies produced described above.
Goodwill
Goodwill is the excess of the amount paid to acquire the Company over the
fair value of its net assets. We amortize goodwill on the straight-line basis
over a 40-year period. We continually monitor the value of our goodwill based on
our estimates of future earnings. We determine whether goodwill is fully
recoverable from projected undiscounted net cash flows over the remaining
amortization period. If we were to determine that changes in such projected cash
flows no longer support the recoverability of goodwill over the remaining
amortization period, we would reduce its carrying value with a corresponding
charge to expense or shorten the amortization period (no such changes have
occurred).
Recognition of Insurance Policy Income and Related Benefits and Expenses on
Insurance Contracts
Generally, we recognize insurance premiums for traditional life and
accident and health Contracts as earned over the premium-paying periods. We
establish reserves for future benefits on a net-level premium method based upon
assumptions as to investment yields, mortality, morbidity, withdrawals and
dividends. We record premiums for universal life-type and investment-type
Contracts that do not involve significant mortality or morbidity risk as
deposits to insurance liabilities. Revenues for these Contracts consist of
mortality, morbidity, expense and surrender charges. We establish reserves for
the estimated present value of the remaining net costs of all reported and
unreported claims.
Reinsurance
In the normal course of business, we seek to limit our exposure to loss on
any single insured or to certain groups of policies by ceding reinsurance to
other insurance enterprises. We currently retain no more than $.5 million of
mortality risk on any one policy. We diversify the risk of reinsurance loss by
using a number of reinsurers that have strong claims-paying ratings. If any
reinsurer could not meet its obligations, the Company would assume the
liability. The likelihood of a material loss being incurred as the result of the
failure of one of our reinsurers is considered remote. The cost of reinsurance
ceded totaled $21.0 million, $24.2 million and $24.6 million in 1998, 1997 and
1996, respectively. Reinsurance recoveries netted against insurance policy
benefits totaled $21.8 million, $14.9 million and $19.4 million in 1998, 1997
and 1996, respectively.
48
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
Income Taxes
Our income tax expense includes deferred income taxes arising from
temporary differences between the tax and financial reporting bases of assets
and liabilities. In assessing the realization of deferred income tax assets, we
consider whether it is more likely than not that the deferred income tax assets
will be realized. The ultimate realization of deferred income tax assets depends
upon generating future taxable income during the periods in which temporary
differences become deductible. If future income is not generated as expected,
deferred income tax assets may need to be written off (no such write-offs have
occurred).
Investment Borrowings
As part of our investment strategy, we may enter into reverse repurchase
agreements and dollar-roll transactions to increase our investment return or to
improve our liquidity. We account for these transactions as collateral
borrowings, where the amount borrowed is equal to the sales price of the
underlying securities. Reverse repurchase agreements involve a sale of
securities and an agreement to repurchase the same securities at a later date at
an agreed-upon price. Dollar rolls are similar to reverse repurchase agreements
except that, with dollar rolls, the repurchase involves securities that are only
substantially the same as the securities sold. We account for these transactions
as short-term collateralized borrowings. Such borrowings averaged approximately
$66.0 million during 1998 (compared with an average of $90.4 million during
1997) and were collateralized by investment securities with fair values
approximately equal to the loan value. The weighted average interest rate on
short-term collateralized borrowings was 4.4 percent in both 1998 and 1997. The
primary risk associated with short-term collateralized borrowings is that a
counterparty will be unable to perform under the terms of the Contract. Our
exposure is limited to the excess of the net replacement cost of the securities
over the value of the short-term investments (such excess was not material at
December 31, 1998). We believe the counterparties to our reverse repurchase and
dollar-roll agreements are financially responsible and that the counterparty
risk is minimal.
Use of Estimates
When we prepare financial statements in conformity with GAAP, we are
required to make estimates and assumptions that significantly affect various
reported amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting periods. For example, we use significant estimates
and assumptions in calculating values for the cost of policies produced, the
cost of policies purchased, goodwill, liabilities for insurance and deposit
products, liabilities related to litigation, guaranty fund assessment accruals,
gain on sale of finance receivables and deferred income taxes. If our future
experience differs materially from these estimates and assumptions, our
financial statements could be affected.
Fair Values of Financial Instruments
We use the following methods and assumptions to determine the estimated
fair values of financial instruments:
Investment securities. For fixed maturity securities (including redeemable
preferred stocks) and for equity and trading securities, we use quotes from
independent pricing services, where available. For investment securities for
which such quotes are not available, we use values obtained from broker-dealer
market makers or by discounting expected future cash flows using a current
market rate appropriate for the yield, credit quality, and (for fixed maturity
securities) the maturity of the investment being priced.
Short-term investments. We use quoted market prices. The carrying amount
for these instruments approximates their estimated fair value.
Mortgage loans and policy loans. We discount future expected cash flows
for loans included in our investment portfolio based on interest rates currently
being offered for similar loans to borrowers with similar credit ratings. We
aggregate loans with similar characteristics in our calculations.
Other invested assets. We use quoted market prices, where available. When
quotes are not available, we assume a market value equal to carrying value.
Insurance liabilities for investment Contracts. We discount future
expected cash flows based on interest rates currently being offered for similar
contracts with similar maturities.
Investment borrowings. Due to the short-term nature of these borrowings
(terms generally less than 30 days), estimated fair values are assumed to
approximate the carrying amount reported in the balance sheet.
49
<PAGE>
================================================================================
Here are the estimated fair values of our financial instruments:
<TABLE>
<CAPTION>
1998 1997
--------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Actively managed fixed maturities.......................................... $1,524.1 $1,524.1 $1,734.0 $1,734.0
Equity securities .......................................................... 45.7 45.7 25.4 25.4
Mortgage loans.............................................................. 110.2 119.0 146.1 154.6
Policy loans................................................................ 79.6 79.6 80.6 80.6
Other invested assets....................................................... 103.1 103.1 62.8 62.8
Short-term investments...................................................... 48.4 48.4 49.5 49.5
Financial liabilities:
Insurance liabilities for investment contracts (1).......................... 1,036.0 1,036.0 1,177.5 1,177.5
Investment borrowings....................................................... 65.7 65.7 61.0 61.0
====================================================================================================================================
</TABLE>
(1) The estimated fair value of the liabilities for investment contracts
was approximately equal to its carrying value at December 31, 1998 and 1997.
This was because interest rates credited on the vast majority of account
balances approximate current rates paid on similar investment contracts and
because these rates are not generally guaranteed beyond one year. We are not
required to disclose fair values for insurance liabilities, other than those for
investment contracts. However, we take into consideration the estimated fair
values of all insurance liabilities in our overall management of interest rate
risk. We attempt to minimize exposure to changing interest rates by matching
investment maturities with amounts due under insurance contracts.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") was issued in June
1998. SFAS 133 requires all derivative instruments to be recorded on the balance
sheet at estimated fair value. Changes in the fair value of derivative
instruments are to be recorded each period either in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, on the type of hedge transaction. SFAS 133 is
effective for year 2000. We are currently evaluating the impact of SFAS 133; at
present, we do not believe it will have a material effect on our financial
position or results of operations.
2. Investments:
At December 31, 1998, the amortized cost and estimated fair value of
actively managed fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment grade:
Corporate securities........................................................... $ 860.4 $20.7 $15.0 $ 866.1
United States Treasury securities and obligations of
United States government corporations and agencies.......................... 26.9 .8 .2 27.5
States and political subdivisions........................................... 17.3 .3 -- 17.6
Debt securities issued by foreign governments............................... 11.7 -- .8 10.9
Mortgage-backed securities ................................................. 487.4 8.0 1.2 494.2
Below-investment grade (primarily corporate securities)........................ 116.8 1.2 10.2 107.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total actively managed fixed maturities................................... $1,520.5 $31.0 $27.4 $1,524.1
====================================================================================================================================
Equity securities.............................................................. $ 46.0 $ .8 $ 1.1 $ 45.7
====================================================================================================================================
</TABLE>
At December 31, 1997, the amortized cost and estimated fair value of actively
managed fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment grade:
Corporate securities........................................................ $ 955.8 $28.3 $ 5.3 $ 978.8
United States Treasury securities and obligations of
United States government corporations and agencies.......................... 28.0 .7 -- 28.7
States and political subdivisions........................................... 20.4 1.1 .1 21.4
Debt securities issued by foreign governments............................... 13.5 .1 .7 12.9
Mortgage-backed securities ................................................. 551.6 8.6 .4 559.8
Below-investment grade (primarily corporate securities)........................ 135.9 1.8 5.3 132.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total actively managed fixed maturities................................... $1,705.2 $40.6 $11.8 $1,734.0
====================================================================================================================================
Equity securities.............................................................. $ 25.1 $ .5 $ .2 $ 25.4
====================================================================================================================================
</TABLE>
50
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
Net unrealized gains (losses) on actively managed fixed maturity
investments included in shareholders' equity as of December 31, 1998 and 1997,
were as follows:
<TABLE>
<CAPTION>
1998 1997
(DOLLARS IN MILLIONS)
====================================================================================================================================
<S> <C> <C>
Net unrealized gains on actively managed fixed maturity investments............................... $3.6 $28.8
Adjustments to cost of policies purchased and cost of policies produced........................... (2.1) (16.2)
Deferred income tax benefit....................................................................... (.5) (4.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized gain on actively managed fixed maturity investments........................... $1.0 $ 8.2
====================================================================================================================================
</TABLE>
The following table sets forth the amortized cost and estimated fair value
of actively managed fixed maturities at December 31, 1998, by Contractual
maturity. Actual maturities will differ from Contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Most of the mortgage-backed securities shown below
provide for periodic payments throughout their lives.
<TABLE>
<CAPTION>
1998 1997
(DOLLARS IN MILLIONS)
====================================================================================================================================
<S> <C> <C>
Due in one year or less........................................................................... $ 14.5 $ 14.5
Due after one year through five years............................................................. 132.1 133.4
Due after five years through ten years............................................................ 249.3 245.6
Due after ten years............................................................................... 637.2 636.4
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal...................................................................................... 1,033.1 1,029.9
Mortgage-backed securities........................................................................ 487.4 494.2
====================================================================================================================================
Total actively managed fixed maturities ................................................... $1,520.5 $1,524.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net investment income consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
(DOLLARS IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actively managed fixed maturity securities................................ $118.4 $133.6 $146.4
Equity securities......................................................... 3.2 1.7 1.6
Mortgage loans............................................................ 12.1 16.4 19.0
Policy loans.............................................................. 5.1 5.4 5.0
Other invested assets..................................................... 13.3 7.7 9.8
Short-term investments.................................................... 2.9 3.4 2.3
Separate accounts......................................................... 44.1 55.7 35.6
- ------------------------------------------------------------------------------------------------------------------------------------
Gross investment income................................................ 199.1 223.9 219.7
Investment expenses....................................................... 1.1 1.3 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income................................................. $198.0 $222.6 $218.4
====================================================================================================================================
</TABLE>
The Company had no significant fixed maturity investments and mortgage
loans that were not accruing investment income in 1998, 1997 and 1996.
Investment gains (losses), net of investment expenses, were included in
revenue as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(DOLLARS IN MILLIONS)
====================================================================================================================================
Fixed maturities:
<S> <C> <C> <C>
Gross gains........................................................... $34.0 $20.6 $16.6
Gross losses.......................................................... (12.4) (5.1) (9.2)
Other than temporary decline in fair value............................ -- (.3) (.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment gains from fixed maturities before expenses............ 21.6 15.2 7.2
Other..................................................................... .1 2.2 (.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment gains before expenses.................................. 21.7 17.4 6.6
Investment expenses....................................................... 3.2 4.1 3.9
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment gains.................................................. $18.5 $13.3 $ 2.7
====================================================================================================================================
</TABLE>
51
<PAGE>
================================================================================
At December 31, 1998, the mortgage loan balance was primarily comprised of
commercial loans. Approximately 15 percent, 12 percent, 12 percent, 11 percent
and 8 percent of the mortgage loan balance were on properties located in
California, Michigan, Florida, Texas and Georgia, respectively. No other state
comprised greater than 8 percent of the mortgage loan balance. Noncurrent
mortgage loans were insignificant at December 31, 1998. At December 31, 1998,
our allowance for loss on mortgage loans was $.8 million.
Life insurance companies are required to maintain certain investments on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $16.1 million at December 31, 1998.
The Company had no investments in any single entity in excess of 10
percent of shareholder's equity at December 31, 1998, other than investments
issued or guaranteed by the United States government or a United States
government agency.
3. Insurance Liabilities:
These liabilities consisted of the following:
<TABLE>
<CAPTION>
INTEREST
WITHDRAWAL MORTALITY RATE
ASSUMPTION ASSUMPTION ASSUMPTION 1998 1997
(DOLLARS IN MILLIONS)
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Interest-sensitive products:
Investment Contracts....................... N/A N/A (c) $1,036.0 $1,177.5
Universal life-type Contracts.............. N/A N/A 4.8% 329.2 344.6
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-sensitive products........ 1,365.2 1,522.1
- ---------------------------------------------------------------------------------------------------------------------------
Traditional products:
Traditional life insurance Contracts......... Company (a) 7.6% 139.9 142.8
experience
Limited-payment Contracts.................. None (b) 7.6% 106.3 105.5
- ---------------------------------------------------------------------------------------------------------------------------
Total traditional products............... 246.2 248.3
- ---------------------------------------------------------------------------------------------------------------------------
Claims payable and other policyholder funds.. N/A N/A N/A 62.6 62.5
Liabilities related to separate accounts..... N/A N/A N/A 696.4 402.1
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................... $2,370.4 $2,235.0
===========================================================================================================================
</TABLE>
(a) Principally modifications of the 1975 - 80 Basic, Select and
Ultimate Tables.
(b) Principally the 1984 United States Population Table and the NAIC
1983 Individual Annuitant Mortality Table.
(c) At December 31, 1998 and 1997, approximately 95 percent and 97
percent, respectively, of this liability represented account
balances where future benefits are not guaranteed. The weighted
average interest rate on the remainder of the liabilities
representing the present value of guaranteed future benefits was
approximately 6 percent at December 31, 1998.
4. Income Taxes:
Income tax liabilities were comprised of the following:
<TABLE>
<CAPTION>
1998 1997
(DOLLARS IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax liabilities (assets):
Investments (primarily actively managed fixed maturities)..................................... $ 5.4 $ 9.8
Cost of policies purchased and cost of policies produced...................................... 56.7 52.2
Insurance liabilities......................................................................... (28.2) (19.5)
Unrealized appreciation (depreciation)........................................................ (.4) 4.7
Other......................................................................................... (2.2) (4.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities............................................................... 31.3 43.2
Current income tax liabilities (assets)........................................................... 6.2 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
Income tax liabilities........................................................................ $37.5 $44.2
====================================================================================================================================
</TABLE>
52
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
Income tax expense was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(DOLLARS IN MILLIONS)
====================================================================================================================================
<S> <C> <C> <C>
Current tax provision $20.8 $16.3 $10.5
Deferred tax provision (benefit). (4.2) 5.8 4.9
- ------------------------------------------------------------------------------------------------------------------------------------
Income tax expense $16.6 $22.1 $15.4
====================================================================================================================================
</TABLE>
A reconciliation of the income tax provisions based on the U.S. statutory
corporate tax rate to the provisions reflected in the statement of operations is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C>
Tax on income before income taxes at statutory rate 35.0% 35.0% 35.0%
State taxes 1.0 .7 1.5
Other (.8) .3 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
Income tax expense 35.2% 36.0% 37.5%
====================================================================================================================================
</TABLE>
5. Other Disclosures:
Litigation
The Company is involved on an ongoing basis in lawsuits related to its
operations. Although the ultimate outcome of certain of such matters cannot be
predicted, none of such lawsuits currently pending against the Company is
expected, individually or in the aggregate, to have a material adverse effect on
the Company's financial condition, cash flows or results of operations.
Guaranty Fund Assessments
The balance sheet at December 31, 1998, includes: (i) accruals of $2.4
million, representing our estimate of all known assessments that will be levied
against the Company by various state guaranty associations based on premiums
written through December 31, 1998; and (ii) receivables of $1.9 million that we
estimate will be recovered through a reduction in future premium taxes as a
result of such assessments. These estimates are subject to change when the
associations determine more precisely the losses that have occurred and how such
losses will be allocated among the insurance companies. We recognized expense
for such assessments of $1.1 million in 1998, $1.2 million in 1997 and $1.4
million in 1996.
Related Party Transactions
The Company operates without direct employees through management and
service agreements with subsidiaries of Conseco. Fees for such services
(including data processing, executive management and investment management
services) are based on Conseco's direct and directly allocable costs plus a 10
percent margin. Total fees incurred by the Company under such agreements were
$37.8 million in 1998, $36.7 million in 1997 and $44.1 million in 1996.
During 1998 and 1997, the Company purchased $13.0 million and $11.2
million par value, respectively, of senior subordinated notes issued by
subsidiaries of Conseco. Such notes had a carrying value of $45.5 million and
$29.8 million at December 31, 1998 and 1997, respectively, and are classified as
"other invested assets" in the accompanying balance sheet. In addition, during
1997, a subsidiary of Conseco redeemed $16.5 million par value of such notes
which were purchased in 1996.
53
<PAGE>
================================================================================
6. Other Operating Statement Data:
Insurance policy income consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
(DOLLARS IN MILLIONS)
====================================================================================================================================
<S> <C> <C> <C>
Traditional products:
Direct premiums collected .................................................... $445.8 $309.6 $241.3
Reinsurance assumed .......................................................... 15.6 14.9 1.7
Reinsurance ceded ............................................................ (21.0) (24.2) (24.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums collected, net of reinsurance. .................................... 440.4 300.3 218.4
Less premiums on universal life and products
without mortality and morbidity risk which are
recorded as additions to insurance liabilities . ........................... 400.4 255.9 169.8
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums on traditional products with mortality or morbidity risk,
recorded as insurance policy income. ..................................... 40.0 44.4 48.6
Fees and surrender charges on interest sensitive products ...................... 33.6 31.3 32.8
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance policy income. ................................................... $ 73.6 $ 75.7 $ 81.4
====================================================================================================================================
</TABLE>
The five states with the largest shares of 1998 collected premiums were
Texas (17 percent), Florida (16 percent), California (13 percent), Michigan
(7.1percent) and Indiana (6.2 percent). No other state accounted for more than
5.0 percent of total collected premiums.
Changes in the cost of policies purchased were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(DOLLARS IN MILLIONS)
====================================================================================================================================
<S> <C> <C> <C>
Balance, beginning of year. .................................................... $106.4 $143.0 $120.0
Amortization. .................................................................. (21.1) (15.4) (15.3)
Amounts related to fair value adjustment of actively managed fixed maturities .. 11.8 (21.2) 36.6
Other .......................................................................... .9 -- 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year ........................................................... $ 98.0 $106.4 $143.0
====================================================================================================================================
</TABLE>
Based on current conditions and assumptions as to future events on all
policies in force, the Company expects to amortize approximately 10 percent of
the December 31, 1998, balance of cost of policies purchased in 1999, 9 percent
in 2000, 9 percent in 2001, 8 percent in 2002 and 8 percent in 2003. The
discount rates used to determine the amortization of the cost of policies
purchased ranged from 3.6 percent to 8.0 percent and averaged 5.8 percent.
Changes in the cost of policies produced were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(DOLLARS IN MILLIONS)
====================================================================================================================================
<S> <C> <C> <C>
Balance, beginning of year ..................................................... $55.9 $38.2 $24.0
Additions ...................................................................... 35.3 31.8 13.2
Amortization. .................................................................. (11.0) (10.2) (3.5)
Amounts related to fair value adjustment of actively managed fixed maturities .. 2.3 (3.9) 4.5
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year ........................................................... $82.5 $55.9 $38.2
====================================================================================================================================
</TABLE>
54
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
7. Statement Of Cash Flows:
Income taxes paid during 1998, 1997, and 1996, were $17.1 million, $14.8
million and $18.1 million, respectively. Short-term investments having original
maturities of three months or less are considered to be cash equivalents. All
cash is invested in short-term investments.
8. Statutory Information:
Statutory accounting practices prescribed or permitted for insurance
companies by regulatory authorities differ from generally accepted accounting
principles. The Company reported the following amounts to regulatory agencies:
<TABLE>
<CAPTION>
1998 1997
(DOLLARS IN MILLIONS)
====================================================================================================================================
<S> <C> <C>
Statutory capital and surplus..................................................................... $134.0 $140.7
Asset valuation reserve........................................................................... 30.9 29.2
Interest maintenance reserve...................................................................... 73.1 68.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total.......................................................................................... $238.0 $238.7
====================================================================================================================================
</TABLE>
The Company's statutory net income was $32.7 million, $32.7 million and
$32.6 million in 1998, 1997 and 1996, respectively.
State insurance laws generally restrict the ability of insurance companies
to pay dividends or make other distributions. Approximately $32.9 million of the
Company's net assets at December 31, 1998, are available for distribution in
1999 without permission of state regulatory authorities.
55
<PAGE>
================================================================================
Table of Contents of the Statement of Additional Information
Company
Independent Accountants
Legal Opinions
Distribution
Calculation of Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
Appendix A-Condensed Financial Information
Accumulation Unit Value History
The following schedule includes Accumulation Unit values for the period
indicated. This data has been taken from the Conseco Variable Annuity Account
G's financial statements. This information should be read in conjunction with
Conseco Variable Annuity Account G's financial statements and related notes
which are included in the Statement of Additional Information.
Period ended
SUB-ACCOUNT 12/31/98
- --------------------------------------------------------------------------------
Conseco Series Trust Balanced
Beginning of Period ............................................. $12.124
End of Period ................................................... $13.209
No. of Accum. Units Outstanding ................................. 13,461
Conseco Series Trust Equity
Beginning of Period ............................................. $12.937
End of Period ................................................... $14.764
No. of Accum. Units Outstanding ................................. 2,408
Conseco Series Trust Fixed Income
Beginning of Period ............................................. $10.708
End of Period ................................................... $11.222
No. of Accum. Units Outstanding ................................. 7,921
Conseco Series Trust Government Securities
Beginning of Period ............................................. $10.626
End of Period ................................................... $11.230
No. of Accum. Units Outstanding ................................. 2,362
Conseco Series Trust Money Market
Beginning of Period ............................................. $10.263
End of Period ................................................... $10.659
No. of Accum. Units Outstanding ................................. 1,583
Alger American Growth
Beginning of Period ............................................. $12.018
End of Period ................................................... $17.566
No. of Accum. Units Outstanding ................................. 5,855
Alger American Leveraged AllCap
Beginning of Period ............................................. $11.926
End of Period ................................................... $18.580
No. of Accum. Units Outstanding ................................. 2,615
Alger American MidCap Growth
Beginning of Period ............................................. $11.967
End of Period ................................................... $15.392
No. of Accum. Units Outstanding ................................. 1,813
Alger American Small Capitalization
Beginning of Period ............................................. $12.616
End of Period ................................................... $14.387
No. of Accum. Units Outstanding ................................. 643
56
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
PERIOD ENDED
SUB-ACCOUNT 12/31/98
- --------------------------------------------------------------------------------
American Century VP Income & Growth
Beginning of Period $10.000
End of Period $10.826
No. of Accum. Units Outstanding 6,940
American Century VP International
Beginning of Period $10.000
End of Period $9.710
No. of Accum. Units Outstanding 767
American Century VP Value
Beginning of Period $10.000
End of Period $ 9.318
No. of Accum. Units Outstanding 4,663
Berger IPT--100
Beginning of Period $10.000
End of Period $ 9.711
No. of Accum. Units Outstanding 0
Berger IPT--Growth and Income
Beginning of Period $10.000
End of Period $11.184
No. of Accum. Units Outstanding 4,269
Berger IPT--Small Company Growth
Beginning of Period $10.000
End of Period $ 8.832
No. of Accum. Units Outstanding 0
Berger/BIAM IPT--International
Beginning of Period $10.000
End of Period $ 9.992
No. of Accum. Units Outstanding 0
The Dreyfus Socially Responsible Growth
Beginning of Period $10.000
End of Period $11.078
No. of Accum. Units Outstanding 340
Dreyfus Stock Index
Beginning of Period $10.000
End of Period $10.964
No. of Accum. Units Outstanding 4,735.3
Dreyfus Disciplined Stock
Beginning of Period $10.000
End of Period $10.726
No. of Accum. Units Outstanding 2,317
Dreyfus International Value
Beginning of Period $10.000
End of Period $ 9.423
No. of Accum. Units Outstanding 816
Federated High Income Bond II
Beginning of Period $10.000
End of Period $ 9.806
No. of Accum. Units Outstanding 3,262
Federated International Equity II
Beginning of Period $10.900
End of Period $13.510
No. of Accum. Units Outstanding 0
Federated Utility II
Beginning of Period $10.000
End of Period $10.906
No. of Accum. Units Outstanding 2,530
57
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================================================================================
PERIOD ENDED
SUB-ACCOUNT 12/31/98
- --------------------------------------------------------------------------------
INVESCO VIF - High Yield
Beginning of Period $11.362
End of Period $11.374
No. of Accum. Units Outstanding 653
INVESCO VIF - Equity Income
Beginning of Period $12.074
End of Period $13.741
No. of Accum. Units Outstanding 0
Janus Aggressive Growth
Beginning of Period $10.000
End of Period $11.694
No. of Accum. Units Outstanding 277
Janus Growth
Beginning of Period $10.000
End of Period $11.565
No. of Accum. Units Outstanding 7,982
Janus Worldwide Growth
Beginning of Period $10.000
End of Period $10.511
No. of Accum. Units Outstanding 7,444
Lazard Retirement Equity
Beginning of Period $10.000
End of Period $10.560
No. of Accum. Units Outstanding 6,642
Lazard Retirement Small Cap
Beginning of Period $10.000
End of Period $ 8.559
No. of Accum. Units Outstanding 873
Lord Abbett Growth and Income
Beginning of Period $11.645
End of Period $12.975
No. of Accum. Units Outstanding 3,668
Mitchell Hutchins Growth and Income
Beginning of Period $10.000
End of Period $ 9.905
No. of Accum. Units Outstanding 0
Neuberger Berman Limited Maturity Bond
Beginning of Period $10.000
End of Period $10.164
No. of Accum. Units Outstanding 2,323
Neuberger Berman Partners
Beginning of Period $10.000
End of Period $ 9.281
No. of Accum. Units Outstanding 2,063
Strong Opportunity II
Beginning of Period $10.000
End of Period $ 9.547
No. of Accum. Units Outstanding 2,083
Strong Mid Cap Growth II
Beginning of Period $10.000
End of Period $11.533
No. of Accum. Units Outstanding 773
Van Eck Worldwide Bond
Beginning of Period $ 8.060
End of Period $10.850
No. of Accum. Units Outstanding 1,319
58
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
PERIOD ENDED
SUB-ACCOUNT 12/31/98
- --------------------------------------------------------------------------------
Van Eck Worldwide Emerging Markets
Beginning of Period $10.000
End of Period $ 5.239
No. of Accum. Units Outstanding 245
Van Eck Worldwide Hard Assets
Beginning of Period $10.466
End of Period $ 7.136
No. of Accum. Units Outstanding 0
Van Eck Worldwide Real Estate
Beginning of Period $10.000
End of Period $ 8.520
No. of Accum. Units Outstanding 0
================================================================================
59
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================================================================================
Appendix B-Market Value Adjustment
The market value adjustment reflects the impact that changing interest
rates have on the value of your money in a Guarantee Period of the MVA Option.
The longer the period of time remaining in the term you selected, the greater
the impact of changing interest rates. The market value adjustment can be
positive or negative. We will apply the following factor to amounts withdrawn,
transferred or annuitized from a Guarantee Period in excess of the MVA waiver
amount (see below):
((1+A)/(1+B))(N/365)-1
where:
A is the U.S. Treasury rate that is in effect at the beginning of the
Guarantee Period for the length of the Guarantee Period you selected.
B is the current U.S. Treasury rate as of the date of the withdrawal or
transfer plus .005. The Treasury rate period is determined by N/365
rounded to the next highest year.
N is the number of days remaining in the Guarantee Period.
If the Treasury rate is not available for the period, the rate will be
determined by interpolation. If no Treasury rates are available, an index will
be selected by Conseco Variable which will be approved by the state insurance
commissioners.
MVA Waiver Amount: After the first year in a Guarantee Period, you can
make one withdrawal or transfer from a Guarantee Period each year of up to 10%
of the value in that Guarantee Period without the market value adjustment.
Examples Of The Market Value Adjustment:
EXAMPLE 1: FIVE-YEAR GUARANTEE PERIOD; INCREASE IN TREASURY RATE
Assume you make a $50,000 payment allocated to a 5-year Guarantee Period
on January 1, 1998. The current 5-year Treasury rate is 6.00%, and the current
interest rate is 7.00%. On June 13, 1999 you surrender the Contract with 3 years
and 202 days, or 1,297 days (12/31/2002-6/13/1999) remaining in the Guarantee
Period. The current Treasury rate at this point is found by rounding 3 years,
202 days to the next greatest year and taking the rate for that Guarantee
Period. In this case, we would look at the 4-year rate. Assume that the 4-year
Treasury rate on June 13, 1999 is 6.50%. The market value adjustment would be
calculated as follows:
Contract value at 6/13/1999 (529 days from the day your Contract was
issued):
$50,000 x [1.07(529/365)] = $55,151.38
MVA Waiver Amount: $ 5,515.14 (10% after year 1)
Amount remaining: $49,636.24
$49,636.24 x [((1+.06)/(1+.065+.005))(1297/365)-1] = -$1,628.83
resulting in an adjustment to the amount you withdraw as follows:
$49,636.24 - $1,628.83 + $5,515.14 = $53,522.55
EXAMPLE 2: FIVE-YEAR GUARANTEE PERIOD; DECREASE IN TREASURY RATE
Assuming the same facts as Example 1, but with a 4-year Treasury rate as
of the date of surrender of 5.00%, the following market value adjustment would
result:
Contract value at 6/13/1999 (529 days from the day your Contract was
issued):
$50,000 x [1.07(529/365)] = $55,151.38
MVA Waiver Amount: $5,515.14 (10% after 1 year)
Amount remaining: $49,636.24
$49,636.24 x [((1+.06)/(1+.050+.005))(1297/365)-1] = $840.99
resulting in an adjustment to the amount you withdraw as follows:
$49,636.24 + $840.99 + $5,515.14 = $55,992.37
60
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CONSECO VARIABLE INSURANCE COMPANY
1999 Account G
Individual and Group Annuity
================================================================================
- --------------------------------------------------------------------------------
(cut along dotted line)
- --------------------------------------------------------------------------------
If you would like a free copy of the Statement of Additional Information
dated May 1, 1999 for this Prospectus, please complete this form, detach, and
mail to:
Conseco Variable Insurance Company
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Gentlemen:
Please send me a free copy of the Statement of Additional Information for the
Conseco Variable Annuity Account G fixed and variable annuity at the following
address:
Name: __________________________________________________________________
Mailing Address: _______________________________________________________
________________________________________________________________________
Sincerely,
___________________________________________________________
(Signature)
Conseco Variable Insurance Company
11815 N. Pennsylvania Street
Carmel, Indiana 46032
(C) 1999, Conseco Variable Insurance Company 05-8318 (5/99)
61
<PAGE>
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CONSECO VARIABLE INSURANCE COMPANY
11815 N. Pennsylvania Street
Carmel, IN 46032
(c) 1999, Conseco Variable Insurance Company
05-8184 (5/99)
