[LOGO]
CONSECO(R)
CONSECO VARIABLE INSURANCE COMPANY
Formerly
GREAT AMERICAN RESERVE INSURANCE COMPANY
Annual Report to
Contract Owners
December 31, 1998
Rydex Advisor Variable Annuity Account
<PAGE>
ANNUAL REPORT TO CONTRACT OWNERS
Table of Contents
December 31, 1998
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Rydex Advisor Variable Annuity Account Page
Statement of Assets and Liabilities as of December 31, 1998 ............... 2
Statement of Operations for the Year Ended December 31, 1998 .............. 3
Statements of Changes in Net Assets
for the Years Ended December 31, 1998 and 1997 .......................... 5
Notes to Financial Statements ............................................. 9
Report of Independent Accountants ......................................... 11
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
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SHARES COST VALUE
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<S> <C> <C> <C>
Assets:
Investments in Rydex Variable Trust portfolio shares,
at net asset value (Note 2):
Juno Fund .................................................... 8,187.8 $ 68,747 $ 68,802
Money Market I Fund .......................................... 40,968,656.6 40,968,657 40,968,655
Nova Fund .................................................... 1,842,133.2 28,068,573 29,256,759
OTC Fund ..................................................... 1,126,249.1 20,669,670 22,037,316
Precious Metals Fund ......................................... 464,174.2 2,683,754 2,694,995
Ursa Fund .................................................... 874,306.5 5,498,574 5,509,005
U.S. Government Bond Fund .................................... 374,466.8 5,016,942 4,972,544
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Total assets ......................................................................................... 105,508,076
Liabilities:
Amounts due to Conseco Variable Insurance Company .......................................................... 106,182
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Net assets (Note 6) .................................................................................. $105,401,894
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<CAPTION>
UNITS UNIT VALUE REPORTED VALUE
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<S> <C> <C> <C>
Net assets attributable to:
Contract owners' deferred annuity reserves:
Juno Fund .................................................... 8,180.7 $ 8.383692 $ 68,584
Money Market I Fund .......................................... 3,871,940.2 10.567066 40,915,048
Nova Fund .................................................... 1,845,343.0 15.845676 29,240,708
OTC Fund ..................................................... 1,127,437.9 19.522364 22,010,254
Precious Metals Fund ......................................... 464,950.2 5.792543 2,693,244
Ursa Fund .................................................... 875,815.4 6.286469 5,505,786
U.S. Government Bond Fund .................................... 373,333.0 13.307877 4,968,270
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Net assets attributable to contract owners' deferred annuity reserves .................................. $105,401,894
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
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RYDEX MONEY
VARIABLE TRUST JUNO MARKET I NOVA
1998(1) 1998(2) 1998(2) 1998(2)
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<S> <C> <C> <C> <C>
Investment income:
Interest received from investments in securities ..................... $ -- $ 8,048 $ 1,176,135 $ 422,178
Dividends from investments in securities ............................. -- -- -- 9,338
Dividends from investments in portfolio shares ....................... 232,050 -- -- --
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Total investment income ............................................ 232,050 8,048 1,176,135 431,516
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Expenses:
Mortality and expense risk fees ...................................... 183,695 1,918 271,471 151,616
Administrative fees .................................................. 22,044 230 32,576 18,194
Other ................................................................ -- 3,505 347,483 263,278
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Total expenses ..................................................... 205,739 5,653 651,530 433,088
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Net investment income ............................................ 26,311 2,395 524,605 (1,572)
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Net realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Net realized gains (losses) on sales of investments in securities .... -- (21,692) -- (1,384,843)
Net change in unrealized appreciation
(depreciation) of investments in securities ........................ -- 1,819 -- 944,617
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Net loss on investments in securities .............................. -- (19,873) -- (440,226)
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Net realized gains on sales of investments in portfolio shares ....... 9,159,007 -- -- --
Net change in unrealized depreciation of investments
in portfolio shares ................................................ (1,573,770) -- -- --
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Net gain on investments in portfolio shares ........................ 7,585,237 -- -- --
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Net increase (decrease) in net assets from operations ............ $ 7,611,548 $ (17,478) $ 524,605 $ (441,798)
====================================================================================================================================
</TABLE>
(1) Period November 2, 1998, through December 31, 1998.
(2) Period January 1, 1998, through November 1, 1998.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Statement of Operations - Continued
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
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U.S.
PRECIOUS GOVERNMENT
OTC METALS URSA BOND
1998(2) 1998(2) 1998(2) 1998(2)
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<S> <C> <C> <C> <C>
Investment income:
Interest received from investments in securities ..................... $ 22,106 $ 220 $ 219,060 $ 12,680
Dividends from investments in securities ............................. 5,412 6,396 -- 48,402
Dividends from investments in portfolio shares ....................... -- -- -- --
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Total investment income ............................................ 27,518 6,616 219,060 61,082
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Expenses:
Mortality and expense risk fees ...................................... 119,669 9,169 64,878 16,279
Administrative fees .................................................. 14,360 1,100 7,785 1,953
Other ................................................................ 199,277 16,991 107,515 23,416
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Total expenses ..................................................... 333,306 27,260 180,178 41,648
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Net investment income ............................................ (305,788) (20,644) 38,882 19,434
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Net realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Net realized gains (losses) on sales of investments in securities .... 465,853 53,198 (1,045,533) 118,373
Net change in unrealized appreciation (depreciation)
of investments in securities ....................................... 3,223,602 19,034 (108,381) (46,092)
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Net gain (loss) on investments in securities ....................... 3,689,455 72,232 (1,153,914) 72,281
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Net realized gains (losses) on sales of investments in
portfolio shares ................................................... -- -- -- --
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares ................................. -- -- -- --
Net gain (loss) on investments in portfolio shares ................. -- -- -- --
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Net increase in net assets from operations ....................... $ 3,383,667 $ 51,588 $(1,115,032) $ 91,715
====================================================================================================================================
</TABLE>
(2) Period January 1, 1998, through November 1, 1998
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
For the Year Ended December 31, 1998, and the Period Ended December 31, 1997
<TABLE>
<CAPTION>
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RYDEX VARIABLE TRUST JUNO
--------------------------------------------------
1998 (1) 1998 (2) 1997 (3)
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<S> <C> <C> <C>
Changes from operations:
Net investment income ........................................................ $ 26,310 $ 2,395 $ 6,316
Net realized gains (losses) on sales of investments .......................... 9,159,007 (21,692) (26,480)
Net change in unrealized appreciation (depreciation) of investments .......... (1,573,770) 1,819 --
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Net increase (decrease) in net assets from operations ...................... 7,611,547 (17,478) (20,164)
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Changes from contract owners' transactions:
Net contract purchase payments ............................................... 15,167,095 2,976 6,578,572
Contract redemptions ......................................................... (2,204,222) (1,268) (6,558,408)
Net transfers (to) from fixed account ........................................ 11,808 111,042 --
Net assets transferred to Rydex Variable Trust ............................... 84,815,666 (95,272) --
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Net increase in net assets from contract owners' transactions .............. 97,790,347 17,478 20,164
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Net increase in net assets ............................................... 105,401,894 -- --
Net assets, beginning of period ................................................. -- -- --
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Net assets, end of period ................................................ $ 105,401,894 $ -- $ --
====================================================================================================================================
</TABLE>
(1) Period November 2, 1998, through December 31, 1998.
(2) Period January 1, 1998, through November 1, 1998.
(3) Period May 7, 1997, through December 31, 1997.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets - Continued
For the Year Ended December 31, 1998, and the Period Ended December 31, 1997
<TABLE>
<CAPTION>
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MONEY MARKET I NOVA
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1998 (2) 1997 (3) 1998 (2) 1997 (3)
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<S> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss) ................................... $ 524,605 $ 221,638 $ (1,572) $ 25,410
Net realized gains (losses) on sales of investments ............ -- -- (1,384,843) 112,377
Net change in unrealized appreciation of investments ........... -- -- 944,617 198,918
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Net increase (decrease) in net assets from operations ........ 524,605 221,638 (441,798) 336,705
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Changes from contract owners' transactions:
Net contract purchase payments ................................. 53,901,012 122,126,822 79,915 76,198,580
Contract redemptions ........................................... (4,910,715) (104,445,088) (810,397) (66,087,249)
Net transfers (to) from fixed account .......................... (35,290,688) -- 15,083,137 --
Net assets transferred to Rydex Variable Trust ................. (32,127,586) -- (24,358,893) --
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Net increase (decrease) in net assets from contract
owners' transactions ....................................... (18,427,977) 17,681,734 (10,006,238) 10,111,331
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Net increase (decrease) in net assets ...................... (17,903,372) 17,903,372 (10,448,036) 10,448,036
Net assets, beginning of period ................................... 17,903,372 -- 10,448,036 --
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Net assets, end of period .................................. $ -- $ 17,903,372 $ -- $ 10,448,036
====================================================================================================================================
</TABLE>
(2) Period January 1, 1998, through November 1, 1998.
(3) Period May 7, 1997, through December 31, 1997.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets - Continued
For the Year Ended December 31, 1998, and the Period Ended December 31, 1997
<TABLE>
<CAPTION>
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OTC PRECIOUS METALS
-----------------------------------------------------------------
1998 (2) 1997 (3) 1998 (2) 1997 (4)
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<S> <C> <C> <C> <C>
Changes from operations:
Net investment loss .......................................... $ (305,788) $ (15,375) $ (20,644) $ (5,585)
Net realized gains (losses) on sales of investments .......... 465,853 (81,503) 53,198 (365,727)
Net change in unrealized appreciation
(depreciation) of investments .............................. 3,223,602 (105,801) 19,034 39,904
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Net increase (decrease) in net assets from operations ...... 3,383,667 (202,679) 51,588 (331,408)
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Changes from contract owners' transactions:
Net contract purchase payments ............................... 30,385 18,825,274 (657) 4,476,176
Contract redemptions ......................................... (346,725) (16,255,190) (10,139) (3,626,858)
Net transfers (to) from fixed account ........................ 10,730,100 -- 608,988 --
Net assets transferred to Rydex Variable Trust ............... (16,164,832) -- (1,167,690) --
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Net increase (decrease) in net assets from contract
owners' transactions ..................................... (5,751,072) 2,570,084 (569,498) 849,318
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Net increase (decrease) in net assets .................... (2,367,405) 2,367,405 (517,910) 517,910
Net assets, beginning of period ................................. 2,367,405 -- 517,910 --
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Net assets, end of period ................................ $ -- $ 2,367,405 $ -- $ 517,910
====================================================================================================================================
</TABLE>
(2) Period January 1, 1998, through November 2, 1998.
(3) Period May 7, 1997, through December 31, 1997.
(4) Period May 29, 1997, through December 31, 1997.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets - Continued
For the Year Ended December 31, 1998, and the Period Ended December 31, 1997
<TABLE>
<CAPTION>
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URSA U.S. GOVERNMENT BOND
-----------------------------------------------------------------
1998 (2) 1997 (3) 1998 (2) 1997 (4)
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<S> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss) ................................ $ 38,882 $ (3,330) $ 19,434 $ 5,858
Net realized gains (losses) on sales of investments ......... (1,045,533) (254,521) 118,373 14,916
Net change in unrealized appreciation
(depreciation) of investments ............................. (108,381) (77,323) (46,092) 16,633
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Net increase (decrease) in net assets from operations ..... (1,115,032) (335,174) 91,715 37,407
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Changes from contract owners' transactions:
Net contract purchase payments .............................. 22,859 45,239,040 69 3,840,174
Contract redemptions ........................................ (400,593) (42,025,022) (23,708) (2,985,562)
Net transfers (to) from fixed account ....................... 4,285,421 -- 4,269,799 --
Net assets transferred to Rydex Variable Trust .............. (5,671,499) -- (5,229,894) --
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Net increase (decrease) in net assets from contract
owners' transactions .................................... (1,763,812) 3,214,018 (983,734) 854,612
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Net increase (decrease) in net assets ................... (2,878,844) 2,878,844 (892,019) 892,019
Net assets, beginning of period ................................ 2,878,844 -- 892,019 --
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Net assets, end of period ............................... $ -- $ 2,878,844 $ -- $ 892,019
====================================================================================================================================
</TABLE>
(2) Period January 1, 1998, through November 2, 1998.
(3) Period May 7, 1997, through December 31, 1997.
(4) Period May 29, 1997, through December 31, 1997.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Notes to Financial Statements
December 31, 1998
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(1) General
Rydex Advisor Variable Annuity Account (the "Account") is registered under
the Investment Company Act of 1940, as amended, as a unit investment trust. The
Account was established on April 15, 1996, as a segregated investment account
for individual variable annuity contracts issued by Conseco Variable Insurance
Company (the "Company") (formerly Great American Reserve Insurance Company prior
to its name change in October 1998) and commenced operations on May 7, 1997. The
Account was originally registered as a diversified, open-ended investment
company. On November 2, 1998, the Account was reorganized as a unit investment
trust pursuant to an Agreement and Plan of Reorganization approved by the
contract owners of the Account on October 26, 1998 (the "Reorganization"). On
November 2, 1998, the Account transferred its assets into the corresponding
portfolios of the Rydex Variable Trust in exchange for shares of the portfolios.
The respective interests of the contract owners in the Account immediately after
the Reorganization were equal to their interests in the Juno, Money Market I,
Nova, OTC, Precious Metals, Ursa and the U.S. Government Bond subaccounts
immediately before the Reorganization.
The operations of the Account are included in the operations of the Company
pursuant to the provisions of the Texas Insurance Code. The Company is an
indirect wholly owned subsidiary of Conseco, Inc., a publicly-held specialized
financial services holding company listed on the New York Stock Exchange.
Since November 2, 1998, the Account invests solely in the Rydex Variable
Trust (the "Trust"). The Trust consists of seven funds: Juno, Money Market,
Nova, OTC, Precious Metals, Ursa and U.S. Government Bond. The Trust is managed
by PADCO Advisors II, Inc. ("PADCO").
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
during the reporting period. Actual results could differ from those estimates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION, TRANSACTIONS, AND INCOME
Investments in portfolio shares are valued using the net asset value of the
respective funds of the Trust at the end of each New York Stock Exchange
business day. Investment share transactions are accounted for on a trade date
basis (the date the order to purchase or redeem shares is executed) and dividend
income is recorded on the ex-dividend date. Prior to November 2, 1998, interest
income was accrued on a daily basis. The cost of investments in portfolio shares
sold is determined on a first-in first-out basis. The Account does not hold any
investments which are restricted as to resale.
Net investment income and net realized gains (losses) and unrealized
appreciation (depreciation) on investments are allocated to the contracts on
each valuation date based on each contract's pro rata share of the assets of the
Account as of the beginning of the valuation date.
FEDERAL INCOME TAXES
No provision for federal income taxes has been made in the accompanying
financial statements because the operations of the Account are included in the
total operations of the Company, which is treated as a life insurance company
for federal income tax purposes under the Internal Revenue Code. Net investment
income and realized gains (losses) are retained in the Account and are not
taxable until received by the contract owner or beneficiary in the form of
annuity payments or other distributions.
ANNUITY RESERVES
Deferred annuity contract reserves are comprised of net contract purchase
payments less redemptions and benefits. These reserves are adjusted daily for
the net investment income and net realized gains (losses) and unrealized
appreciation (depreciation) on investments.
(3) Purchases and Sales of Investments in Securities and Investments in
Portfolio Shares
The aggregate cost of purchases of investments in securities were
$116,032,035 for the period January 1, 1998, through November 2, 1998. The
aggregate proceeds from sales of investments in securities were $120,715,273 for
the period January 1, 1998, through November 2, 1998.
The aggregate cost of purchases of investments in portfolio shares were
$297,900,921 for the period November 2, 1998, to December 31, 1998 (including
transfers related to the Reorganization of $80,508,735). The aggregate proceeds
from sales of investments in portfolio shares were $204,085,011 for the period
November 2, 1998, through December 31, 1998.
9
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Notes to Financial Statements - Continued
December 31, 1998
================================================================================
(4) Deductions and Expenses
The mortality risk assumed by the Company results from the life annuity
payment option in the contracts in which the Company agrees to make annuity
payments regardless of how long a particular annuitant or other payee lives. The
annuity payments are determined in accordance with annuity purchase rate
provisions established at the time the contracts are issued. Based on the
actuarial determination of expected mortality, the Company is required to fund
any deficiency in the annuity payment reserves from its general account assets.
The expense risk assumed by the Company is the risk that the deductions for
contract administrative charges and transfer processing fees may prove
insufficient to cover the actual administrative and transfer processing
expenses. The Company deducts daily from the Account a fee, which is equivalent
on an annual basis to 1.25 percent of the daily value of the total investments
of the Account, for assuming the mortality and expense risks. These total fees
for the Account were $818,697 and $154,279 for the periods ended December 31,
1998 and 1997, respectively.
The Company provides sales and administrative services to the Account. The
Company may deduct a percentage of amounts surrendered to cover sales expenses.
The percentage varies up to 7.00 percent based upon the number of years the
contract has been held. These total fees for the Account were $344,498 and
$8,611 for the periods ended December 31, 1998 and 1997, respectively. The
Company also deducts daily from the Account a fee, which is equivalent on an
annual basis to 0.15 percent of the daily value of the total investments of the
Account for administrative expenses. These total fees for the Account were
$98,244 and $18,514 for the periods ended December 31, 1998 and 1997,
respectively.
Under the terms of an investment advisory contract, the Account paid PADCO
investments advisory fees calculated at an annual percentage rate of 0.50
percent of the average net assets of the Money Market and the U.S. Government
Bond subaccounts, 0.75 percent of the average net assets of the Nova, Precious
Metals and OTC subaccounts, and 0.90 percent of the average net assets of the
Ursa and the Juno subaccounts.
PADCO Services, Inc. (the "Servicer") provided tactical allocation
administrative services to the Account during the periods of May 7, 1997,
through December 31, 1997, and January 1, 1998, through November 2, 1998,
calculated at an annual percentage rate of 0.20 percent of the average net
assets of the Money Market, U.S. Government Bond, Precious Metals and the OTC
subaccounts; and at an annual rate of 0.25 percent of the average net assets of
the Nova, Ursa and the Juno subaccounts. The Servicer also provided other
necessary services to the Account, such as accounting and auditing services,
custody, printing and mailing, etc. during these periods.
PADCO and the Servicer voluntarily agreed to waive their investment
advisory and tactical allocation administrative service fees and, if necessary,
to reimburse any subaccount expenses which would cause the ratios of expenses to
average net assets to exceed 2.80 percent in the Nova, OTC and Precious Metals
subaccounts, 2.90 percent in the Juno and Ursa subaccounts, 2.20 percent in the
Money Market subaccount and 2.40 percent in the U.S. Government Bond subaccount
for the period May 7, 1997, through December 31, 1997. Effective January 1,
1998, these voluntary limitations increased to 3.60 percent in the Nova, OTC and
Precious Metals subaccounts, 3.70 percent in the Juno and Ursa subaccounts, 3.00
percent in the Money Market subaccount, and 3.20 percent in the U.S. Government
Bond subaccount.
The investment advisory fees were payable during the periods of May 7,
1997, through December 31, 1997, and January 1, 1998, through November 2, 1998.
The applicable fees paid by the Account were $331,465 and $77,484 for the 1998
and 1997 periods, respectively. However, the Account was reimbursed $85,124 and
$77,484 from PADCO for the 1998 and 1997 periods, respectively. Expenses paid by
the Account to the Servicer during the 1998 and 1997 periods were $200,318 and
$26,693 for the 1998 and 1997 periods, respectively. However, the Account was
reimbursed $20,511 and $26,693 for the 1998 and 1997 periods, respectively. Both
expenses are reported as other expenses in the Statement of Operations.
(5) Other Transactions With Affiliates
Conseco Equity Sales, Inc., a wholly owned subsidiary of Conseco, Inc.,
acts as principal underwriter for the Account.
(6) Net Assets
Net assets consisted of the following at December 31, 1998:
================================================================================
Proceeds from the sales of units since organization,
less cost of units redeemed ............................... $ 95,606,795
Undistributed net investment income .......................... 515,442
Undistributed net realized gains on sales
of investments ............................................. 6,746,497
Net unrealized appreciation of investments ................... 2,533,160
- --------------------------------------------------------------------------------
Net assets .............................................. $105,401,894
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10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To The Board of Directors of Conseco Variable
Insurance Company and Contract Owners of
Rydex Advisor Variable Annuity Account
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the Rydex Advisor
Variable Annuity Account (the "Account") at December 31, 1998 and the results of
its operations for the year ended December 31, 1998 and the changes in its net
assets from inception (May 7, 1997) through December 31, 1997 and for the year
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Account's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
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, which included
confirmation of portfolio shares owned at December 31, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
/s/Pricewaterhouse Coopers LLP
Indianapolis, Indiana
February 24, 1999
11
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======================================================
Rydex Advisor Variable Annuity Account
SPONSOR
Conseco Variable Insurance Company - Carmel, Indiana.
DISTRIBUTOR
Conseco Equity Sales, Inc. - Carmel, Indiana.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP - Indianapolis, Indiana.
13
<PAGE>
[LOGO]
CONSECO(R)
Conseco Variable Insurance Company is a
subsidiary of Conseco, Inc., a financial services
organization headquartered in Carmel, Indiana.
Conseco is dedicated to providing its customers
with solutions for both wealth protection and
wealth creation. Through its subsidiaries,
Conseco is one of the nation's leading providers
of supplemental health insurance, retirement
annuities, universal life insurance, and consumer
and commercial finance products and services.
CONSECO VARIABLE INSURANCE COMPANY
11815 N. Pennsylvania Street
Carmel, Indiana 46032
(C) 1999, Conseco Variable Insurance Company
CV-027 (2/99) 03967
