FILE NO. 333-03093 (811-07615)
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. ___ / /
POST-EFFECTIVE AMENDMENT NO. 12 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT of 1940 /X/
AMENDMENT NO. 14 /X/
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
CONSECO VARIABLE INSURANCE COMPANY
(Name of Depositor)
11825 North Pennsylvania Street, Carmel, Indiana 46032-4572
(Address of Principal Executive Offices of Depositor)
Depositor's Telephone Number: 800-437-3506
--------------------------
Karl W. Kindig, Esq.
Conseco Variable Insurance Company
11825 North Pennsylvania Street
Carmel, Indiana 46032
(Name and Address of Agent for Service)
COPY TO:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, PC.
943 Post Road East
Westport, CT 06880
--------------------------
It is proposed that this filing will become effective (check appropriate
box)
immediately upon filing pursuant to paragraph (b) of Rule 485
-----
X on May 1, 1999 pursuant to paragraph (b) of Rule 485
-----
60 days after filing pursuant to paragraph (a) of Rule 485
-----
on (date) pursuant to paragraph (a) of Rule 485
-----
If appropriate, check the following box:
----- This post-effective amendment designates a new effective date
for a previously filed post-effective amendment
TITLE OF SECURITIES BEING REGISTERED: Individual Variable Annuity
Contracts
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CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Location in Statement of
Form N-4 Item Number Location in Prospectuses Additional Information
- - -------------------- ------------------------ ------------------------
<S> <C> <C>
Item 1. Cover Page Cover Page N/A
Item 2. Definitions Definitions N/A
Item 3. Synopsis Table of Fees N/A
or Highlights and Expenses
Item 4. Condensed Accumulation N/A
Financial Unit Values
Information
Item 5. General Conseco Variable N/A
Description Insurance Company;
of Registrant, The Separate Account
Depositor and
Portfolio
Companies
Item 6. Deductions The Contract - Fees and N/A
and Expenses Charges
Item 7. General The Contract N/A
Description
of Variable
Annuity
Contracts
Item 8. Annuity Period The Contract - Annuity N/A
Provisions
Item 9. Death Benefit The Contract - Payment N/A
On Death
Item 10. Purchases and The Contract - Purchases Payments; N/A
Contract The Contract - Accumulation
Value Units
Item 11. Redemptions The Contract - Withdrawals N/A
Item 12. Taxes Federal Income Tax N/A
Considerations
Item 13. Legal N/A N/A
Proceedings
CROSS REFERENCE SHEET
<CAPTION>
Location in Statement of
Form N-4 Item Number Location in Prospectuses Additional Information
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<S> <C> <C>
Item 14. Table of Table of Contents of N/A
Contents of Statement of Additional
Statement of Information
Additional
Information
Item 15. Cover Page N/A Cover Page
Item 16. Table of N/A Cover Page
Contents
Item 17. General N/A N/A
Information
and History
Item 18. Services Conseco Variable N/A
Insurance Company
Item 19. Purchase of The Contract - Purchases Payments; Distribution of
Securities The Contract - Withdrawals Contracts and
Being Offered Certificates
and Expenses
Item 20. Underwriters N/A Distribution of
Contracts
Item 21. Calculation of N/A Calculation of
Performance Return Quotations
Data
Item 22. Annuity N/A Variable Annuity
Payments Provisions
Item 23. Financial N/A Financial Statements
Statements
</TABLE>
PART A
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
OF
CONSECO VARIABLE INSURANCE COMPANY
(FORMERLY GREAT AMERICAN RESERVE INSURANCE COMPANY)
Administrative Office: 11825 North Pennsylvania Street, Carmel, Indiana 46032
Phone: (800) 437-3506
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT - FLEXIBLE PURCHASE PAYMENTS
The individual deferred variable annuity contract (the "Contract") described in
this Prospectus is issued by Conseco Variable Insurance Company ("Conseco
Variable"). The Contract provides seven investment options and provides for the
payment of annuity and other benefits at a future date. The Contract is sold
ONLY to individuals who wish to accumulate assets by engaging in strategic or
tactical asset allocation investing with the assistance of a professional money
manager.
The investment options, which are provided through Rydex Advisor Variable
Annuity Account (a separate account of Conseco Variable), are separate
investment funds ("Funds") of Rydex Variable Trust. You can invest in the
following Funds of Rydex Variable Trust:
Nova
Ursa
OTC
Precious Metals
U.S. Government Bond
Juno
U.S. Government Money Market
You can also invest in a Fixed Account of Conseco Variable.
The Contract is not intended as a short-term investment vehicle. Early
withdrawals of purchase payments from the Contract may be subject to a
contingent deferred sales charge of up to 7%. Withdrawals by an owner before age
59 1/2 may be subject to a 10% additional income tax penalty.
The Contracts:
* are not bank deposits
* are not federally insured
* are not endorsed by any bank or government agency
* are not guaranteed and may be subject to loss of principal
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.
This Prospectus contains information that you should know before investing. It
should be read and retained for future reference. Additional information is
contained in a Statement of Additional Information, dated May 1, 1999, which has
been filed with the Securities and Exchange Commission and is legally a part of
this prospectus. The Securities and Exchange Commission has a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding companies
that file electronically with the Securities and Exchange Commission.
INQUIRIES: If you would like the Statement of Additional Information at no
charge or would like more information about the Contract, please write to
Conseco Equity Sales, Inc., 11825 North Pennsylvania Street, Carmel, Indiana
46032, or call (800) 437-3506. The Table of Contents of the Statement of
Additional Information is included at the end of this Prospectus.
May 1, 1999
PROSPECTUS
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<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
DEFINITIONS.................................................................................
TABLE OF FEES AND EXPENSES..................................................................
ACCUMULATION UNIT VALUES....................................................................
PERFORMANCE INFORMATION.....................................................................
CONSECO VARIABLE INSURANCE COMPANY..........................................................
THE SEPARATE ACCOUNT........................................................................
Rydex Variable Trust......................................................................
THE CONTRACT................................................................................
Purchase Payments.........................................................................
Accumulation Units........................................................................
Transfers.................................................................................
Withdrawals...............................................................................
Suspension of Payment or Transfers........................................................
Systematic Withdrawal Plan................................................................
Payment on Death..........................................................................
Annuity Provisions........................................................................
Fees and Charges..........................................................................
Premium Taxes.............................................................................
Income Taxes..............................................................................
Fund Expenses.............................................................................
The Fixed Account.........................................................................
Beneficiary...............................................................................
Ownership.................................................................................
FEDERAL INCOME TAX CONSIDERATIONS...........................................................
Annuity Contracts in General..............................................................
Qualified and Non-Qualified Contracts.....................................................
Withdrawals -- Non-Qualified Contracts....................................................
Withdrawals -- Qualified Contracts........................................................
Withdrawals -- Tax-Sheltered Annuities....................................................
Diversification...........................................................................
Investor Control..........................................................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....................................
</TABLE>
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DEFINITIONS
ACCUMULATION UNIT: A unit of measure used to compute your interest in a
Subaccount of the Separate Account.
ANNUITY DATE: The date on which annuity payments begin.
CONTRACT: The individual deferred variable annuity offered by and described in
this Prospectus.
CONTRACT OWNER: The person specified in the Contract as the owner of the
Contract and entitled to exercise ownership rights under the Contract.
CONTRACT VALUE: The current value of all interests held under the Contract in
Subaccounts of the Separate Account and the Fixed Account.
FINANCIAL ADVISOR: A person who is registered as an Investment Adviser with the
U.S. Securities and Exchange Commission under the Investment Advisers Act of
1940, as amended, or who qualifies for exclusion from such registration, and who
provides strategic or tactical asset allocation services to you and who is not
prevented from providing such services by any federal or state regulatory
action.
FIXED ACCOUNT: An account maintained by Conseco Variable as part of its general
asset account. Amounts allocated and transferred to the Fixed Account are held
and accumulated on a fixed basis.
FUND: An investment portfolio of Rydex Variable Trust.
SEPARATE ACCOUNT: Rydex Advisor Variable Annuity Account, a separate account of
Conseco Variable Insurance Company.
SUBACCOUNT: A segment within the Separate Account which invests in a Fund of
Rydex Variable Trust.
TRUST: Rydex Variable Trust.
YOU: A reference to "you" means the Contract Owner or prospective Contract
Owner.
WE OR US: A reference to "we" or "us" means Conseco Variable Insurance Company.
TABLE OF FEES AND EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchase Payments.................................................. None
Withdrawal Charge (percent of purchase payments withdrawn)............................... 7%*
Exchange Fee............................................................................. None
ANNUAL CONTRACT FEE...................................................................... NONE
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of Subaccount values)
Mortality and Expense Risk Charge...................................................... 1.25%
Contract Administration Fee............................................................ 0.15%
Total Separate Account Annual Expenses................................................. 1.40%
</TABLE>
- - ----------------------
* A withdrawal charge may be applied if you withdraw money from the Contract
or, if the Contract has been in effect for less than five years, and money
in the Contract is applied to provide annuity payments for less than five
years. The charge on a withdrawal of a purchase payment declines to zero
over a seven-year period commencing on the date we received the purchase
payment. See "Fees and Charges" in this Prospectus for additional
information, including information on free withdrawals.
RYDEX VARIABLE TRUST ANNUAL EXPENSES
(AS A PERCENT OF AVERAGE NET ASSETS, REFLECTING EXPENSE LIMITATIONS)
<TABLE>
<CAPTION>
Total
Fund
Expenses+
(after waivers
Management Other and/or
Fees Expenses+ reimbursements)
---------- --------- --------------
<S> <C> <C> <C>
Nova Fund 0.71% 1.47% 2.18%
Ursa Fund 0.73% 1.57% 2.30%
OTC Fund 0.72% 1.24% 1.96%
Precious Metals Fund 0.59% 1.61% 2.20%
U.S. Government Bond Fund 0.50% 1.30% 1.80%
Juno Fund 0.51% 1.79% 2.30%
U.S. Government Money Market Fund 0.28% 1.32% 1.60%
</TABLE>
- - -------------------------
+ PADCO Advisors II, Inc., investment adviser to the Funds, and PADCO Service
Company, Inc., servicer to the Funds, have voluntarily agreed to waive fees
and/or reimburse expenses to ensure that expenses do not exceed the
expenses shown. For the period ending December 31, 1998, absent these
voluntary expense limitations and adjusted to exclude insurance related
charges, total fund related expenses were as follows: Nova Fund -- 2.22%;
Ursa Fund -- 2.48%; Precious Metals Fund -- 2.36%; Juno Fund -- 4.49%; U.S.
Government Money Market Fund -- 1.92%.
EXAMPLES
The following examples illustrate the cumulative dollar amount of expenses that
would be incurred on each $1,000 invested.
If you surrender your Contract at the end of the applicable period, or if your
Contract has been in effect for less than five years and you elect to receive
annuity payments (or the annuity payments you have elected are not for life or
for a period of at least five years), you would pay the following expenses on a
$1,000 investment, assuming a 5% annual return on assets.
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
--------- ----------- ------- -----
<S> <C> <C> <C> <C>
Nova Subaccount $ 106 $ 163 $220 $382
Ursa Subaccount $ 107 $ 167 $226 $393
OTC Subaccount $ 104 $ 156 $209 $362
Precious Metals Subaccount $ 106 $ 163 $221 $384
U.S. Government Bond Subaccount $ 102 $ 151 $201 $347
Juno Subaccount $ 107 $ 167 $226 $393
U.S. Government Money Market Subaccount $ 100 $ 145 $192 $328
</TABLE>
If you do not surrender your Contract at the end of the applicable period, or if
your Contract has been in effect for at least five years and you elect to
receive annuity payments for life or for a period of at least five years, you
would pay the following expenses on a $1,000 investment, assuming a 5% annual
return on assets.
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
--- ----------- ----- -----
<S> <C> <C> <C> <C>
Nova Subaccount $ 36 $ 109 $184 $382
Ursa Subaccount $ 37 $ 113 $190 $393
OTC Subaccount $ 34 $ 102 $174 $362
Precious Metals Subaccount $ 36 $ 110 $185 $384
U.S. Government Bond Subaccount $ 32 $ 98 $166 $347
Juno Subaccount $ 37 $ 113 $190 $393
U.S. Government Money Market Subaccount $ 30 $ 92 $156 $328
</TABLE>
* The purpose of the above examples is to assist you in understanding the
costs and expenses that you will bear directly or indirectly.
* The table reflects expenses of the Separate Account as well as the Trust.
The examples should not be considered a representation of future expenses and
charges. Actual expenses may be more or less than those shown.
* The assumed 5% annual rate of return is not an estimate or a guarantee of
future investment performance of the Subaccounts of the Separate Account.
* Neither the tables nor the examples reflect any state premium taxes that
may be applicable to variable annuity Contracts. Premium taxes currently range
from 0% to 3.5%. The table and the examples do not include any fees that you pay
your Financial Advisor for assisting in strategic or tactical asset allocation
services.
Additional information on fees and expenses may be found under "Fees and
Charges" in this Prospectus and under "Management of the Fund" in the Statement
of Additional Information of the Trust.
ACCUMULATION UNIT VALUES
The following table shows Accumulation Unit values and the number of
Accumulation Units outstanding for the Nova, Ursa, OTC, Precious Metals, U.S.
Government Bond, Juno and U.S. Government Money Market Subaccounts of the
Separate Account for the periods indicated. The information is derived from the
financial statements of the Separate Account.
The Accumulation Unit values and numbers of Accumulation Units are the same as
they would have been if the Separate Account had operated as a unit investment
trust and had invested in shares of the Funds of the Trust for the periods
shown, and the operations of the Funds had been as currently reported in the
Trust's Prospectus and Statement of Additional Information.
The Nova, Ursa, OTC, Juno and U.S. Government Money Market Subaccounts commenced
operations on May 7, 1997. The Precious Metals and U.S. Government Bond
Subaccounts commenced operations on May 29, 1997. For the Ursa, U.S. Government
Bond and Juno Subaccounts, there were periods during which no Accumulations
Units were outstanding.
<TABLE>
<CAPTION>
NUMBER OF ACCUMULATION
ACCUMULATION UNIT VALUE ACCUMULATION UNIT VALUE UNITS OUTSTANDING AT
AT BEGINNING OF PERIOD AT END OF PERIOD END OF PERIOD
------------------------- ------------------------- ---------------------------------
<S> <C> <C> <C>
Nova Subaccount
FOR THE PERIODS
5/7/97 TO 12/31/97 $10.00 $12.21 855,862
1/1/98 TO 12/31/98 12.29 15.85 1,845,343
Ursa Subaccount
FOR THE PERIODS
5/7/97 TO 5/21/97 $10.00 $ 9.63 0
5/24/97 TO 6/3/97 9.57 9.58 0
6/10/97 TO 12/31/97 9.36 8.07 356,784
1/2/98 TO 12/31/98 8.03 6.29 875,815
OTC Subaccount
FOR THE PERIODS
5/7/97 TO 12/31/97 $10.00 $10.65 222,217
1/1/98 TO 12/31/98 10.84 19.52 1,127,437
Precious Metals
Subaccount
FOR THE PERIODS
5/29/97 TO 12/31/97 $10.00 $ 7.02 73,827
1/1/98 TO 12/31/98 7.10 5.79 464,950
U.S. Gov't. Bond
Subaccount
FOR THE PERIODS
5/29/97 TO 6/5/97 $10.00 $10.15 0
6/24/97 TO 7/14/97 10.44 10.67 0
7/29/97 TO 8/12/97 10.92 10.56 0
8/18/97 TO 12/31/97 10.70 11.82 75,493
1/1/98 TO 12/31/98 11.97 13.31 373,333
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF ACCUMULATION
ACCUMULATION UNIT VALUE ACCUMULATION UNIT VALUE UNITS OUTSTANDING AT
AT BEGINNING OF PERIOD AT END OF PERIOD END OF PERIOD
------------------------- ------------------------- ---------------------------------
Juno Subaccount
<S> <C> <C> <C>
FOR THE PERIODS
5/7/97 TO 6/3/97 $10.00 $ 9.86 0
6/16/97 TO 7/2/97 9.71 9.68 0
7/7/97 9.59 9.54 0
7/24/97 TO 8/11/97 9.41 9.68 0
8/26/97 TO 10/19/97 9.72 9.52 0
10/22/97 TO 12/11/97 9.50 9.01 0
1/20/98 TO 1/25/98 8.88 8.99 0
2/2/98 8.98 8.98 0
2/23/98 TO 2/25/98 9.03 9.07 0
3/2/98 9.09 9.09 0
3/4/98 TO 12/31/98 9.17 8.38 8,180
U.S. Gov't. Money Market
Subaccount
FOR THE PERIODS
5/7/97 TO 12/31/97 $10.00 $10.32 1,734,974
1/1/98 TO 12/31/98 10.32 10.57 3,871,940
</TABLE>
PERFORMANCE INFORMATION
In advertisements, we may provide information on total return performance and on
annual changes in Accumulation Unit values. Information on total return
performance will include average annual rates of total return for one, five and
ten year periods of continuous operation, or lesser periods depending on the
date of commencement of continuous operation of the underlying Fund.
Total return figures will show the average annual rates of increase or decrease
in investments in the Subaccounts, assuming a $1,000 investment at the beginning
of the period, withdrawal of the investment at the end of the period, and the
deduction of all applicable charges. We may also show total return figures,
assuming no withdrawals from the Contract. Total return figures which assume no
withdrawal at the end of the period will reflect all recurring charges, but will
not reflect the withdrawal charge (if applicable, the withdrawal charge would
reduce the amount that may be withdrawn under the Contracts).
In addition, we may show cumulative total return for selected periods, assuming
no withdrawal at the end of the period.
We may also include yield and effective yield on investments in the U.S.
Government Money Market Fund.
Future performance will vary. The results shown will not necessarily be
representative of future results.
CONSECO VARIABLE INSURANCE COMPANY
(Formerly, Great American Reserve Insurance Company)
Conseco Variable Insurance Company is incorporated as a life insurance company
under the laws of the State of Texas and is authorized to sell life insurance,
annuity and similar financial products in 49 states and the District of
Columbia. Texas regulatory authorities approved a change in our name from Great
American Reserve Insurance Company to Conseco Variable Insurance Company
("Conseco Variable") on October 7, 1998. In certain states, we may still use the
name Great American Reserve Insurance Company until our name change is approved
in the state.
Originally organized in 1937, we are an indirect wholly owned subsidiary of
Conseco, Inc. Conseco, Inc. provides corporate and Contract administration
services to us. Conseco, Inc. is a publicly-owned financial services holding
company, the principal operations of which are the development, marketing and
administration of supplemental health insurance, annuity, life insurance,
individual and group major medical insurance, other insurance products and
consumer and commercial finance products and services. Conseco, Inc. is located
at 11825 N. Pennsylvania Street, Carmel, Indiana, 46032.
All inquiries regarding the Separate Account, the Contracts, or any related
matter should be directed to our administrative office at: 11825 North
Pennsylvania Street, Carmel, Indiana, 46032, (800) 437-3506.
The principal underwriter of the Contract (under federal securities laws) is
Conseco Equity Sales, Inc., 11825 North Pennsylvania Street, Carmel, Indiana
46032. Prior to November 2, 1998, PADCO Financial Services, Inc. was the
principal underwriter of the Contract.
YEAR 2000
Many existing computer programs had been designed and developed to use only two
digits to identify a year in the date field. If not corrected, these computer
programs could cause system failures in the year 2000, with possible adverse
effects on Conseco Variable's operations. In 1996, Conseco, Inc. initiated a
comprehensive corporate-wide program designed to ensure that its computer
programs (including those relating to Conseco Variable) function properly in the
year 2000. A number of Conseco, Inc.'s employees (including several officers),
as well as external consultants and contract programmers, are working on various
year-2000 projects.
Conseco, Inc. also has 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. Under the program, our application systems, operating
systems, hardware, networks, electronic data interfaces and infrastructure
devices (such as facsimile machines and telephone systems) are being analyzed.
Our year-2000 projects are currently on schedule. The year-2000 projects are
being conducted 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.
We have completed the audit and assessment phase for all critical systems and
the second phase of our program is substantially complete. The testing phase of
our program will be conducted throughout 1999. We have provided for significant
contingency time in order to complete any additional modifications before
December 31, 1999.
The year-2000 issues are being addressed in three ways. For some, work is being
done to complete the previously planned conversions of older systems to the more
modern, year-2000 compliant systems already used in other areas. In other cases,
new, more modern systems are being purchased. In the remaining cases,
modifications are being made to existing systems. We currently estimate that the
total expense of our year-2000 projects are not material to Conseco Variable's
financial position.
The impact of year-2000 issues will depend, not only on the corrective actions
we take, but also on the way in which year-2000 issues are addressed by
governmental agencies, business 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.
We are in the process of identifying risks and assessing potential year-2000
risks associated with our external business relationships, including those with
agents, financial institutions and the mutual funds underlying the variable
annuity contracts we issue. These procedures are necessarily limited to matters
over which we are able to reasonably exercise control. We have been informed by
our key financial institutions and utilities that they will be year-2000
compliant in early 1999.
We are also assessing what contingency plans will be needed if any of our
critical systems or those of external business relationships are not year-2000
compliant at year-end 1999. We do not currently anticipate such a situation, but
our consideration of contingency plans will continue to evolve as new
information becomes available.
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 compliance efforts will
reduce the likelihood of a material adverse impact.
THE SEPARATE ACCOUNT
We established the Separate Account under Texas insurance law on April 15, 1996
for the purpose of segregating separate portfolios of investments for the
Contracts. Income, gains and losses, realized or unrealized, of the Separate
Account are credited to or charged against the Separate Account without regard
to any of our other income, gains or losses. Assets equal to the reserves and
other Contract liabilities with respect to the Separate Account are not
chargeable with liabilities arising out of any of our other business activities.
We are obligated to pay all benefits and make all payments under the Contracts.
The Separate Account was registered with the U.S. Securities and Exchange
Commission (the "SEC") as a management investment company on May 2, 1996. It was
divided into seven different Subaccounts--the Nova Subaccount, Ursa Subaccount,
OTC Subaccount, Precious Metals Subaccount, U.S. Government Bond Subaccount,
Juno Subaccount and Money Market Subaccount, each with its own investment
objective and investment policies. As a registered management investment
company, the Separate Account and its Subaccounts invested directly in
securities in accordance with their investment objectives and policies.
On November 2, 1998, registration of the Separate Account was changed to a unit
investment trust and the investment portfolios of the Subaccounts were
transferred to newly established Funds of Rydex Variable Trust--the Nova Fund,
Ursa Fund, OTC Fund, Precious Metals Fund, U.S. Government Bond Fund, Juno Fund
and U.S. Government Money Market Fund. In exchange for the investment portfolio
of each Subaccount, the Trust issued a separate series of shares of common stock
to the Subaccount, representing shares of the Fund corresponding to the
Subaccount, and assumed the liabilities of the Subaccount other than liabilities
for Contract insurance charges.
As a Contract Owner participating in a Subaccount of the Separate Account, you
may instruct us as to the voting of the shares of the Fund held in the
Subaccount. The number of shares of a Fund for which voting instructions may be
given is determined by dividing the Contract Owner's interest in the applicable
Subaccount by the net asset value of the Fund share. Should the governing law,
or interpretations thereof, change so as to permit us to vote shares of the
Funds in our own right, we may elect to do so. Further, we reserve the right to
modify the manner in which we calculate the weight to be given to pass-through
voting instructions where such a change is necessary to comply with federal law
or interpretations thereof.
RYDEX VARIABLE TRUST
The Trust is organized as a Delaware business trust and is registered with the
SEC as an open-end management investment company under the Investment Company
Act of 1940, as amended. PADCO Advisors II, Inc. serves as the investment
adviser and manager of the Funds. Purchase payments allocated or transferred to
a Subaccount of the Separate Account are invested in shares of the corresponding
Fund of the Trust. The Funds and their investment objectives are as follows:
<TABLE>
<S> <C> <C>
Nova Fund -- seeks to provide investment
returns that are 150% of the
S&P 500 Index
Ursa Fund -- seeks to provide investment
results that will inversely
correlate to the performance
of the S&P 500 Index
OTC Fund -- seeks to provide investment
results that correspond to a
bench mark for
over-the-counter securities.
The Fund's current benchmark
is the NASDAQ 100 Index.
Precious Metals -- seeks to provide investment
Fund results that correspond to a
benchmark primarily for
metals-related securities. The
Fund's current benchmark is
the XAU Index
U.S. Government -- seeks to provide investment
Bond Fund results that correspond to a
benchmark for U.S. Government
securities. The Fund's current
benchmark is 120% of the price
movement of the Long Treasury
Bond.
Juno Fund -- seeks to provide total returns
that will inversely correlate
to the price movement of a
benchmark for U.S. Treasury
debt instruments or futures
contract on a specified debt
instrument. The Fund's current
benchmark is the inverse of
the price movement of the Long
Treasury Bond.
U.S. Government -- seeks to provide security of
Money Market principal, high current income
Fund and liquidity
</TABLE>
The Trust prospectus, which accompanies this prospectus, provides an investment
risk/return summary and other information about the Funds and the Trust. You
should read the Trust prospectus carefully before investing.
THE CONTRACT
Financial Advisor/Strategic or Tactical Asset Allocation Services:
The Contract is sold only to individuals who have retained a Financial Advisor
to provide strategic or tactical asset allocation services under their Contract.
You are responsible for selecting, supervising, and paying any compensation to
your Financial Advisor. You must execute a power of attorney authorizing your
Financial Advisor to give allocation and transfer directions to us and/or our
designee. You may make withdrawals from or surrender your Contract at any time.
HOWEVER ONLY YOUR FINANCIAL ADVISOR MAY GIVE US DIRECTIONS TO ALLOCATE PURCHASE
PAYMENTS OR TRANSFER AMOUNTS TO THE SUBACCOUNTS OR TO THE FIXED ACCOUNT.
We do not recommend, select or supervise your Financial Advisor. We do not make
recommendations on strategic or tactical asset allocations or transfers. We are
not responsible for advice provided by your Financial Advisor.
If you enter into an advisory agreement with your Financial Advisor to have the
Financial Advisor's fee paid out of your Contract Value, you should consider the
tax consequences of withdrawing funds from the Contract to pay the fee. See
"Federal Income Tax Considerations" in this Prospectus.
To change your Financial Advisor without interrupting allocations and transfers
among Subaccounts, you must:
(1) notify us in writing of the name of your new Financial Advisor, and
(2) provide us with a power of attorney authorizing your new Financial
Advisor to give us asset allocation directions.
If we receive notification that:
* your Financial Advisor is no longer authorized by you to give strategic
or tactical asset allocation directions on your behalf, or
* your Financial Advisor has resigned or has died, or
* your Financial Advisor is otherwise not able to act on your behalf
We will transfer amounts credited under your Contract to Subaccounts of the
Separate Account to the U.S. Government Money Market Subaccount. We will notify
you of the transfer and the information we received. You may transfer amounts
from the U.S. Government Money Market Subaccount to the Fixed Account without a
Financial Advisor (subject to time restrictions on transferring amounts out of
the Fixed Account). Until such time as we receive written notification of the
name of your new Financial Advisor and we receive a power of attorney
authorizing your new Financial Advisor to give us investment instructions, your
investment options are limited to the U.S. Government Money Market Subaccount
and the Fixed Account. When we receive written notification of your new
Financial Advisor and the power of attorney, allocations and transfers among the
investment options may resume. You may also surrender your Contract. Withdrawals
may be made from the Contract Value subject to any applicable withdrawal fee.
THE STRATEGIC OR TACTICAL ASSET ALLOCATION CONTEMPLATED IN THE CONTRACT MAY BE
CHARACTERIZED AS AGGRESSIVE INVESTING. THERE CAN BE NO ASSURANCE THAT ANY
FINANCIAL ADVISOR WILL PREDICT MARKET MOVES SUCCESSFULLY. IN SELECTING YOUR
FINANCIAL ADVISOR, YOU SHOULD CAREFULLY CONSIDER HIS OR HER EDUCATION,
EXPERIENCE AND REPUTATION.
Contract Changes
The Contract may be amended at any time to conform to applicable laws or
governmental regulations.
Substitution of Funds
If, in our judgment, investment in any of the Funds becomes inappropriate to the
purposes of the Contract, we may substitute another fund for existing and future
funds. We will obtain prior approval of the Securities and Exchange Commission
and any governing state insurance department before we do so. In addition, we
may, in our discretion, no longer make available any of the Subaccounts and may
offer additional Subaccounts of the Separate Account.
PURCHASE PAYMENTS
To purchase a Contract, your completed application and all required
documentation, together with a check for the first purchase payment, must be
forwarded to our administrative office. Once we receive your purchase payment
and all necessary information, we will issue a Contract to you 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 obtain 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. The
transaction cut-off time for receipt by us of purchase payments for allocation
to the Separate Account is 2:30 p.m., Eastern time. The transaction cut-off time
for receipt by us of purchase payments for allocation to the Fixed Account is
4:00 p.m., Eastern time.
We reserve the right to reject any application or purchase payment. All
subsequent purchase payments are sent directly to our administrative office.
Initial purchase payments to be allocated to the Separate Account are credited
to the U.S. Government Money Market Subaccount. Fourteen days after the Contract
Date, transfers will be made to other Subaccounts of the Separate Account or the
Fixed Account pursuant to instructions from your Financial Advisor.
The minimum initial purchase payment is $25,000 and the minimum for each
subsequent purchase payment is $1,000. We will accept total purchase payments
under your Contract of up to $1,000,000. Payments to us in excess of $1,000,000
require our prior approval.
Free Look:
If you change your mind about owning the Contract, you may cancel the Contract
by returning it to us within 10 days of receiving it (or within a longer period
as provided under applicable state law). If you exercise this right, we will
refund either the Contract Value or all of your purchase payments, as required
under applicable state law.
ACCUMULATION UNITS
Purchase payments and amounts allocated and transferred to a Subaccount are
credited to the Contract in the form of Accumulation Units. We determine the
number of Accumulation Units by dividing the purchase payment or transfer amount
by the value of the Accumulation Unit for the valuation period in which the
purchase payment or transfer amount is received at our administrative office or,
in the case of the initial purchase payment, is accepted by us. The number of
Accumulation Units will not change as a result of the investment experience of
the Subaccounts.
Accumulation Units are used to account for all amounts allocated or transferred
to or withdrawn from a Subaccount as a result of purchase payments, withdrawals,
transfers and charges.
For each Subaccount of the Separate Account the value of an Accumulation Unit
was set at $10 when it commenced operations. The value of an Accumulation Unit
may increase or decrease from one valuation period to the next. We calculate the
value of an Accumulation Unit for each Subaccount after the New York Stock
Exchange closes each day. A valuation period is the interval from one valuation
day of a Subaccount to the next valuation day, measured from the time each day
the Subaccount is valued.
The value of an Accumulation Unit for a valuation period, is determined by
dividing the current market value of the assets of the Subaccount less any
liabilities, by the total number of Accumulation Units of the Subaccount.
The following all affect Accumulation Unit values:
* the investment experience of the shares of the Fund held in the
Subaccount,
* expenses of the Subaccount, and the Fund, and
* the deduction of fees and charges at the Subaccount and Fund levels.
TRANSFERS
Only your Financial Advisor may make transfers among the Subaccounts at any time
prior to the Annuity Date. Transfer requests may be made by telephonic or other
electronic instruction satisfactory to us.
By authorizing your Financial Advisor to give transfer instructions by telephone
or other electronic medium, you agree that we will not be liable for any losses
you may suffer from any fraudulent or unauthorized transfer instruction. We or
our designee will employ reasonable procedures to confirm that transfer
instructions are genuine, such as requiring some form of personal
identification. We may discontinue or change the right to make telephonic and
other electronic transfers at any time.
The minimum amount which can be transferred is $500 from any Subaccount or your
entire interest in the Subaccount, if less. We do not charge you for transfers.
The transaction cut-off times for the receipt by us of requests to make of
transfers among the Subaccounts are as follows:
* for the Nova, Ursa, and OTC Subaccounts, the time is 3:30 p.m., Eastern
time;
* for the Precious Metals Subaccount, the time is 3:15 p.m., Eastern time;
* for the U.S. Government Bond and Juno Subaccounts, the time is 2:30 p.m.,
Eastern time; and
* for the U.S. Government Money Market Subaccount and the Fixed Account,
the time is 4:00 p.m., Eastern time.
For transfers involving different transaction end times, the earlier of the
times indicated above applies. Telephone and electronic transfer orders will be
accepted only prior to the transaction cut-off times. If the primary exchange or
market on which the underlying Fund transacts business closes early, the above
cut-off time will be approximately thirty minutes (forty-five minutes, in the
case of the Precious Metals Fund) prior to the close of such exchange or market.
WITHDRAWALS
Prior to the Annuity Date, you may withdraw all or part of your Contract Value.
Withdrawals will be based on values for the valuation period in which we receive
a proper written request for withdrawal (and the Contract, if required) at our
administrative office. Withdrawals will be received by us only between 8:30 a.m.
Eastern time, and 2:30 p.m. Eastern time.
Withdrawal requests received after 2:30 p.m., will be deemed received by us on
the next business day and the withdrawal will be based on the Accumulation Unit
value next determined after receipt on that date. We will normally make payments
within seven days of receipt of the written request and the Contract, if
required.
A withdrawal may result in a withdrawal charge and/or tax consequences
(including an additional 10% tax penalty under certain circumstances).
Certain withdrawal restrictions may apply if your Contract is issued in
connection with a Section 403(b) tax-qualified plan (also known as a tax-
sheltered annuity). See "Withdrawal Charge" and "Federal Income Tax
Considerations" in this Prospectus.
The following applies to withdrawals:
* The minimum amount you can withdraw is $500.
* The remaining Contract Value after a withdrawal must be at least $10,000
($3,500 for Contracts held under a tax-qualified retirement arrangement.)
* If a partial withdrawal, plus any withdrawal charge, would reduce the
value of your Contract to less than $10,000 ($3,500 for tax-qualified
Contracts), Conseco Variable reserves the right to treat the partial withdrawal
as a total withdrawal of your Contract Value. We reserve the right to increase
or decrease such minimums.
* If you request a partial withdrawal, you must specify in writing the
Subaccount(s) and/or Fixed Account from which funds are to be withdrawn.
Withdrawals to Pay Financial Advisor's Fees:
Conseco Variable will, pursuant to an agreement with you, make a partial
withdrawal from your Contract Value to pay for the services of your Financial
Advisor. If your Contract is non-qualified, the withdrawal will be treated like
any other distribution and may be included in gross income for federal tax
purposes. If you are under age 59 1/2, the withdrawal may also be subject to a
10% tax penalty. If your Contract is tax-qualified, the withdrawal for the
payment of fees will not be treated as a taxable distribution if certain
conditions are met. You should consult a tax adviser regarding the tax treatment
of the payment of Financial Advisor fees from your Contract.
Suspension of Payment or Transfers
Conseco Variable may be required to suspend or postpone payments for withdrawal
or transfers for any period when:
1. the New York Stock Exchange, the Chicago Board of Trade or the Chicago
Mercantile Exchange, as appropriate, is closed (other than customary
weekend and holiday closings);
2. trading on the New York Stock Exchange, the Chicago Board of Trade or
the Chicago Mercantile Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
Funds is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the net asset value of
the shares of the Funds;
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Contract Owners.
SYSTEMATIC WITHDRAWAL PLAN
We administer a systematic withdrawal plan which enables you to arrange for
pre-authorized systematic withdrawals. To take advantage of the plan, you enter
into an agreement with us to withdraw a level dollar amount from specified
Subaccounts on a periodic basis. Systematic withdrawals will be withdrawn from
the sub-accounts and Fixed Account on a pro-rata basis. The plan is available
only with respect to amounts which are free of any withdrawal charge. See "Fees
and Charges" in this Prospectus for information on amounts that may be withdrawn
from the Contract free of any withdrawal charge.
If you make an additional withdrawal which is not part of the systematic
withdrawal plan, the plan will terminate automatically and may be reinstated
only on or after making a written request to us.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO SYSTEMATIC
WITHDRAWALS.
PAYMENT ON DEATH
If you or your spouse, as joint Contract Owner, dies prior to the Annuity Date,
we will pay the death benefit to the beneficiary. Upon the death of a joint
Contract Owner, the surviving joint Contract Owner will become the beneficiary.
The death benefit is the greater of the Contract Value or purchase payments made
under the Contract less any applicable withdrawals and charges, on the date
proof of death is received at our administrative office (subject to state
regulations which vary from state to state).
When we receive notification of a Contract Owner's death, the amounts held in
Subaccounts under your Contract will be transferred to the U.S. Government Money
Market Subaccount. Payment will be in a lump sum unless an annuity option is
chosen. A beneficiary, other than the surviving spouse of the deceased Contract
Owner, may choose only an annuity option which provides for full payout within
five years of death, or within the life or life expectancy of the beneficiary.
Payments must begin within one year of the Contract Owner's death if a life
expectancy option is selected. If the surviving spouse of a deceased Contract
Owner is the beneficiary, he or she may choose to continue the Contract in force
at the then current Contract Value.
If you or your spouse, as joint Contract Owner, who is not the Annuitant, dies
on or after the Annuity Date, any remaining payments under the Annuity Option
that was selected will continue at least as rapidly as under the pay-out plan in
effect upon death. If you die on or after the Annuity Date, the beneficiary
becomes the Contract Owner. Upon the death of a joint Contract Owner after the
Annuity Date, the surviving joint Contract Owner will be treated as the primary
beneficiary. Any other person designated on record as a beneficiary at the time
of death will be treated as a contingent beneficiary.
If you are a natural person and not the Annuitant and the Annuitant dies prior
to the Annuity Date, the Contract will continue in force on the same terms and
you will become the Annuitant, unless another person is designated by you. If
the Contract Owner is a non-natural person (for example, a corporation) then the
death of the Annuitant will be treated as the death of the Contract Owner and a
new Annuitant may not be named.
If the Annuitant dies on or after the Annuity Date, any remaining payments will
be made as provided for in the annuity option selected. See "Annuity Provisions"
in this Prospectus.
Different rules apply to payments on death under tax-qualified Contracts.
ANNUITY PROVISIONS
Annuity Options and Annuity Payments:
You may select any one of the following fixed annuity options or any other
option satisfactory to you and Conseco Variable. You can change the annuity
option with 30 days written notice to us prior to the Annuity Date. The Contract
Value, less any applicable Withdrawal Charge, is applied to the Annuity Table in
the Contract to determine the amount of each fixed annuity payment to be made
under the annuity option selected.
We do not deduct a withdrawal charge if the annuity payments begin at least 5
years after the effective date of the Contract and are paid under any life
annuity option, or any annuity option with payments for a minimum of 5 years.
Annuity payments will be made to the Annuitant unless you notify us otherwise in
writing. The annuitant is the individual designated by the Contract Owner on
whose continuation of life annuity payments may depend.
FIRST OPTION--LIFE ANNUITY. An annuity payable monthly during the lifetime of
the Annuitant and ceasing with the last monthly payment due prior to the death
of the Annuitant. This option offers a greater level of monthly payments than
the second option, since there is no minimum number of payments guaranteed (nor
a provision for a death benefit payable to a beneficiary). It would be possible
under this option to receive only one annuity payment if the Annuitant died
prior to the due date of the second annuity payment. This option is generally
not available for Contract Owners who apply their contract value to an annuity
option over the age of 85.
SECOND OPTION--LIFE ANNUITY WITH GUARANTEED PERIODS. An annuity payable monthly
during the lifetime of the Annuitant with the guarantee that if, at the death of
the Annuitant, payments have been made for less than 5, 10, or 20 years (you
choose before payments begin), annuity payments will be continued during the
remainder of such period to the beneficiary. If no beneficiary is designated, we
will, pay in a lump sum to the Annuitant's estate the present value, as of the
date of death, of the number of guaranteed annuity payments remaining after that
date, computed on the basis of the assumed net investment rate used in
determining the first monthly payment. Because this Second Option provides a
specified minimum number of annuity payments, this option results in somewhat
lower payments per month than the First Option.
THIRD OPTION--INSTALLMENT REFUND LIFE ANNUITY. Payments are made for the
installment refund period, which is the time required for the sum of the
payments to equal the amount applied, and thereafter for the life of the payee.
FOURTH OPTION--PAYMENTS FOR A FIXED PERIOD. Payments are made for the number of
years selected, which may be from 3 through 20. If the Annuitant dies before the
specified number of monthly payments are made, we will pay the remaining
payments to the designated beneficiary in a lump sum payment.
FIFTH OPTION--JOINT AND SURVIVOR ANNUITY. We will make monthly payments during
the joint lifetime of the Annuitant and a joint Annuitant. Payments will
continue during the lifetime of the surviving Annuitant and will be computed on
the basis of 100%, 50%, or 66 2/3% of the annuity payment (or limits) in effect
during their joint lifetime.
Annuity payments will be made monthly. However, if any payment would be or
become less than $50, we may change the frequency so payments are at least $50
each. If the net Contract Value to be applied at the Annuity Date is less than
$10,000 ($3,500 for a Contract held under tax-qualified retirement
arrangements), we reserve the right to pay such amount in a lump sum.
We may require proof of age, sex, or survival of any person upon whose
continuation of life annuity payments depend.
Annuity Date
You select the Annuity Date in the application for the Contract. You may change
the Annuity Date by notifying us in writing of a new Annuity Date at least 30
days prior to the current Annuity Date. The Annuity Date may not be later than
the first Contract year after the Annuitant's 90th birthday or the maximum date
permitted under applicable state law. If the Contract Owner is 85 or older on
the date of issue, the Annuity Date may not be later than the fifth Contract
year. If no Annuity Date is selected, we will assume the latest possible Annuity
Date.
For a Contract held under a tax-qualified retirement arrangement (other than an
IRA), the Annuity Date generally may not be later than (i) April 1 of the year
after the year in which the Annuitant attains age 70 1/2 or (ii) the calendar
year in which the Annuitant retires if later. For a contract held as an IRA, the
Annuity Date may not be later than April 1 of the year after the year in which
the Annuitant attains age 70 1/2.
FEES AND CHARGES
CONTRACT ADMINISTRATION FEE. We deduct a Contract administration fee from the
Separate Account for services rendered in administering the Contract. Contract
administration includes preparing and issuing Contracts, communicating with
Contract Owners, maintaining Contract records and preparing and distributing
Contract Owner reports and statements. The fee is equal to an effective annual
rate of 0.15% of the daily net assets of each Subaccount of the Separate
Account. We may not increase the fee over the duration of the Contract.
MORTALITY AND EXPENSE RISK CHARGE. We deduct a mortality and expense risk charge
from the Separate Account. Mortality risk refers to risks Conseco Variable
assumes in the obligation to make annuity payments over the life time of
Annuitants and the obligation to pay minimum death benefits in the future in a
declining securities market and Contract Value. Expense risk refers to the risk
Conseco Variable assumes in the obligation not to increase administration
charges over the life of the Contract even though future expenses may increase.
The mortality and expense risk charge is equal to an annual rate of 1.25% of the
daily net assets of each Subaccount.
WITHDRAWAL CHARGE. The withdrawal charge, when applicable, permits us to recover
a portion of our expenses relating to the sale of the Contract. Sales expenses
which are not covered by the withdrawal charge are paid from surplus in our
general account, which may include revenues from our mortality and expense risk
charge.
We may assess a withdrawal charge against the purchase payments when you
withdraw the payments. We may also assess a withdrawal charge if the Contract
has been in effect less than five years and payments are used to provide annuity
payments for less then five years.
Subject to certain state variations, the withdrawal charge will be a specified
percentage of the sum of the purchase payments paid within seven years prior to
the date of withdrawal, adjusted for any prior withdrawals. There is no charge
on withdrawals of:
(a) purchase payments that have been in the Contract more than seven
complete Contract years, or
(b) free withdrawal amounts described below.
The length of time from receipt of a purchase payment to the time of withdrawal
determines the withdrawal charge.
For the purpose of calculating the withdrawal charge, withdrawals will be deemed
made first from purchase payments on a first-in, first-out basis and then from
any gain. The withdrawal charge applies to withdrawals from both the Separate
Account and Fixed Account.
We will not assess a withdrawal charge:
* in the event of the death of the Contract Owner (subject to certain state
variations), or
* if payments are made under an annuity option under the Contract that
begins at least five years after the effective date of the Contract and is paid
under any life annuity option, or any option with payments for a minimum of five
years.
The withdrawal charge, if applicable, equals:
<TABLE>
<CAPTION>
Complete Years Since
Receipt of Payment Withdrawal Charge
- - --------------------------- ------------------------
<S> <C>
First Year 7%
Second Year 7%
Third Year 6%
Fourth Year 5%
Fifth Year 4%
Sixth Year 3%
Seventh Year 2%
Eighth Year and more 0%
</TABLE>
In addition, in certain states the following circumstances further limit or
reduce withdrawal charges:
* for issue ages up to 56, there is no withdrawal charge made after you
attain age 67 and later;
* for issue ages 57 and later, any otherwise applicable withdrawal charge
will be multiplied by a factor ranging from 0.9 to 0 for Contract years one
through 10.
You may make one free withdrawal per Contract year from Contract Value of an
amount up to 10% of the Contract Value (as determined on the date we receive
your withdrawal request). If you make additional withdrawals in excess of that
amount in any year during the period when the withdrawal charge is applicable,
we will deduct the withdrawal charge.
Any withdrawals you authorize to pay compensation to your Financial Advisor are
treated as free withdrawals. Such free withdrawals are in addition to the 10%
free withdrawal you may make each Contract year. There may, however, be certain
adverse tax consequences. See "Withdrawals" and "Federal Income Tax
Considerations" in this Prospectus.
With respect to any Contract which is owned by a "charitable remainder unitrust"
or a "charitable remainder annuity trust" (both a "Charitable Remainder Trust")
within the meaning of the Internal Revenue Code (the "Code"), we may, in our
discretion, permit an additional free withdrawal necessary to fund required
distributions by the Charitable Remainder Trust in any Contract year. In order
for a Charitable Remainder Trust to qualify for such an increase, the trustee or
trustees of the Charitable Remainder Trust will be required to certify:
(i) that such trust is a bona fide "charitable remainder unitrust" or a
"charitable remainder annuity trust" within the meaning of the Code, and that
all amounts proposed to be withdrawn will be used to make distributions required
under the Code for the year in which such amounts are withdrawn or for a prior
year;
(ii) that the required distribution exceeds the one free withdrawal of 10%
of the Contract Value which is permitted without a withdrawal charge; and
(iii) that the funds necessary to make the required distribution could not
otherwise be made available without hardship to the trust or its beneficiaries.
We also reserve the right to reduce the withdrawal charge under certain
circumstances when sales of Contracts are made to a trustee, employer, or
similar party pursuant to a retirement plan or similar arrangement for sales of
Contracts to a group of individuals if the program results in a savings of sales
expenses. The amount of reduction will depend on such factors as the size of the
group, the total amount of purchase payments, and other factors that might tend
to reduce expenses incurred in connection with such sales. This reduction will
not be unfairly discriminatory to any Contract Owner.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are 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 jurisdiction.
INCOME TAXES
We will deduct amounts from the Contract for any income taxes which it incurs
because of the Contract. At the present time, we incur no such taxes and make no
such deductions.
FUND EXPENSES
See the accompanying Trust Prospectus for more information about fees and
expenses incurred by the Funds.
THE FIXED ACCOUNT
In addition to the investment options in the Separate Account, the Contract
provides for a Fixed Account, where amounts held under the Contract may
accumulate at a guaranteed interest rate and become part of our general account.
We guarantee that we will credit daily interest of at least 3% on an annual
basis, compounded annually. We may credit interest at higher rates from time to
time in our discretion. Gains or losses on amounts allocated or transferred to
Subaccounts of the Separate Account and charges against assets held in the
Separate Account, have no effect on the Fixed Account. The Fixed Account is
subject to certain transfer restrictions (e.g., in any six-month period, a
maximum of 20% of the Fixed Account Value may be transferred; this restriction,
however, is not effective until one year after the Contract Date).
Interests in the Fixed Account are not registered under the Securities Act of
1933. Our general account is not registered as an investment company under the
1940 Act. Our general account and any interests held in the general account are
therefore not subject to the provisions of these acts. This prospectus generally
discusses only the variable portion of the contract. We understand that the
staff of the SEC has not reviewed the disclosure in this prospectus relating to
the Fixed Account. Disclosure regarding the Fixed Account, however, may be
subject to generally applicable provisions of the federal securities laws
relating to the accuracy and completeness of statements made in this prospectus.
BENEFICIARY
The beneficiary and any contingent beneficiary are named in the application for
the Contract. However, unless the beneficiary has been irrevocably designated,
you may change the beneficiary by written notification to our administrative
office. The change will be effective as of the date signed, unless we have acted
in reliance on your designation of the prior beneficiary. The estate or heirs of
a beneficiary who died before payment under the Contract becomes due have no
rights under the Contract. If no beneficiary survives when payment under the
Contract becomes due, payment will be made to the Contract Owner's estate.
OWNERSHIP
As Contract Owner, you are entitled to all rights under the Contract. Unless
otherwise designated in the application for the Contract or by endorsement to
the Contract, the Contract Owner is also the Annuitant. Spousal joint Contract
Owners are allowed except in the case of a qualified Contract. Upon the death of
a joint Contract Owner, the surviving Contract Owner will be the primary
beneficiary. Any other beneficiary will be treated as a contingent beneficiary
unless otherwise stated in writing. You cannot name a contingent owner of the
Contract.
You may transfer ownership of the Contract to another person, if permitted under
applicable law, subject to certain conditions. A transfer of ownership must be
in writing and the new Contract Owner must appoint a Financial Advisor and
execute a power of attorney authorizing the Financial Advisor to give us
allocation and transfer instructions. We must receive (at our administrative
office) documentation for the foregoing before the transfer of ownership becomes
effective. A transfer of ownership does not affect the legal validity of a
designation of beneficiary.
You may also pledge your Contract, if permitted by applicable law. A collateral
assignment does not change Contract ownership. The rights of a collateral
assignee have priority over the rights of a beneficiary.
An assignment or transfer may have adverse tax consequences. You should consult
a competent tax adviser before assigning or transferring your Contract.
FEDERAL INCOME TAX CONSIDERATIONS
NOTE: We have 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. Additional
discussion of federal income tax considerations is included 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 (the "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 will generally not be treated as an
annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
A Contract purchased by an individual under a tax-qualified pension plan or
employer sponsored program, or as an individual retirement annuity ("IRA"), is
referred to as a tax-qualified Contract. Examples of qualified Contracts are
IRAs and tax-sheltered annuities (sometimes referred to as 403(b) Contracts).
A Contract which is not purchased under such a plan or program, or is not
purchased as an IRA, is referred to as a non-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 are allocable to 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
pursuant to a salary reduction agreement by owners from Tax-Sheltered Annuities.
Withdrawals can only be made when an owner:
(1) reaches age 59 1/2;
(2) leaves his/her job;
(3) dies;
(4) becomes 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
permissible.
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. We believe that the Funds are being managed so as to comply
with such 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 Funds. 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 funds, to make transfers among the funds or
the number and type of funds 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 Funds.
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.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PERFORMANCE INFORMATION...................................................
Total Return Information..................................................
Comparisons of Total Return...............................................
DISTRIBUTION OF CONTRACTS.................................................
FEDERAL INCOME TAX CONSIDERATIONS.........................................
General...................................................................
Diversification...........................................................
Multiple Contracts........................................................
Contracts Owned by Other than Natural Persons.............................
Tax Treatment of Assignments..............................................
Income Tax Withholding....................................................
Tax Treatment of Withdrawals -- Non-Qualified Contracts...................
Qualified Plans...........................................................
Tax Treatment of Withdrawals -- Qualified Contracts.......................
Tax-Sheltered Annuities -- Withdrawal Limitations.........................
INDEPENDENT ACCOUNTANTS...................................................
LEGAL OPINIONS............................................................
FINANCIAL STATEMENTS......................................................
</TABLE>
ORDER FORM
Please send me a copy of the most recent Statement of Additional Information for
the Rydex Advisor Variable Annuity Account.
- - ------------------------------ ----------------------------------------
(Date) (Name)
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
Send to: Rydex Advisor Variable Annuity Account
11815 North Pennsylvania Street
Carmel, IN 46032
PART B
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
OF
CONSECO VARIABLE INSURANCE COMPANY
(FORMERLY GREAT AMERICAN RESERVE INSURANCE COMPANY)
ADMINISTRATIVE OFFICE: 11825 NORTH PENNSYLVANIA STREET, CARMEL, INDIANA 46032
PHONE: (800) 437-3506
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
FLEXIBLE PURCHASE PAYMENTS
THIS STATEMENT OF ADDITIONAL INFORMATION (WHICH IS NOT A PROSPECTUS) SHOULD
BE READ IN CONJUNCTION WITH THE CURRENT PROSPECTUS FOR RYDEX ADVISOR VARIABLE
ANNUITY ACCOUNT (THE "SEPARATE ACCOUNT"), DATED MAY 1, 1999. YOU MAY OBTAIN A
COPY OF THE CURRENT PROSPECTUS BY WRITING TO OR CALLING CONSECO EQUITY SALES,
INC., 11825 NORTH PENNSYLVANIA STREET, CARMEL, INDIANA 46032, TELEPHONE: (800)
437-3506
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Return Information. . . . . . . . . . . . . . . . . . . . . . . . .
Comparisons of Total Return . . . . . . . . . . . . . . . . . . . . . . .
DISTRIBUTION OF CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . .
FEDERAL INCOME TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiple Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contracts Owned by Other than Natural Persons . . . . . . . . . . . . . .
Tax Treatment of Assignments. . . . . . . . . . . . . . . . . . . . . . .
Income Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Treatment of Withdrawals - Non-Qualified Contracts. . . . . . . . . .
Qualified Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Treatment of Withdrawals - Qualified Contracts. . . . . . . . . . .
Tax-Sheltered Annuities - Withdrawal Limitations. . . . . . . . . . . .
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
PERFORMANCE INFORMATION
TOTAL RETURN INFORMATION
The following tables show investment returns of the subaccounts of the
Separate Account (other than the U.S. Government Money Market Fund), assuming
different amounts invested, different periods of time amounts are invested, and
withdrawal and non-withdrawal of amounts at the end of the periods. Past
performance of a subaccount does not necessarily indicate how a subaccount will
perform in the future.
The average annual rates of total return are computed by finding the
average annual compounded rates of return over the periods shown that would
equate the initial amount invested to the withdrawal value, in accordance n with
the following formula: P(1 + T) = ERV. In the formula, P is a hypothetical
purchase payment of $1,000; T is the average annual total return; n is the
number of years; and ERV is the withdrawal value at the end of the period shown.
Table 1: Amount Invested in Subaccount: $1,000 - Withdrawn at End of Period
<TABLE>
<CAPTION>
DATE OF
COMMENCEMENT OF AVERAGE ANNUAL TOTAL RETURN
CONTINUOUS FOR THE PERIODS ENDING
OPERATIONS DECEMBER 31, 1998
--------------- ---------------------------
SINCE COMMENCEMENT OF
ONE YEAR CONTINUOUS OPERATIONS
-------- ---------------------
<S> <C> <C> <C>
Nova Subaccount 5/7/97 21.59% 27.03%
Ursa Subaccount 6/10/97 -27.00% -25.53%
OTC Subaccount 5/7/97 71.70% 44.13%
Precious Metals Subaccount 5/29/97 -22.63% -31.88%
U.S. Government Bond Subaccount 8/18/97 5.53% 11.39%
Juno Subaccount 3/4/98 N/A -17.37%
</TABLE>
Table 2: Amount Invested in Subaccount: $1,000 -- Not Withdrawn at the End of
Period
<TABLE>
<CAPTION>
DATE OF
COMMENCEMENT OF AVERAGE ANNUAL TOTAL RETURN
CONTINUOUS FOR THE PERIODS ENDING
OPERATIONS DECEMBER 31, 1998
--------------- ---------------------------
SINCE COMMENCEMENT OF
ONE YEAR CONTINUOUS OPERATIONS
-------- ---------------------
<S> <C> <C> <C>
Nova Subaccount 5/7/97 29.77% 32.13%
Ursa Subaccount* 6/10/97 -22.09% -22.35%
OTC Subaccount 5/7/97 83.25% 49.92%
Precious Metals Subaccount 5/29/97 -17.43% -29.04%
U.S. Government Bond Subaccount* 8/18/97 12.63% 16.81%
Juno Subaccount* 3/4/98 N/A -10.64%
</TABLE>
- - ------------------------
* Due to the nature of the investment activity of the Funds underlying the
Subaccounts, there were discrete periods when certain Subaccounts had zero
net assets. The discrete periods for the Ursa Subaccount, and the
investment return for those periods, were as follows: 5/7/97 to 5/21/97
(-3.70%) and 5/24/97 to 6/3/97 (0.10%). The discrete periods for the U.S.
Government Bond Subaccount, and the investment return for those periods,
were as follows: 5/29/97 to 6/5/97 (1.50%), 6/24/97 to 7/14/97 (2.20%) and
7/29/97 to 8/12/97 (-3.30%). The discrete periods for the Juno Subaccount,
and the investment return for those periods, were as follows: 5/7/97 to
6/3/97 (-1.40%), 6/16/97 to 7/2/97 (-.31%), 7/7/97 (-0.52%), 7/24/97 to
8/11/97 (2.87%), 8/26/97 to 10/19/97 (-2.06%), 10/22/97 to 12/11/97
(-5.16%), 1/19/98 to 1/25/98 (2.93%), 2/1/98 to 2/2/98 (0.45%), 2/22/98 to
2/24/98 (1.22%) and 3/1/98 to 3/2/98 (0.88%).
THE PERFORMANCE INFORMATION SET FORTH ABOVE IS FOR PAST PERFORMANCE AND IS
NOT AN INDICATION OR REPRESENTATION OF FUTURE PERFORMANCE.
COMPARISONS OF TOTAL RETURN
Performance information for each of the Separate Account subaccounts
contained in reports to Contract Owners or prospective Contract Owners,
advertisements, and other promotional literature may be compared to the record
of various unmanaged indexes for the same period. In conjunction with
performance reports, promotional literature, and/or analyses of Contract Owner
service for a subaccount, comparisons of the performance information of the
subaccount for a given period to the performance of recognized, unmanaged
indexes for the same period may be made. Such indexes include, but are not
limited to, ones provided by Dow Jones & Company, Standard & Poor's Corporation,
Lipper Analytical Services, Inc., Shearson Lehman Brothers, National Association
of Securities Dealers, Inc., The Frank Russell Company, Value Line Investment
Survey, the American Stock Exchange, the Philadelphia Stock Exchange, Morgan
Stanley Capital International, Wilshire Associates, the Financial Times-Stock
Exchange, and the Nikkei Stock Average and Deutcher Aktienindex, all of which
are unmanaged market indicators. Such comparisons can be a useful measure of the
quality of a subaccount's investment performance.
In particular, performance information for the Nova subaccount, the Ursa
subaccount, and the Precious Metals subaccount may be compared to various
unmanaged indexes, including, but not limited to, the Standard & Poor's 500
Composite Stock Price Index-TM- (the "S&P 500 Index") or the Dow Jones
Industrial Average. Performance information for the Precious Metals subaccount
also may be compared to the current benchmark for the Precious Metals
subaccount, Philadelphia Stock Exchange Gold/Silver Index-TM- (the "XAU Index").
Performance information for the OTC subaccount may be compared to various
unmanaged indexes, including, but not limited to the current benchmark for the
OTC Fund, NASDAQ 100 Index-TM-, and the NASDAQ Composite Index-TM-. The NASDAQ
Composite Index-TM- comparison may be provided to show how the OTC subaccount's
total return compares to the record of a broad average of over-the-counter stock
prices over the same period. The OTC Fund has the ability to invest in
securities not included in the NASDAQ 100 Index-TM- or the NASDAQ Composite
Index-TM-, and the OTC Fund's investment portfolio may or may not be similar in
composition to NASDAQ 100 Index-TM- or the NASDAQ Composite Index-TM-. The
NASDAQ Composite Index-TM- is based on the prices of an unmanaged group of
stocks and, unlike the OTC Fund's returns, the returns of the NASDAQ Composite
Index-TM-, and such other unmanaged indexes, may assume the reinvestment of
dividends, but generally do not reflect payments of brokerage commissions or
deductions for operating costs and other expenses of investing. Performance
information for the U.S. Government Bond subaccount and the Juno subaccount may
be compared to the price movement of the current long treasury bond (the "Long
Bond") and to various unmanaged indexes, including, but not limited to, the
Shearson Lehman Government (LT) Index-TM-. Such unmanaged indexes may assume the
reinvestment of dividends, but generally do not reflect deductions for operating
costs and expenses.
In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of Contract Owner service appearing in
publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL INVESTOR,
MORNINGSTAR, INC., THE MORNINGSTAR VARIABLE ANNUITY/LIFE REPORTER, VARDS, and
similar sources which utilize information compiled internally or by Lipper
Analytical Services, Inc., may be provided.
From time to time, each subaccount, other than the U.S. Government Money
Market subaccount, also may include in such advertising a total return figure
that is not calculated according to the formula set forth above in order to
compare more accurately the performance of the subaccount with other measures of
investment return. For example, in comparing the total return of a subaccount
with data published by Lipper Analytical Services, Inc., or with the performance
of the S&P 500 Index or the Dow Jones Industrial Average for each of the Nova
subaccount and the Ursa subaccount, the NASDAQ 100 Index-TM- for the OTC
subaccount, the XAU Index for the Precious Metals subaccount, and the Lehman
Government (LT) Index for the U.S. Government Bond subaccount and the Juno
subaccount, Conseco Variable Insurance Company ("Conseco Variable") (formerly
Great American Reserve Insurance Company) may calculate for each subaccount the
aggregate total return for the specified periods of time by assuming the
allocation of $10,000 to the subaccount and assuming the reinvestment of each
dividend or other distribution at Accumulation Unit value on the reinvestment
date. Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value. Each subaccount may show non-standardized total returns and
average annual total returns that do not include the withdrawal charge (ranging
from 7% to 0%) which, if included, would reduce total return. Such alternative
total return information will be given no greater prominence in such advertising
than the information prescribed under SEC Rules.
DISTRIBUTION OF CONTRACTS
Conseco Equity Sales, Inc. ("CES"), 11825 North Pennsylvania Street,
Carmel, Indiana 46032, is the principal underwriter of the Contracts. Prior to
November 2, 1998, PADCO Financial Services, Inc., was the principal underwriter
of the Contracts. The offering of the Contracts is continuous, although Conseco
Variable reserves the right to suspend the offer and sale of the Contracts
whenever, in its opinion, market or other conditions make a suspension
appropriate. CES is a broker-dealer registered under the Securities Exchange Act
of 1934, as amended, and is a member of the National Association of Securities
Dealers, Inc. The Contracts are sold by authorized broker-dealers, and their
registered representatives, including registered representatives of CES. The
broker-dealers and their registered representatives are also licensed insurance
agents of Conseco Variable. Conseco Variable and its principal underwriter pay
commissions to authorized broker-dealers not exceeding 7.0% of purchase
payments.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON CONSECO VARIABLE'S UNDERSTANDING
OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. CONSECO
VARIABLE CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. CONSECO VARIABLE DOES NOT GUARANTEE THE TAX STATUS
OF THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT
BE TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE
FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT
SPECIAL RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX
LAWS.
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. A Contract Owner is not taxed on
increases in the value of a Contract until distribution occurs, either in the
form of a lump sum payment or as annuity payments under the annuity option
selected. For a lump sum payment received as a total withdrawal (total
surrender), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For non-qualified Contracts, this cost basis is
generally the purchase payments, while for qualified Contracts there may be no
cost basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments based
on a fixed annuity option is determined by multiplying the payment by the ratio
that the cost basis of the Contract (adjusted for any period or refund feature)
bears to the expected return under the Contract. Payments received after the
investment in the Contract has been recovered (i.e. when the total of the
excludable amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
qualified plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Contract Owners, annuitants and beneficiaries under the
Contracts should seek competent financial advice about the tax consequences of
any distributions.
Conseco Variable is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
Conseco Variable, and its operations form a part of Conseco Variable.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in the imposition of federal income
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to the receipt of payments under the Contract. The Code contains a safe
harbor provision which provides that annuity contracts such as the Contract meet
the diversification requirements if, as of the end of each quarter, the
underlying assets meet the diversification standards for a regulated investment
company and no more than fifty-five percent (55%) of the total assets consist of
cash, cash items, U.S. Government securities and securities of other regulated
investment companies.
Regulations issued by the Treasury Department (the "Regulations") amplify
the diversification requirements for variable contracts set forth in the Code
and provide an alternative to the safe harbor provision described above. Under
the Regulations, an investment portfolio will be deemed adequately diversified
if:
(1) no more than 55% of the value of the total assets of the portfolio is
represented by any one investment;
(2) no more than 70% of the value of the total assets of the portfolio is
represented by any two investments;
(3) no more than 80% of the value of the total assets of the portfolio is
represented by any three investments; and
(4) no more than 90% of the value of the total assets of the portfolio is
represented by any four investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
Conseco Variable intends that all Funds underlying the Contracts will be
managed in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations
do not provide guidance regarding the circumstances in which Contract Owner
control of the investments of the Separate Account will cause the Contract Owner
to be treated as the owner of the assets of the Separate Account, thereby
resulting in the loss of favorable tax treatment for the Contract. At this time
it cannot be determined whether additional guidance will be provided and what
standards may be contained in such guidance.
The amount of Contract Owner control which may be exercised under the
Contract is different in some respects from the situations addressed in
published rulings issued by the Internal Revenue Service in which it was held
that the policy owner was not the owner of the assets of the separate account.
It is unknown whether these differences, such as the Contract Owner's ability to
transfer among investment choices or the number and type of investment choices
available, would cause the Contract Owner to be considered as the owner of the
assets of the Separate Account resulting in the imposition of federal income tax
to the Contract Owner with respect to earnings allocable to the Contract prior
to receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Contract
Owners being retroactively determined to be the owners of the assets of the
Separate Account.
Due to the uncertainty in this area, Conseco Variable reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Contract Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for
the Contracts will be taxed currently to the Contract Owner if the Contract
Owner is a non-natural person, e.g., a corporation or certain other entities.
Such Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to a Contract held by a trust
or other entity as an agent for a natural person nor to Contracts held by
qualified plans. Purchasers should consult their own tax counsel or other tax
adviser before purchasing a Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Contract
Owners should therefore consult competent tax advisers should they wish to
assign or pledge their Contracts.
If the Contract is issued pursuant to a qualified plan it may not be
assigned, pledged or otherwise transferred except as allowed under applicable
law.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross
income of the Contract Owner are subject to federal income tax withholding.
Generally, amounts are withheld from periodic payments at the same rate as wages
and at the rate of 10% from non-periodic payments. However, the Contract Owner,
in most cases, may elect not to have taxes withheld or to have withholding done
at a different rate.
Certain distributions from retirement plans qualified under Section 401 or
Section 403(b) of the Code, which are not directly rolled over to another
eligible retirement plan or individual retirement account or individual
retirement annuity, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement generally does not apply to: a) a
series of substantially equal payments made at least annually for the life or
life expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary or for a specified period of 10 years
or more; or b) distributions which are required minimum distributions; or c) the
portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions); or d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 governs treatment of distributions from annuity contracts.
Section 72 generally provides that if the contract value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includible in gross income.
Section 72 further provides that a ten percent (10%) penalty will apply to the
income portion of any premature distribution. However, the penalty is not
imposed on amounts received: (a) after you reach age 59 1/2; (b) after your
death; (c) if you become totally disabled (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal
periodic payments made not less frequently than annually for your life (or life
expectancy) or for the joint lives (or joint life expectancies) of you and your
beneficiary; (e) under an immediate annuity; or (f) which are allocable to
purchase payments made prior to August 14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to qualified Contracts. However,
separate tax withdrawal penalties and restrictions may apply to such qualified
Contracts. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
QUALIFIED PLANS
The Contracts offered herein are designed to be suitable for use under
various types of qualified plans. Taxation of participants in each qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Contract Owners, annuitants and beneficiaries are cautioned that benefits
under a qualified plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into Conseco Variable's administrative procedures.
Contract Owners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of the
types of qualified plans with which the Contracts may be used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding Qualified Plans are very complex and will have differing
applications depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
qualified plan.
Contracts issued pursuant to qualified plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to qualified plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE
V. NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by CVIC in connection with
certain qualified plans will utilize annuity tables which do not differentiate
on the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational and
scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Contracts for the
benefit of their employees. Such contributions are not includible in the
gross income of the employees until the employees receive distributions
from the Contracts. The amount of contributions to the tax-sheltered
annuity is limited to certain maximums imposed by the Code. Furthermore,
the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See
"Tax Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered
Annuities - Withdrawal Limitations" below.) Employee loans are not
permitted under these Contracts. Any employee should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute up to
$2,000 per year to an individual retirement program known as an "Individual
Retirement Annuity" ("IRA"). Under applicable limitations, certain amounts
may be contributed to an IRA which will be deductible from the individual's
taxable income. These IRAs are subject to limitations on eligibility,
contributions, transferability and distributions. (See "Tax Treatment of
Withdrawals - Qualified Contracts" below.) Under certain conditions,
distributions from other IRAs and other qualified plans may be rolled over
or transferred on a tax-deferred basis into an IRA. Sales of Contracts for
use with IRAs are subject to special requirements imposed by the Code,
including the requirement that certain informational disclosure be given to
persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are
not deductible from taxable income. Lower maximum limitations apply to
individuals with adjusted gross incomes between $95,000 and $110,000 in the
case of single taxpayers, between $150,000 and $160,000 in the case of
married taxpayers filing joint returns, and between $0 and $10,000 in the
case of married taxpayers filing separately. An overall $2,000 annual
limitation continues to apply to all of a taxpayer's IRA contributions,
including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held a Roth IRA for
at least five taxable years and, in addition, that the distribution is
made: (i) after the individual reaches age 59 1/2, (ii) on the individual's
death or disability, or (iii) as a qualified first-time home purchase
(subject to a $10,000 lifetime maximum), for the individual, a spouse,
child, grandchild, or ancestor. Any distribution which is not a qualified
distribution is taxable to the extent of earnings in the distribution.
Distributions are treated as made from contributions first and therefore no
distributions are taxable until distributions exceed the amount of
contributions and conversions to the Roth IRA. The 10% penalty tax and the
regular IRA exceptions to the 10% penalty tax apply to taxable
distributions from a Roth IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA.
Furthermore, an individual may make a rollover contribution from a non-Roth
IRA to a Roth IRA ("conversion deposits"), unless the individual has
adjusted gross income over $100,000 or the individual is a married taxpayer
filing a separate return. The individual must pay tax on any portion of the
IRA being rolled over that represents income or a previously deductible IRA
contribution. However, for rollovers in 1998, the individual may pay that
tax ratably over the four taxable year period beginning with tax year 1998.
In addition, distribution of amounts attributable to conversion deposits
held for less than 5 taxable years will also be subject to the penalty tax.
Purchasers of Contracts intended to be qualified as a Roth IRA should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
In the case of a withdrawal under a qualified Contract, a ratable portion
of the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a qualified Contract. Section 72(t) of the Code imposes a 10% penalty tax
on the taxable portion of any distribution from qualified retirement plans,
including Contracts issued and qualified under Code Sections 403(b)
(Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement Annuities). To
the extent amounts are not includible in gross income because they have been
rolled over to an IRA or to another eligible qualified plan, no tax penalty will
be imposed. The tax penalty will not apply to the following distributions: (a)
if distribution is made on or after the date on which the Contract Owner reaches
age 59 1/2; (b) distributions following the death or disability of the Contract
Owner (for this purpose disability is as defined in Section 72(m) (7) of the
Code); (c) after separation from service, distributions that are part of
substantially equal periodic payments made not less frequently than annually for
the life (or life expectancy) of the Contract Owner or the joint lives (or joint
life expectancies) of such Contract Owner and his or her designated Beneficiary;
(d) distributions to a Contract Owner who has separated from service after he
has attained age 55; (e) distributions made to the Contract Owner to the extent
such distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Contract Owner or Annuitant (as applicable) for amounts paid
during the taxable year for medical care; (f) distributions made to an alternate
payee pursuant to a qualified domestic relations order; (g) distributions from
an Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the Contract Owner and his or
her spouse and dependents if the Contract Owner has received unemployment
compensation for at least 12 weeks (this exception will no longer apply after
the Contract Owner has been re- employed for at least 60 days); (h)
distributions from an Individual Retirement Annuity made to the Contract Owner
to the extent such distributions do not exceed the qualified higher education
expenses (as defined in Section 72(t)(7) of the Code) of the Contract Owner for
the taxable year; and (i) distributions from an Individual Retirement Annuity
made to the Contract Owner which are qualified first-time home buyer
distributions (as defined in Section 72(t)(8)of the Code.) The exceptions stated
in (d) and (f) above do not apply in the case of an Individual Retirement
Annuity. The exception stated in (c) above applies to an Individual Retirement
Annuity without the requirement that there be a separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
MANDATORY DISTRIBUTIONS - QUALIFIED CONTRACTS
Generally, distributions from a qualified plan must begin no later than
April 1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions
made pursuant to a salary reduction agreement (as defined in Section 403(b)(11)
of the Code) to circumstances only: (1) when the Contract Owner attains age 59
1/2; (2) when the Contract Owner separates from service; (3) when the Contract
Owner dies; (4) when the Contract Owner becomes disabled (within the meaning of
Section 72(m)(7) of the Code); (5) in the case of hardship; or (6) pursuant to
the terms of a qualified domestic relations order, if otherwise permissible.
However, withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions made by the
Contract Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, to income attributable to
such contributions and to income attributable to amounts held as of December 31,
1988. The limitations on withdrawals do not affect transfers between
Tax-Sheltered Annuity Plans. Contract Owners should consult their own tax
counsel or other tax adviser regarding any distributions.
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
Statement of Additional Information, have been audited by PricewaterhouseCoopers
LLP, 2900 One American Square, Box 82002, Indianapolis, Indiana, 46282-0002, as
stated in their report herein.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C. of Westport, Connecticut has provided advice
on certain matters relating to the federal securities and income tax laws in
connection with the Contracts described in the prospectus.
FINANCIAL STATEMENTS
The financial statements of Conseco Variable are included on the following
pages. They should only be considered as bearing on the ability of the Company
to meet its obligations under the Contracts.
The financial statements of Rydex Advisor Variable Annuity Account are also
included herein.
Table of Contents
December 31, 1998
================================================================================
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>
====================================================================================================================================
SHARES COST VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<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
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets ......................................................................................... 105,508,076
Liabilities:
Amounts due to Conseco Variable Insurance Company .......................................................... 106,182
------------
Net assets (Note 6) .................................................................................. $105,401,894
====================================================================================================================================
<CAPTION>
UNITS UNIT VALUE REPORTED VALUE
------------------------------------------------------
<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
- ------------------------------------------------------------------------------------------------------------------------------------
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>
====================================================================================================================================
RYDEX MONEY
VARIABLE TRUST JUNO MARKET I NOVA
1998(1) 1998(2) 1998(2) 1998(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<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 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income ............................................ 232,050 8,048 1,176,135 431,516
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses ..................................................... 205,739 5,653 651,530 433,088
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income ............................................ 26,311 2,395 524,605 (1,572)
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss on investments in securities .............................. -- (19,873) -- (440,226)
- ------------------------------------------------------------------------------------------------------------------------------------
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) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain on investments in portfolio shares ........................ 7,585,237 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
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>
====================================================================================================================================
U.S.
PRECIOUS GOVERNMENT
OTC METALS URSA BOND
1998(2) 1998(2) 1998(2) 1998(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<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 ....................... -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income ............................................ 27,518 6,616 219,060 61,082
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses ..................................................... 333,306 27,260 180,178 41,648
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income ............................................ (305,788) (20,644) 38,882 19,434
- ------------------------------------------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in securities ....................... 3,689,455 72,232 (1,153,914) 72,281
- ------------------------------------------------------------------------------------------------------------------------------------
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 ................. -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
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>
====================================================================================================================================
RYDEX VARIABLE TRUST JUNO
--------------------------------------------------
1998 (1) 1998 (2) 1997 (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<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 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ...................... 7,611,547 (17,478) (20,164)
- ------------------------------------------------------------------------------------------------------------------------------------
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) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from contract owners' transactions .............. 97,790,347 17,478 20,164
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets ............................................... 105,401,894 -- --
Net assets, beginning of period ................................................. -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
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>
====================================================================================================================================
MONEY MARKET I NOVA
---------------------------------------------------------------
1998 (2) 1997 (3) 1998 (2) 1997 (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<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
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ........ 524,605 221,638 (441,798) 336,705
- ------------------------------------------------------------------------------------------------------------------------------------
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) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from contract
owners' transactions ....................................... (18,427,977) 17,681,734 (10,006,238) 10,111,331
- ------------------------------------------------------------------------------------------------------------------------------------
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 --
- ------------------------------------------------------------------------------------------------------------------------------------
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>
====================================================================================================================================
OTC PRECIOUS METALS
-----------------------------------------------------------------
1998 (2) 1997 (3) 1998 (2) 1997 (4)
- ------------------------------------------------------------------------------------------------------------------------------------
<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
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ...... 3,383,667 (202,679) 51,588 (331,408)
- ------------------------------------------------------------------------------------------------------------------------------------
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) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from contract
owners' transactions ..................................... (5,751,072) 2,570,084 (569,498) 849,318
- ------------------------------------------------------------------------------------------------------------------------------------
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 --
- ------------------------------------------------------------------------------------------------------------------------------------
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>
====================================================================================================================================
URSA U.S. GOVERNMENT BOND
-----------------------------------------------------------------
1998 (2) 1997 (3) 1998 (2) 1997 (4)
- ------------------------------------------------------------------------------------------------------------------------------------
<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
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ..... (1,115,032) (335,174) 91,715 37,407
- ------------------------------------------------------------------------------------------------------------------------------------
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) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from contract
owners' transactions .................................... (1,763,812) 3,214,018 (983,734) 854,612
- ------------------------------------------------------------------------------------------------------------------------------------
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 --
- ------------------------------------------------------------------------------------------------------------------------------------
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
================================================================================
(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
================================================================================
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/PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 24, 1999
11
<PAGE>
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
F-1
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET
December 31, 1998 and 1997
(Dollars in millions)
ASSETS
1998 1997
---- ----
Investments:
Actively managed fixed maturities at fair value (amortized cost:
<S> <C> <C> <C> <C> <C> <C>
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.
F-2
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET (Continued)
December 31, 1998 and 1997
(Dollars in millions, except per share amount)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
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.
F-3
CONSECO VARIABLE INSURANCE COMPANY
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
(Dollars in millions)
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.
F-4
CONSECO VARIABLE INSURANCE COMPANY
<TABLE>
<CAPTION>
STATEMENT OF SHAREHOLDER'S EQUITY
for the years ended December 31, 1998, 1997 and 1996
(Dollars in millions)
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.
F-5
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(Dollars in millions)
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.
F-6
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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.
F-7
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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
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
F-8
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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.
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.
F-9
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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.
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
<FN>
(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.
</FN>
</TABLE>
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.
F-10
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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>
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>
F-11
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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>
Estimated
Amortized fair
cost value
---- -----
(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.
F-12
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Investment gains (losses), net of investment expenses, were included in
revenue as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Fixed maturities:
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>
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
======== ========
F-13
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
<FN>
- -------------
(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.
</FN>
</TABLE>
4. INCOME TAXES:
Income tax liabilities were comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Dollars in millions)
Deferred income tax liabilities (assets):
<S> <C> <C>
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>
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
---- ---- ----
(Dollars in millions)
<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.
F-14
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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.
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 (7.1
percent) and Indiana (6.2 percent). No other state accounted for more than 5.0
percent of total collected premiums.
F-15
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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>
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>
F-16
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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.
F-17
PART C
OTHER INFORMATION
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF THE REGISTRANT:
Financial Statements of the Registrant are filed as part of the
Statement of Additional Information.
FINANCIAL STATEMENTS OF THE DEPOSITOR:
Financial Statements of Conseco Variable Insurance Company, formerly
Great American Reserve Insurance Company, are filed as part of the
Statement of Additional Information.
(b) EXHIBITS
1. (a) Resolutions of Board of Directors of Conseco Variable
Insurance Company authorizing the establishment of the
Registrant. Incorporated herein by reference to
Exhibit b(1) to initial Registration Statement on Form N-3
filed on May 2, 1996.
(b) Resolutions of the Board of Directors of Conseco Variable
Insurance Company authorizing restructuring of investments
of the Registrant and registration of Registrant under the
1940 Act as a unit investment trust. Incorporated herein by
reference to Exhibit 1(b) to Post-Effective Amendment No. 10
filed on November 2, 1998.
2. Not Applicable.
3. (a) Form of Underwriting Agreement Among Conseco Variable
Insurance Company, the Rydex Advisor Variable Annuity
Account, and Conseco Equity Sales, Inc. Incorporated herein
by reference to Exhibit 3(a) to Post-Effective Amendment No.
10 filed on November 2, 1998.
(b) (1) Form of Group Selling Agreement Among Conseco Variable
Insurance Company, Conseco Equity Sales, Inc., Broker,
and Insurance Agent. Incorporated herein by reference
to Exhibit 3(b)(1) to Post-Effective Amendment No. 10
filed on November 2, 1998.
(b) (2) Form of Notice of Assignment of Group Selling
Agreements by PADCO Financial Services, Inc. to Conseco
Equity Sales, Inc. effective November 2, 1998.
Incorporated herein by reference to Exhibit 3(b)(2) to
Post-Effective Amendment No. 10 filed on November 2,
1998.
4. (a) Form of Variable Annuity Contract. Incorporated herein by
reference to initial Registration Statement, filed on May 2,
1996.
(b) Form of Variable Annuity Contract Endorsement (regarding the
Death Benefit). Incorporated herein by reference to
Post-Effective Amendment No. 1 to this Registration
Statement, filed on September 24, 1997.
5. Form of Applications for Variable Annuity Contract. Incorporated
herein by reference to Post-Effective Amendment No. 1 to this
Registration Statement, filed on September 24, 1997.
6. (a) Certificate of Incorporation and Bylaws of Conseco Variable
Insurance Company. Incorporated herein by reference to
initial Registration Statement, filed on May 2, 1996.
(b) Articles of Amendment to the Articles of Incorporation of
Great American Reserve Insurance Company, changing name to
Conseco Variable Insurance Company. Incorporated herein by
reference to Exhibit 6(b) to Post-Effective Amendment No. 10
filed on November 2, 1998.
(c) Official Order of the Commissioner of Insurance of the State
of Texas approving Articles of Amendment to the Articles of
Incorporation, changing name from Great American Reserve
Insurance Company to Conseco Variable Insurance Company.
Incorporated herein by reference to Exhibit 6(c) to
Post-Effective Amendment No. 10 filed on November 2, 1998.
7. None.
8. Form of Participation Agreement between Conseco Variable
Insurance Company, Rydex Variable Trust and PADCO Financial
Services, Inc. Incorporated herein by reference to Exhibit 8 to
Post-Effective Amendment No. 10 filed on November 2, 1998.
9. Opinion of Counsel and Consent, filed herewith.
10. Consent of Independent Public Accountants PricewaterhouseCoopers
LLP, filed herewith.
11. None.
12. None.
13. Schedule for Computation of Performance Quotations, filed
herewith.
14. (a) Powers-of-Attorney of Executive Officers and Directors of
Conseco Variable Insurance Company: Stephen C. Hilbert,
Chairman of the Board and Chief Executive Officer; Rollin
M. Dick, Executive Vice President, Chief Financial Officer
and Director; James S. Adams, Senior Vice President and
Treasurer (Chief Accounting Officer); Thomas J. Kilian,
President and Director; and John J. Sabl, Director.
Incorporated by reference to Post-Effective Amendment No. 8
to this Registration Statement, filed on August 12, 1998.
Power-of-Attorney of Ngaire E. Cuneo, Director. Incorporated
herein by reference to Exhibit 14(a) to Post-Effective
Amendment No. 10 filed on November 2, 1998.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following table sets forth the names of (a) the officers and
trustees of the Conseco Variable Insurance Company who are engaged
directly or indirectly in activities relating to the Registrant or the
variable annuity contracts and (b) the executive officers of the
Conseco Variable Insurance Company
STEPHEN C. HILBERT THOMAS J. KILIAN
Chairman and Director President and Director
NGAIRE E. CUNEO ROLLIN M. DICK
Director Executive Vice President, Chief
Financial Officer and Director
JAMES S. ADAMS JOHN J. SABL
Senior Vice President and Treasurer Executive Vice President,
General Counsel, Secretary and
Director
The business address of the directors and officers is Conseco Variable
Insurance Company, 11825 North Pennsylvania Street, Carmel, Indiana
46032.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The following information concerns those companies that may be deemed
to be controlled by or under common control with Conseco Variable
Insurance Company. Conseco, Inc. owns 100% of each of the companies
listed below, unless indicated otherwise:
CONSECO, INC. (Indiana) - (publicly traded)
Green Tree Financial Corporation
Washington National Corporation
Washington National Insurance Company
United Presidential Life Insurance Company
CIHC, Incorporated (Delaware)
Bankers National Life Insurance Company (Texas)
National Fidelity Life Insurance Company (Missouri)
Bankers Life Insurance Company of Illinois (Illinois)
Bankers Life & Casualty Company (Illinois)
Certified Life Insurance Company (California)
Jefferson National Life Insurance Company of Texas (Texas)
Conseco Variable Insurance Company (Texas)
Conseco Annuity Assurance Company (Ilinois)
Vulcan Life Insurance Company (Indiana) - (98%)
Conseco Senior Health Insurance Company (Pennsylvania)
United General Life Insurance Company (Texas)
Conseco Life Insurance Company of New York (New York)
Wabash Life Insurance Company (Kentucky)
Conseco Life Insurance Company (Indiana)
Pioneer Financial Services, Inc.
Pioneer Life Insurance Company
Health and Life Insurance Company
Manhattan National Life Insurance Company
Conseco Medical Insurance Company
Conseco Direct Life Insurance Company
Providential Life Insurance Company
Capitol American Financial Corporation (Ohio)
Conseco Health Insurance Company (Arizona)
Frontier National Life Insurance Company (Ohio)
Conseco Capital Management, Inc. (Delaware)
Conseco Equity Sales, Inc. (Texas)
Conseco Financial Services, Inc. (Delaware)
Conseco Marketing, LLC (Indiana)
Conseco Services, LLC (Indiana)
Lincoln American Life Insurance Company (Tennessee)
Marketing Distribution Systems, Consulting Group, Inc. (Delaware)
MDS of New Jersey, Inc. (New Jersey)
Bankmark School of Business, Inc. (Delaware)
Conseco Series Trust (Massachusetts)*
Conseco Fund Group (Massachusetts) (publicly held)**
* The shares of Conseco Series Trust currently are sold to Bankers National
Variable Account B, Conseco Variable Annuity Account C, Conseco Variable
Annuity Account E, Conseco Variable Annuity Account G and Conseco Variable
Annuity Account F, each being segregated asset accounts established
pursuant to Texas law by Bankers National Life Insurance Company and
Conseco Variable Insurance Company, respectively. They are also sold to
BMA Variable Life Account A, a segregated asset account established by
Business Men's Assurance Company of America.
** The shares of the Conseco Fund Group are sold to the public; Conseco
affiliates currently hold in excess of 95% of its shares.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 13, 1999, there were:
1,001 Contract Owners of qualified variable annuity contracts; and 393
Contract Owners of nonqualified variable annuity contracts.
ITEM 28. INDEMNIFICATION
Article VI of the By-Laws of Conseco Variable Insurance Company
generally provide that the Company shall indemnify its directors and
officers against liabilities incurred in acting as directors and
officers if they acted in good faith and in a manner they reasonably
believed to be in the best interest of the Company and, with respect
to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. See the By-Laws of the Company,
filed as Exhibit (6) to this Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted
to members of the Board of Directors, officers, and controlling
persons of the Company pursuant to the provisions described under
"Indemnification" or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the
Company of expenses incurred or paid by a member of the Board of
Directors, officer, or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by
such member of the Board of Directors, officer, or controlling person
in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Conseco Equity Sales, Inc. is principal underwriter for the
following other investment companies (other than the Registrant):
Conseco Variable Annuity Account C
Conseco Variable Annuity Account E
Conseco Variable Annuity Account F
Conseco Variable Annuity Account G
Conseco Fund Group
BMA Variable Life Account A
(b) Conseco Equity Sales, Inc. ("CES") is principal underwriter for
the Registrant and for the Contracts. The following persons are
the officers and directors of CES. The principal business address
for each officer and director of CES is 11815 N. Pennsylvania
Street, Carmel, Indiana 46032.
POSITIONS AND OFFICES
NAME WITH UNDERWRITER
L. Gregory Gloeckner President and Director
William P. Kovacs Vice President, Senior Counsel, Secretary
and Director
James S. Adams Senior Vice President, Treasurer and
Director
William T. Devanney, Jr. Senior Vice President, Corporate Taxes
Christine H. Darnell Vice President, Management Reporting
Donald B. Johnston Vice President, National Sales Director
Christine E. Monical Second Vice President and Assistant
General Counsel
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The name and address of the person who maintains physical possession
of each account, book or other document of the Registrant required by
Section 31(a) of the Investment Company Act of 1940 is as follows:
Lowell Short
Conseco Variable Insurance Company
11825 North Pennsylvania Street
Carmel, Indiana 46032
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) The Registrant hereby undertakes to file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in the
registration statement are never more than 16 months old for so
long as payments under the Contracts may be accepted.
(b) The Registrant hereby undertakes to include, as part of any
application to purchase a Contract, a space that an applicant can
check to request a Statement of Additional Information.
(c) The Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statements required to
be made available under this Form N-4 promptly upon written or
oral request.
(d) The Registrant is relying on a no-action letter issued to the
American Council of Life Insurance, published November 28, 1988,
relating to Section 403(b)(11) of the Internal Revenue Code and
Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act
of 1940. The Registrant hereby represents that it has complied
with the provisions paragraphs (1) through (4) of said no-action
letter.
(e) Conseco Variable Insurance Company hereby represents that the
fees and charges deducted under the Contract, in the aggregate,
are reasonable in relation to the services rendered, the expenses
to be incurred, and the risks assumed by Conseco Variable
Insurance Company.
C-9
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has duly caused
this Registration Statement to be signed on its behalf, in the city of Carmel,
of the State of Indiana, on the 22nd day of April, 1999.
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
Registrant
CONSECO VARIABLE INSURANCE COMPANY
Depositor
By: /S/ THOMAS J. KILIAN
-------------------------------------------
CONSECO VARIABLE INSURANCE COMPANY
Depositor
By: /S/ THOMAS J. KILIAN
-------------------------------------------
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities indicated below, on the
22nd day of April, 1999.
SIGNATURE TITLE
--------- -----
*
---------------- Director and Chairman of the Board
Stephen C. Hilbert (Chief Executive Officer)
*
---------------- Executive Vice President,
Rollin M. Dick Chief Financial Officer and Director
*
---------------- Senior Vice President and Treasurer
James S. Adams (Chief Accounting Officer)
*
---------------- Director and President
Thomas J. Kilian
*
---------------- Director
John J. Sabl
*
---------------- Director
Ngaire E. Cuneo
*By: /S/ KARL W. KINDIG
----------------------------
Karl W. Kindig
Attorney-in-Fact
EXHIBIT INDEX
Ex-9 Opinion and Consent of Counsel
Ex-10 Consent of Independent Public Accountants PricewaterhouseCoopers
LLP.
Ex-13 Schedule for Computation of Performance Quotations.
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 26, 1999
Board of Directors
Conseco Variable Insurance Company
11825 North Pennsylvania Street
Carmel, Indiana 46032-4572
RE: Opinion of Counsel - Rydex Advisor Variable Annuity Account
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-4 for the Individual Flexible Purchase Payment
Deferred Variable Annuity Contracts (the "Contracts") to be issued by Conseco
Variable Insurance Company and its separate account, Rydex Advisor Variable
Annuity Account.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Rydex Advisor Variable Annuity Account is a Unit Investment Trust as
that term is defined in Section 4(2) of the Investment Company Act of 1940 (the
"Act"), and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by an Owner pursuant to a
Contract issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable law, such an Owner will have a
legally-issued, fully paid, non-assessable contractual interest under such
Contract.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
/S/ LYNN KORMAN STONE
------------------------------
Lynn Korman Stone
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in Post-Effective Amendment No. 12 to the
Registration Statement of Rydex Advisor Variable Annuity Account (the "Account")
on Form N-4 (File Nos. 333-03093 and 811-07615) of:
(1) Our report dated February 24, 1999, on our audits of the financial
statements of the Account; and
(2) Our report dated March 30, 1999, on our audits of the financial statements
of Conseco Variable Insurance Company.
We also consent to the reference to our Firm under the caption "Independent
Accountants".
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Indianapolis, Indiana
April 23, 1999
<TABLE>
<CAPTION>
CONSECO ADVISOR VARIABLE ANNUITY PERFORMANCE AS OF 12/31/98
NOVA SUBACCOUNT YTD One Year Inception-Annualized Inception-Cumulative
12/31/98 12/31/98 05/07/97 05/07/97
365 365 603 603
--- --- --- ---
<S> <C> <C> <C> <C>
INITIAL INVESTMENT $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
BEG OF PERIOD UV $ 12.21 $ 12.21 $ 10.00 $ 10.00
# OF UNITS PURCHASED 818.95 818.95 1,000.00 1,000.00
END OF PERIOD UV $ 15.85 $ 15.85 $ 15.85 $ 15.85
END OF PERIOD VALUE $ 12,976.82 $ 12,976.82 $ 15,845.68 $ 15,845.68
=========== =========== =========== ===========
FREE 10% WITHDRAWAL $ 1,297.68 $ 1,297.68 $ 1,584.57 $ 1,584.57
---------- ---------- ---------- ----------
BALANCE APPLICABLE TO SURRENDER CHARGE $ 11,679.14 $ 11,679.14 $ 14,261.11 $ 14,261.11
SURRENDER CHARGE PERCENTAGE 7.00% 7.00% 7.00% 7.00%
SURRENDER CHARGES $ 817.54 $ 817.54 $ 998.28 $ 998.28
-------- -------- -------- --------
REDEEMABLE VALUE (after withdrawal charge) $ 12,159.28 $ 12,159.28 $ 14,847.40 $ 14,847.40
=========== =========== =========== ===========
PERCENT RETURN NO WITHDRAWAL CHARGE 29.77% 29.77% 32.13% 58.46%
PERCENT RETURN INCLUDING W/DRAWAL CHARGE 21.59% 21.59% 27.03% 48.47%
</TABLE>
<TABLE>
<CAPTION>
URSA SUBACCOUNT YTD One Year Inception-Annualized Inception-Cumulative
12/31/98 12/31/98 06/10/97 06/10/97
365 365 569 569
--- --- --- ---
<S> <C> <C> <C> <C>
INITIAL INVESTMENT $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
BEG OF PERIOD UV $ 8.07 $ 8.07 $ 9.33 $ 9.33
# OF UNITS PURCHASED 1,239.33 1,239.33 1,072.26 1,072.26
END OF PERIOD UV $ 6.29 $ 6.29 $ 6.29 $ 6.29
END OF PERIOD VALUE $ 7,791.04 $ 7,791.04 $ 6,740.75 $ 6,740.75
========== ========== ========== ==========
FREE 10% WITHDRAWAL $ 779.10 $ 779.10 $ 674.07 $ 674.07
-------- -------- -------- --------
BALANCE APPLICABLE TO SURRENDER CHARGE $ 7,011.94 $ 7,011.94 $ 6,066.67 $ 6,066.67
SURRENDER CHARGE PERCENTAGE 7.00% 7.00% 7.00% 7.00%
SURRENDER CHARGES $ 490.84 $ 490.84 $ 424.67 $ 424.67
-------- -------- -------- --------
REDEEMABLE VALUE (after withdrawal charge) $ 7,300.21 $ 7,300.21 $ 6,316.08 $ 6,316.08
========== ========== ========== ==========
PERCENT RETURN NO WITHDRAWAL CHARGE -22.09% -22.09% -22.35% -32.59%
PERCENT RETURN INCLUDING W/DRAWAL CHARGE -27.00% -27.00% -25.53% -36.84%
</TABLE>
<TABLE>
<CAPTION>
OTC SUBACCOUNT YTD One Year Inception-Annualized Inception-Cumulative
12/31/98 12/31/98 05/07/97 05/07/97
365 365 603 603
--- --- --- ---
<S> <C> <C> <C> <C>
INITIAL INVESTMENT $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
BEG OF PERIOD UV $ 10.65 $ 10.65 $ 10.00 $ 10.00
# OF UNITS PURCHASED 938.65 938.65 1,000.00 1,000.00
END OF PERIOD UV $ 19.52 $ 19.52 $ 19.52 $ 19.52
END OF PERIOD VALUE $ 18,324.74 $ 18,324.74 $ 19,522.36 $ 19,522.36
=========== =========== =========== ===========
FREE 10% WITHDRAWAL $ 1,832.47 $ 1,832.47 $ 1,952.24 $ 1,952.24
---------- ---------- ---------- ----------
BALANCE APPLICABLE TO SURRENDER CHARGE $ 16,492.27 $ 16,492.27 $ 17,570.13 $ 17,570.13
SURRENDER CHARGE PERCENTAGE 7.00% 7.00% 7.00% 7.00%
SURRENDER CHARGES $ 1,154.46 $ 1,154.46 $ 1,229.91 $ 1,229.91
---------- ---------- ---------- ----------
REDEEMABLE VALUE (after withdrawal charge) $ 17,170.28 $ 17,170.28 $ 18,292.46 $ 18,292.46
=========== =========== =========== ===========
PERCENT RETURN NO WITHDRAWAL CHARGE 83.25% 83.25% 49.92% 95.22%
PERCENT RETURN INCLUDING W/DRAWAL CHARGE 71.70% 71.70% 44.13% 82.92%
</TABLE>
*FOR INTERNAL USE ONLY
<TABLE>
<CAPTION>
CONSECO ADVISOR VARIABLE ANNUITY PERFORMANCE AS OF 12/31/98
PRECIOUS METALS SUBACCOUNT YTD One Year Inception-Annualized Inception-Cumulative
12/31/98 12/31/98 05/29/97 05/29/97
365 365 581 581
--- --- --- ---
<S> <C> <C> <C> <C>
INITIAL INVESTMENT $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
BEG OF PERIOD UV $ 7.02 $ 7.02 $ 10.00 $ 10.00
# OF UNITS PURCHASED 1,425.48 1,425.48 1,000.00 1,000.00
END OF PERIOD UV $ 5.79 $ 5.79 $ 5.79 $ 5.79
END OF PERIOD VALUE $ 8,257.13 $ 8,257.13 $ 5,792.54 $ 5,792.54
========== ========== ========== ==========
FREE 10% WITHDRAWAL $ 825.71 $ 825.71 $ 579.25 $ 579.25
-------- -------- -------- --------
BALANCE APPLICABLE TO SURRENDER CHARGE $ 7,431.41 $ 7,431.41 $ 5,213.29 $ 5,213.29
SURRENDER CHARGE PERCENTAGE 7.00% 7.00% 7.00% 7.00%
SURRENDER CHARGES $ 520.20 $ 520.20 $ 364.93 $ 364.93
-------- -------- -------- --------
REDEEMABLE VALUE (after withdrawal charge) $ 7,736.93 $ 7,736.93 $ 5,427.61 $ 5,427.61
========== ========== ========== ==========
PERCENT RETURN NO WITHDRAWAL CHARGE -17.43% -17.43% -29.04% -42.07%
PERCENT RETURN INCLUDING W/DRAWAL CHARGE -22.63% -22.63% -31.88% -45.72%
</TABLE>
<TABLE>
<CAPTION>
US GOVT BOND SUBACCOUNT YTD One Year Inception-Annualized Inception-Cumulative
12/31/98 12/31/98 08/18/97 08/18/97
365 365 500 500
--- --- --- ---
<S> <C> <C> <C> <C>
INITIAL INVESTMENT $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
BEG OF PERIOD UV $ 11.82 $ 11.82 $ 10.76 $ 10.76
# OF UNITS PURCHASED 846.32 846.32 929.62 929.62
END OF PERIOD UV $ 13.31 $ 13.31 $ 13.31 $ 13.31
END OF PERIOD VALUE $ 11,262.67 $ 11,262.67 $ 12,371.24 $ 12,371.24
=========== =========== =========== ===========
FREE 10% WITHDRAWAL $ 1,126.27 $ 1,126.27 $ 1,237.12 $ 1,237.12
---------- ---------- ---------- ----------
BALANCE APPLICABLE TO SURRENDER CHARGE $ 10,136.40 $ 10,136.40 $ 11,134.12 $ 11,134.12
SURRENDER CHARGE PERCENTAGE 7.00% 7.00% 7.00% 7.00%
SURRENDER CHARGES $ 709.55 $ 709.55 $ 779.39 $ 779.39
-------- -------- -------- --------
REDEEMABLE VALUE (after withdrawal charge) $ 10,553.12 $ 10,553.12 $ 11,591.85 $ 11,591.85
=========== =========== =========== ===========
PERCENT RETURN NO WITHDRAWAL CHARGE 12.63% 12.63% 16.81% 23.71%
PERCENT RETURN WITHDRAWAL CHARGE 5.53% 5.53% 11.39% 15.92%
</TABLE>
<TABLE>
<CAPTION>
JUNO SUBACCOUNT YTD One Year Inception-Annualized Inception-Cumulative
12/31/98 12/31/98 03/03/98 03/03/98
365 365 303 303
--- --- --- ---
<S> <C> <C> <C> <C>
INITIAL INVESTMENT $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
BEG OF PERIOD UV $ 9.17 N/A $ 9.20 $ 9.20
# OF UNITS PURCHASED 1,090.21 1,086.47 1,086.47
END OF PERIOD UV $ 8.38 $ 8.38 $ 8.38 $ 8.38
END OF PERIOD VALUE $ 9,139.97 $ $ 9,108.66 $ 9,108.66
========== ======= ==========
FREE 10% WITHDRAWAL $ 914.00 $ $ 910.87 $ 910.87
-------- ----- --------
BALANCE APPLICABLE TO SURRENDER CHARGE $ 8,225.98 $ $ 8,197.79 $ 8,197.79
SURRENDER CHARGE PERCENTAGE 7.00% 7.00% 7.00% 7.00%
SURRENDER CHARGES $ 575.82 $ $ 573.85 $ 573.85
-------- ------ --------
REDEEMABLE VALUE (after withdrawal charge) $ 8,564.15 $ $ 8,534.81 $ 8,534.81
========== ========== ==========
PERCENT RETURN NO WITHDRAWAL CHARGE -8.60% N/A -10.64% - 8.91%
PERCENT RETURN WITHDRAWAL CHARGE -14.36% N/A -17.37% -14.65%
</TABLE>
