File Nos. 333-40309
811-08483
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
(Check appropriate box or boxes.)
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT F
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(Exact Name of Registrant)
GREAT AMERICAN RESERVE INSURANCE COMPANY
----------------------------------------
(Name of Depositor)
11825 N. Pennsylvania Street
Carmel, Indiana 46032-4572
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (317) 817-3700
Name and Address of Agent for Service
Michael A. Colliflower
Great American Reserve Insurance Company
11825 N. Pennsylvania Street
Carmel, Indiana 46032-4572
(317) 817-3700
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this filing.
Title of Securities Being Registered:
Group and Individual Variable Deferred Annuity Contracts and
Certificates
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CROSS REFERENCE SHEET
(required by Rule 495)
<TABLE>
<CAPTION>
ITEM NO. Location
<S> <C> <C>
PART A
Item 1. Cover Page Cover Page
Item 2. Definitions Index of Special Terms
Item 3. Synopsis Profile
Item 4. Condensed Financial Information Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies Other Information -
Great American Reserve; The
Separate Account;
Investment Options; Business of
Great American Reserve
Item 6. Deductions and Expenses Expenses
Item 7. General Description of Variable
Annuity Contracts The Annuity Contract
Item 8. Annuity Period Annuity Payments
(The Income Phase)
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Purchase
Item 11. Redemptions Access to Your Money
Item 12. Taxes Taxes
Item 13. Legal Proceedings None
Item 14. Table of Contents of the Statement
of Additional Information Table of Contents of the
Statement of Additional
Information
</TABLE>
CROSS REFERENCE SHEET
(required by Rule 495)
<TABLE>
<CAPTION>
ITEM NO. LOCATION
<S> <C> <C>
PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History Company
Item 18. Services Not Applicable
Item 19. Purchase of Securities Being Offered Not Applicable
Item 20. Underwriters Distribution
Item 21. Calculation of Performance Data Performance Information
Item 22. Annuity Payments Annuity Provisions
Item 23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered in Part C to this Registration Statement.
Great American Reserve Insurance Company
February 9, 1998
PROFILE OF THE FIXED AND VARIABLE ANNUITY CONTRACT
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE FULL PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE READ THE
PROSPECTUS CAREFULLY.
1. THE ANNUITY CONTRACT: The fixed and variable annuity contract (Contract)
offered by Great American Reserve is a contract between you, the owner, and
Great American Reserve, an insurance company. The Contract provides a means for
investing on a tax-deferred basis in a fixed account of Great American Reserve,
the 1, 3 and 5 year guarantee periods of the market value adjustment option (mva
option) and 36 investment portfolios. The annuity is intended for retirement
savings or other long-term investment purposes. It provides a death benefit and
guaranteed income options.
This Contract offers 36 investment portfolios which are listed in Section 4.
These portfolios are designed to offer a better return than the fixed account.
However, this is NOT guaranteed. Market conditions determine whether you make or
lose money.
The fixed account offers an interest rate that is guaranteed by the insurance
company, Great American Reserve. This interest rate is set periodically. While
your money is in the fixed account, the interest your money will earn is
guaranteed to be no less than 3% annually by Great American Reserve. The
principal is backed by Great American Reserve.
The Contract also offers 3 guarantee periods of the mva option, each for a
different time period and with a different interest rate that is guaranteed by
Great American Reserve. Currently, 1, 3 and 5 year periods are available. An
adjustment to the value of your Contract may apply to withdrawals or transfers
from the guarantee period prior to the end of the period.
You can put money in up to 15 of the investment portfolios, the 3 guarantee
periods of the mva option and/or the fixed account. You can transfer once in
each 30-day period during the accumulation phase without charge or tax
implication. After that, a charge of $25 per transfer may be assessed. During
the income phase, you may make two transfers each year which are without charge
or tax implications.
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. When you are contributing to the
Contract, it is called the accumulation phase. During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as income when you
make a withdrawal. The income phase occurs when you begin receiving regular
payments from your Contract.
The amount of money you are able to accumulate in your account during the
accumulation phase will determine the amount of income payments during the
income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE): If you want to receive regular income
from your annuity, you can choose one of four options: (1) monthly payments for
a specific number of years in equal installments; (2) monthly payments for your
life, but with payments continuing to the beneficiary for 5, 10 or 20 years (as
you select) if you die before the end of the selected period; (3) monthly
payments of a specified amount until the principal and interest are exhausted;
and (4) monthly payments for your lifetime and your survivor's lifetime. Once
you begin receiving regular payments, you cannot change your payment plan.
During the income phase, you can choose to have payments come from the fixed
account, the investment portfolios or both. Annuity payments cannot come from
the mva option. If you choose to have any part of your payments come from the
investment portfolios, the dollar amount of your payments may go up or down.
3. PURCHASE: You can buy this Contract with $5,000 or more under most
circumstances. You can add $500 ($200 monthly if you use the automatic premium
check option) or more any time you like during the accumulation phase. We
require at least $2,000 to be invested in a guarantee period of the mva options.
If you buy the Contract as an Individual Retirement Annuity (IRA), the minimum
we will accept is $2,000 initially and $50 thereafter. Your registered
representative can help you fill out the proper forms.
4. INVESTMENT OPTIONS: You can put your money in any or all of these investment
portfolios which are described in the prospectuses for the funds:
CONSECO SERIES TRUST
MANAGED BY CONSECO CAPITAL MANAGEMENT
Asset Allocation Portfolio
Common Stock Portfolio
Corporate Bond Portfolio
Government Securities Portfolio
Money Market Portfolio
THE ALGER AMERICAN FUND
MANAGED BY FRED ALGER MANAGEMENT, INC.
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
VP International
VP Value
VP Income & Growth
BERGER INSTITUTIONAL PRODUCTS TRUST
MANAGED BY BERGER ASSOCIATES
Berger IPT - 100 Fund
Berger IPT - Growth and Income Fund
Berger IPT - Small Company Growth Fund
MANAGED BY BBOI WORLDWIDE LLC
Berger/BIAM IPT - International Fund
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
MANAGED BY THE DREYFUS CORPORATION
DREYFUS STOCK INDEX FUND
MANAGED BY THE DREYFUS CORPORATION
FEDERATED INSURANCE SERIES
MANAGED BY FEDERATED ADVISERS
Federated High Income Bond Fund II
Federated International Equity Fund II
Federated Utility Fund II
JANUS ASPEN SERIES
MANAGED BY JANUS CAPITAL CORPORATION
Aggressive Growth Portfolio
Growth Portfolio
Worldwide Growth Portfolio
LAZARD RETIREMENT SERIES, INC.
MANAGED BY LAZARD ASSET MANAGEMENT
Lazard Retirement Equity Portfolio
Lazard Retirement Small Cap Portfolio
LORD ABBETT SERIES FUND, INC.
MANAGED BY LORD, ABBETT & CO.
Growth and Income Portfolio
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
MANAGED BY NEUBERGER & BERMAN MANAGEMENT INCORPORATED
Limited Maturity Bond Portfolio
Partners Portfolio
MITCHELL HUTCHINS SERIES TRUST
MANAGED BY MITCHELL HUTCHINS ASSET MANAGEMENT INC.
Growth and Income Portfolio
STRONG OPPORTUNITY FUND II
MANAGED BY STRONG CAPITAL MANAGEMENT, INC.
STRONG VARIABLE INSURANCE FUNDS, INC.
MANAGED BY STRONG CAPITAL MANAGEMENT, INC.
Growth Fund II
VAN ECK WORLDWIDE INSURANCE TRUST
MANAGED BY VAN ECK ASSOCIATES CORPORATION
Worldwide Hard Assets Fund
Worldwide Bond Fund
Worldwide Emerging Markets Fund
Worldwide Real Estate Fund
Depending upon market conditions, you can make or lose money in any of these
portfolios.
5. EXPENSES: The Contract has insurance features and investment features, and
there are costs related to each.
Each year Great American Reserve deducts a $30 contract maintenance charge from
your Contract. Great American Reserve currently waives this charge if the value
of your Contract is at least $50,000. Great American Reserve also deducts for
its insurance charges which total 1.40% of the average daily value of your
Contract allocated to the investment portfolios.
If you take your money out of the Contract, Great American Reserve may assess a
contingent deferred sales charge which is equal to:
No. of Years From Receipt Contingent Deferred Sales
of Purchase Payment Charge
------------------- ------
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%
You may be assessed a premium tax charge which generally ranges from 0%- 3.5%
depending on the state.
As with other professionally managed investments, there are also investment
charges which range from 0% to 1.58% of the average daily value of the
investment portfolio depending upon the investment portfolio.
The following chart is designed to help you understand the expenses in the
Contract. The column "Total Annual Expenses" shows the total of the $30 contract
maintenance charge (which has been converted to a percentage and is represented
as .10% below), the 1.40% insurance charges and the investment expenses for each
investment portfolio.
The next two columns show you two examples of the expenses, in dollars, you
would pay under a Contract. The examples assume that you invested $1,000 in a
Contract which earns 5% annually and that you withdraw your money: (1) at the
end of year 1, and (2) at the end of year 10. For year 1, the Total Annual
Expenses are assessed as well as the contingent deferred sales charges. For year
10, the example shows the aggregate of all the annual expenses assessed for the
10 years, but there is no contingent deferred sales charge.
The premium tax is assumed to be 0% in both examples.
<TABLE>
<CAPTION>
EXAMPLES:
Total Annual Total Annual Total Total Annual
Insurance Portfolio Annual At End of:
Portfolio Charges Expenses Expenses 1 Year 10 Years
- --------------------------- --------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
CONSECO SERIES TRUST
Asset Allocation 1.50% .75% 2.25% $85 $255
Common Stock 1.50% .80% 2.30% $86 $260
Corporate Bond 1.50% .70% 2.20% $85 $250
Government Securities 1.50% .70% 2.20% $85 $250
Money Market 1.50% .45% 1.95% $82 $224
THE ALGER AMERICAN FUND
Alger American Growth 1.50% .79% 2.29% $86 $259
Alger American Leveraged AllCap 1.50% 1.09% 2.59% $89 $289
Alger American MidCap Growth 1.50% .84% 2.34% $86 $264
Alger American Small 1.50% .88% 2.38% $87 $268
Capitalization
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
VP International 1.50% 1.50% 3.00% $93 $328
VP Value 1.50% 1.00% 2.50% $88 $280
VP Income & Growth 1.50% .70% 2.20% $85 $250
BERGER INSTITUTIONAL PRODUCTS
TRUST
Berger IPT - 100 1.50% 1.00% 2.50% $88 $280
Berger IPT - Growth and Income 1.50% 1.00% 2.50% $88 $280
Berger IPT - Small Company 1.15% 1.15% 2.65% $89 $295
Growth
Berger/BIAM IPT-International 1.50% 1.20% 2.70% $90 $300
THE DREYFUS SOCIALLY 1.50% .99% 2.49% $88 $279
RESPONSIBLE GROWTH FUND, INC.
DREYFUS STOCK INDEX FUND 1.50% .30% 1.80% $81 $208
FEDERATED INSURANCE SERIES
Federated High Income Bond II 1.50% .80% 2.30% $86 $260
Federated International 1.50% 1.25% 2.75% $90 $305
Equity II
Federated Utility II 1.50% .85% 2.35% $86 $265
JANUS ASPEN SERIES
Aggressive Growth 1.50% .76% 2.26% $85 $256
Growth 1.50% .69% 2.19% $85 $249
Worldwide Growth 1.50% .80% 2.30% $86 $260
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity 1.50% 1.50% 3.00% $93 $328
Lazard Retirement Small Cap 1.50% 1.50% 3.00% $93 $328
LORD ABBETT SERIES FUND, INC.
Growth and Income 1.50% .59% 2.09% $84 $239
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Limited Maturity Bond 1.50% .78% 2.28% $86 $258
Partners 1.50% .95% 2.48% $87 $275
MITCHELL HUTCHINS SERIES TRUST
Growth and Income 1.50% 1.58% 3.08% $94 $336
STRONG OPPORTUNITY FUND II 1.50% 1.17% 2.67% $90 $297
STRONG VARIABLE INSURANCE
FUNDS, INC.
Growth II 1.50% 1.20% 2.70% $90 $300
VAN ECK WORLDWIDE INSURANCE
TRUST
Worldwide Hard Assets 1.50% 1.23% 2.73% $90 $303
Worldwide Bond 1.50% 1.16% 2.66% $89 $296
Worldwide Emerging Markets 1.50% 1.32% 2.82% $91 $311
Worldwide Real Estate 1.50% 0% 1.50% $78 $176
</TABLE>
The expenses reflect any expense reimbursement or fee waivers. For newly formed
portfolios, the expenses have been estimated. For more detailed information, see
the Fee Table in the prospectus for the contract.
6. TAXES: Your earnings are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings. Payments during the income
phase are considered partly a return of your original investment. That part of
each payment is not taxable as income.
7. ACCESS TO YOUR MONEY: You can take money out at any time during the
accumulation phase. Every year you can take a portion of your money out of your
Contract without a contingent deferred sales charge (CDSC). This amount is equal
to the greater of (i) 10% of the value of your Contract (on a non-cumulative
basis), or (ii) the IRS minimum distribution requirement if your Contract was
issued under an Individual Retirement Annuity, or (iii) the total of your
purchase payments that have been in the Contract more than 7 complete years.
Withdrawals in excess of these amounts will be charged a contingent deferred
sales charge which declines from 7% to 0% depending upon the number of complete
years we have had your payment. After Great American Reserve has had a payment
for 7 complete years, there is no CDSC charge for withdrawals. Each purchase
payment you add to your Contract has its own 7 year contingent deferred sales
charge period. Withdrawals from an mva option may be subject to a market value
adjustment. Of course, you may also have to pay income tax and a tax penalty on
any money you take out.
8. PERFORMANCE: The value of the Contract will vary up or down depending upon
the investment performance of the investment portfolios you choose. As of the
date of this prospectus, the sale of the Contracts had not begun. Therefore no
performance is presented here.
9. DEATH BENEFIT: If you die before entering the income phase, the beneficiary
will receive a death benefit. The death benefit will be the greater of: (1) the
value of your Contract; or (2) prior to age 90, the total purchase payments you
have made, less any adjusted partial withdrawals, increased by 5% each year.
Adjusted partial withdrawal means the amount of the partial withdrawal
multiplied by the amount of the death benefit just before the partial withdrawal
divided by the value of your Contract just before the partial withdrawal. A
partial withdrawal is the amount paid to you plus any taxes withheld less any
contingent deferred sales charges.
10. OTHER INFORMATION: Free Look. If you cancel the Contract within 10 days
after receiving it (or whatever period is required in your state) we will send
you whatever your Contract is worth on the day we receive your request (this
may be more or less than your original payment) without assessing a contingent
deferred sales charge. If you have purchased the contract as an Individual
Retirement Annuity (IRA) you will receive back your purchase payment.
No Probate. In many cases, when you die, the beneficiary will receive the death
benefit without going through probate. However, the avoidance of probate does
not mean that the beneficiary will not have tax liability as a result of
receiving the death benefit.
Who should purchase the Contract? This Contract is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes. The tax-deferred feature is most attractive to people in
high federal and state tax brackets. You should not buy this Contract if you are
looking for a short-term investment or if you cannot take the risk of getting
back less money than you invested.
Additional Features. The contract has additional features you might be
interested in. These include:
* You can arrange to have money automatically sent to you monthly,
quarterly, semi-annually or annually while your contract is still in the
accumulation phase. You'll have to pay taxes on money you receive and you may
have to also pay a tax penalty. We call this feature the Systematic Withdrawal
Program.
* You can arrange to have a certain amount of money automatically invested
in investment portfolios on a regular basis, theoretically giving you a lower
average cost per unit over time than a single one time purchase. We call this
feature Dollar Cost Averaging.
* Great American Reserve will automatically readjust the money between
investment portfolios periodically to keep the blend you select. We call this
feature Automatic Rebalancing.
* You can add to your contract directly from your bank account with as
little as $200 each month. We call this feature the automatic premium check
option.
* You can elect to have your fixed account interest earnings periodically
transferred to one or more investment portfolios. We call this the Sweep
Program.
11. INQUIRIES: If you need more information about buying a Contract, please
contact us at:
Great American Reserve Insurance Company
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
(317) 817-3700
THE FIXED AND VARIABLE ANNUITY
ISSUED BY
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT F
AND
GREAT AMERICAN RESERVE INSURANCE COMPANY
This prospectus describes the Fixed and Variable Annuity Contract offered by
Great American Reserve Insurance Company (Great American Reserve).
The annuity contract has 40 investment choices - a fixed account which offers an
interest rate which is guaranteed not to be less than 3% by Great American
Reserve, three guarantee periods of the market value adjustment account option
(MVA option) and 36 investment portfolios listed below. You can put your money
in the fixed account, any of the three guarantee periods of the MVA option
and/or the investment portfolios. Currently, you can invest in up to 15
investment portfolios at one time.
CONSECO SERIES TRUST
MANAGED BY CONSECO CAPITAL MANAGEMENT
Asset Allocation Portfolio
Common Stock Portfolio
Corporate Bond Portfolio
Government Securities Portfolio
Money Market Portfolio
THE ALGER AMERICAN FUND
MANAGED BY FRED ALGER MANAGEMENT, INC.
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
VP International
VP Value
VP Income & Growth
BERGER INSTITUTIONAL PRODUCTS TRUST
MANAGED BY BERGER ASSOCIATES
Berger IPT - 100 Fund
Berger IPT - Growth and Income Fund
Berger IPT - Small Company Growth Fund
MANAGED BY BBOI WORLDWIDE LLC
Berger/BIAM IPT - International Fund
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
MANAGED BY THE DREYFUS CORPORATION
DREYFUS STOCK INDEX FUND
MANAGED BY THE DREYFUS CORPORATION
FEDERATED INSURANCE SERIES
MANAGED BY FEDERATED ADVISERS
Federated High Income Bond Fund II
Federated International Equity Fund II
Federated Utility Fund II
JANUS ASPEN SERIES
MANAGED BY JANUS CAPITAL CORPORATION
Aggressive Growth Portfolio
Growth Portfolio
Worldwide Growth Portfolio
LAZARD RETIREMENT SERIES, INC.
MANAGED BY LAZARD ASSET MANAGEMENT
Lazard Retirement Equity Portfolio
Lazard Retirement Small Cap Portfolio
LORD ABBETT SERIES FUND, INC.
MANAGED BY LORD, ABBETT & CO.
Growth and Income Portfolio
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
MANAGED BY NEUBERGER & BERMAN MANAGEMENT INCORPORATED
Limited Maturity Bond Portfolio
Partners Portfolio
MITCHELL HUTCHINS SERIES TRUST
MANAGED BY MITCHELL HUTCHINS ASSET MANAGEMENT INC.
Growth and Income Portfolio
STRONG OPPORTUNITY FUND II
MANAGED BY STRONG CAPITAL MANAGEMENT, INC.
STRONG VARIABLE INSURANCE FUNDS, INC.
MANAGED BY STRONG CAPITAL MANAGEMENT, INC.
Growth Fund II
VAN ECK WORLDWIDE INSURANCE TRUST
MANAGED BY VAN ECK ASSOCIATES CORPORATION
Worldwide Hard Assets Fund
Worldwide Bond Fund
Worldwide Emerging Markets Fund
Worldwide Real Estate Fund
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Great American Reserve
Fixed and Variable Annuity Contract.
To learn more about the Great American Reserve Fixed and Variable Annuity
Contract, you can obtain a copy of the Statement of Additional Information (SAI)
dated February 9, 1998. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is legally a part of the prospectus. The SEC has a website
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding companies that file electronically. The Table of
Contents of the SAI is on Page __ of this prospectus. For a free copy of the
SAI, call us at (800) 824-2726 or write us at our administrative office: 11815
N. Pennsylvania Street, Carmel, Indiana 46032.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
February 9, 1998
TABLE OF CONTENTS
PAGE
INDEX OF SPECIAL TERMS.......................................................ii
FEE TABLE.....................................................................1
1. THE ANNUITY CONTRACT......................................................9
2. ANNUITY PAYMENTS (THE INCOME PHASE).......................................10
3. PURCHASE..................................................................11
Purchase Payments...................................................11
Allocation of Purchase Payments.....................................11
Accumulation Units..................................................12
4. INVESTMENT OPTIONS........................................................13
Transfers...........................................................17
Dollar Cost Averaging Program.......................................18
Rebalancing Program.................................................18
Sweep Program.......................................................19
Voting Rights.......................................................19
Substitution........................................................19
5. EXPENSES..................................................................19
Insurance Charges...................................................20
Contract Maintenance Charge.........................................20
Contingent Deferred Sales Charge....................................20
Reduction or Elimination of the Contingent Deferred Sales Charge....21
Transfer Fee........................................................21
Premium Taxes.......................................................22
Income Taxes........................................................22
Investment Portfolio Expenses.......................................22
6. TAXES ....................................................................22
Annuity Contracts in General........................................22
Qualified and Non-Qualified Contracts...............................23
Withdrawals - Non-Qualified Contracts...............................23
Withdrawals - Qualified Contracts...................................23
Diversification.....................................................23
7. ACCESS TO YOUR MONEY......................................................24
Systematic Withdrawal Program.......................................24
Suspension of Payments or Transfers.................................25
8. PERFORMANCE...............................................................25
9. DEATH BENEFIT.............................................................26
Upon Your Death.....................................................26
Death of Annuitant..................................................26
10. OTHER INFORMATION........................................................26
Great American Reserve..............................................26
The Separate Accounts...............................................27
Distributor.........................................................27
Ownership...........................................................27
Beneficiary.........................................................28
Assignment..........................................................28
Additional Information..............................................28
Selected Historical Financial Information...........................28
Business of Great American Reserve..................................29
Management's Discussion and Analysis................................37
Directors and Executive Officers....................................37
Executive Compensation..............................................38
Independent Accountants.............................................38
Legal Opinions......................................................38
Financial Statements................................................38
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.................39
APPENDIX A
MARKET VALUE ADJUSTMENT.............................................39
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. They are identified in the text in italic and the page that is
indicated here is where we believe you will find the best explanation for the
word or term.
PAGE
Accumulation Phase...................................................... 8
Accumulation Unit....................................................... 11
Annuitant............................................................... 9
Annuity Date............................................................ 8
Annuity Options......................................................... 8
Annuity Payments........................................................ 9
Annuity Unit............................................................ 11
Beneficiary............................................................. 26
Contract.................................................................26
Fixed Account........................................................... 8
Guarantee Period........................................................ 14
Income Phase............................................................ 8
Investment Portfolios................................................... 8
Joint Owner............................................................. 25
MVA Option.............................................................. 14
Non-Qualified........................................................... 21
Owner................................................................... 25
Purchase Payment........................................................ 10
Qualified............................................................... 21
Tax Deferral............................................................ 8
FEE TABLE
OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge (as a No. of Years
percentage of purchase payments) from Receipt
(See Note 2 below) of Payment Charge
---------- ------
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%
TRANSFER FEE (see Note 3 below) No charge for one transfer in each 30 day
period during the accumulation phase;
thereafter, a fee of $25 per transfer may
be charged. No charge for the two
transfers allowed during the income phase.
CONTRACT MAINTENANCE CHARGE $30 per contract per year
(see Note 4 below)
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Charge .15%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES 1.40%
INVESTMENT PORTFOLIO EXPENSES (as a percentage of the average daily net assets
of an investment portfolio)
<TABLE>
<CAPTION>
Other Expenses
(after expense
reimbursement Total
Management 12b-1 for certain Annual
Fees Fees Portfolios Portfolio
Expenses
---------- ---- ---------- --------
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST (1)
Asset Allocation Portfolio (2) 0.55% --- 0.20% 0.75%
Common Stock Portfolio (2) 0.60% --- 0.20% 0.80%
Corporate Bond Portfolio 0.50% --- 0.20% 0.70%
Government Securities 0.50% --- 0.20% 0.70%
Portfolio
Money Market Portfolio (2) 0.25% --- 0.20% 0.45%
THE ALGER AMERICAN FUND
Alger American Growth 0.75% --- 0.04% 0.79%
Portfolio
Alger American Leveraged 0.85% --- 0.24% 1.09%
AllCap Portfolio (3)
Alger American MidCap Growth 0.80% --- 0.04% 0.84%
Portfolio
Alger Small Capitalization 0.85% --- 0.03% 0.88%
Portfolio
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
VP International 1.50% --- 0.0% 1.50%
VP Value 1.00% --- 0.0% 1.00%
VP Income & Growth 0.70% --- 0.0% 0.70%
BERGER INSTITUTIONAL PRODUCTS
TRUST
Berger IPT - 100 Fund (4) 0.00% --- 1.00% 1.00%
Berger IPT - Growth and Income 0.00% --- 1.00% 1.00%
Fund (4)
Berger IPT - Small Company 0.00% --- 1.15% 1.15%
Growth Fund (4)
Berger/BIAM IPT - 0.00% --- 1.20% 1.20%
International Fund (5)
THE DREYFUS SOCIALLY 0.75% --- 0.24% 0.99%
RESPONSIBLE GROWTH FUND, INC.(6)
DREYFUS STOCK INDEX FUND (7) .245% --- .055% 0.30%
FEDERATED INSURANCE SERIES
Federated High Income Bond 0.01% --- 0.79% 0.80%
Fund II (8)
Federated International Equity 0.00% --- 1.25% 1.25%
Fund II (8)
Federated Utility Fund II (8) 0.24% --- 0.61% 0.85%
JANUS ASPEN SERIES
Aggressive Growth Portfolio 0.72% --- 0.04% 0.76%
(9)
Growth Portfolio (9) 0.65% --- 0.04% 0.69%
Worldwide Growth Portfolio (9) 0.66% --- 0.14% 0.80%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity 0.75% 0.25% 0.50% 1.50%
Portfolio (10)
Lazard Retirement Small Cap 0.75% 0.25% 0.50% 1.50%
Portfolio (10)
LORD ABBETT SERIES FUND, INC.
Growth and Income Portfolio 0.50% 0.07% 0.02% 0.59%
(11)
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST (12)
Limited Maturity Bond 0.65% --- 0.13% 0.78%
Portfolio
Partners Portfolio 0.84% --- 0.11% 0.95%
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio 0.70% --- 0.88% 1.58%
STRONG OPPORTUNITY FUND II 1.00% --- 0.17% 1.17%
STRONG VARIABLE INSURANCE
FUNDS, INC.
Growth Fund II (13) 1.00% --- 0.20% 1.20%
VAN ECK WORLDWIDE INSURANCE TRUST (14)
Worldwide Hard Assets Fund 1.00% --- 0.23% 1.23%
Worldwide Bond Fund 1.00% --- 0.16% 1.16%
Worldwide Emerging Markets 1.00% --- 0.32% 1.32%
Fund
Worldwide Real Estate Fund 0% --- 0% 0%
</TABLE>
(1) Conseco Capital Management, Inc., the investment adviser of Conseco
Series Trust, has voluntarily agreed to reimburse all expenses, including
management fees, in excess of the following percentage of the average annual net
assets of each listed Portfolio, as long as such reimbursement would not result
in a Portfolio's inability to qualify as a regulated investment company under
the Code: 0.75% for the Asset Allocation Portfolio; 0.80% for the Common Stock
Portfolio; 0.70% for the Corporate Bond Portfolio and Government Securities
Portfolio; and 0.45% for the Money Market Portfolio. The total percentages in
the above table is after reimbursement. In the absence of expense reimbursement,
the total fees and expenses in 1996 would have totaled: 0.95% for the Asset
Allocation Portfolio; 0.81% for the Common Stock Portfolio; 0.77% for the
Corporate Bond Portfolio; 0.91% for the Government Securities Portfolio; and
0.58% for the Money Market Portfolio.
(2) Conseco Capital Management, Inc., since January 1, 1993, has
voluntarily waived its management fees in excess of the annual rates set forth
above. Absent such fee waivers, the management fees would be: .65% for the Asset
Allocation Portfolio; .65% for the Common Stock Portfolio; and .50% for the
Money Market Portfolio.
(3) The Alger American Leveraged AllCap Portfolio "Other Expenses" includes
.03% of interest expense.
(4) Berger Associates, the Fund's investment adviser, has voluntarily
agreed to waive its advisory fee and has voluntarily reimbursed the Fund for
additional expenses to the extent that normal operating expenses in any fiscal
year, including the investment advisory fee but excluding brokerage commissions,
interest, taxes and extraordinary expenses, of each of the Berger IPT - 100 Fund
and the Berger IPT Growth and Income Fund exceed 1.00%, and the normal operating
expenses in any fiscal year of the Berger IPT - Small Company Growth Fund exceed
1.15% of the respective Fund's average daily net assets. Absent the voluntary
waiver and reimbursement, the Management Fee for the Berger IPT -100 Fund,
Berger IPT - Growth and Income Fund and the Berger IPT - Small Company Growth
Fund would have been .75%, .75% and .90%, respectively, and their Total Annual
Portfolio Expenses would have been 7.69%, 7.70% and 8.57%, respectively.
(5) Based on estimated expenses for the first year of operations of the
Berger/BIAM IPT - International Fund, after fee waivers and expense
reimbursements. BBOI Worldwide LLC, the Fund's investment adviser, has
voluntarily agreed to waive its advisory fee and expects to voluntarily
reimburse the Fund for additional expenses to the extent that normal operating
expenses in any fiscal year, including the investment advisory fee but excluding
brokerage commissions, interest, taxes and extraordinary expenses, of the
Berger/BIAM IPT - International Fund exceed 1.20% of the Fund's average daily
net assets. Absent the voluntary waiver and reimbursement, the Management Fee
for the Berger/BIAM IPT - International Fund would be 0.90%, and its Total
Expenses are estimated to be 8.96%.
(6) In 1996, The Dreyfus Corporation waived .03% of its management fee. The
Dreyfus Corporation does not intend to waive a portion of its management fee for
fiscal year 1997.
(7) The Dreyfus Corporation, the Fund's manager, has voluntarily agreed
until such time as it gives investors 180 days' notice to the contrary, to
reimburse all or a portion of its advisory fee to the extent that the total
expenses of the Fund (excluding brokerage commission, transactions fees and
extraordinary expenses) are in excess of .40 of 1% of the value of the Fund's
average daily net assets.
(8) In the absence of a voluntary waiver by Federal Advisers, the Funds'
investment adviser, the Management Fee and Total Annual Portfolio Expenses would
have been 0.60% and 1.39%, respectively, for High Income Bond and 0.75% and
1.36%, respectively, for Utility. Absent a voluntary waiver of the management
fee and the voluntary reimbursement of certain other operating expenses by
Federal Advisers, the Management Fee and Total Annual Portfolio Expenses for
International Equity would have been 1.00% and 4.30%, respectively.
(9) The expense figures shown are net of certain fee waivers or reductions
from Janus Capital Corporation, the investment adviser of the Janus Aspen
Series. Without such waivers or reductions, the total fees and expenses in 1996
would have totaled: 0.83% for Aggressive Growth; 0.83% for Growth; and 0.91% for
Worldwide Growth.
(10) Lazard Asset Management, the Fund's investment adviser, has
voluntarily agreed to reimburse all expenses, including management fees, in
excess of 1.50% of the average annual net assets of the Portfolio.
(11) The Growth and Income Portfolio of Lord Abbett Series Fund, Inc. has a
12b-1 plan which provides for payments to Lord, Abbett & Co. for remittance to a
life insurance company for certain distribution expenses (see the Fund
Prospectus). The 12b-1 plan provides that such remittances, in the aggregate,
will not exceed .15%, on an annual basis, of the daily net asset value of shares
of the Growth and Income Portfolio. As of May 1, 1997, no payments had been made
under the 12b-1 plan. For the year ending December 31, 1997, the 12b-1 fees are
estimated to be .07%. The examples below for this Portfolio reflect the
estimated 12b-1 fees.
(12) Neuberger & Berman Advisers Management Trust is divided into
portfolios (Portfolios), each of which invests all of its net investable assets
in a corresponding series of Advisers Managers Trust. The figures reported under
"Management Fees" include the total of the administration fees paid by the
Portfolio and the management fees paid by its corresponding series. Similarly,
"Other Expenses" includes all other expenses of the Portfolio and its
corresponding series.
(13) Strong Capital Management, Inc., the investment advisor of the Strong
Growth Fund II, has voluntarily agreed to cap the Fund's total operating
expenses at 1.20%. The Advisor has no current intention to, but may in the
future, discontinue or modify any waiver of fees or absorption of expenses at
its discretion with appropriate notification to its shareholders.
(14) All figures are annualized. Expenses of Worldwide Real Estate Fund,
which commenced operation in June 1997, are being assumed by the Fund's
investment adviser. Without such assumption, Worldwide Real Estate Fund's
Management Fee would be 1.00%, Other Expenses would be 0.32% and Total Expenses
would be 1.32%. Other Expenses of Worldwide Real Estate Fund are an estimate
which assumes $80 million in average daily net assets, and may be greater or
less than those shown. Prior to April 30, 1997, Worldwide Hard Assets Fund was
named Gold and Natural Resources Fund.
EXAMPLES:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) upon surrender at the end of each time period;
(b) if the contract is not surrendered;
(c) if the contract is annuitized.
<TABLE>
<CAPTION>
Time Periods
1 year 3 years
------------ -------
<S> <C> <C>
CONSECO SERIES TRUST
Asset Allocation (a) $85 (a) $123
(b) $23 (b) $ 69
(c) $85 (c) $123
Common Stock (a) $86 (a) $124
(b) $23 (b) $ 71
(c) $86 (c) $124
Corporate Bond (a) $85 (a) $121
(b) $22 (b) $ 68
(c) $85 (c) $121
Government Securities (a) $85 (a) $121
(b) $22 (b) $ 68
(c) $85 (c) $121
Money Market (a) $82 (a) $114
(b) $20 (b) $ 60
(c) $82 (c) $114
THE ALGER AMERICAN FUND
Alger American Growth (a) $86 (a) $124
(b) $23 (b) $ 71
(c) $86 (c) $124
Alger American Leveraged AllCap (a) $89 (a) $133
(b) $26 (b) $ 80
(c) $89 (c) $133
Alger American MidCap Growth (a) $86 (a) $126
(b) $23 (b) $ 72
(c) $86 (c) $126
Alger American Small Capitalization (a) $87 (a) $127
(b) $24 (b) $ 73
(c) $87 (c) $127
AMERICAN CENTURY VARIABLE PORTFOLIO, INC.
VP International (a) $93 (a) $145
(b) $30 (b) $ 92
(c) $93 (c) $145
VP Value (a) $88 (a) $130
(b) $25 (b) $ 77
(c) $88 (c) $130
VP Income & Growth (a) $85 (a) $121
(b) $22 (b) $ 68
(c) $85 (c) $121
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT - 100 (a) $88 (a) $130
(b) $25 (b) $ 77
(c) $88 (c) $130
Berger IPT - Growth and Income (a) $88 (a) $130
(b) $25 (b) $ 77
(c) $88 (c) $130
Berger IPT - Small Company Growth (a) $89 (a) $135
(b) $27 (b) $ 81
(c) $89 (c) $135
Berger/BIAM IPT - International (a) $90 (a) $136
(b) $27 (b) $ 83
(c) $90 (c) $136
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
(a) $88 (a) $130
(b) $25 (b) $ 77
(c) $88 (c) $130
DREYFUS STOCK INDEX FUND
(a) $81 (a) $109
(b) $18 (b) $ 56
(c) $81 (c) $109
FEDERATED INSURANCE SERIES
Federated High Income Bond II (a) $86 (a) $124
(b) $23 (b) $ 71
(c) $86 (c) $124
Federated International Equity II (a) $90 (a) $138
(b) $28 (b) $ 84
(c) $90 (c) $138
Federated Utility II (a) $86 (a) $126
(b) $24 (b) $ 72
(c) $86 (c) $126
JANUS ASPEN SERIES
Aggressive Growth (a) $85 (a) $123
(b) $23 (b) $ 70
(c) $85 (c) $123
Growth (a) $85 (a) $121
(b) $22 (b) $ 68
(c) $85 (c) $121
Worldwide Growth (a) $86 (a) $124
(b) $23 (b) $ 71
(c) $86 (c) $124
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity (a) $93 (a) $145
(b) $30 (b) $ 92
(c) $93 (c) $145
Lazard Retirement Small Cap (a) $93 (a) $145
(b) $30 (b) $ 92
(c) $93 (c) $145
LORD ABBETT SERIES FUND, INC.
Growth and Income (a) $84 (a) $118
(b) $21 (b) $ 65
(c) $84 (c) $118
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond (a) $86 (a) $124
(b) $23 (b) $ 70
(c) $86 (c) $124
Partners (a) $87 (a) $129
(b) $25 (b) $ 75
(c) $87 (c) $129
MITCHELL HUTCHINS SERIES TRUST
Growth and Income (a) $94 (a) $148
(b) $31 (b) $ 94
(c) $94 (c) $148
STRONG OPPORTUNITY FUND II (a) $90 (a) $136
(b) $27 (b) $ 82
(c) $90 (c) $136
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth II (a) $90 (a) $136
(b) $27 (b) $ 83
(c) $90 (c) $136
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets (a) $90 (a) $137
(b) $27 (b) $ 84
(c) $90 (c) $137
Worldwide Bond (a) $89 (a) $135
(b) $27 (b) $ 82
(c) $89 (c) $135
Worldwide Emerging Markets (a) $91 (a) $140
(b) $28 (b) $ 86
(c) $91 (c) $140
Worldwide Real Estate (a) $78 (a) $100
(b) $15 (b) $ 47
(c) $78 (c) $100
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to show you the various expenses you
will incur directly or indirectly with the contract. The Fee Table reflects
expenses of the Separate Account as well as the investment portfolios.
2. Every year you can take money out of your contract, without the
contingent deferred sales charge, of an amount equal to the greater of: (i) 10%
of the value of your contract (on a non-cumulative basis), or (ii) the IRS
minimum distribution requirement for your contract if issued as an Individual
Retirement Annuity, or (iii) the total of your purchase payments that have been
in the contract more than 7 complete years.
3. Great American Reserve will not charge you the transfer fee even if
there are more than one transfer in a 30-day period during the accumulation
phase if the transfer is for the Dollar Cost Averaging, Sweep or Rebalancing
Programs. We will also not charge you a transfer fee on transfers made at the
end of the free look period. All reallocations made on the same day count as one
transfer.
4. Great American Reserve will not charge the contract maintenance charge
if the value of your contract is $50,000 or more, although, if you make a
complete withdrawal, Great American Reserve will charge the contract maintenance
charge.
5. Premium taxes are not reflected. Premium taxes may apply depending on
the state where you live.
6. The assumed average contract size is $30,000.
7. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
As of the date of this prospectus, the sale of the contracts had not begun and
the investment portfolios did not have any assets. Therefore, no condensed
financial information is presented.
1. THE ANNUITY CONTRACT
This Prospectus describes the Fixed and Variable Annuity Contract offered by
Great American Reserve.
An annuity is a contract between you, the owner, and an insurance company (in
this case Great American Reserve), where the insurance company promises to pay
you an income, in the form of annuity payments, beginning on a designated date
that is at least 90 days after we issue your contract. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. Once you
begin receiving annuity payments, your contract switches to the income phase.
The contract benefits from tax deferral.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you take money out of your contract.
The contract is a variable annuity. You can choose among 36 investment
portfolios and, depending upon market conditions, you can make or lose money in
any of these portfolios. If you select the variable annuity portion of the
contract, the amount of money you are able to accumulate in your contract during
the accumulation phase depends upon the investment performance of the investment
portfolio(s) you select. The amount of the annuity payments you receive during
the income phase from the variable annuity portion of the contract also depends
upon the investment performance of the investment portfolios you select for the
income phase.
The contract contains a fixed account. The fixed account offers an interest rate
that is guaranteed to be no less than 3% by Great American Reserve. If you
select the fixed account, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the total interest credited
to your contract. The amount of the annuity payments you receive during the
income phase from the fixed account portion of the contract will remain level
for the entire income phase.
The contract also contains 3 guarantee periods within the MVA option. Your money
will earn interest at the rate set by Great American Reserve. The interest rate
is guaranteed by Great American Reserve for the time you agree to leave your
money in the guarantee period. We currently offer guarantee periods for 1, 3 and
5 years. To the extent you allocate money to a guarantee period, the amount of
money you are able to accumulate in your contract during the accumulation phase
depends upon the total interest credited to your contract. An adjustment to your
contract will apply to withdrawals, transfers or annuitizations from the 1, 3
and 5 year guarantee periods prior to the end of the selected period.
As owner of the contract, you exercise all rights under the contract. You can
change the owner at any time by notifying Great American Reserve in writing. You
and another person can be named joint owners. We have described more information
on this in Section 10 - Other Information.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date can be any date selected by you. You can also choose
among income plans. We call those annuity options.
We ask you to choose your annuity date when you purchase the contract. With 30
days notice to us, you can change the annuity date or annuity option at any time
before the annuity date. Your annuity date cannot be any earlier than 90 days
after we issue the contract. Annuity payments must begin by the earlier of the
annuitant's 90th birthday or the maximum date allowed by law. The annuitant is
the person whose life we look to when we determine annuity payments.
You can select an annuity option any time 30 days before the annuity date. If
you do not choose an annuity option, we will assume that you selected Option 2
which provides a life annuity with 10 years of guaranteed payments.
On the annuity date the value of your contract, less any premium tax, plus any
market value adjustment (which may be positive or negative), less any contingent
deferred sales charge, and less any contract maintenance charge will be applied
under the annuity option you selected. If you select an annuity date that is at
least 4 years after your contract was issued and you choose an annuity option
that has a life contingency or is for a minimum of 5 years, the value of your
contract, less any premium tax and less any contract maintenance charge will be
applied under the annuity option you selected. A CDSC will not be deducted under
these circumstances.
During the income phase, you can choose to have payments come from the
investment portfolios, the fixed account or both. Payments cannot come from the
MVA option during the income phase. If you don't tell us otherwise, your annuity
payments will be based on the investment allocations in the investment
portfolios and fixed account that were in place on the annuity date.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things: 1) the value of your contract in the investment portfolio(s) on the
annuity date, 2) the 3% or 5% (as you selected) assumed investment rate used in
the annuity table for the contract, and 3) the performance of the investment
portfolios you selected. You can choose either a 5% or a 3% assumed investment
rate. If the actual performance exceeds the 3% or 5% (as you selected) assumed
rate, your annuity payments will increase. Similarly, if the actual rate is less
than 3%, your annuity payments will decrease.
Unless you notify us otherwise, we will pay the annuity payments to you. You can
change the payee at any time prior to the annuity date. Income from any
distribution will be reported to you for tax purposes.
You can choose one of the following annuity options or any other annuity option
which is acceptable to Great American Reserve. After annuity payments begin, you
cannot change the annuity option.
OPTION 1. INCOME FOR A SPECIFIED PERIOD. We will pay an income for a
specific number of years in equal installments
OPTION 2. LIFE ANNUITY WITH 5, 10 OR 20 YEARS GUARANTEED. We will make
monthly annuity payments so long as the annuitant is alive. However, if, when
the annuitant dies, we have made annuity payments for less than the selected
guaranteed period, we will then continue to make annuity payments for the rest
of the guaranteed period to the beneficiary.
OPTION 3. INCOME OF SPECIFIED AMOUNT. We will pay income of a specified
amount until the principal and interest are exhausted.
OPTION 4. JOINT AND SURVIVOR ANNUITY. We will make monthly annuity payments
so long as the annuitant and a joint annuitant are both alive. When either of
these people die, the amount of the annuity payments we will make to the
survivor can be equal to 100%, 66 2/3% or 50% of the amount that we would have
paid if both were alive.
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment. In that case, Great American Reserve may make a single lump
sum payment to you. Likewise, if your annuity payments would be less than $50 a
month, Great American Reserve has the right to change the frequency of payments
so that your annuity payments are at least $50.
3. PURCHASE
PURCHASE PAYMENTS
A purchase payment is the money you give us to buy the contract. The minimum we
will accept is $5,000 when the contract is bought as a non-qualified contract.
If you are buying the contract as part of an IRA (Individual Retirement Annuity)
the minimum we will accept is $2,000. For each guarantee period of the MVA
option, a minimum of $2,000 is required. The maximum we accept is $500,000
without our prior approval. You can make additional purchase payments of $500 or
more to a non-qualified contract and $50 to an IRA contract. However, if you
select the automatic premium check option, you can make additional payments of
$200 each month for non-qualified contracts and $50 each month for IRA
contracts.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment to the
fixed account, the guarantee periods of the MVA option and/or one or more of the
investment portfolios you have selected. CURRENTLY, YOU CAN ALLOCATE MONEY TO UP
TO 15 INVESTMENT PORTFOLIOS AT ANY ONE TIME. If you make additional purchase
payments, we will allocate them in the same way as your first purchase payment
unless you tell us otherwise. Currently, the minimum amount which can be
allocated to any of the guarantee periods of MVA option is $2,000. We reserve
the right to change this amount in the future.
If you change your mind about owning this contract, you can cancel it within 10
days after receiving it. When you cancel the contract within this time period,
Great American Reserve will not assess a contingent deferred sales charge. On
the day we receive your request we will return the value of your contract. If
you have purchased the contract as an IRA, we are required to give you back your
purchase payment if you decide to cancel your contract within 10 days after
receiving it.
Once we receive your purchase payment and the necessary information, we will
issue your contract and allocate your first purchase payment within 2 business
days. If you do not provide us all of the information needed, we will contact
you. If for some reason we are unable to complete this process within 5 business
days, we will either send back your money or get your permission to keep it
until we get all of the necessary information. If you add more money to your
contract by making additional purchase payments, we will credit these amounts to
your contract within one business day. Our business day closes when the New York
Stock Exchange closes, usually 4:00 P.M. Eastern time.
ACCUMULATION UNITS
The value of the variable annuity portion of your contract will increase or
decrease depending upon the investment performance of the investment
portfolio(s) you choose. In order to keep track of the value of your contract,
we use a unit of measure we call an accumulation unit. (An accumulation unit
works like a share of a mutual fund.) During the income phase of the contract we
call the unit an annuity unit.
Every day we determine the value of an accumulation unit for each of the
investment portfolios by multiplying the accumulation unit value for the
previous period by a factor for the current period. The factor is determined by:
1. dividing the value of an investment portfolio share at the end of the current
period (and any charges for taxes) by the value of an investment portfolio share
for the previous period; and
2. subtracting the daily amount of the insurance charges.
The value of an accumulation unit may go up or down from day to day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment portfolio by the value
of the accumulation unit for that investment portfolio.
We calculate the value of an accumulation unit for each investment portfolio
after the New York Stock Exchange closes each day and then credit your contract.
EXAMPLE:
On Wednesday we receive an additional purchase payment of $4,000 from you.
You have told us you want this to go to the Common Stock Portfolio. When the New
York Stock Exchange closes on that Wednesday, we determine that the value of an
accumulation unit for the Common Stock Portfolio is $12.25. We then divide
$4,000 by $12.25 and credit your contract on Wednesday night with 326.53
accumulation units for the Common Stock Portfolio.
4. INVESTMENT OPTIONS
INVESTMENT PORTFOLIOS
The contract offers 36 investment portfolios which are briefly described below.
You can invest in up to 15 investment portfolios at any one time. Additional
investment portfolios may be available in the future.
Shares of the funds are offered in connection with certain variable annuity
contracts and variable life insurance policies of various life insurance
companies which may or may not be affiliated with Great American Reserve.
Certain investment portfolios are also sold directly to qualified plans. The
funds do not believe that offering their shares in this manner will be
disadvantageous to you.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS.
CONSECO SERIES TRUST
Conseco Series Trust is a mutual fund with multiple portfolios. Conseco Series
Trust is managed by Conseco Capital Management. The following portfolios are
available under the contract:
Asset Allocation Portfolio
Common Stock Portfolio
Corporate Bond Portfolio
Government Securities Portfolio
Money Market Portfolio
THE ALGER AMERICAN FUND
The Alger American Fund is a mutual find with multiple portfolios. Fred Alger
Management, Inc. serves as the investment adviser. The following portfolios are
available under the contract:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century Variable Portfolios, Inc. is a series of funds managed by
American Century Investment Management, Inc. The following portfolios are
available under the contract:
VP International
VP Value
VP Income & Growth
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger Institutional Products Trust is a mutual fund with multiple portfolios.
Berger Associates is the investment adviser to all portfolios except the
Berger/BIAM IPT - International Fund. BBOI Worldwide LLC is the adviser to the
Berger/BIAM IPT - International Fund. The following portfolios are available
under the contract:
Berger IPT - 100 Fund
Berger IPT - Growth and Income Fund
Berger IPT - Small Company Growth Fund
Berger/BIAM IPT - International Fund
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is managed by The Dreyfus
Corporation. Dreyfus has hired NCM Capital Management Group, Inc. to serve as
sub-investment adviser and provided day-to-day management of the Fund's
investments.
DREYFUS STOCK INDEX FUND
The Dreyfus Corporation serves as the Fund's manager. Dreyfus has hired its
affiliate, Mellon Equity Associates, to serve as the Fund's index fund manager
and provide day-to-day management of the Fund's investments.
FEDERATED INSURANCE SERIES
Federated Insurance Series is a mutual fund with multiple portfolios. Federated
Advisers is the investment adviser. The following portfolios are available under
the contract:
Federated High Income Bond Fund II
Federated International Equity Fund II
Federated Utility Fund II
JANUS ASPEN SERIES
The Janus Aspen Series is a mutual fund with multiple portfolios which are
advised by Janus Capital Corporation. The following portfolios are available
under the contract:
Aggressive Growth Portfolio
Growth Portfolio
Worldwide Growth Portfolio
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Series, Inc. is a mutual fund with multiple portfolios. Lazard
Asset Management, a division of Lazard Freres & Co. LLC, is the investment
manager for each portfolio. The following portfolios are available under the
contract:
Lazard Retirement Equity Portfolio
Lazard Retirement Small Cap Portfolio
LORD ABBETT SERIES FUND, INC.
Lord Abbett Series Fund, Inc. is a mutual fund with multiple portfolios. Each
portfolio is managed by Lord, Abbett & Co. The following portfolio is available
under the contract:
Growth and Income Portfolio
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Each portfolio of Neuberger & Berman Advisers Management Trust invests in a
corresponding series of Advisers Managers Trust. All series of Advisers Managers
Trust are managed by Neuberger & Berman Management Incorporated. The following
are available under the contract:
Limited Maturity Bond Portfolio
Partners Portfolio
MITCHELL HUTCHINS SERIES TRUST
Mitchell Hutchins Series Trust is a mutual fund with multiple portfolios.
Mitchell Hutchins Asset Management Inc. provides advisory and administrative
services to the Fund. The following portfolio is available under the contract:
Growth and Income Portfolio
STRONG OPPORTUNITY FUND II
Strong Opportunity Fund II is a mutual fund managed by Strong Capital
Management, Inc.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Variable Insurance Funds, Inc. is a mutual fund with multiple series.
Strong Capital Management, Inc. serves as the investment adviser. The following
series is available under the contract:
Growth Fund II
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is a mutual fund with multiple portfolios
which are managed by Van Eck Associates Corporation. The following portfolios
are available under the contract:
Worldwide Hard Assets Fund
Worldwide Bond Fund
Worldwide Emerging Markets Fund
Worldwide Real Estate Fund
THE FIXED ACCOUNT
You can invest in the one year fixed account of Great American Reserve. The
fixed account offers an interest rate that is guaranteed to be no less than 3%
annually by Great American Reserve. If you select the fixed account, your money
will be placed with the other general assets of Great American Reserve.
THE MVA OPTION
The contract also offers three guarantee periods of the market value adjustment
option (MVA option). A guarantee period is the period of time for which interest
is credited in the market value adjustment option. Each allocation or transfer
to the MVA option creates one or more new guarantee periods. We currently offer
guarantee periods of 1, 3 and 5 years. You can allocate your purchase payment or
transfer money to any of the currently available periods.
The guarantee periods of the MVA option offer interest rates that are guaranteed
by Great American Reserve. Interest rates may differ from time to time because
of changes in market conditions. The interest rates set for a guarantee period
for new purchase payments may be different from the interest rates offered for
money already in the guarantee periods. We set interest rates at our discretion.
Once we set an interest rate for a guarantee period, it will not change during
that period.
If you do not specify a guarantee period at the time of renewal, we will select
the same guarantee period that just finished so long as it does not extend
beyond the latest annuity date. If it does, we will choose the one year period.
If there is no guarantee period for the same period available, the one year
period will be selected. If it is not available, the next longest period will be
selected.
If you take money out (whether by withdrawal, transfer or annuitization) of the
guarantee period before the end of the period in excess of the free amount (see
below), an adjustment will be made to the amount withdrawn. This adjustment is
referred to as a market value adjustment. The market value adjustment can
increase or decrease the amount you take out of your contract. However, after
the first year in a period, you can make one withdrawal each year of up to a
total of 10% of the value of your MVA option in that period and no market value
adjustment will be made to that withdrawal (free amount).
We will not apply a market value adjustment for any withdrawals in the following
situations: (1) to pay a death benefit; (2) to pay fees or charges under the
contract; (3) amounts which are withdrawn or transferred during the 30-day
period before the end of the guarantee period; or (4) when your contract
switches to the annuity phase if your annuity payments begin after the 4th year
of when your contract was issued and you have chosen an annuity option that
provides for a life contingency or is for a period of at least 5 years.
The market value adjustment is determined by comparing the U.S. Treasury rate
which was in effect at the beginning of the guarantee period for the length of
the guarantee period selected versus the current U.S. Treasury Rate as of the
date of the withdrawal or transfer for the number of years remaining (rounded
up) plus .005. The U.S. Treasury Rate is the Bloomberg published Treasury rate
found in the Wall Street Journal or on the Bloomberg System, representing the
last trade made in the Treasury market for the applicable maturities related to
the product. In general, if interest rates have dropped between the time you
allocated your money to the guarantee period and the time you took it out, there
will be a positive adjustment to the value of your contract. But, if interest
rates have increased between the time you allocated your money to the guarantee
period and the time you took it out, there will be a negative adjustment.
The Appendix contains more information regarding how Great American Reserve
calculates the market value adjustment, including examples.
TRANSFERS
You can transfer money among the fixed account, the MVA option and the 36
investment portfolios. However, you cannot be invested in more than 15
investment portfolios, the 3 guarantee periods of the MVA option and/or the
fixed account at any time.
TRANSFERS DURING THE ACCUMULATION PHASE. You can make one transfer in a 30-day
period during the accumulation phase without charge. You can make a transfer to
or from the fixed account, the MVA option and to or from any investment
portfolio. Transfers from a guarantee period of the MVA option before the end of
the period may be subject to an adjustment. If you make more than one transfer
in a 30-day period, a transfer fee of $25 may be deducted. The following apply
to any transfer during the accumulation phase:
1. The minimum amount which you can transfer is $500 or your entire value
in the investment portfolio, or $2,000 into any guarantee period of the MVA
option or fixed account. This requirement is waived if the transfer is pursuant
to the dollar cost averaging or rebalancing programs.
2. You must leave at least $500 in each investment portfolio, guarantee
period of the MVA option or the fixed account after you make a transfer unless
the entire amount is being transferred. Transfers out of the fixed account are
limited to 20% of the value of your contract every 6 months.
3. Your request for a transfer must clearly state which investment
portfolio(s), the guarantee period of the MVA option or the fixed account are
involved in the transfer.
4. Your request for transfer must clearly state how much the transfer is
for.
TRANSFERS DURING THE INCOME PHASE. You can only make two transfers every year
during the income phase. The two transfers are free. We measure a year from the
anniversary of the day we issued your contract. The following apply to any
transfer during the income phase.
1. You can make transfers at least 30 days before the due date of the first
annuity payment for which the transfer will apply.
2. The minimum amount which you can transfer is $500 or your entire value in the
investment portfolio.
3. You must leave at least $500 in each investment portfolio (or $0 if you are
transferring the entire amount) after a transfer.
4. No transfers can be made between the fixed account and the investment
portfolios. You may only make transfers between the investment portfolios.
This product is not designed for professional market timing organizations. Great
American Reserve has reserved the right to modify the transfer privileges
described above.
TELEPHONE TRANSFERS. You can elect to make transfers by telephone. You can also
authorize someone else to make transfers for you. If you own the contract with a
joint owner, unless Great American Reserve is instructed otherwise, Great
American Reserve will accept instructions from either you or the other owner.
Great American Reserve will use reasonable procedures to confirm that
instructions given us by telephone are genuine. All telephone calls will be
recorded and the caller will be asked to produce personalized data about the
owner before we will make the telephone transfer. We will send you a written
confirmation of the transfer. If Great American Reserve fails to use such
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount either monthly, quarterly, semi-annually or annually from the Money
Market Portfolio or the fixed account to any of the other investment
portfolio(s). You cannot transfer to the MVA option under this program. By
allocating amounts on a regular schedule as opposed to allocating the total
amount at one particular time, you may be less susceptible to the impact of
market fluctuations.
You must have at least $2,000 in the Money Market Portfolio or the fixed account
in order to participate in the Dollar Cost Averaging Program.
All Dollar Cost Averaging transfers will be made on the first business day of
the month. Dollar Cost Averaging must be for 36-60 months. Dollar Cost Averaging
will end when the value in the Money Market Portfolio or the fixed account is
zero. We will notify you when that happens.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
REBALANCING PROGRAM
Once your money has been allocated among the investment portfolios, the
performance of each portfolio may cause your allocation to shift. If the value
of your contract is at least $5,000, you can direct us to automatically
rebalance your contract to return to your original percentage allocations by
selecting our Rebalancing Program. You can tell us whether to rebalance
quarterly, semi-annually or annually. We will measure these periods from the
date you selected. You must use whole percentages in 1% increments for
rebalancing. There will be no rebalancing within the fixed account or the MVA
option. You can discontinue rebalancing at any time. You can change your
rebalancing requests at any time in writing which we must receive before the
next rebalancing date. If you participate in the Rebalancing Program, the
transfers made under the program are not taken into account in determining any
transfer fee.
EXAMPLE:
Assume that you want your initial purchase payment split between 2
investment portfolios. You want 40% to be in the Corporate Bond
Portfolio and 60% to be in Growth Portfolio. Over the next 2 1/2 months
the bond market does very well while the stock market performs poorly.
At the end of the first quarter, the Corporate Bond Portfolio now
represents 50% of your holdings because of its increase in value. If
you had chosen to have your holdings rebalanced quarterly, on the first
day of the next quarter, Great American Reserve would sell some of your
units in the Corporate Bond Portfolio to bring its value back to 40%
and use the money to buy more units in the Growth Portfolio to increase
those holdings to 60%.
ASSET ALLOCATION PROGRAM
Great American Reserve understands the importance of advice from a financial
adviser regarding your investments in the contract (asset allocation program).
Certain investment advisers have made arrangements with us to make their
services available to you. Great American Reserve has not made any independent
investigation of these advisers and is not endorsing such programs. You may be
required to enter into an advisory agreement with your investment adviser to
have the fees paid out of your contract during the accumulation phase.
Great American Reserve will, pursuant to an agreement with you, make a partial
withdrawal from the value of your contract to pay for the services of the
investment adviser. If the contract is non-qualified, the withdrawal will be
treated like any other distribution and may be included in gross income for
federal tax purposes and, if you are under age 59 1/2, may be subject to a tax
penalty. If the contract is qualified, the withdrawal for the payment of fees
may not be treated as a taxable distribution if certain conditions are met.
Additionally, any withdrawals for this purpose may be subject to a contingent
deferred sales charge. You should consult a tax adviser regarding the tax
treatment of the payment of investment adviser fees from your contract.
SWEEP PROGRAM
You can elect to transfer (sweep) your earnings from the fixed account to the
investment portfolios on a periodic and systematic basis.
VOTING RIGHTS
Great American Reserve is the legal owner of the investment portfolio shares.
However, Great American Reserve believes that when an investment portfolio
solicits proxies in conjunction with a vote of shareholders, it is required to
obtain from you and other owners instructions as to how to vote those shares.
When we receive those instructions, we will vote all of the shares we own in
proportion to those instructions. Should Great American Reserve determine that
it is no longer required to comply with the above, we will vote the shares in
our own right.
SUBSTITUTION
Great American Reserve may, in the interest of shareholders, deem it necessary
to discontinue one or more of the investment portfolios or substitute a new
portfolio for an existing portfolio. In the event that such a situation might
occur, you will be notified in advance. Prior approval by the Securities and
Exchange Commission will be obtained before any such change is made.
5. EXPENSES
There are charges and other expenses associated with the contract that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day, Great American Reserve makes a deduction for its insurance charges.
Great American Reserve does this as part of its calculation of the value of the
accumulation units and the annuity units. The insurance charge has two parts: 1)
the mortality and expense risk charge and 2) the administrative charge.
MORTALITY AND EXPENSE RISK CHARGE. This charge is equal, on an annual
basis, to 1.25% of the average daily value of the contract invested in an
investment portfolio, after expenses have been deducted. This charge is for the
insurance benefits provided under the contracts and certain administrative and
distribution expenses associated with the contract.
ADMINISTRATIVE CHARGE. This charge is equal, on an annual basis, to .15% of
the average daily value of the contract invested in an investment portfolio,
after expenses have been deducted. This charge may be increased but will not
exceed .25% of the average daily value of the contract invested in an investment
portfolio, after expenses have been deducted. We will give you 60 days' notice
if this charge is increased. This charge is for certain administrative expenses.
CONTRACT MAINTENANCE CHARGE
During the accumulation phase, every year on the anniversary of the date when
your contract was issued, Great American Reserve deducts $30 from your contract
as a contract maintenance charge. We reserve the right to change this charge but
it will not be more than $60 each year. No contract maintenance charge is
deducted during the income phase. This charge is for certain administrative
expenses associated with the contract.
Under current practices, Great American Reserve does not deduct this charge if
the value of your contract is $50,000 or more. Great American Reserve may some
time in the future discontinue this practice and deduct the charge.
If you make a complete withdrawal from your contract, the contract maintenance
charge will also be deducted. The charge will be deducted if the annuity date is
other than an anniversary.
CONTINGENT DEFERRED SALES CHARGE
During the accumulation phase, you can make withdrawals from your contract.
Great American Reserve keeps track of each purchase payment.
Every year you can take money out of your contract, without charge, of an amount
equal to the greater of: (1) 10% of the value of your contract (on a
non-cumulative basis), or (2) the IRS minimum distribution requirement for this
contract if it was issued under an Individual Retirement Annuity, or (3) the
total of your purchase payments that have been in the contract more than 7
complete years. Withdrawals in excess of these amounts will be charged a
contingent deferred sales charge which equals:
No. of Years From Receipt Contingent Deferred Sales
of Purchase Payment Charge
------------------- ------
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%
The contingent deferred sales charge is assessed against each purchase payment
withdrawn and will reduce the remaining value of your contract. The contingent
deferred sales charge compensates us for expenses associated with selling the
contract.
Withdrawals from a guarantee period of the MVA option may also be subject to a
market value adjustment. (See the Appendix for information on the market value
adjustment.)
NOTE: For tax purposes, withdrawals are generally considered to have come from
earnings first.
Great American Reserve does not assess the contingent deferred sales charge on
death benefits or on any payments paid out as annuity payments if your annuity
date is at least four years after we issue your contract and your annuity option
has a life contingency or is for a minimum of 5 years.
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
Great American Reserve will reduce or eliminate the amount of the contingent
deferred sales charge when the contract is sold under circumstances which reduce
its sales expenses. Some examples are: if there is a large group of individuals
that will be purchasing the contract or a prospective purchaser already had a
relationship with Great American Reserve. Great American Reserve will not deduct
a contingent deferred sales charge when a contract is issued to an officer,
director of employee of Great American Reserve or any of its affiliates. Any
circumstances resulting in the reduction or elimination of the contingent
deferred sales charge requires our prior approval. In no event will elimination
of the contingent deferred sales charge be permitted where it would be unfairly
discriminatory to any person.
TRANSFER FEE
You can make one free transfer every 30 days during the accumulation phase. If
you make more than one transfer in a 30-day period, you could be charged a
transfer fee of $25 per transfer. We reserve the right to change the transfer
fee. The transfer fee is deducted from the account from which the transfer was
made. If the entire amount in the account is transferred, the fee will be
deducted from the amount transferred. If you transfer money from more than one
account, the charge is deducted from the account with the largest balance. The
two transfers permitted each year during the income phase are free.
All reallocations made in the same day count as one transfer. Transfers made at
the end of the free look period by us are not counted in determining the
transfer fee. If the transfer is part of the Dollar Cost Averaging Program, the
Rebalancing Program or the Sweep Program it will not count in determining the
transfer fee.
Transfers from a guarantee period of the MVA option may also be subject to a
market value adjustment. (See the Appendix for information on the market value
adjustment.)
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Great American Reserve is responsible for the
payment of these taxes and will make a deduction from the value of the contract
for them. These taxes are due either when the contract is issued or when annuity
payments begin. It is Great American Reserve's current practice to deduct for
these taxes when either annuity payments begin or upon partial or full surrender
of the contract. Great American Reserve may in the future discontinue this
practice and assess the charge when the tax is due. Premium taxes currently
range from 0% to 3.5%, depending on the state.
INCOME TAXES
Great American Reserve will deduct from the contract for any income taxes which
it incurs because of the contract. At the present time, we are not making any
such deductions.
INVESTMENT PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the attached fund prospectuses.
6. TAXES
NOTE: GREAT AMERICAN RESERVE HAS PREPARED THE FOLLOWING INFORMATION ON TAXES AS
A GENERAL DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE TO ANY
INDIVIDUAL. YOU SHOULD CONSULT YOUR OWN TAX ADVISER ABOUT YOUR OWN
CIRCUMSTANCES. GREAT AMERICAN RESERVE HAS INCLUDED IN THE STATEMENT OF
ADDITIONAL INFORMATION AN ADDITIONAL DISCUSSION REGARDING TAXES.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of contract qualified
or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your contract
until a distribution occurs - either as a withdrawal or as annuity payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For annuity payments, different rules apply. A portion of each annuity
payment is treated as a partial return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your purchase
payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than tax-qualified trusts), the
contract will generally not be treated as an annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the contract as an individual and not under an Individual
Retirement Annuity (IRA), your contract is referred to as a non-qualified
contract.
If you purchase the contract under an IRA, your contract is referred to as a
qualified contract.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your contract, the Code generally treats such a
withdrawal as first coming from earnings and then from your purchase
payments. Such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts: (1) paid on or after
you reach age 59 1/2; (2) paid after you die; (3) paid if you become totally
disabled (as that term is defined in the Code); (4) paid in a series of
substantially equal payments made annually (or more frequently) under a lifetime
annuity, (5) paid under an immediate annuity; or (6) which come from purchase
payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of non-qualified contracts does
not apply to qualified contracts. There are special rules that govern with
respect to qualified contracts. We have provided a more complete discussion in
the Statement of Additional Information.
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. Great American Reserve believes that the investment portfolios
are being managed so as to comply with the requirements.
INVESTOR CONTROL
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Great American
Reserve would be considered the owner of the shares of the investment
portfolios. If this occurs, it will result in the loss of the favorable tax
treatment for the contract. It is unknown to what extent under federal tax law
owners are permitted to select investment portfolios, to make transfers among
the investment portfolios or the number and type of investment portfolios owners
may select from. If any guidance is provided which is considered a new position,
then the guidance would generally be applied prospectively. However, if such
guidance is considered not to be a new position, it may be applied
retroactively. This would mean that you, as the owner of the contract, could be
treated as the owner of the investment portfolios.
Due to the uncertainty in this area, Great American Reserve reserves the right
to modify the contract as reasonably deemed necessary to maintain favorable tax
treatment.
7. ACCESS TO YOUR MONEY
You can have access to the money in your contract: (1) by making a withdrawal
(either a partial or a complete withdrawal); (2) by electing to receive annuity
payments; or (3) when a death benefit is paid to your beneficiary. Withdrawals
can only be made during the accumulation phase.
When you make a complete withdrawal you will receive the value of the contract
on the day you made the withdrawal less any applicable contingent deferred sales
charge, less any premium tax less any contract maintenance charge plus or minus
any market value adjustment (which may be positive or negative). (See Section 5.
Expenses for a discussion of the charges and Section 4. Investment Options - The
MVA Option and the Appendix for a discussion of withdrawals from the MVA
option.)
You must tell us which account (investment portfolio(s), guarantee periods of
the MVA option and/or the fixed account) you want the withdrawal to come from.
Under most circumstances, the amount of any partial withdrawal from any
investment portfolio, guarantee period of the MVA option or the fixed account
must be for at least $500. Great American Reserve requires that after a partial
withdrawal is made there must be at least $500 left in your contract.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
SYSTEMATIC WITHDRAWAL PROGRAM
The Systematic Withdrawal Program allows you to choose to receive your automatic
payments to you either monthly, quarterly, semi-annually or annually. You must
have at least $5,000 in your contract to start the program. You cannot take
systematic withdrawals from any guarantee period of the MVA option. You can
instruct us to withdraw a specific amount which can be a percentage of the value
of your contract or a dollar amount. The systematic withdrawal program will end
any time you designate. If you make a partial withdrawal outside the program and
the value of your contract is less than $5,000 the program will automatically
terminate. Great American Reserve does not have any charge for this program,
however, the withdrawal may be subject to a CDSC. For a discussion of the
withdrawal charge, see Section 5. Expenses.
All systematic withdrawals will be paid on the last business day of the month
(beginning with the first full month after you bought your contract).
You may not participate in the Systematic Withdrawal Program and the Dollar Cost
Averaging Program at the same time.
INCOME TAXES AND TAX PENALTIES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
SUSPENSION OF PAYMENTS OR TRANSFERS
Great American Reserve may be required to suspend or postpone payments for
withdrawal or transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
investment portfolios is not reasonably practicable or Great American Reserve
cannot reasonably value the shares of the investment portfolios;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
Great American Reserve has reserved the right to defer payment for a withdrawal
or transfer from the fixed account for the period permitted by law but not for
more than six months.
8. PERFORMANCE
Great American Reserve may periodically advertise performance of the annuity
investment in the various investment portfolios. Great American Reserve will
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the value
of the accumulation unit at the beginning of the period. This performance number
reflects the deduction of the insurance charges and the fees and expenses of the
investment portfolio. It does not reflect the deduction of any applicable
contract maintenance charge and contingent deferred sales charge. The deduction
of any applicable contract maintenance charge and contingent deferred sales
charge would reduce the percentage increase or make greater any percentage
decrease. Any advertisement will also include total return figures which reflect
the deduction of the insurance charges, contract maintenance charge, contingent
deferred sales charge and the fees and expenses of the investment portfolio.
For periods starting prior to the date the contracts were first offered, the
performance will be based on the historical performance of the corresponding
portfolios, modified to reflect the charges and expenses of the contract as if
the contract had been in existence during the period stated in the
advertisement. These figures should not be interpreted to reflect actual
historic performance.
Great American Reserve may, from time to time, include in its advertising and
sales materials, tax deferred compounding charts and other hypothetical
illustrations, which may include comparisons of currently taxable and tax
deferred investment programs, based on selected tax brackets.
9. DEATH BENEFIT
UPON YOUR DEATH
If you die before annuity payments begin, Great American Reserve will pay a
death benefit to your beneficiary (see below). If you have a joint owner, the
death benefit will be paid when the first owner dies. The surviving joint owner
will be treated as the beneficiary.
The amount of the death benefit will be the greater of:
(1) the value of your contract; or (2) if under age 90, the total purchase
payments you have made, less any adjusted partial withdrawals, increased by
5% each year. Adjusted partial withdrawal means the amount of the partial
withdrawal multiplied by the amount of the death benefit just before the
partial withdrawal divided by the value of your contract just before the
partial withdrawal. A partial withdrawal is the amount paid to you plus any
taxes withheld less any contingent deferred sales charge.
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an annuity
option. The death benefit payable under an annuity option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payment must begin within one year of the date of death. If the
beneficiary is the spouse of the owner, he/she can continue the contract in
his/her own name at the then current value. If a lump sum payment is elected and
all the necessary requirements are met, the payment will be made within 7 days.
If you or any joint owner (who is not the annuitant) dies during the income
phase, any remaining payments under the annuity option elected will continue at
least as rapidly as under the method of distribution prior to the death of the
owner or joint owner. If you die during the income phase, the beneficiary
becomes the owner. If any joint owner dies during the income phase, the
surviving joint owner, if any, will be treated as the primary beneficiary. Any
other beneficiary on record at the time of death will be treated as a contingent
beneficiary.
DEATH OF ANNUITANT
If the annuitant, who is not an owner or joint owner, dies during the
accumulation phase, you can name a new annuitant. Unless another annuitant is
named within 30 days of the death of the annuitant, you will become the
annuitant. However, if the owner is a non-natural person (for example, a
corporation), then the death of the annuitant will be treated as the death of
the owner, and a new annuitant may not be named.
Upon the death of the annuitant during the income phase, the death benefit, if
any, will be as provided for in the annuity option selected.
10. OTHER INFORMATION
GREAT AMERICAN RESERVE
Great American Reserve Insurance Company (Great American Reserve) was originally
organized in 1937. It is principally engaged in the life insurance business in
49 states and the District of Columbia. Great American Reserve is a stock
company organized under the laws of the state of Texas and is an indirect
wholly-owned subsidiary of Conseco, Inc. (Conseco). The operations of Great
American Reserve are handled by Conseco. Conseco is a publicly owned financial
services organization headquartered in Carmel, Indiana. Through its
subsidiaries, Conseco is one of the nation's leading providers of supplemental
health insurance, retirement annuities and universal life insurance.
THE SEPARATE ACCOUNTS
Great American Reserve has established two separate accounts to hold the assets
that underlie the contracts. One account, Great American Reserve Variable
Annuity Account F, serves the variable annuity portion of the contract. The
other separate account, Great American Reserve Market Value Adjustment Account,
serves the portion of the contract that may be subject to a market value
adjustment. The Board of Directors of Great American Reserve adopted a
resolution to establish the Separate Accounts under Texas Insurance law on
September 26, 1997. Great American Reserve Variable Annuity Account F is
registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. Great American Reserve Market
Value Adjustment Account is not registered with the Securities and Exchange
Commission.
The assets of the Separate Accounts are held in Great American Reserve's name on
behalf of the Separate Accounts and legally belong to Great American Reserve.
However, those assets that underlie the contracts, are not chargeable with
liabilities arising out of any other business Great American Reserve may
conduct. All the income, gains and losses (realized or unrealized) resulting
from these assets are credited to or charged against the contracts and not
against any other contracts Great American Reserve may issue.
DISTRIBUTOR
Conseco Equity Sales, Inc. (CES), 11815 N. Pennsylvania Street, Carmel, Indiana
46032 acts as the distributor of the contracts. CES, an affiliate of Great
American Reserve, is registered as a broker-dealer under the Securities Exchange
Act of 1934. CES is a member of the National Association of Securities Dealers,
Inc.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers commissions may cost up to 8.25% of purchase payments and may
include reimbursement of promotional or distribution expenses associated with
the marketing of the contracts. Great American Reserve may, by agreement with
the broker-dealer, pay commissions as a combination of a certain percentage
amount at the time of sale and a trail commission. This combination may result
in the broker-dealer receiving more commission over time than would be the case
if it had elected to receive only a commission at the time of sale. The
commission rate paid to the broker-dealer will depend upon the nature and level
of services provided by the broker-dealer.
OWNERSHIP
The contract is an allocated fixed and variable deferred annuity contract. This
group contract is issued to a contract holder, for the benefit of the
participants in the group. You are a participant in the group and will receive a
certificate evidencing your ownership. You, as the owner of a certificate, are
entitled to all the rights and privileges of ownership. As used in this
prospectus, the term contract refers to your certificate. In some states, an
individual fixed and variable deferred annuity contract may be available
instead, which is identical to the group contract described in this prospectus
except that it is issued directly to the owner.
Spousal joint owners are allowed with this contract (except if it is issued
pursuant to a qualified plan). Upon the death of either joint owner, the
surviving owner will be the designated beneficiary. Any other beneficiary
designation at the time the contract was issued or as may have been later
changed will be treated as a contingent beneficiary unless otherwise
indicated.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued. Unless an
irrevocable beneficiary has been named, you can change the beneficiary at any
time before you die.
ASSIGNMENT
You can assign the contract at any time during your lifetime. Great American
Reserve will not be bound by the assignment until it receives the written notice
of the assignment. Great American Reserve will not be liable for any payment or
other action we take in accordance with the contract before we receive notice of
the assignment. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the contract is issued pursuant to a qualified plan, there are limitations on
your ability to assign the contract.
ADDITIONAL INFORMATION
Great American Reserve is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with such
requirements, we file reports and other information with the SEC. Such reports
and other information we file can be inspected and copied. Copies can be
obtained at the public reference facilities of the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at the regional offices in Chicago and
New York. The addresses of these regional offices are as follows: 500 West
Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material also can be obtained by mail
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the rules and
regulations of the SEC at prescribed rates.
Registration statements have been filed with the SEC, Washington, D.C., under
the Securities Act of 1933 as amended, relating to the contracts offered by this
prospectus. This prospectus does not contain all the information set forth in
the registration statements and the exhibits filed as part of the registration
statements. Reference should be made to such registration statements and
exhibits for further information concerning the separate accounts, Great
American Reserve and its general account, the investment portfolios and the
contract.
SELECTED HISTORICAL FINANCIAL INFORMATION OF GREAT AMERICAN RESERVE
INSURANCE COMPANY
The selected historical financial information set forth below was derived
from the unaudited and audited financial statements of Great American Reserve.
Great American Reserve's unaudited balance sheet at September 30, 1997, and
unaudited statements of operations, shareholder's equity and cash flows for the
nine months ended September 30, 1997 and the nine months ended September 30,
1996 are included elsewhere herein. Great American Reserve's balance sheets at
December 31, 1996 and 1995, and the statements of operations, shareholder's
equity and cash flows for the year ended December 31, 1996, the four months
ended December 31, 1995, the eight months ended August 31, 1995, and the year
ended December 31, 1994, and the notes thereto were audited by Coopers & Lybrand
L.L.P., independent accountants, and are included elsewhere herein. The selected
historical financial information set forth below should be read in conjunction
with the financial statements and notes of Great American Reserve and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Great American Reserve" appearing elsewhere herein. The financial
data for all periods reflects the effect of the December 31, 1994, merger of
Jefferson National Life into the Company. This merger has been accounted for as
a pooling of interests; therefore, the assets and liabilities of Jefferson
National have been combined with Great American Reserve at their book values and
the financial data is presented as if the merger had occurred prior to the
periods presented.
<TABLE>
<CAPTION>
Prior basis (a)
______________________________________
Nine Nine Four Eight
months months Year months months Year ended
ended ended ended ended ended December 31,
September 30, September 30, December 31, December 31, August 31, __________________________
1997 1996 1996 1995 1995 1994 1993 1992(b)
---- ---- ---- ---- ---- ---- ---- ----
STATEMENT OF
OPERATIONS DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Insurance policy income..... $ 57.4 $ 61.4 $ 81.4 $ 31.8 $ 60.5 $ 98.6 $108.2 $117.6
Net investment income....... 155.3 156.5 218.4 74.2 136.4 187.9 214.5 189.0
Net investment gains....... 6.6 0.2 2.7 12.5 7.3 .2 32.4 33.0
Total revenues.............. 219.3 218.1 302.5 118.5 204.2 286.7 355.1 339.6
Interest expense on notes
payable ............... - - - - - - - 13.9
Total benefits and expenses 170.8 186.2 261.4 92.7 159.5 225.2 260.4 272.3
Income before income taxes
and extraordinary charge 48.5 31.9 41.1 25.8 44.7 61.5 94.7 67.3
Extraordinary charge on
extinguishment of debt,
net of tax............... - - - - - - - 6.9
Net income ............... 31.0 19.9 25.7 16.1 28.2 38.8 54.5 36.4
Preferred dividends......... - - - - - - - .4
Net income applicable to
common stock............. 31.0 19.9 25.7 16.1 28.2 38.8 54.5 36.0
BALANCE SHEET
DATA - PERIOD END
Investments................. $2,572.6 $2,414.0 $2,382.8 $2,484.8 $2,217.9 $2,473.8 $2,134.8
Total assets................ 2,860.1 2,731.5 2,680.5 2,756.8 2,625.0 2,751.1 2,443.3
Insurance liabilities....... 1,858.2 1,979.6 1,957.5 2,039.1 2,150.4 2,122.0 1,956.6
Total liabilities........... 2,454.3 2,349.6 2,283.6 2,314.2 2,260.1 2,302.6 2,074.4
Shareholder's equity ....... 405.8 381.9 396.9 442.6 364.9 448.5 368.9
<FN>
(a) Financial data for the period subsequent to August 31, 1995, reflect
the adoption of a new basis of accounting under the "push down" method
as a result of the Conseco Acquisition. Accordingly, data prior to
August 31, 1995, may not be comparable with subsequent data.
Significant accounting adjustments recorded as a result of the
adoption of the new basis include: (i) an increase of $59.0 million to
cost of policies purchased; (ii) a reduction of $27.0 million to cost
of policies produced; (iii) a reduction of $15.1 million to goodwill;
(iv) an increase of $1.2 million to insurance liabilities; and (v) the
establishment of a deferred income tax liability to reflect the income
tax effects of all of the accounting adjustments.
(b) Financial data for periods prior to the IPO of CCP include the
accounts of CCP subsidiaries, consisting principally of debt and
preferred stock which were used to acquire Great American Reserve and
which were expected to be repaid from future income of Great American
Reserve. Subsequent to the IPO and related refinancing transactions,
the notes payable of CCP and its subsidiaries were no longer expected
to be repaid solely from the net income of Great American Reserve.
Accordingly, it was no longer appropriate to push down the accounts of
CCP subsidiaries into Great American Reserve's consolidated financial
statements. The impact of the July 21, 1992, capital restructuring is
reflected in Great American Reserve's 1992 consolidated statements of
operations and shareholder's equity. As a result of no longer pushing
down accounts of CCP subsidiaries into Great American Reserve's
consolidated financial statements, the 1992 consolidated statement of
shareholder's equity reflects: (i) the impact of removing the
accumulated earnings of the CCP subsidiaries, excluding such earnings
from their investment in Great American Reserve, as a dividend
distribution; (ii) the impact of removing the capital accounts of the
subsidiaries as a reduction of contributed capital, and (iii) the
impact of removing the assets and liabilities of the subsidiaries as a
contribution of capital to Great American Reserve, which became Great
American Reserve's common stock and additional paid-in capital.
</FN>
</TABLE>
BUSINESS OF GREAT AMERICAN RESERVE INSURANCE COMPANY
Background
Great American Reserve Insurance Company ("Great American Reserve"), with
total assets of $2.9 billion at September 30, 1997, markets tax-qualified
annuities and certain employee benefit-related insurance products through
professional independent agents. Since August 1995, Great American Reserve has
been a wholly owned subsidiary of Conseco, Inc. ("Conseco"), a financial
services holding company engaged in the development, marketing and
administration of annuity, individual health insurance and individual life
insurance products. During 1994, Conseco effectively owned 36 percent of Great
American Reserve, through its ownership interest in CCP Insurance, Inc. ("CCP"),
a holding company organized for companies previously acquired by Conseco Capital
Partners, L.P. (the "Partnership"), a limited partnership organized by Conseco.
Great American Reserve was acquired by the Partnership in 1990. During 1995,
Conseco's ownership in CCP (and in Great American Reserve) increased to 49
percent as a result of purchases of CCP common stock by CCP and Conseco. In
August 1995, Conseco completed the purchase of the remaining shares of CCP
common stock it did not already own in a transaction pursuant to which CCP was
merged with Conseco, with Conseco being the surviving corporation (the "Conseco
Acquisition").
Great American Reserve was organized as a Texas corporation and commenced
operations in 1937. Its main administrative offices are located at 11825 N.
Pennsylvania Street, Carmel, Indiana 46032, and its telephone number is (317)
817-3700.
MARKETING
Great American Reserve primarily utilizes independent market specialists to
distribute its products. Great American Reserve does not have the fixed costs
associated with recruiting, training and maintaining employee agents. Rather, a
relatively small number of in-house marketing personnel develop, direct and
support the external distribution channels through which Great American
Reserve's products are marketed.
PRODUCTS. Great American Reserve's collected premiums (net of reinsurance
ceded) by product categories for the nine months ended September 30, 1997 and
1996, and the years ended December 31, 1996 and 1995, are set forth below
(dollars in millions).
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------
FIRST YEAR RENEWAL TOTAL
PREMIUMS PREMIUMS PREMIUMS
------------- -------------- ----------------
PRODUCTS AMOUNT % AMOUNT % AMOUNT %
- -------- ------ --- ------ --- ------ --
<S> <C> <C> <C> <C> <C>
Single premium immediate annuities............. $ 9.2 9% $ - - % $ 9.2 5%
Flexible premium deferred annuities............ 12.4 11 21.5 22 33.9 16
Variable annuities............................. 76.5 71 32.9 33 109.4 53
-------- ---- ------ ----- ------- -----
Total annuities......................... 98.1 91 54.4 55 152.5 74
Individual life................................ 1.1 1 31.2 32 32.3 16
Accident and health and other.................. 9.2 8 12.6 13 21.8 10
--------- ---- ------ --- -------- -----
Total collected premiums............. $108.4 100% $98.2 100% $ 206.6 100%
====== === ===== === ===== ===
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------
FIRST YEAR RENEWAL TOTAL
PREMIUMS PREMIUMS PREMIUMS
------------ -------------- ---------------------
PRODUCTS AMOUNT % AMOUNT % AMOUNT %
- -------- ------ --- ------ --- ------ --
<S> <C> <C> <C> <C> <C>
Single premium immediate annuities............. $ 14.2 24% $ - - % $ 14.2 9%
Flexible premium deferred annuities............ 10.8 18 20.7 21 31.5 20
Variable annuities............................. 25.2 42 31.6 31 56.8 35
-------- ----- -------- ----- -------- -----
Total annuities......................... 50.2 84 52.3 52 102.5 64
Individual life................................ 1.6 3 34.4 34 36.0 22
Accident and health and other.................. 7.8 13 14.3 14 22.1 14
--------- ---- -------- ----- -------- -----
Total collected premiums................... $ 59.6 100% $101.0 100% $160.6 100%
======= === ====== === ====== ===
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
FIRST YEAR RENEWAL TOTAL
PREMIUMS PREMIUMS PREMIUMS
--------------- ----------------- ---------------------
PRODUCTS AMOUNT % AMOUNT % AMOUNT %
- -------- ------ --- ------ --- ------ --
<S> <C> <C> <C> <C> <C> <C>
Single premium immediate annuities............. $17.1 21% $ - - % $17.1 8%
Flexible premium deferred annuities............ 15.4 18 27.9 21 43.3 20
Variable annuities............................. 37.9 45 43.6 32 81.5 37
--------- ---- -------- ----- -------- -----
Total annuities......................... 70.4 84 71.5 53 141.9 65
Individual life................................ 2.1 3 45.0 33 47.1 22
Accident and health and other.................. 11.1 13 18.2 14 29.3 13
Guaranteed investment contracts................ .1 - - - .1 -
-------- ------ --------- ----- ------- -----
Total collected premiums............. $ 83.7 100% $134.7 100% $218.4 100%
====== === ====== === ====== ===
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------
FIRST YEAR RENEWAL TOTAL
PREMIUMS PREMIUMS PREMIUMS
------------ ----------- -----------------
PRODUCTS AMOUNT % AMOUNT % AMOUNT %
- -------- ------ --- ------ --- ------ --
<S> <C> <C> <C> <C> <C> <C>
Single premium immediate annuities............. $29.9 38% $ - - % $29.9 14%
Flexible premium deferred annuities............ 16.3 20 23.6 17 39.9 18
Variable annuities............................. 17.2 22 40.1 30 57.3 27
------ ----- ------- ----- -------- -----
Total annuities......................... 63.4 80 63.7 47 127.1 59
Individual life................................ 1.8 2 49.3 36 51.1 24
Accident and health and other.................. 11.8 15 22.6 17 34.4 16
Guaranteed investment contracts ............... 2.4 3 - - 2.4 1
--------- --- ---------- ----- --------- ------
Total collected premiums................... $ 79.4 100% $135.6 100% $215.0 100%
====== === ====== === ====== ===
</TABLE>
ANNUITIES
Great American Reserve markets several basic types of annuities: single
premium immediate annuities ("SPIAs"), flexible premium deferred annuities
("FPDAs") and variable annuities which are sold through both career agents and
professional independent producers. The profitability of annuities largely
depends on the investment spread earned (i.e., the excess of investment earnings
over interest credited on annuity deposits), the persistency of inforce business
and expense management.
Single Premium Immediate Annuities. SPIAs accounted for $9.2 million or 5
percent, of Great American Reserve's total premiums collected in the nine months
ended September 30, 1997 and $14.2 million, or 9 percent of premiums collected
in the nine months ended September 30, 1996. SPIAs accounted for $17.1 million,
or 8 percent, of Great American Reserve's total premiums collected in 1996 and
$29.9 million, or 14 percent of premiums collected in 1995. Great American
Reserve's SPIAs are designed to provide a series of periodic payments for a
fixed period of time or for life, according to the policyholder's choice at the
time of issue. Once the payments have begun, the amount, frequency and length of
time for which they are payable are fixed. SPIAs often are purchased by persons
at or near retirement age who desire a steady stream of payments over a future
period of years. The single premium is often the payout from a terminated
annuity contract. The implicit interest rate on SPIAs is based on market
conditions when the policy is issued. SPIA collected premiums have decreased
primarily as a result of decreases in SPIAs purchased with the proceeds of
redeemed annuity contracts.
Flexible Premium Deferred Annuities. FPDAs accounted for $33.9 million, or
16 percent, of Great American Reserve's premiums collected in the nine months
ended September 30, 1997 and $31.5 million, or 20 percent, of premiums collected
in the nine months ended September 30, 1996. FPDAs accounted for $43.3 million,
or 20 percent, of Great American Reserve's premiums collected in 1996 and $39.9
million, or 18 percent, of premiums collected in 1995. Great American Reserve's
FPDAs allow more than one premium payment, usually on a salary reduction basis.
FPDAs are marketed through networks of educator market specialists primarily to
teachers and employees of not-for-profit institutions as tax-qualified
salary-reduction retirement programs as permitted under Section 403(b) of the
Internal Revenue Code. A tax-qualified annuity purchased under Section 403(b) is
similar to contributions made to a 401(k) plan, but with different (and somewhat
more generous) rules on the maximum amount of current income which may be
contributed by the participant on a pre-tax basis. Generally, a participant may
elect to defer (through the purchase of a tax-qualified annuity under a 403(b)
plan) a percentage of includible compensation limited by statute and subject to
a maximum of $10,000 per year in 1997.
Great American Reserve's FPDAs typically have a guaranteed crediting rate
for the first policy year that exceeds the minimum annual guaranteed rate of at
least 3 percent. After the first year, the crediting rate may be changed at
least annually. The policyholder is permitted to withdraw all or part of the
accumulation value, less a surrender charge for withdrawals during an initial
penalty period of up to 15 years. The initial surrender charges range from 5
percent to 19 percent of the first year premium and decline over the penalty
period.
Variable Annuities. Variable annuities accounted for $109.4 million, or 53
percent, of premiums collected in the nine months ended September 30, 1997 and
$56.8 million, or 35 percent, of premiums collected in the nine months ended
September 30, 1996. Variable annuities accounted for $81.5 million, or 37
percent, of Great American Reserve's total premiums collected in 1996 and $57.3
million, or 27 percent, of premiums collected in 1995. Great American Reserve
markets variable annuities primarily to the educator market. Variable annuities,
sold on a single or flexible premium basis, differ from fixed annuities in that
the original principal value may fluctuate depending on the performance of
assets allocated pursuant to various investment options chosen by the contract
owner. Variable annuities offer contract owners a fixed interest option or a
variable rate of return based upon the specific investment portfolios into which
premiums may be directed. The popularity of such annuities has increased
recently as a result of the desire of investors to invest in common stocks. In
addition, in 1996, Great American Reserve began to offer more investment options
for variable annuity deposits and expanded its variable annuity marketing
efforts. Profits on variable annuities are derived from the fees charged to
contract holders, rather than from the investment spread.
INDIVIDUAL LIFE
Individual life products, consisting of interest sensitive life and
traditional life products, accounted for $32.3 million, or 16 percent, of
premiums collected in the nine months ended September 30, 1997 and $36.0
million, or 22 percent, of premiums collected in the nine months ended September
30, 1996. Individual life products accounted for $47.1 million, or 22 percent,
of Great American Reserve's premiums collected in 1996 and $51.1 million, or 24
percent, of premiums collected in 1995. Although Great American Reserve no
longer actively markets these products, it continues to have a substantial block
of in-force policies on which renewal premiums are collected. These products
were sold through professional independent producers.
Interest-sensitive life insurance products (including universal life
products) provide whole life insurance with adjustable rates of return related
to current interest rates. The principal differences between Great American
Reserve's universal life products and other interest-sensitive life insurance
products are policy provisions affecting the amount and timing of premium
payments. Universal life policyholders may vary the frequency and size of their
premium payments, although policy benefits may also fluctuate according to such
payments. Premium payments under the other interest-sensitive policies may not
be varied by the policyholders and, as a result, are designed to reduce the
administrative costs typically associated with monitoring universal life premium
payments and policy benefits.
Individual life products also include whole life and term life products.
Under whole life policies, which were the standard industry product prior to the
advent of universal life insurance, the policyholder generally pays a level
premium over the policyholder's expected lifetime, which exceeds the premium on
comparable term insurance when the policyholder is younger but is less as the
policyholder grows older. These policies combine insurance protection with a
savings component that increases in amount gradually over the life of the
policy. The policyholder may borrow against the savings generally at a rate of
interest lower than that available from other lending sources. The policyholder
may also choose to surrender the policy and receive the accumulated cash value
rather than continuing the insurance protection. Term life products offer pure
insurance protection for a specified period of time-typically one, five, 10 or
20 years.
ACCIDENT AND HEALTH AND OTHER
Accident and health and other products accounted for $21.8 million, or 10
percent, of premiums collected in the nine months ended September 30, 1997 and
$22.1 million, or 14 percent, of premiums collected in the nine months ended
September 30, 1996. Accident and health and other products accounted for $29.3
million, or 13 percent, of Great American Reserve's total premiums collected in
1996 and $34.4 million, or 16 percent, of premiums collected in 1995. Great
American Reserve offers group dental, group disability, blanket student accident
and a limited amount of other health insurance products, primarily through
independent market specialists. Great American Reserve markets accident and
health policies primarily because it believes that offering a broad range of
products is important to successfully market life insurance and annuity
products, although such accident and health policies are also designed to be
profitable. Group dental coverage provides a range of benefits for dental care
and related procedures. Disability products provide defined monthly benefits up
to specified levels in the case of disability. Student accident products provide
limited supplemental reimbursement coverage to students for accidents and
sickness. Great American Reserve's health business is subject to the risk that
its claims experience deviates from the assumptions used in setting premium
rates. However, Great American Reserve has the right to change rates to correct
for adverse experience every six months on many group policies and annually on
all others. Experience may be adversely affected by inflationary trends in the
costs of medical treatment, competition-driven business cycles and the extent to
which insureds utilize covered services.
Great American Reserve collected premiums less than $.1 million in the nine
months ended September 30, 1997 and 1996, from guaranteed investment contracts
issued as investment options for qualified retirement plans maintained by
Conseco. Great American Reserve collected premiums of $.1 million in 1996 and
$2.4 million in 1995, from guaranteed investment contracts issued as investment
options for qualified retirement plans maintained by Conseco.
INVESTMENTS
Conseco Capital Management, Inc. ("CCM"), a registered investment adviser
wholly owned by Conseco, manages the investment portfolio of Great American
Reserve. CCM's investment philosophy is to maintain a largely investment-grade
fixed-income portfolio, provide adequate liquidity for expected liability
durations and other requirements and maximize total return through active
investment management. Investment activities are an integral part of Great
American Reserve's business, since investment income is a significant component
of Great American Reserve's total revenues. Profitability is significantly
affected by spreads between interest yields on investments and rates credited on
insurance liabilities. Although substantially all credited rates on flexible
premium deferred annuities may be changed annually, changes in crediting rates
may not be sufficient to maintain targeted investment spreads in all economic
and market environments. In addition, competition and other factors, including
the impact of the level of surrenders and withdrawals, may limit Great American
Reserve's ability to adjust or to maintain crediting rates at levels necessary
to avoid narrowing of spreads under certain market conditions.
For information regarding the composition and diversification of the
investment portfolio of Great American Reserve, see "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations of Great
American Reserve - Investments" and note 3 to Great American Reserve's financial
statements for the year ended December 31, 1996.
COMPETITION
Great American Reserve operates in a highly competitive environment. The
life insurance industry consists of a large number of insurance companies, many
of which are substantially larger and have greater financial resources, broader
and more diversified product lines and larger staffs than those of Great
American Reserve. An expanding number of banks, securities brokerage firms and
other financial intermediaries also market insurance products or offer competing
products, such as mutual fund products, traditional bank investments and other
investment and retirement funding alternatives. In most areas, competition is
based on a number of factors, including pricing, service provided to
distributors and policyholders, and ratings. Great American Reserve must also
compete with other insurers to attract and retain the allegiance of agents.
Financial institutions, school districts, marketing companies, agents who
market insurance products and policyholders use the financial strength ratings
assigned to an insurer by independent rating agencies as one factor in
determining which insurer's annuity to market or purchase. Great American
Reserve is rated "A (Excellent)" by A.M. Best Company ("A.M. Best"). A.M. Best's
insurance company ratings for the industry currently range from "A++ (Superior)"
to "F ( In Liquidation)". Publications of A.M. Best indicate that the "A" rating
is assigned to those companies that, in A.M. Best's opinion, have demonstrated
excellent overall performance when compared to the standards established by A.M.
Best and have demonstrated a strong ability to meet their obligations to
policyholders over a long period of time. A.M. Best's rating procedure includes
quantitative and qualitative evaluations of a company's financial condition and
operating performance. Its quantitative evaluation is based on an analysis of a
company's financial performance in the areas of profitability,
leverage/capitalization and liquidity. A.M. Best's review also includes a
qualitative evaluation of a company's spread of risk, quality and
appropriateness of the reinsurance program, quality and diversification of
assets, adequacy of policy or loss reserves, management experience and
objectives, market presence and policyholders' confidence.
Great American Reserve has been assigned a claims paying ability rating of
"A+" from Duff & Phelps Credit Rating Company ("Duff & Phelps"). Duff & Phelps'
claims-paying ability ratings range from "AAA (Highest claims-paying ability)"
to "DD (Company is under an order of liquidation)." Publications of Duff &
Phelps indicate that the"A+" rating represents "High claims-paying ability." A
plus or minus sign attached to a Duff & Phelps claims paying rating shows
relative standing within a ratings category.
In addition, Great American Reserve has been assigned a claims paying
ability rating of BBBq from Standard & Poor's Corporation ("Standard & Poor's").
Claims-paying ability ratings from Standard & Poor's range from "AAA (Superior)"
to "R (Regulatory Action)". A "BBB" is assigned by Standard & Poor's to those
companies which, in its opinion, have adequate financial security, but their
capacity to meet policyholder obligations is susceptible to adverse economic and
underwriting conditions. A "q" subscript indicates that the rating is based
solely on quantitative analysis of publicly available financial data.
Generally, rating agencies base their ratings upon information furnished to
them by the insurer and upon their own investigations, studies and assumptions.
A.M. Best's ratings, Duff & Phelps' claims-paying ratings and Standard & Poor's
claims-paying ratings are principally based upon factors of concern to
policyholders, agents and intermediaries and are not directed toward the
protection of investors. Given the competitive nature of Great American
Reserve's business and the increasing focus placed on the aforementioned
ratings, Great American Reserve manages its business with the objective of
preserving existing ratings and, where possible, achieving more favorable
ratings. There can be no assurance that any particular rating will continue for
any given period of time, or that it will not be changed or withdrawn entirely
if, in the judgement of the rating agency, circumstances so warrant. If Great
American Reserve's ratings are downgraded from their current levels, sales of
its products and the persistency of its in-force policies could be adversely
affected in a material way.
Great American Reserve believes that it is able to compete effectively
because: (i) it is experienced in establishing and cultivating relationships
with independent market specialists which can respond rapidly to changing
customer needs; (ii) it can offer competitive rates as a result of the
lower-than-average operating costs and higher-than-average investment yields
achieved by applying active investment portfolio management techniques; and
(iii) it has reliable policyholder administrative services, supported by
customized information technology systems.
UNDERWRITING
Underwriting with respect to the majority of products sold by Great
American Reserve (FPDAs and variable annuities) is minimal. Substantially all
life insurance policies issued by Great American Reserve are underwritten
individually, although standardized underwriting procedures have been adopted
for certain low face-amount life insurance coverages. Great American Reserve's
group accident and health policies are underwritten based on the characteristics
of a group and its past claim experience.
REINSURANCE
Consistent with the general practice of the life insurance industry, Great
American Reserve reinsures portions of the risk assumed under its insurance
policies with other insurance companies under agreements of indemnity
reinsurance. Great American Reserve also reinsures risks from other insurers,
which are accounted for in the same manner as direct business.
The policy risk retention limit on the life of one individual is $.5
million. At December 31, 1996, reinsurance ceded by Great American Reserve
represented 8.3 percent of gross life insurance in force and reinsurance assumed
represented 5.3 percent of net life insurance in force. At December 31, 1996,
Great American Reserve's largest reinsurer accounted for less than .4 percent of
total insurance liabilities and 28 percent of total reinsurance receivables.
EMPLOYEES
Great American Reserve has no full-time employees. Great American Reserve's
day-to-day operations are administered by Conseco pursuant to agreements between
Great American Reserve and Conseco.
GOVERNMENTAL REGULATION
Great American Reserve is subject to regulation and supervision by the
states in which it transacts business. State laws generally establish
supervisory agencies with broad administrative authority, including power to:
(i) grant and revoke business licenses; (ii) regulate and supervise trade
practices and market conduct; (iii) establish guaranty associations; (iv)
license agents; (v) approve policy forms; (vi) regulate premium rates for some
lines of business; (vii) establish reserve requirements; (viii) prescribe the
form and content of required financial statements and reports; (ix) determine
the reasonableness and adequacy of statutory capital and surplus; and (x)
regulate the type and amount of permitted investments. Great American Reserve is
subject to periodic examinations by state regulatory authorities. Management
does not expect the results of any on-going examinations to have a material
effect on the financial condition of Great American Reserve.
The federal government does not directly regulate the insurance business.
However, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services
regulation and federal taxation, do affect the insurance business. In addition,
legislation has been introduced from time to time in recent years which, if
enacted, could result in the federal government assuming a more direct role in
the regulation of the insurance industry.
In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or
Health Insurers Model Act (the "Model Act"). The Model Act provides a tool for
insurance regulators to determine the levels of capital and surplus an insurer
must maintain in relation to its insurance and investment risks and whether
there is a need for possible regulatory attention.
The Model Act provides for four levels of regulatory attention, varying
with the ratio of the company's total adjusted capital (defined as the total of
its statutory capital, surplus, asset valuation reserve and certain other
adjustments) to its risk-based capital ("RBC"). If a company's total adjusted
capital is less than 100 percent but greater than or equal to 75 percent of its
RBC, or if a negative trend (as defined by the regulators) has occurred and
total adjusted capital is less than 125 percent of RBC (the "Company Action
Level"), the company must submit a comprehensive plan to the regulatory
authority proposing corrective actions aimed at improving its capital position.
If a company's total adjusted capital is less than 75 percent but greater than
or equal to 50 percent of its RBC (the "Regulatory Action Level") , the
regulatory authority will perform a special examination of the company and issue
an order specifying corrective actions that must be followed. If a company's
total adjusted capital is less than 50 percent but greater than or equal to 35
percent of its RBC (the "Authorized Control Level"), the regulatory authority
may take any action it deems necessary, including placing the company under
regulatory control. If a company's total adjusted capital is less than 35
percent of its RBC (the "Mandatory Control Level") the regulatory authority must
place the company under its control. At September 30, 1997, the total adjusted
capital for Great American Reserve was greater than twice the respective Company
Action Level.
The Texas Insurance Department has adopted its own RBC requirements, the
stated purpose of which is to require a minimum level of capital and surplus to
absorb the financial, underwriting, and investment risks assumed by an insurer.
Texas' RBC requirements differ from those adopted by the NAIC in two principal
respects: (i) they use different elements to determine minimum RBC levels in
their calculation formulas; and (ii) they do not stipulate "Action Levels" (like
those adopted by the NAIC) where corrective actions are required. However, the
Commissioner of the Texas Insurance Department does have the power to take
similar corrective actions if a company does not maintain the required minimum
level of capital and surplus. Under the Texas Regulations, an insurer has met
RBC requirements if its admitted assets exceed its liabilities by at least 3
percent. Great American Reserve is domiciled in Texas and must comply with Texas
RBC requirements. At September 30, 1997, the admitted assets of Great American
Reserve exceeded liabilities by twice the required 3 percent level.
On the basis of statutory statements filed with state regulators annually,
the NAIC calculates twelve financial ratios to assist state regulators in
monitoring the financial condition of insurance companies. A "usual range" of
results for each ratio is used as a benchmark. In the past, variances in certain
ratios of Great American Reserve have resulted in inquiries from insurance
departments to which Great American Reserve has responded. Such inquiries did
not lead to any restrictions affecting Great American Reserve's operations.
Under the solvency or guaranty laws of most states in which it does
business, Great American Reserve is required to pay guaranty fund assessments
(up to certain prescribed limits). Guaranty funds are established by various
states to fund policyholder losses or the liabilities of insolvent or
rehabilitated insurance companies. These assessments may be deferred or forgiven
under most guaranty laws if they would threaten an insurer's financial strength.
In certain instances, the assessments may be offset against future premium
taxes. Great American Reserve believes that the liability established at
September 30, 1997, is sufficient to provide for assessments related to known
insolvencies. This reserve is based upon management's current expectation of the
availability of this right of offset and state guaranty fund assessment bases.
However, changes in the basis whereby assessments are charged to individual
companies or changes to the availability of the right to offset assessments
against premium tax payments could materially affect Great American Reserve's
results. Great American Reserve's statutory financial statements for the nine
months ended September 30, 1997, include no expenses as a result of such
assessments.
FEDERAL INCOME TAXATION
The annuity and life insurance products marketed and issued by Great
American Reserve generally provide the policyholder with an income tax
advantage, as compared to other saving investments such as certificates of
deposit and bonds, in that income taxation on the increase in value of the
product is deferred until receipt by the policyholder. With other savings
investments, the increase in value is taxed as earned. Annuity benefits, and
life insurance benefits which accrue prior to the death of the policyholder, are
generally not taxable until paid. Life insurance death benefits are generally
exempt from income tax. Also, benefits received on immediate annuities (other
than structured settlements) are recognized as taxable income ratably as opposed
to the methods used for some other investments, which tend to accelerate taxable
income into earlier years. The tax advantage for annuities and life insurance is
provided in the Internal Revenue Code (the "Code"), and is generally followed in
all states and other United States taxing jurisdictions. Accordingly, the tax
advantage is subject to change by Congress and by the legislatures of the
respective taxing jurisdictions.
Great American Reserve is taxed under the life insurance company provisions
of the Code. Provisions in the Code require a portion of the expenses incurred
in selling insurance products to be deducted over a period of years, as opposed
to immediate deduction in the year incurred. This provision increases the tax
for statutory accounting purposes, which reduces statutory surplus and,
accordingly, decreases the amount of cash dividends that may be paid by Great
American Reserve. As of December 31, 1996, the cumulative taxes paid as a result
of this provision were $5.6 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF GREAT AMERICAN RESERVE
The following discussion highlights the material factors affecting the
results of operations and financial condition and resources of Great American
Reserve. This discussion should be read in conjunction with the financial
statements and notes of Great American Reserve included elsewhere herein.
RESULTS OF OPERATIONS
The adjustments resulting from the adoption of a new basis of accounting
under the "push down" method discussed above under "Selected Historical
Financial Information of Great American Reserve Insurance Company", may impact
the comparability of financial data for the periods before and after August 31,
1995.
NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Insurance policy income consists of premiums received on traditional life
products and policy fund and surrender charges assessed against investment type
products. This account decreased in the first nine months of 1997 compared to
the first nine months of 1996 as a result of a decrease in sales of policies
with mortality or morbidity risks. Surrender charges assessed against annuity
withdrawals were $1.3 million in the first nine months of 1997 and 1996 and
annuity withdrawals were $171.7 million in the first nine months of 1997 and
$123.7 million in the first nine months of 1996. Surrender charges did not
change materially in the first nine months of 1997 despite the increase in
annuity withdrawals because of increased surrenders of annuities which were not
subject to surrender charges. Increases in withdrawals were primarily due to the
increased size of Great American Reserve's annuity portfolio and increased
competition from higher yielding alternative investment products.
Net investment income includes both income earned on the general invested
assets of Great American Reserve and separate account assets related to variable
annuities. Investment income earned on separate account assets is offset by a
corresponding charge to interest expense on annuities and financial products.
Excluding investment income on separate accounts, net investment income in the
first nine months of 1997 decreased 8.5 percent from the first nine months of
1996, to $125.6 million. Average invested assets (amortized cost basis and
excluding separate account assets) decreased to $2.1 billion in the first nine
months of 1997 from $2.3 billion in the first nine months of 1996, and the yield
earned on average invested assets decreased to 7.9 percent from 8.0 percent.
Cash flows received during the first nine months of 1997 and 1996 (including
cash flows from the sales of investments) were invested in lower-yielding
securities due to a general decline in interest rates.
Net investment income on separate account assets in the first nine months
of 1997 increased to $29.7 million from $19.2 million in the first nine months
of 1996. Such income fluctuates in relation to total separate account assets and
the return earned on such assets.
Net investment gains often fluctuate from period to period. Great American
Reserve sold $631.2 million of investment securities during the first nine
months of 1997 compared to $668.3 million in the first nine months of 1996 which
sales resulted in net investment gains of $7.1 million in the first nine months
of 1997 compared to net investment gains of $.2 million in the first nine months
of 1996. During the first nine months of 1997, Great American Reserve recorded
$.3 million in writedowns of fixed maturity securities as a result of changes in
conditions which caused it to believe that a decline in fair value of the
investments was other than temporary. There were no such writedowns during the
first nine months of 1996.
Selling securities at a gain and reinvesting the proceeds at a lower yield
may, absent other management action, tend to decrease future investment yields.
Great American Reserve believes, however, that certain factors would mitigate
the adverse effect on net income of such yield decreases as follows: (i)
additional amortization of the cost of policies purchased and the cost of
policies produced is recognized in the same period as the gain in order to
reflect reduced future yields (thereby reducing such amortization in future
periods); (ii) interest rates credited to some products can be reduced thereby
diminishing the effect of the yield decrease on the investment spread; and (iii)
the investment portfolio grows as a result of reinvesting the realized gains.
Insurance policy benefits and change in future policy benefits relate
solely to policies with mortality or morbidity features. The increase in the
1997 period corresponds with the increase in the in-force block of such
policies.
Interest expense on annuities and financial products increased 4.6 percent
in the first nine months of 1997 compared to the first nine months of 1996. Such
increase reflects fluctuations in charges to the account related to separate
account assets described above under net investment income; and changes in
crediting rates. The weighted average crediting rate for annuity liabilities
(other than separate accounts where the credited amount is based on investment
income from segregated investments and excluding interest bonuses guaranteed for
the first year of the contract) was 5.7 percent and 5.5 percent at September 30,
1997 and September 30, 1996, respectively.
Interest expense on investment borrowings in the 1997 and 1996 periods
reflect changes in investment borrowing activities and lower rates paid on such
borrowings in 1997.
Amortization consists of the amortization of cost of policies purchased,
cost of policies produced and goodwill.
Cost of policies produced represents the cost of producing new business
(primarily commissions and certain costs of policy issuance and underwriting)
which varies with and is primarily related to the production of new business.
Costs deferred may represent amounts paid in the period new business is written
(such as underwriting costs and first year commissions) or in periods after the
business is written (such as commissions paid in subsequent years in excess of
ultimate commissions paid).
Cost of policies purchased represents the cost to acquire Great American
Reserve that is attributable to the right to receive cash flows from insurance
contracts in force at the acquisition dates.
Other operating costs and expenses decreased 45 percent to $23.1 million in
the first nine months of 1997 compared to $41.9 million in the 1996 period as a
result of a reduction in costs incurred under service agreements with Conseco.
Income tax expense fluctuated primarily in relationship to income before
taxes.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO 1995 PERIODS COMBINED (EIGHT
MONTHS ENDED AUGUST 31, 1995 AND FOUR MONTHS ENDED DECEMBER 31, 1995)
Insurance policy income consists of premiums received on traditional life
products and policy fund and surrender charges assessed against investment type
products. This account decreased in 1996 compared to the 1995 periods as a
result of a decrease in sales of policies with mortality or morbidity risks;
partially offset by an increase in surrender charges. Surrender charges assessed
against annuity withdrawals were $1.9 million in 1996 and $1.7 million in the
1995 periods and annuity withdrawals were $202.4 million in 1996 and $179.8
million in the 1995 periods. Increases in withdrawals were primarily due to the
increased size of Great American Reserve's annuity portfolio and increased
competition from higher yielding alternative investment products.
Net investment income includes both income earned on the general invested
assets of Great American Reserve and separate account assets related to variable
annuities. Investment income earned on separate account assets is offset by a
corresponding charge to interest expense on annuities and financial products.
Excluding investment income on separate accounts, net investment income in 1996
decreased 4.5 percent from 1995, to $182.8 million. Average invested assets
(amortized cost basis and excluding separate account assets) were $2.3 billion
in 1996 and 1995, while the yield earned on average invested assets decreased to
8.1 percent from 8.2 percent. Cash flows received during 1995 and 1996
(including cash flows from the sales of investments) were invested in
lower-yielding securities due to a general decline in interest rates.
Net investment income on separate account assets in 1996 increased to $35.6
million from $19.2 million in the 1995 periods.
Net investment gains often fluctuate from period to period. Great American
Reserve sold $988.9 million of investments during 1996 compared to $919.7
million in 1995 which sales resulted in net investment gains of $3.5 million in
1996 compared to net investment gains of $21.4 million in 1995. In addition,
Great American Reserve recorded net investment losses of $.8 million in 1996 and
$1.6 million in the 1995 periods on writedowns taken as a result of conditions
which caused Great American Reserve to conclude that declines in the fair value
of certain securities were other than temporary.
Selling securities at a gain and reinvesting the proceeds at a lower yield
may, absent other management action, tend to decrease future investment yields.
Great American Reserve believes, however, that certain factors would mitigate
the adverse effect on net income of such yield decreases as follows: (i)
additional amortization of the cost of policies purchased and the cost of
policies produced is recognized in the same period as the gain in order to
reflect reduced future yields (thereby reducing such amortization in future
periods); (ii) interest rates credited to some products can be reduced thereby
diminishing the effect of the yield decrease on the investment spread; and (iii)
the investment portfolio grows as a result of reinvesting the investment gains.
See amortization related to net investment gains below.
Insurance policy benefits and change in future policy benefits relate
solely to policies with mortality or morbidity features. The decrease in 1996
corresponds with the decrease in the in-force block of such policies.
Interest expense on annuities and financial products increased 8.9 percent
in 1996 compared to the 1995 periods. Such increase reflects fluctuations in
charges to the account related to separate account assets described above under
net investment income; and changes in crediting rates. The weighted average
crediting rate for annuity liabilities (other than separate accounts where the
credited amount is based on investment income from segregated investments and
excluding interest bonuses guaranteed for the first year of the contract) was
5.5 percent and 5.6 percent at December 31, 1996 and 1995, respectively.
Interest expense on investment borrowings in 1996 and the 1995 periods
reflect changes in investment borrowing activities and lower rates paid on such
borrowings in 1996.
Amortization related to operations is affected by the Conseco Acquisition
and the adoption of a new basis of accounting under the "push down" method.
Amortization related to operations in periods prior to the Conseco Acquisition
is comprised of cost of policies purchased, cost of policies produced and
goodwill based on the previous balances and bases. Amortization related to
operations after the Conseco Acquisition is comprised of amortization of the
aforementioned account balances, reflecting a combination of Conseco's ownership
interests in previous balances and its newly purchased interests using the
step-basis of accounting.
Cost of policies produced represents the cost of producing new business
(primarily commissions and certain costs of policy issuance and underwriting)
which varies with and is primarily related to the production of new business.
Costs deferred may represent amounts paid in the period new business is written
(such as underwriting costs and first year commissions) or in periods after the
business is written (such as commissions paid in subsequent years in excess of
ultimate commissions paid).
Cost of policies purchased represents the cost to acquire Great American
Reserve that is attributable to the right to receive cash flows from insurance
contracts in force at the acquisition dates.
Amortization related to net investment gains decreased in 1996 as a result
of the decrease in investment gains discussed above.
Other operating costs and expenses increased 48 percent to $54.3 million in
1996 compared to $36.8 million in the 1995 periods as a result of costs which
were previously capitalized as part of cost of policies produced which were
expensed in 1996 (see discussion of amortization related to operations); and
additional costs incurred under new service agreements with Conseco as described
in the notes to the financial statements for the year ended December 31, 1996,
included herein.
Income tax expense fluctuated primarily in relationship to income before
taxes.
1995 PERIODS COMBINED (FOUR MONTHS ENDED DECEMBER 31, 1995, AND EIGHT
MONTHS ENDED AUGUST 31, 1995) COMPARED TO YEAR ENDED DECEMBER 31, 1994
Insurance policy income consists of premiums received on traditional life
products and policy fund and surrender charges assessed against investment type
products. This account decreased in the 1995 periods from 1994 as a result of a
decrease in sales of policies with mortality or morbidity risks, partially
offset by an increase in surrender charges resulting from higher annuity policy
withdrawals. Surrender charges assessed against annuity withdrawals were $1.7
million in the 1995 periods and $1.5 million in 1994 and annuity withdrawals
were $179.8 million in the 1995 periods and $129.8 million in 1994. Increases in
withdrawals were primarily due to the increased size of Great American Reserve's
annuity portfolio and increased competition from higher yielding alternative
investment products.
Net investment income includes both income earned on the general invested
assets of Great American Reserve and separate account assets related to variable
annuities. Investment income earned on separate account assets is offset by a
corresponding charge to interest expense on annuities and financial products.
Excluding investment income on separate accounts, net investment income in the
1995 periods increased 3.1 percent from 1994, to $191.4 million. Average
invested assets (amortized cost basis and excluding separate account assets)
were $2.3 billion in 1995 and 1994, while the yield earned on average invested
assets increased to 8.2 percent from 8.0 percent.
Net investment income on separate account assets in the 1995 periods
increased to $19.2 million from $2.3 million in 1994.
Net investment gains often fluctuate from period to period. Great American
Reserve sold $919.7 million of investment securities during the 1995 periods and
$586.0 million in 1994 which sales resulted in net investment gains of $21.4
million in the 1995 periods compared to net investment gains of $1.2 million in
1994. In addition, Great American Reserve recorded net investment losses of $1.6
million in the 1995 periods and $1.0 million in 1994 on writedowns taken as a
result of conditions which caused Great American Reserve to conclude that
declines in the fair value of certain securities were other than temporary.
The effect of net investment gains on the amortization of cost of policies
purchased and cost of policies produced is discussed above under the comparison
of the 1996 and 1995 periods. Also see amortization related to net investment
gains below.
Insurance policy benefits and change in future policy benefits relate
solely to policies with mortality or morbidity features. The decrease in the
1995 periods corresponds with the decrease in the in-force block of such
policies.
Interest expense on annuities and financial products increased 17 percent
in the 1995 periods over 1994. Such increase reflects: (i) fluctuations in
charges to the account related to investment income from separate account assets
as described above under net investment income; and (ii) changes in crediting
rates. The weighted average crediting rate for annuity liabilities (other than
separate accounts where the credited amount is based on investment income from
the segregated investments and excluding interest bonuses guaranteed for the
first year of the annuity contract) was 5.6 percent and 5.8 percent at December
31, 1995 and 1994, respectively.
Interest expense on investment borrowings in the 1995 periods and in 1994
reflects changes in investment borrowing activities and the higher rates paid on
such borrowings in the 1995 periods.
Amortization related to operations increased 6.3 percent to $17.0 million
in the 1995 periods from $16.0 million in 1994. Such increase is affected by:
(i) the adoption of a new basis of accounting as discussed above; and (ii) the
increased amount of business in force on which acquisition costs are
capitalized. See the discussion of cost of policies produced and cost of
policies purchased above under the comparison of the 1996 and 1995 periods.
Amortization related to net investment gains increased in the 1995 periods
as a result of the increase in investment gains discussed above.
Income tax expense fluctuated primarily in relationship to income before
taxes.
INVESTMENTS
Great American Reserve's investment strategy is to: (i) maintain a
predominately investment grade fixed income portfolio; (ii) provide adequate
liquidity to meet the cash flow requirements of policyholders and other
obligations; and (iii) maximize current income and total investment return
through active investment management. Consistent with this strategy, investments
in fixed maturity securities, mortgage loans, credit-tenant loans, policy loans
and short-term investments comprised 82 percent of Great American Reserve's
investment portfolio at September 30, 1997. The remainder of the invested assets
were in equity securities, assets held in separate accounts and other invested
assets. At September 30, 1997, Great American Reserve had invested assets of
approximately $2.6 billion.
Great American Reserve is regulated by insurance statutes and regulations
as to the type of investments that it is permitted to make and the amount of
funds that may be used for any one type of investment. In light of these
statutes and regulations and Great American Reserve's business and investment
strategy, Great American Reserve generally seeks to invest in United States
government and government agency securities and corporate securities rated
investment grade by established nationally recognized rating organizations or,
if not rated, in securities of comparable investment quality.
The following table summarizes investment yields earned over the periods
indicated:
<TABLE>
<CAPTION>
Prior basis
---------------------------
Nine months Nine months Year Four months Eight months Year
ended ended ended ended ended ended
September 30, September 30, December 31, December 31, August 31, December 31,
1997 1996 1996 1995 1995 1994
---- ---- ---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Weighted average invested assets:
As reported .............. $2,397.9 $2,426.7 $2,417.9 $2,498.1 $2,416.5 $4,552.3
Excluding unrealized
appreciation
(depreciation) (a)...... 2,414.5 2,449.0 2,438.9 2,467.4 2,470.7 4,662.6
Net investment income............ 155.3 156.5 218.4 74.2 136.4 367.8
Yields earned:
As reported............... 8.6% 8.6% 9.0% 8.9% 8.4% 8.1%
Excluding unrealized
appreciation (depreciation) (a) 8.6% 8.5% 8.9% 9.0% 8.2% 7.9%
<FN>
(a) Excludes the effect of reporting fixed maturities at fair value as
described in note 1 to the financial statements.
</FN>
</TABLE>
Although investment income is a significant component of total revenues,
the profitability of Great American Reserve's annuity business is determined
primarily by spreads between interest rates earned and rates credited on annuity
contracts. At September 30, 1997, the average yield, computed on the cost basis
of Great American Reserve's investment portfolio, was 7.8 percent and the
average interest rate credited on Great American Reserve's total liability
portfolio was 5.7 percent.
Actively Managed Fixed Maturities
Great American Reserve's actively managed fixed maturity portfolio at
September 30, 1997, was comprised primarily of debt securities of the United
States government, public utilities and other corporations and mortgage-backed
securities. Mortgage-backed securities included collateralized mortgage
obligations ("CMOs") and mortgage-backed pass-through securities.
At September 30, 1997, the amortized cost and estimated fair value of
actively managed fixed maturity 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>
United States Treasury securities and obligations
of United States government corporations and
agencies............................................... $ 29.7 $ .4 $ .1 $ 30.0
Obligations of state and political subdivisions and
foreign government obligations......................... 32.9 .8 .2 33.5
Public utility securities................................. 197.2 3.2 3.2 197.2
Other corporate securities................................ 873.4 17.0 5.2 885.2
Mortgage-backed securities ............................... 655.9 6.9 1.1 661.7
---------- ------- ----- ----------
Total.................................................. $1,789.1 $28.3 $9.8 $1,807.6
======== ===== ==== ========
</TABLE>
As discussed in the notes to the financial statements, when Great American
Reserve adjusts carrying values of actively managed fixed maturity securities
for changes in fair value, it also adjusts the cost of policies purchased, cost
of policies produced and insurance liabilities. These adjustments are made in
order to reflect the change in amortization that would be needed if those fixed
maturity investments had actually been sold at their fair values and the
proceeds reinvested at current interest rates.
The following table sets forth actively managed fixed maturity securities
at September 30, 1997, classified by rating categories. The category assigned is
the highest rating by a nationally recognized statistical rating organization
or, as to $0.2 million estimated fair value of fixed maturity securities not
rated by such firms, the rating assigned by the National Association of
Insurance Commissioners ("NAIC"). For the purposes of this table, NAIC Class 1
is included in the "A" rating; Class 2, "BBB-"; Class 3, "BB-"; and Classes 4-6,
"B+ and below":
<TABLE>
<CAPTION>
Percent of Percent of
Investment fixed total
Rating maturities investments
------ ---------- -----------
<S> <C> <C>
AAA................................................................................... 42% 30%
AA.................................................................................... 6 4
A..................................................................................... 20 14
BBB+.................................................................................. 7 5
BBB................................................................................... 12 9
BBB-.................................................................................. 7 4
---- ----
Investment-grade................................................................. 94 66
--- ---
BB+................................................................................... 1 1
BB.................................................................................... 1 1
BB-................................................................................... 1 -
B+ and below ......................................................................... 3 2
---- ----
Below investment-grade........................................................... 6 4
---- ----
Total actively managed fixed maturities...................................... 100% 70%
=== ==
</TABLE>
Great American Reserve plans to maintain approximately the present level of
below investment grade fixed maturities. These securities generally have greater
risks than other corporate debt investments, including risk of loss upon default
by the borrower, and are often unsecured and subordinated to other creditors.
Below investment grade issuers usually have high levels of indebtedness and are
more sensitive to adverse economic conditions, such as recession or increasing
interest rates, than are investment grade issuers. Great American Reserve is
aware of these risks and monitors its below investment grade securities closely.
At September 30, 1997, Great American Reserve's below investment grade fixed
maturity investments had an amortized cost of $105.4 million and an estimated
fair value of $107.1 million.
Great American Reserve's investment portfolio is managed by CCM. Great
American Reserve and CCM periodically evaluate the creditworthiness of each
issuer whose securities are held in the portfolio. Special attention is paid to
those securities whose market values have declined materially for reasons other
than changes in interest rates or other general market conditions. Great
American Reserve considers available information to evaluate the realizable
value of the investment, the specific condition of the issuer, and the issuer's
ability to comply with the material terms of the security. Information reviewed
may include the recent operational results and financial position of the issuer,
information about its industry, recent press releases and other information. CCM
employs a staff of experienced securities analysts in a variety of specialty
areas. Among other responsibilities, this staff compiles and reviews such
evidence. If evidence does not exist to support a realizable value equal to or
greater than the carrying value of the investment and such decline in market
value is determined to be other than temporary, Great American Reserve reduces
the carrying amount to its net realizable value, which becomes the new cost
basis; the amount of the reduction is reported as an investment loss. Great
American Reserve recognizes any recovery of such reductions in the cost basis of
an investment only upon the sale, repayment or other disposition of the
investment. Great American Reserve recorded writedowns of investments of $0.3
million in the nine months ended September 30, 1997 as a result of changes in
conditions which caused it to conclude that the decline in fair value of such
investments was other than temporary. Great American Reserve had no such write
downs in the nine months ended September 30, 1996. Great American Reserve's
investment portfolio is subject to the risks of further declines in realizable
value. Great American Reserve and CCM, however, attempt to mitigate this risk
through the diversification and active management of its portfolio.
Great American Reserve had no fixed maturity investment in technical
default (i.e., in default, but not as to the payment of interest or principal)
and $.3 million of fixed maturity investments in substantive default (i.e., in
default due to nonpayment of interest or principal) at September 30, 1997.
At September 30, 1997, fixed maturity investments included $661.7 million
of mortgage-backed securities (37 percent of the fixed maturity security
portfolio). CMOs are securities backed by pools of pass-through securities
and/or mortgages that are segregated into sections or "tranches" which provide
for sequential retirement of principal rather than the pro rata share of
principal return which occurs through regular monthly principal payments on
pass-through securities.
The yield characteristics of mortgage-backed securities differ from those
of traditional fixed income securities. Interest and principal payments occur
more frequently, often monthly, and mortgage-backed securities are subject to
risks associated with variable prepayments. Prepayment rates are influenced by a
number of factors which cannot be predicted with certainty, including the
relative sensitivity of the underlying mortgages backing the assets to changes
in interest rates; a variety of economic, geographic and other factors; and the
repayment priority of the securities in the overall securitization structures.
In general, prepayments on the underlying mortgage loans, and the
securities backed by these loans, increase when the level of prevailing interest
rates declines significantly below the interest rates on such loans.
Mortgage-backed securities purchased at a discount to par will experience an
increase in yield when the underlying mortgages prepay faster than expected.
Those securities purchased at a premium that prepay faster than expected will
incur a reduction in yield. When declines in interest rates occur, the proceeds
from the prepayment of mortgage-backed securities are likely to be reinvested at
lower rates than Great American Reserve was earning on the prepaid securities.
As the level of prevailing interest rates increases, prepayments on
mortgage-backed securities decrease as fewer underlying mortgages are
refinanced. When this occurs, the average maturity and duration of the
mortgage-backed securities increase, which decreases the yield on
mortgage-backed securities purchased at a discount because the discount is
realized as income at a slower rate and increases the yield on those purchased
at a premium as a result of a decrease in annual amortization of the premium.
The following table sets forth the par value, amortized cost and estimated
fair value of mortgage-backed securities including CMOs summarized by interest
rates on the underlying collateral at September 30, 1997:
<TABLE>
<CAPTION>
Par Amortized Estimated
value cost fair value
----- ---- ----------
(Dollars in millions)
<S> <C> <C> <C>
Below 7 percent............................................................ $183.0 $179.7 $179.5
7 percent - 8 percent...................................................... 330.3 333.0 336.2
8 percent - 9 percent...................................................... 68.4 68.4 69.7
9 percent and above........................................................ 75.0 74.8 76.3
-------- -------- --------
Total mortgage-backed securities...................................... $656.7 $655.9 $661.7
====== ====== ======
</TABLE>
The amortized cost and estimated fair value of mortgage-backed securities
including CMOs at September 30, 1997, summarized by type of security were as
follows:
<TABLE>
<CAPTION>
Estimated fair value
---------------------------
% of
Amortized fixed
Type cost Amount maturities
- ---- ---- ------ ----------
(Dollars in millions)
<S> <C> <C> <C>
Pass-throughs and sequential and targeted amortization classes............ $550.7 $555.4 31%
Planned amortization classes and accretion directed bonds.................. 72.3 73.1 4
Subordinated classes....................................................... 32.9 33.2 2
-------- -------- ---
$655.9 $661.7 37%
====== ====== ==
</TABLE>
Pass-throughs and sequential and targeted amortization classes have similar
prepayment variability. Pass-throughs have historically provided the best
liquidity in the mortgage-backed securities market and provide the best
price/performance ratio in a highly volatile interest rate environment. This
type of security is also frequently used as collateral in the dollar-roll
market. Sequential classes pay in a strict sequence; all principal payments
received by the CMO are paid to the sequential tranches in order of priority.
Targeted amortization classes provide a modest amount of prepayment protection
when prepayments on the underlying collateral increase from those assumed at
pricing. Thus, they offer slightly better call protection than sequential
classes and pass-throughs.
Planned amortization classes and accretion directed bonds are some of the
most stable and liquid instruments in the mortgage-backed securities market.
Planned amortization class bonds adhere to a fixed schedule of principal
payments as long as the underlying mortgage collateral experiences prepayments
within a certain range. Changes in prepayment rates are first absorbed by
support classes. This insulates the planned amortization classes from the
consequences of both faster prepayments (average life shortening) and slower
prepayments (average life extension).
Subordinated CMO classes have both prepayment and credit risk. The
subordinated classes are used to lend credit enhancement to the senior
securities and as such, rating agencies require that this support not
deteriorate due to the prepayment of the subordinated securities. The credit
risk of subordinated classes is derived from the negative leverage of owning a
small percentage of the underlying mortgage loan collateral while bearing a
majority of the risk of loss due to homeowner defaults.
All mortgage-backed securities are subject to risks associated with
variable prepayments. As a result, these securities may have a different actual
maturity than planned at the time of purchase. When securities having a cost
greater than par are backed by mortgages that prepay faster than expected, Great
American Reserve records a charge to investment income. When securities having a
cost less than par prepay faster than expected, Great American Reserve records
investment income.
The degree to which a mortgage-backed security is susceptible to income
fluctuations is influenced by: (i) the difference between its cost and par; (ii)
the relative sensitivity of the underlying mortgages backing the security to
prepayment in a changing interest rate environment; and (iii) the repayment
priority of the security in the overall securitization structure. Great American
Reserve limits the extent of these risks by : (i) purchasing securities which
are backed by collateral with lower prepayment sensitivity (such as mortgages
priced at a discount to par value and mortgages that are extremely seasoned);
(ii) avoiding securities whose values are heavily influenced by changes in
prepayments (such as interest-only and principal-only securities); and (iii)
investing in securities structured to reduce prepayment risk (such as planned
amortization class ("PAC") and targeted amortization class ("TAC")
collateralized mortgage obligations). PAC and TAC instruments represented
approximately 20 percent of Great American Reserve's mortgage-backed securities
at September 30, 1997.
If Great American Reserve determines that it will dispose of an investment
held in the actively managed fixed maturity category, it will either sell the
security or transfer it to the trading account at its fair value; the gain or
loss is recognized immediately. There were no such transfers in the nine months
ended September 30, 1997. During the first nine months of 1997, Great American
Reserve sold actively managed fixed maturity securities generating proceeds of
$631.2 million, resulting in $7.1 million of investment gains (before related
expenses, amortization and taxes). Such securities were sold in response to
changes in the investment environment which created opportunities to enhance the
total return of the investment portfolio without adversely affecting the quality
of the portfolio or the matching of expected maturities of assets and
liabilities. The realization of gains and losses affects the timing of the
amortization of the cost of policies produced and the cost of policies
purchased, as explained in note 1 to the financial statements.
Other Investments
Credit-tenant loans are loans on commercial properties where the lease of
the principal tenant is assigned to the lender and the principal tenant, or any
guarantor of such tenant's obligations, has a credit rating at the time of
origination of the loan of at least BBB- or its equivalent. The underwriting
guidelines consider such factors as: (i) the lease term of the property; (ii)
the mortgagee's management ability, including business experience, property
management capabilities and financial soundness; and (iii) such economic,
demographic or other factors that may affect the income generated by the
property, or its value. The underwriting guidelines also generally require a
loan-to-value ratio of 75 percent or less. Credit-tenant loans are carried at
amortized cost and were $97.4 million at September 30, 1997, or 3.8 percent of
total invested assets. The total estimated fair value of credit-tenant loans was
$99.5 million at September 30, 1997.
At September 30, 1997, Great American Reserve held mortgage loan
investments with a carrying value of $63.0 million (or 2.4 percent of total
invested assets) and a fair value of $66.6 million. Substantially all of the
mortgage loan investments were commercial loans.
Non-current mortgage loans were not significant at September 30, 1997. At
September 30, 1997, Great American Reserve had a loan loss reserve of $.9
million. Approximately 33 percent, 21 percent and 8 percent of the mortgage
loans were on properties located in California, Texas and Florida, respectively.
No other state comprised greater than 7 percent of the mortgage loan balance.
At September 30, 1997, Great American Reserve held no trading account
securities. Trading account securities are investments that are purchased with
the intent to be traded prior to their maturity, or are believed likely to be
disposed of in the foreseeable future as a result of market or issuer
developments. Trading account securities are carried at estimated fair value,
with the changes in fair value reflected in the statement of operations.
Short-term investments totaled $64.2 million, or 2.5 percent of invested
assets at September 30, 1997, and consisted primarily of commercial paper and
repurchase agreements relating to government securities.
LIQUIDITY
Great American Reserve generally produces adequate cash flow from premium
collections and investment income to meet its obligations. The liabilities
related to insurance policies are primarily long term and generally are paid
from future cash flows. Most of the assets, other than policy loans, are
invested in bonds and other securities, substantially all of which are readily
marketable. Although there is no present need or intent to dispose of such
investments, Great American Reserve could liquidate portions of its investments
if the need arose.
As part of its investment strategy, Great American Reserve enters into
reverse repurchase agreements and dollar-roll transactions to increase its
return on investments and improve its liquidity. 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 the repurchase involves securities that are
only substantially the same as the securities sold. These transactions are
accounted for as short-term collateralized borrowings. Such borrowings averaged
approximately $47.4 million during the first nine months of 1997 (compared to an
average of $118.0 million during the first nine months of 1996) 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 5.1 percent in the first nine months of 1997 and 5.3 percent in
the first nine months of 1996. The primary risk associated with short-term
collateralized borrowings is that the counterparty will be unable to perform
under the terms of the contract. Great American Reserve's exposure is limited to
the excess of the net replacement cost of the securities over the value of the
short-term investments (which was not material at September 30, 1997). Great
American Reserve believes that the counterparties to its reverse repurchase and
dollar-roll agreements are financially responsible and that the counterparty
risk is minimal.
Of Great American Reserve's total insurance liabilities at September 30,
1997 less than 7 percent could not be surrendered, 51 percent could be
surrendered only by incurring a surrender charge and 42 percent could be
surrendered without penalty.
Great American Reserve believes that it has adequate short-term investments
and readily marketable investment-grade securities to cover the payments under
contracts containing fixed payment dates plus any likely cash needs for all
other contracts and obligations. Great American Reserve's investment portfolio
at September 30, 1997 included $64.2 million of short-term investments and $1.7
billion of publicly traded investment-grade bonds. Great American Reserve
believes that such investments could be readily sold at or near carrying value
or used to facilitate borrowings under reverse repurchase agreements.
YEAR 2000 CONVERSION
Great American Reserve, like other companies, has initiated programs to
assure that all of the computer systems it utilizes (including the computer
systems used by its outside service providers) will function properly in the
year 2000. Although an assessment of the total expected costs specifically
related to the year 2000 conversion has not been completed, the total amounts to
be expensed over the next three years are not expected to have a significant
effect on Great American Reserve's financial position or results of operations.
Great American Reserve believes it has taken steps that are reasonably designed
to address the potential failure of computer systems used by its service
providers and to assure its year 2000 program is completed on a timely basis.
However, there can be no assurance that the steps taken will be sufficient to
avoid any adverse impact.
DIRECTORS AND EXECUTIVE OFFICERS
Great American Reserve's directors and executive officers as of February 9,
1998, are listed below:
Principal Business Occupation
NAME During Last Five Years
- -------------------- --------------------------------------------
Ngaire E. Cuneo Since 1993, Director of Conseco's principal
(Age 47) Insurance subsidiaries. Since 1992,
Executive Vice President, Corporate
Development of Conseco, Inc. and various
positions with certain of its affiliates.
Prior thereto, Ms. Cuneo was Senior Vice
President/Managing Director of GE Capital
from 1986 - 1992.
Stephen C. Hilbert Since 1979, Chairman of the Board, Chief
(Age 52) Executive Officer and Director of Conseco,
Inc. Since 1988, President and various
positions with the Company and certain of
its affiliates.
Rollin M. Dick Since 1986, Executive Vice President, Chief
(Age 66) Financial Officer and Director of Conseco,
Inc. and various positions with the Company
and certain of its affiliates.
Donald F. Gongaware Since 1985, Executive Vice President, Chief
(Age 62) Operations Officer and Director of Conseco,
Inc. and various positions with certain of
its affiliates.
James S. Adams Chief Accounting Officer of Conseco.
(Age 38)
EXECUTIVE COMPENSATION
Great American Reserve has no full-time employees and does not compensate any
employee, officer or director of Great American Reserve.
INDEPENDENT ACCOUNTANTS
The financial statements of Great American Reserve as of December 31, 1996 and
1995, and for the year ended December 31, 1996, the four months ended December
31, 1995, the eight months ended August 31, 1995, and the year ended December
31, 1994, included in this prospectus, have been audited by Coopers & Lybrand
L.L.P., independent accountants, as set forth in their report appearing herein.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut, has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the contracts described in this prospectus.
FINANCIAL STATEMENTS
The financial statements of Great American Reserve which are included in this
prospectus should be considered only as bearing on the ability of Great American
Reserve to meet its obligations under the contracts. They should not be
considered as bearing on the investment performance of the investment
portfolios. The value of the investment portfolios is affected primarily by the
performance of the underlying investments.
GREAT AMERICAN RESERVE INSURANCE COMPANY
BALANCE SHEET
September 30, 1997
(Dollars in millions)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
Investments:
<S> <C>
Actively managed fixed maturities at fair value (amortized cost: $1,789.1)............................. $1,807.6
Mortgage loans......................................................................................... 63.0
Credit-tenant loans.................................................................................... 97.4
Policy loans........................................................................................... 80.7
Other invested assets ................................................................................. 93.6
Short-term investments................................................................................. 64.2
Assets held in separate accounts....................................................................... 366.1
----------
Total investments.................................................................................. 2,572.6
Accrued investment income................................................................................. 31.4
Cost of policies purchased................................................................................ 119.2
Cost of policies produced................................................................................. 50.4
Reinsurance receivables................................................................................... 22.5
Goodwill (net of accumulated amortization: $12.8)......................................................... 48.6
Other assets.............................................................................................. 15.4
-----------
Total assets...................................................................................... $2,860.1
========
</TABLE>
(continued on next page)
The accompanying notes are an integral part
of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
BALANCE SHEET (Continued)
September 30, 1997
(Dollars in millions, except per share amount)
(Unaudited)
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Liabilities:
<S> <C>
Insurance liabilities.................................................................................. $1,858.2
Income tax liabilities................................................................................. 44.6
Investment borrowings.................................................................................. 172.3
Other liabilities...................................................................................... 13.1
Liabilities related to separate accounts .............................................................. 366.1
----------
Total liabilities................................................................................ 2,454.3
---------
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
Unrealized appreciation of securities:
Fixed maturity securities (net of applicable deferred income taxes: $2.9)............................ 5.3
Other investments (net of applicable deferred income taxes: $.3)..................................... .5
Retained earnings...................................................................................... 19.2
-----------
Total shareholder's equity....................................................................... 405.8
----------
Total liabilities and shareholder's equity....................................................... $2,860.1
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended
September 30,
-------------------------
1997 1996
---- ----
Revenues:
<S> <C> <C>
Insurance policy income................................................. $ 57.4 $ 61.4
Net investment income................................................... 155.3 156.5
Net investment gains.................................................... 6.6 .2
--------- ---------
Total revenues...................................................... 219.3 218.1
------- ------
Benefits and expenses:
Insurance policy benefits............................................... 43.5 41.4
Change in future policy benefits........................................ (2.7) (5.5)
Interest expense on annuities and financial products.................... 93.7 89.6
Interest expense on investment borrowings............................... 1.8 4.7
Amortization............................................................ 11.4 14.1
Other operating costs and expenses...................................... 23.1 41.9
-------- -------
Total benefits and expenses......................................... 170.8 186.2
------- ------
Income before income taxes.......................................... 48.5 31.9
Income tax expense......................................................... 17.5 12.0
-------- --------
Net income.......................................................... $ 31.0 $ 19.9
======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended
September 30,
-------------------------
1997 1996
---- ----
Common stock and additional paid-in capital:
<S> <C> <C>
Balance, beginning and end of period.................................. $380.8 $380.8
====== ======
Unrealized appreciation (depreciation) of securities:
Fixed maturity securities:
Balance, beginning of period........................................ $ (4.4) $ 11.8
Change in unrealized appreciation (depreciation).................. 9.7 (25.2)
--------- --------
Balance, end of period.............................................. $ 5.3 $ (13.4)
======== =======
Other investments:
Balance, beginning of period........................................ $ (.2) $ .6
Change in unrealized appreciation (depreciation).................. .7 (1.0)
---------- ---------
Balance, end of period.............................................. $ .5 $ (.4)
========= ==========
Retained earnings:
Balance, beginning of period.......................................... $ 20.7 $ 49.4
Net income ....................................................... 31.0 19.9
Dividends on common stock......................................... (32.5) (54.4)
-------- --------
Balance, end of period................................................ $ 19.2 $ 14.9
======= =======
Total shareholder's equity........................................ $405.8 $381.9
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended
September 30,
------------------------
1997 1996
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income.............................................................. $ 31.0 $ 19.9
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Amortization...................................................... 11.3 14.2
Income taxes...................................................... 8.8 (3.2)
Insurance liabilities............................................. (103.6) (28.4)
Interest credited to insurance liabilities........................ 93.7 89.6
Fees charged to insurance liabilities............................. (23.8) (24.7)
Accrual and amortization of investment income..................... .6 .1
Deferral of cost of policies produced............................. (17.9) (8.0)
Net investment gains.............................................. (6.6) (.2)
Other............................................................. (12.3) (1.7)
--------- ---------
Net cash provided (used) by operating activities................ (18.8) 57.6
--------- --------
Cash flows from investing activities:
Sales of investments.................................................... 631.2 668.3
Maturities and redemptions.............................................. 86.6 97.1
Purchases of investments................................................ (679.5) (718.8)
-------- -------
Net cash provided by investing activities....................... 38.3 46.6
--------- --------
Cash flows from financing activities:
Deposits to insurance liabilities....................................... 172.6 124.7
Investment borrowings................................................... 123.9 35.7
Withdrawals from insurance liabilities.................................. (234.1) (220.1)
Dividends paid on common stock.......................................... (32.5) (44.5)
--------- ---------
Net cash provided (used) by financing activities................ 29.9 (104.2)
--------- -------
Net increase in short-term investments......................... 49.4 -
Short-term investments, beginning of period................................ 14.8 19.0
--------- --------
Short-term investments, end of period...................................... $ 64.2 $ 19.0
======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
(Unaudited)
------------------------------
The following notes should be read in conjunction with the notes to audited
financial statements included elsewhere in this Prospectus.
SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Great American Reserve Insurance Company (the "Company") markets
tax-qualified annuities and certain employee benefit-related insurance products
through professional independent agents. Since August 1995, the Company has been
a wholly owned subsidiary of Conseco, Inc. ("Conseco"), a financial services
holding company engaged in the development, marketing and administration of
annuity, individual health insurance and individual life insurance products.
During 1994, Conseco effectively owned 36 percent of the Company, through its
ownership interest in CCP Insurance, Inc. ("CCP"), a holding company organized
for companies previously acquired by Conseco Capital Partners, L.P. (the
"Partnership"), a limited partnership organized by Conseco. The Company was
acquired by the Partnership in 1990 (the "Partnership Acquisition"). During
1995, Conseco's ownership in CCP (and in the Company) increased to 49 percent as
a result of purchases of CCP common stock by CCP and Conseco. In August 1995,
Conseco completed the purchase of the remaining shares of CCP common stock it
did not already own in a transaction pursuant to which CCP was merged with
Conseco, with Conseco being the surviving corporation (the "Conseco
Acquisition").
The accompanying financial statements give effect to "push down" purchase
accounting to reflect the Partnership Acquisition and the Conseco Acquisition.
As a result of applying "push down" purchase accounting: (i) the Company's
financial position and results of operations for periods subsequent to the
Partnership Acquisition and before the Conseco Acquisition (the "prior basis")
reflect the Partnership's cost to acquire the Company's asset and liability
accounts based upon their estimated fair values at the purchase date; and (ii)
the Company's financial position and results of operations for periods
subsequent to the Conseco Acquisition reflect Conseco's cost to acquire the
Company's asset and liability accounts based upon their estimated fair values at
the purchase date.
The unaudited financial statements as of September 30, 1997 and 1996,
reflect all adjustments, consisting only of normal recurring items, which are
necessary to present fairly the Company's financial position and results of
operations on a basis consistent with that of prior audited financial
statements.
In preparing financial statements in conformity with generally accepted
accounting principles, the Company is required to make estimates and assumptions
that significantly affect various reported amounts. For example, the Company
uses significant estimates and assumptions in calculating the cost of policies
produced, the cost of policies purchased, insurance liabilities, guaranty fund
assessment accruals and deferred income taxes. If future experience differs
materially from these estimates and assumptions, the Company's financial
statements could be affected.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
(Unaudited)
------------------------------
ADJUSTMENT TO ACTIVELY MANAGED FIXED MATURITY SECURITIES
The Company classifies fixed maturity securities into three categories:
"actively managed", and "trading account" (which are carried at estimated fair
value) and "held to maturity" (which are carried at amortized cost). The Company
did not carry any fixed maturity securities in the trading account or held to
maturity categories at September 30, 1997. Adjustments to carry actively managed
fixed maturity securities at fair value have no effect on earnings, but are
recorded, net of tax, as a component of shareholder's equity. The following
table summarizes the effect of these adjustments as of September 30, 1997:
<TABLE>
<CAPTION>
Effect of fair
Balance value adjustment on
before actively managed Reported
adjustment fixed maturities amount
---------- ---------------- ------
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturity securities.................... $1,789.1 $ 18.5 $1,807.6
Cost of policies purchased.................................... 128.1 (8.9) 119.2
Cost of policies produced..................................... 51.8 (1.4) 50.4
Income tax liabilities........................................ 41.7 2.9 44.6
Net unrealized appreciation of fixed
maturity securities....................................... - 5.3 5.3
</TABLE>
SHAREHOLDER'S EQUITY
The Company paid shareholder dividends of $32.5 million and $44.5 million
during the nine months ended September 30, 1997 and 1996, respectively. In
addition, during the first nine months of 1996, the Company forgave receivables
from Conseco totaling $9.9 million. This transaction is reflected as a dividend
to Conseco in the accompanying statement of shareholder's equity.
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 paid to Conseco were $28.0 million and $32.6 million
during the nine months ended September 30, 1997 and 1996, respectively.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Great American Reserve Insurance Company
We have audited the accompanying balance sheet of Great American Reserve
Insurance Company (the "Company") as of December 31, 1996 and 1995, and the
related statements of operations, shareholder's equity and cash flows for the
year ended December 31, 1996 and the four months ended December 31, 1995. We
have also audited the accompanying statements of operations, shareholder's
equity and cash flows of the Company for the eight months ended August 31, 1995,
and the year ended December 31, 1994, based on the basis of accounting
applicable to periods prior to the adoption of push down accounting upon
Conseco, Inc.'s purchase of all common shares of the Company it did not
previously own (see note 1 of the notes to financial statements regarding the
adoption of push down accounting). 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Great American Reserve
Insurance Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the year ended December 31, 1996, the four
months ended December 31, 1995, the eight months ended August 31, 1995 and the
year ended December 31, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
March 14, 1997
GREAT AMERICAN RESERVE INSURANCE COMPANY
BALANCE SHEET
December 31, 1996 and 1995
(Dollars in millions)
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
Investments:
<S> <C> <C>
Actively managed fixed maturities at fair value (amortized cost:
1996 - $1,810.8; 1995 - $1,980.1)............................................... $1,795.1 $2,030.9
Mortgage loans..................................................................... 77.3 95.5
Credit-tenant loans................................................................ 93.4 79.4
Policy loans....................................................................... 80.8 84.7
Other invested assets ............................................................. 89.0 37.8
Short-term investments............................................................. 14.8 19.0
Assets held in separate accounts................................................... 232.4 137.5
---------- ----------
Total investments............................................................ 2,382.8 2,484.8
Accrued investment income.............................................................. 32.9 34.0
Cost of policies purchased............................................................. 143.0 120.0
Cost of policies produced.............................................................. 38.2 24.0
Reinsurance receivables................................................................ 25.7 27.0
Goodwill (net of accumulated amortization: 1996 - $11.7; 1995 - $10.2)................. 49.7 53.0
Other assets........................................................................... 8.2 14.0
------------ -----------
Total assets................................................................. $2,680.5 $2,756.8
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
BALANCE SHEET (Continued)
December 31, 1996 and 1995
(Dollars in millions, except per share amount)
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
Liabilities:
<S> <C> <C>
Insurance liabilities.............................................................. $1,957.5 $2,039.1
Income tax liabilities............................................................. 29.8 39.0
Investment borrowings.............................................................. 48.4 84.2
Other liabilities.................................................................. 15.5 14.4
Liabilities related to separate accounts .......................................... 232.4 137.5
---------- ----------
Total liabilities.......................................................... 2,283.6 2,314.2
--------- ---------
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
Unrealized appreciation (depreciation) of securities:
Fixed maturity securities (net of applicable deferred income taxes:
1996 - $(2.4); 1995 - $6.8).................................................. (4.4) 11.8
Other investments (net of applicable deferred income taxes:
1996 - $(.1); 1995 - $.4).................................................... (.2) .6
Retained earnings.................................................................. 20.7 49.4
----------- -----------
Total shareholder's equity................................................. 396.9 442.6
---------- ----------
Total liabilities and shareholder's equity................................. $2,680.5 $2,756.8
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(Dollars in millions)
<TABLE>
<CAPTION>
Prior basis
--------------------------
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income............................... $ 81.4 $ 31.8 $ 60.5 $ 98.6
Net investment income................................. 218.4 74.2 136.4 187.9
Net investment gains.................................. 2.7 12.5 7.3 .2
--------- ------- -------- ---------
Total revenues................................ 302.5 118.5 204.2 286.7
------- ------ ------ ------
Benefits and expenses:
Insurance policy benefits............................. 54.9 18.9 45.9 66.2
Change in future policy benefits...................... (3.7) .2 (4.3) (1.3)
Interest expense on annuities and financial products.. 129.4 44.2 74.6 101.4
Interest expense on investment borrowings............. 6.2 1.0 3.6 2.9
Amortization related to operations.................... 17.8 5.3 11.7 16.0
Amortization related to investment gains............. 2.5 10.0 4.3 2.7
Other operating costs and expenses.................... 54.3 13.1 23.7 37.3
-------- ------- ------- -------
Total benefits and expenses................... 261.4 92.7 159.5 225.2
------- ------- ------ ------
Income before income taxes.................... 41.1 25.8 44.7 61.5
Income tax expense........................................ 15.4 9.7 16.5 22.7
-------- -------- ------- -------
Net income.................................... $ 25.7 $ 16.1 $ 28.2 $ 38.8
======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in millions)
<TABLE>
<CAPTION>
Prior basis
--------------------------
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common stock and additional paid-in capital:
Balance, beginning of period .......................... $ 380.8 $ 380.8 $ 339.7 $ 339.7
Adjustment of balance due to new accounting basis ... -- -- 41.1 --
------------- ------------- ------ ------
Balance, end of period ................................. $ 380.8 $ 380.8 $ 380.8 $ 339.7
============= ============= ======== ========
Unrealized appreciation (depreciation) of securities:
Fixed maturity securities:
Balance, beginning of period ........................ $ 11.8 $ 1.3 $ (53.0) $ 33.3
Change in unrealized appreciation (depreciation) .. (16.2) 10.5 55.7 (86.3)
Adjustment of balance due to new
accounting basis ................................ -- -- (1.4) --
------------- ------------- ---- -------
Balance, end of period .............................. $ (4.4) $ 11.8 $ 1.3 $(53.0)
============= ============= === ======
Other investments:
Balance, beginning of period ........................ $ .6 $ .6 $ (2.1) $ (.1)
Change in unrealized appreciation (depreciation) .. (.8) - 3.3 (2.0)
Adjustment of balance due to new
accounting basis ................................ -- -- (.6) --
------------ -------------- ---- --------
Balance, end of period.............................. $ (.2) $ .6 $ .6 $ (2.1)
============= ============ ======== ====
Retained earnings:
Balance, beginning of year ............................. $ 49.4 $ 33.3 $80.3 $ 75.6
Net income .......................................... 25.7 16.1 28.2 38.8
Dividends on common stock ........................... (54.4) - (41.2) (34.1)
Adjustment of balance due to new
accounting basis .................................. -- -- (34.0) --
------------- ------------- ------ ------
Balance, end of year ................................... $ 20.7 $ 49.4 $ 33.3 $ 80.3
============= ============ ======== =======
Total shareholder's equity ........................ $ 396.9 $ 442.6 $ 416.0 $ 364.9
============= ============ ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
Prior basis
-------------------------
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 25.7 $ 16.1 $ 28.2 $ 38.8
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization................................... 20.4 15.3 16.0 18.7
Income taxes................................... (3.9) 2.3 2.9 1.3
Insurance liabilities.......................... (40.5) (25.8) (14.0) (10.5)
Interest credited to insurance liabilities..... 129.4 44.2 74.6 101.4
Fees charged to insurance liabilities ......... (32.8) (10.3) (22.2) (36.5)
Accrual and amortization of investment income 3.1 3.2 (1.8) (1.2)
Deferral of cost of policies produced ........ (13.2) (3.0) (6.6) (9.4)
Investment gains............................... (2.7) (12.5) (7.3) (.2)
Other.......................................... (8.9) (8.9) (3.2) 5.0
--------- --------- --------- ---------
Net cash provided by operating activities...... 76.6 20.6 66.6 107.4
--------- -------- -------- ------
Cash flows from investing activities:
Sales of investments................................... 988.9 513.2 406.5 586.0
Maturities and redemptions............................. 101.7 60.4 57.5 118.4
Purchases of investments............................... (954.2) (532.2) (476.2) (786.9)
-------- ------- ------- -------
Net cash provided (used) by investing
activities................................. 136.4 41.4 (12.2) (82.5)
-------- --------- -------- --------
Cash flows from financing activities:
Deposits to insurance liabilities...................... 169.8 50.8 104.4 146.0
Cash paid in reinsurance recapture .................... - (71.1) - -
Investment borrowings.................................. (35.8) (36.8) 121.0 (58.3)
Withdrawals from insurance liabilities................. (306.7) (71.9) (166.3) (171.4)
Dividends paid on common stock......................... (44.5) - (41.2) (34.1)
--------- ------------ -------- --------
Net cash provided (used) by
financing activities....................... (217.2) (129.0) 17.9 (117.8)
-------- -------- -------- -------
Net increase (decrease) in short-term
investments................................ (4.2) (67.0) 72.3 (92.9)
Short-term investments, beginning of period................ 19.0 86.0 13.7 106.6
--------- --------- ------- -------
Short-term investments, end of period...................... $ 14.8 $ 19.0 $ 86.0 $ 13.7
======== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Great American Reserve Insurance Company (the "Company") markets
tax-qualified annuities and certain employee benefit-related insurance products
through professional independent agents.
The effect of the adoption of the new basis of accounting on the Company's
balance sheet accounts on August 31, 1995, was as follows (dollars in millions):
<TABLE>
<CAPTION>
Debit
(Credit)
--------
<S> <C>
Cost of policies purchased.............................................. $ 59.0
Cost of policies produced .............................................. (27.0)
Goodwill................................................................ (15.1)
Insurance liabilities................................................... (1.2)
Income tax liabilities.................................................. (11.9)
Other................................................................... 1.3
Common stock and additional paid-in capital............................. (41.1)
Net unrealized appreciation of fixed maturity securities................ 1.4
Net unrealized appreciation of other investments........................ .6
Retained earnings....................................................... 34.0
</TABLE>
The accompanying financial statements also include the effect of the
December 31, 1994, merger of Jefferson National Life Insurance Company
("Jefferson National", which was acquired by the Partnership in 1990) into the
Company. This merger has been accounted for as a pooling of interests;
therefore, the assets and liabilities of each company have been combined at
their book values and the statements of operations, shareholder's equity and
cash flows have been reported as if the merger had occurred on January 1, 1994.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"), which differ in some respects
from statutory accounting practices followed in the preparation of financial
statements submitted to state insurance departments. The financial statements
prepared in conformity with GAAP include amounts based on informed estimates and
judgment of management, with consideration given to materiality. Significant
estimates and assumptions are utilized in the calculation of cost of policies
produced, cost of policies purchased, insurance liabilities, guaranty fund
assessment accruals and deferred income taxes. Actual experience may differ from
those estimates. Certain amounts from the 1995 and 1994 financial statements and
notes have been reclassified to conform with the 1996 presentation.
INVESTMENTS
Fixed maturity investments are securities that mature more than one year
after issuance. They include bonds, notes receivable and preferred stocks with
mandatory redemption features and are classified as follows:
Actively managed - fixed maturity securities that may be sold prior to
maturity due to changes that might occur in market interest rates, issuer
credit quality or the Company's liquidity requirements. Actively managed
fixed maturity securities are carried at estimated fair value and the
unrealized gain or loss is recorded net of tax and related adjustments
described below as a component of shareholder's equity.
Trading account - fixed maturity securities are bought and held principally
for the purpose of selling them in the near term. Trading account
securities are carried at estimated fair value. Unrealized gains or losses
are included in net investment gains
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
(losses). The Company did not hold any trading account securities during
1996, 1995 or 1994.
Held to maturity - (all other fixed maturity securities) are those
securities which the Company has the ability and positive intent to hold to
maturity, and are carried at amortized cost. The Company may dispose of
these securities if the credit quality of the issuer deteriorates, if
regulatory requirements change or under other unforeseen circumstances. The
Company has not held any securities in this classification during 1996,
1995 or 1994.
Anticipated returns, including investment gains and losses, from the
investment of policyholder balances are considered in determining the
amortization of the cost of policies purchased and the cost of policies
produced. When actively managed fixed maturity securities are stated at
estimated fair value, an adjustment to the cost of policies purchased and the
cost of policies produced may be necessary if a change in amortization would
have been recorded if such securities had been sold at their fair value and the
proceeds reinvested at current yields. Furthermore, if future yields expected to
be earned on such securities decline, it may be necessary to increase certain
insurance liabilities. Adjustments to such liabilities are required when their
balances, in addition to future net cash flows (including investment income),
are insufficient to cover future benefits and expenses.
Unrealized gains and losses and the related adjustments described in the
preceding paragraph have no effect on earnings, but are recorded, net of tax, as
a component of shareholder's equity. The following table summarizes the effect
of these adjustments as of December 31, 1996:
<TABLE>
<CAPTION>
Effect of fair
Balance value adjustment on
before actively managed Reported
adjustment fixed maturities amount
---------- ---------------- ------
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturity securities.................... $1,810.8 $(15.7) $1,795.1
Cost of policies purchased.................................... 135.2 7.8 143.0
Cost of policies produced..................................... 37.1 1.1 38.2
Income tax liabilities........................................ 32.2 (2.4) 29.8
Net unrealized depreciation of fixed maturities............... - (4.4) (4.4)
</TABLE>
When changes in conditions cause a fixed maturity investment to be
transferred to a different category (e.g. actively managed, held to maturity or
trading), the security is transferred to the new category at its fair value at
the date of the transfer. There were no such transfers in 1996, 1995 or 1994. At
the transfer date, the security's unrealized gain or loss is recorded as
follows:
o For transfers to the trading category, the unrealized gain or loss is
recognized in earnings;
o For transfers from the trading category, the unrealized gain or loss
already recognized in earnings is not reversed;
o For transfers to actively managed from held to maturity, the
unrealized gain or loss is recognized in shareholder's equity; and
o For transfers to held to maturity from actively managed, the
unrealized gain or loss at the date of transfer continues to be
recognized in shareholder's equity, but is amortized as a yield
adjustment until ultimately sold.
Credit-tenant loans are loans for commercial properties which require: (i)
the lease of the principal tenant to be assigned to the Company; (ii) the lease
to produce adequate cash flow to fund substantially all the cash requirements of
the loan; and (iii) the principal tenant, or the guarantor of such tenant's
obligations, to have an investment-grade credit rating when the loan is made.
These loans also must be collateralized by the value of the related property.
Underwriting guidelines take into account such factors as: (i) the lease term of
the property; (ii) the borrower's management ability, including business
experience, property management capabilities and financial soundness; and (iii)
such economic, demographic or other factors that may affect the income generated
by the property or its value. The underwriting guidelines generally require a
loan-to-value ratio of 75 percent or less. Credit-tenant loans and traditional
mortgage loans are carried at amortized cost.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Policy loans are stated at their current unpaid principal balance.
Short-term investments include commercial paper, invested cash and other
investments purchased with maturities of less than three months and are carried
at amortized cost, which approximates fair value. The Company considers all
short-term investments to be cash equivalents.
Fees received and costs incurred in connection with origination of
investments, principally mortgage loans, are deferred. Fees, costs, discounts
and premiums are amortized as yield adjustments over the contractual life of the
investments. Anticipated prepayments on mortgage-backed securities are taken
into consideration in determining estimated future yields on such securities.
The specific identification method is used to account for the disposition
of investments. The differences between sale proceeds and carrying values are
reported as investment gains and losses, or as adjustments to investment income
if the proceeds are prepayments by issuers prior to maturity.
The Company regularly evaluates investment securities, credit-tenant loans
and mortgage loans based on current economic conditions, past credit loss
experience and other circumstances of the investee. A decline in a security's
net realizable value that is other than temporary is treated as an investment
loss and the cost basis of the security is reduced to its estimated fair value.
Impaired loans are revalued at the present value of expected cash flows
discounted at the loan's effective interest rate when it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the agreement. The Company accrues interest on the net carrying amount
of impaired loans.
As part of the Company's investment strategy, the Company may enter into
reverse repurchase agreements and dollar-roll transactions to increase its
investment return or to improve liquidity. These transactions are accounted for
as collateral borrowings, where the amount borrowed is equal to the sales price
of the underlying securities.
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 which may arise out of
any other business of the Company. The Company reports separate account assets
at market value; the underlying investment risks are assumed by the contract
holders. The Company records the related liabilities at amounts equal to the
underlying assets; the fair value of these liabilities equals their carrying
amount.
Cost of Policies Purchased
The cost of policies purchased represents the portion of the acquisition
cost that was allocated to the value of the right to receive future cash flows
from insurance contracts existing at the date such insurance contracts were
acquired. The value of cost of policies purchased is the actuarially determined
present value of the projected future cash flows from the insurance contracts
existing at the acquisition date. The method used to value the cost of policies
purchased is consistent with the valuation methods used most commonly to value
blocks of insurance business, which is also consistent with the basic
methodology generally used to value assets.
The method used is summarized as follows:
o Identify the expected future cash flows from the blocks of business.
o Identify the risks inherent in realizing those cash flows (i.e., what
is the probability that the cash flows will be realized).
o Identify the rate of return necessary considering the risks inherent
in realizing the cash flows.
o Determine the value of the policies by discounting the expected future
cash flows by the discount rate required.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The expected future cash flows used in determining such value are based on
actuarially determined projections of future premium collections, mortality,
surrenders, operating expenses, changes in insurance liabilities, investment
yields on the assets held to back the policy liabilities and other factors.
These projections take into account all factors known or expected at the
valuation date, based on the collective judgment of the Company's management.
Actual experience on purchased business may vary from projections due to
differences in renewal premiums collected, investment spread, investment gains
or losses, mortality and morbidity costs and other factors.
The discount rate used to determine the value of the cost of policies
purchased is the rate of return required in order to invest in the business
being acquired. In determining this required rate of return, the following
factors are considered:
o The magnitude of the risks associated with each of the actuarial
assumptions used in determining expected future cash flows.
o The cost of capital required to fund the acquisition.
o The likelihood of changes in projected future cash flows that might
occur if there are changes in insurance regulations and tax laws.
o The acquired business compatibility with other activities of the
Company that may favorably affect future cash flows.
o The complexity of the acquired business.
o Recent prices (i.e., discount rates used in determining valuations)
paid by others to acquire similar blocks of business.
After the cost of policies purchased is determined, it is amortized based
on the incidence of the expected cash flows. This asset is amortized using the
interest rate credited to the underlying policies.
If renewal premiums collected, investment spread, investment gains or
losses, mortality and morbidity costs or other factors differ from expectations,
amortization of the cost of policies purchased is adjusted. For example, the
sale of a fixed maturity investment may result in a gain (or loss). If the sale
proceeds are reinvested at a lower (or higher) earnings rate, there may also be
a reduction (or increase) in future investment spread. Amortization must be
increased (decreased) to reflect the change in the incidence of expected cash
flows consistent with the methods used with the cost of policies produced
(described below).
Each year, the recoverability of the cost of policies purchased is
evaluated by line of business within each block of purchased insurance business.
If current estimates indicate that the existing insurance liabilities, together
with the present value of future net cash flows from the blocks of business
purchased, will be insufficient to recover the cost of policies purchased, the
difference is charged to expense. Amortization is adjusted consistent with the
methods used with the cost of policies produced (as described below).
The cost of policies purchased related to the original acquisition of the
Company by the Partnership in 1990 is amortized under a slightly different
method than that described above. However, the effect of the different method on
1996 net income was insignificant.
COST OF POLICIES PRODUCED
Costs which vary with and are primarily related to the acquisition of new
business are deferred to the extent that such costs are deemed recoverable.
These costs include commissions, certain costs of policy issuance and
underwriting and certain agency expenses. For traditional life and health
contracts, deferred costs are amortized with interest in relation to future
anticipated premium revenue using the same assumptions that are used in
calculating the insurance liabilities. For immediate annuities with mortality
risks, deferred costs are amortized in relation to the present value of benefits
to be paid. For universal life-type, interest-sensitive and investment-type
contracts, deferred costs are amortized in relation to the present value of
expected gross profits from these contracts, discounted using the interest rate
credited to the policy (currently, 5 percent to 8 percent).
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Recoverability of the unamortized balance of cost of policies produced is
evaluated regularly and considers anticipated investment income. For universal
life-type contracts and investment-type contracts, the accumulated amortization
is adjusted (whether an increase or a decrease) whenever there is a change in
the estimated gross profits expected over the life of a block of business in
order to maintain a constant relationship between amortization and the present
value (discounted at the rate of interest that accrues to the policies) of
expected gross profits. For traditional and most other contracts, the
unamortized asset balance is reduced by a charge to income only when the sum of
the present value of discounted future cash flows and the policy liabilities is
not sufficient to cover such asset balance.
GOODWILL
The excess of the cost of acquiring the Company's net assets over its
estimated fair values is recorded as goodwill and is being amortized on the
straight-line basis over a 40-year period. The Company periodically assesses the
recoverability of goodwill through projections of future earnings of the
acquired business. Such assessment is made based on whether goodwill is fully
recoverable from projected undiscounted net cash flows from earnings of the
acquired business over the remaining amortization period. If future evaluations
of goodwill indicate a material change in the factors supporting recoverability
over the remaining amortization period, all or a portion of goodwill may need to
be written off or the amortization period shortened (no such changes have
occurred).
INSURANCE LIABILITIES, RECOGNITION OF INSURANCE POLICY INCOME AND RELATED
BENEFITS AND EXPENSES
Reserves for traditional and limited-payment life insurance contracts are
generally calculated using the net level premium method based on assumptions as
to investment yields, mortality, morbidity, withdrawals and dividends. The
assumptions are based on projections using past and expected experience and
include provisions for possible adverse deviation. These assumptions are made at
the time the contract is issued or, in the case of contracts acquired by
purchase, at the purchase date.
Reserves for universal life-type and investment-type contracts are based on
the contract account balance, if future benefit payments in excess of the
account balance are not guaranteed, or on the present value of future benefit
payments when such payments are guaranteed. Additional increases to insurance
liabilities are made if future cash flows including investment income are
insufficient to cover future benefits and expenses.
For investment-type contracts without mortality risk (such as deferred
annuities and immediate annuities with benefits paid for a period certain) and
for contracts that permit the Company or the insured to make changes in the
contract terms (such as single-premium whole life and universal life), premium
deposits and benefit payments are recorded as increases or decreases in a
liability account rather than as revenue and expense. Amounts charged against
the liability account for the cost of insurance, policy administration and
surrender penalties are recorded as revenues. Interest credited to the liability
account and benefit payments made in excess of the contract liability account
balance are charged to expense.
For traditional life insurance contracts, premiums are recognized as income
when due. Benefits and expenses are associated with earned premiums resulting in
their level recognition over the premium paying period of the contracts. Such
recognition is accomplished through the provision for future policy benefits and
the amortization of deferred policy acquisition costs.
For contracts with mortality risk, but with premiums paid for only a
limited period (such as single-premium immediate annuities with benefits paid
for the life of the annuitant), the accounting treatment is similar to
traditional contracts. However, the excess of the gross premium over the net
premium is deferred and recognized in relation to the present value of expected
future benefit payments.
Liabilities for incurred claims are determined using historical experience
and represent an estimate of the present value of the ultimate net cost of all
reported and unreported claims. Management believes these estimates are
adequate. Such estimates are periodically reviewed and any adjustments are
reflected in current operations.
For participating policies, the amount of dividends to be paid (which are
not significant) is determined annually by the Company. The portion of the
earnings allocated to participating policyholders is recorded as an insurance
liability.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
REINSURANCE
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid over
such limit by ceding reinsurance to other insurance enterprises or reinsurers
under excess coverage and coinsurance contracts. The Company has set its
retention limit for acceptance of risk on life insurance policies at various
levels up to $.5 million.
Assets and liabilities related to insurance contracts are reported before
the effects of reinsurance. Reinsurance receivables and prepaid reinsurance
premiums (including amounts related to insurance liabilities) are reported as
assets. Estimated reinsurance receivables are recognized in a manner consistent
with the liabilities relating to the underlying reinsured insurance contracts.
INCOME TAXES
Income tax expense includes deferred taxes arising from temporary
differences between the tax and financial reporting basis of assets and
liabilities. The effects of a tax rate change on current and accumulated
deferred income taxes are reflected in the period in which the change was
enacted.
In assessing the realization of deferred tax assets, the Company considers
whether it is more likely than not that the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences become deductible. If future income does not occur as expected,
deferred income taxes may need to be written off.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
determining estimated fair values of financial instruments:
Investment securities: The estimated fair values of fixed maturity
securities (including redeemable preferred stocks) are based on quotes from
independent pricing services, where available. For investment securities
for which such quotes are not available, the estimated fair values are
determined using values obtained from broker-dealer market makers or by
discounting expected future cash flows using current market interest rates
applicable to the yield, credit quality of the investments and maturity of
the investments.
Mortgage loans, credit-tenant loans and policy loans: The estimated fair
values of mortgage loans, credit-tenant loans and policy loans are
determined by discounting future expected cash flows using interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for purposes of
the calculations.
Other invested assets: The estimated fair values of these assets have been
assumed to be equal to their carrying value. Such value is believed to be a
reasonable approximation of the fair value of these investments.
Short-term investments: The estimated fair values of short-term investments
are based on quoted market prices, where available. The carrying amount
reported in the balance sheet for these assets approximates their estimated
fair value.
Insurance liabilities for investment contracts: The estimated fair values
of liabilities under investment-type insurance contracts are determined
using discounted cash flow calculations based on interest rates currently
being offered for similar contracts with maturities consistent with those
remaining for the contracts being valued.
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.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The estimated fair values of financial instruments are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in millions)
Financial assets issued for purposes other than trading:
<S> <C> <C> <C> <C>
Actively managed fixed maturity securities........... $1,795.1 $1,795.1 $2,030.9 $2,030.9
Mortgage loans....................................... 77.3 77.0 95.5 108.9
Credit-tenant loans.................................. 93.4 92.5 79.4 79.7
Policy loans......................................... 80.8 80.8 84.7 84.7
Other invested assets................................ 89.0 89.0 37.8 37.8
Short-term investments............................... 14.8 14.8 19.0 19.0
Financial liabilities issued for purposes other than trading:
Insurance liabilities for investment contracts (1)... $1,282.1 $1,282.1 $1,346.5 $1,346.5
Investment borrowings................................ 48.4 48.4 84.2 84.2
<FN>
----------------------
(1) The estimated fair value of the liabilities for investment contracts
was approximately equal to its carrying value at December 31, 1996 and
1995, because interest rates credited on the vast majority of account
balances approximate current rates paid on similar investments and
because these rates are not generally guaranteed beyond one year. The
Company is not required to disclose fair values for insurance
liabilities, other than those for investment contracts. However, the
Company takes into consideration the estimated fair values of all
insurance liabilities in its overall management of interest rate risk.
The Company attempts to minimize exposure to changing interest rates
by matching investment maturities with amounts due under insurance
contracts.
</FN>
</TABLE>
2. JEFFERSON NATIONAL MERGER
On December 31, 1994, Jefferson National was merged with the Company, with
the Company being the surviving corporation. The merger has been accounted for
as a pooling of interests and, accordingly, the financial statements for 1994
have been restated to include the accounts of Jefferson National. Certain 1994
balances for the separate companies are as follows:
<TABLE>
<CAPTION>
Amount prior to Jefferson
effect of merger National Combined
---------------- -------- --------
(Dollars in millions)
<S> <C> <C> <C>
Insurance policy income................................................... $ 53.2 $ 45.4 $ 98.6
Net investment income..................................................... 101.9 86.0 187.9
Total revenues............................................................ 154.1 132.6 286.7
Income before income taxes................................................ 25.9 35.6 61.5
Net income................................................................ 16.7 22.1 38.8
</TABLE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
3. INVESTMENTS
At December 31, 1996, the amortized cost and estimated fair value of
actively managed fixed maturity 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>
United States Treasury securities and obligations
of United States government corporations and
agencies............................................ $ 29.9 $ .3 $ .3 $ 29.9
Obligations of state and political subdivisions........ 6.1 .1 .1 6.1
Debt securities issued by foreign governments.......... 11.6 - .5 11.1
Public utility securities.............................. 234.8 2.4 7.0 230.2
Other corporate securities............................. 950.1 10.9 17.6 943.4
Mortgage-backed securities............................. 578.3 2.3 6.2 574.4
---------- ------- ------- ----------
Total............................................... $1,810.8 $16.0 $31.7 $1,795.1
======== ===== ===== ========
</TABLE>
At December 31, 1995, the amortized cost and estimated fair value of
actively managed fixed maturity 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>
United States Treasury securities and obligations
of United States government corporations and
agencies............................................ $ 59.2 $ 2.1 $ - $ 61.3
Obligations of state and political subdivisions........ 9.3 .2 .1 9.4
Debt securities issued by foreign governments.......... 8.3 .3 - 8.6
Public utility securities.............................. 351.6 11.4 2.0 361.0
Other corporate securities............................. 888.0 34.0 6.4 915.6
Mortgage-backed securities ............................ 663.7 12.2 .9 675.0
---------- ------ ------ ----------
Total........................................... $1,980.1 $60.2 $9.4 $2,030.9
======== ===== ==== ========
</TABLE>
Actively managed fixed maturity securities, summarized by the source of
their estimated fair value, were as follows at December 31, 1996:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
---- -----
(Dollars in millions)
<S> <C> <C>
Nationally recognized pricing services.......................................... $1,516.7 $1,500.4
Broker-dealer market makers..................................................... 242.9 243.6
Internally developed methods (calculated based
on a weighted-average current market yield of 10.2 percent).................. 51.2 51.1
----------- -----------
Total ................................................................. $1,810.8 $1,795.1
======== ========
</TABLE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The following table sets forth actively managed fixed maturity securities
at December 31, 1996, classified by rating categories. The category assigned is
the highest rating by a nationally recognized statistical rating organization
or, as to $23.5 million fair value of fixed maturity securities not rated by
such firms, the rating assigned by the National Association of Insurance
Commissioners ("NAIC"). For the purposes of this table, NAIC Class 1 is included
in the "A" rating; Class 2, "BBB-"; Class 3, "BB-"; and Classes 4-6, "B+ and
below":
<TABLE>
<CAPTION>
Percent of Percent of
Investment fixed total
Rating maturities investments
------ ---------- -----------
<S> <C> <C>
AAA................................................................................... 37% 28%
AA ................................................................................. 6 5
A ................................................................................. 21 15
BBB+.................................................................................. 9 6
BBB................................................................................... 13 10
BBB-.................................................................................. 7 5
---- ----
Investment-grade................................................................. 93 69
---- ---
BB+................................................................................... 1 1
BB ................................................................................. 1 1
BB-................................................................................... 2 2
B+ and below ......................................................................... 3 2
---- ----
Below investment-grade........................................................... 7 6
---- ----
Total actively managed fixed maturities...................................... 100% 75%
=== ==
</TABLE>
Below investment-grade actively managed fixed maturity securities,
summarized by the amount their amortized cost exceeds fair value, were as
follows at December 31, 1996:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
---- -----
(Dollars in millions)
<S> <C> <C> <C>
Amortized cost exceeds fair value by more than 15%.................................. $ 3.1 $ 1.7
Amortized cost exceeds fair value by more than 5% but not more than 15%............. 18.4 16.8
All others.......................................................................... 111.1 113.3
------- -------
Total...................................................................... $132.6 $131.8
====== ======
</TABLE>
The Company had no fixed maturity investments in technical or substantive
default as of December 31, 1996. The Company recorded writedowns of fixed
maturity investments and other invested assets totaling $.8 million in 1996,
$1.6 million in 1995 and $1.0 million in 1994, as a result of changes in
conditions which caused it to conclude the decline in the fair value of the
investment was other than temporary. As of December 31, 1996, there were no
fixed maturity investments about which the Company had serious doubts as to the
ability of the issuer to comply with the contractual terms of their obligations
on a timely basis. Investment income foregone due to defaulted securities was
$.2 million in 1996, $.1 million in the four months ended December 31, 1995 and
$1.3 million in 1994. There was no investment income foregone due to defaulted
securities during the eight months ended August 31, 1995.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Actively managed fixed maturity securities at December 31, 1996, summarized
by contractual maturity date, are shown below. 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 and because most
mortgage-backed securities 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......................................................... $ 10.7 $ 10.6
Due after one year through five years........................................... 102.3 103.1
Due after five years through ten years.......................................... 314.7 313.5
Due after ten years............................................................. 804.8 793.5
---------- ----------
Subtotal................................................................. 1,232.5 1,220.7
Mortgage-backed securities...................................................... 578.3 574.4
---------- ----------
Total ................................................................... $1,810.8 $1,795.1
======== ========
</TABLE>
Net investment income consisted of the following:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Actively managed fixed maturity securities....... $146.4 $53.9 $110.2 $157.9
Mortgage loans................................... 11.8 4.8 8.0 13.0
Credit-tenant loans ............................. 7.2 1.7 4.1 3.8
Policy loans..................................... 5.0 1.9 3.5 5.2
Short-term investments........................... 2.3 .8 1.9 3.8
Other invested assets............................ 11.4 .3 1.6 3.2
Separate accounts................................ 35.6 11.3 7.9 2.3
-------- ------ --------- ---------
Gross investment income..................... 219.7 74.7 137.2 189.2
Investment expenses.............................. 1.3 .5 .8 1.3
--------- -------- ---------- ---------
Net investment income....................... $218.4 $74.2 $136.4 $187.9
====== ===== ====== ======
</TABLE>
The Company did not have any fixed maturity investments and mortgage loans
not accruing investment income in 1996, 1995 and 1994.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The proceeds from sales of actively managed fixed maturity securities were
$938.3 million in 1996, $512.5 million in the four months ended December 31,
1995, $406.0 million in the eight months ended August 31, 1995 and $578.3
million in 1994. Net investment gains consisted of the following:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Fixed maturities:
Gross gains................................... $16.6 $16.5 $14.4 $17.6
Gross losses.................................. (9.2) (2.2) (2.3) (9.3)
Other than temporary decline in fair value.... (.2) (.4) (1.2) (1.0)
-------- -------- ------- -------
Net investment gains from fixed maturities
before expenses........................... 7.2 13.9 10.9 7.3
Mortgage loans................................... - - (.2) -
Other .......................................... - - (1.0) (3.1)
Other than temporary decline in fair value....... (.6) - - -
-------- -------- --------- -----
Net investment gains before expenses........ 6.6 13.9 9.7 4.2
Investment gain expenses......................... 3.9 1.4 2.4 4.0
--------- --------- --------- ------
Net investment gains........................ $ 2.7 $12.5 $ 7.3 $.2
====== ===== ===== =======
</TABLE>
The change in net unrealized appreciation (depreciation) on investments
consisted of the following:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Actively managed fixed maturities................ $(66.5) $45.5 $164.1 $(254.9)
Other invested assets............................ (1.3) .1 5.1 (3.2)
-------- ------- --------- -----------
Subtotal................................ (67.8) 45.6 169.2 (258.1)
Less effect on other balance sheet accounts:
Cost of policies purchased.................... 36.6 (26.3) (64.1) 93.1
Cost of policies produced..................... 4.5 (2.7) (12.0) 27.6
Income taxes.................................. 9.7 (6.1) (34.1) 49.1
-------- ------ ------- ----------
Change in net unrealized appreciation
(depreciation) of securities.................. $(17.0) $10.5 $ 59.0 $(88.3)
====== ===== ======= ======
</TABLE>
Investments in mortgage-backed securities at December 31, 1996, included
collateralized mortgage obligations ("CMOs") of $221.6 million and
mortgage-backed pass-through securities of $352.8 million. CMOs are securities
backed by pools of pass-through securities and/or mortgages that are segregated
into sections or "tranches." These securities provide for sequential retirement
of principal, rather than the pro rata share of principal return which occurs
through regular monthly principal payments on pass-through securities.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The following table sets forth the par value, amortized cost and estimated
fair value of investments in mortgage-backed securities including CMOs at
December 31, 1996, summarized by interest rates on the underlying collateral:
<TABLE>
<CAPTION>
Par Amortized Estimated
value cost fair value
----- ---- ----------
(Dollars in millions)
<S> <C> <C> <C>
Below 7 percent ..................................................... $209.6 $205.1 $201.5
7 percent - 8 percent................................................ 247.4 241.5 240.6
8 percent - 9 percent................................................ 70.9 69.7 69.3
9 percent and above.................................................. 60.1 62.0 63.0
-------- -------- --------
Total mortgage-backed securities................................ $588.0 $578.3 $574.4
====== ====== ======
</TABLE>
The amortized cost and estimated fair value of mortgage-backed securities
including CMOs at December 31, 1996, summarized by type of security were as
follows:
<TABLE>
<CAPTION>
Estimated fair value
--------------------
Percent
Amortized of fixed
cost Amount maturities
---- ------ ----------
Type (Dollars in millions)
<S> <C> <C> <C>
Pass-throughs and sequential and targeted amortization classes........... $458.7 $454.9 25%
Accrual (Z tranche) bonds................................................ 9.6 9.7 1
Planned amortization classes and accretion directed bonds................ 77.2 76.7 4
Subordinated classes .................................................... 32.8 33.1 2
-------- -------- ---
Total mortgage-backed securities................................ $578.3 $574.4 32%
====== ====== ==
</TABLE>
The following table sets forth the amortized cost and estimated fair value
of mortgage-backed securities as of December 31, 1996, based upon the pricing
source used to determine estimated fair value:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
---- -----
(Dollars in millions)
<S> <C> <C>
Nationally recognized pricing services ............................................. $515.1 $511.3
Broker-dealer market makers......................................................... 52.7 52.5
Internally developed methods (calculated based on a
weighted-average current market yield of 7.4 percent)........................ 10.5 10.6
-------- --------
Total mortgage-backed securities........................................... $578.3 $574.4
====== ======
</TABLE>
At December 31, 1996, no mortgage loans or credit-tenant loans had
defaulted as to principal or interest for more than 60 days, were in
foreclosure, had been converted to foreclosed real estate or had been
restructured while the Company owned them. At December 31, 1996, the Company had
a loan loss reserve of $.9 million. Approximately 30 percent, 18 percent, 16
percent and 6 percent of the mortgage loan balance were on properties located in
California, Indiana, Texas and Florida, respectively. No other state comprised
greater than 5 percent of the mortgage loan balance.
As part of its investment strategy, the Company enters into reverse
repurchase agreements and dollar-roll transactions to increase its return on
investments and improve its liquidity. These transactions are accounted for as
short-term borrowings collateralized by pledged securities with book values
approximately equal to the loan value. Such borrowings averaged approximately
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
$115.3 million during 1996 compared to $84.4 million during 1995. The weighted
average interest rate on short-term collateralized borrowings was 5.3 percent
and 5.4 percent during 1996 and 1995, respectively. The primary risk associated
with short-term collateralized borrowings is that the counterparty will be
unable to perform under the terms of the contract. The Company's exposure is
limited to the excess of the net replacement cost of the securities over the
value of the short-term investments (which was not material at December 31,
1996). The Company believes that the counterparties to its reverse repurchase
and dollar-roll agreements are financially responsible and that the counterparty
risk is minimal.
Investments on deposit for regulatory authorities as required by law were
$17.1 million at December 31, 1996.
No investments of a single issuer were in excess of 10 percent of
shareholder's equity at December 31, 1996, other than investments issued or
guaranteed by the United States government.
4. INSURANCE LIABILITIES
Insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
Interest December 31,
Withdrawal Mortality rate ---------------------
assumption assumption assumption 1996 1995
---------- ---------- ---------- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Investment contracts................ N/A N/A (b) $1,282.1 $1,346.5
Limited-payment contracts........... None (a) 8% 105.3 96.7
Traditional life insurance Company
contracts........................ experience (a) 8% 146.2 153.5
Universal life-type contracts....... N/A N/A N/A 354.4 367.6
Claims payable and other
policyholders' funds............... N/A N/A N/A 69.5 74.8
----------- -----------
Total.......................... $1,957.5 $2,039.1
======== ========
</TABLE>
- --------------------
(a) Principally modifications of the 1975-80 Basic Table, Select and Ultimate
Table.
(b) At December 31, 1996 and 1995, approximately 98 percent of this liability
represented account balances where future benefits were not guaranteed. The
weighted average interest rate on the remainder of the liabilities,
representing the present value of guaranteed future benefits, was
approximately 7 percent at December 31, 1996.
Participating policies represented approximately 3.5 percent, 3.7 percent
and 3.6 percent of total life insurance in force at December 31, 1996, 1995 and
1994, respectively, and approximately 2.7 percent, 2.4 percent and 7.5 percent
of premium income for 1996, 1995 and 1994, respectively. Dividends on
participating policies amounted to $1.9 million, $1.8 million and $1.7 million
in 1996, 1995 and 1994, respectively.
5. REINSURANCE
Cost of reinsurance ceded where the reinsured policy contains mortality
risks totaled $24.6 million in 1996, $29.1 million in 1995 and $35.3 million in
1994. This cost was deducted from insurance premium revenue. The Company is
contingently liable for claims reinsured if the assuming company is unable to
pay. Reinsurance recoveries netted against insurance policy benefits totaled
$19.4 million in 1996, $19.5 million in 1995 and $27.5 million in 1994.
Effective October 1, 1995, Western National Life Insurance Company, a
former subsidiary of Conseco, recaptured certain annuity businesses ceded to the
Company through a reinsurance agreement. Reserves related to these policies
totaled $72.8 million. Recapture fees of $.7 million were recognized as income
during the four months ended December 31, 1995.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The Company's reinsurance receivable balance at December 31, 1996, relates
to many reinsurers. No balance from a single reinsurer exceeds $7.0 million.
6. INCOME TAXES
Income tax liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---- ----
(Dollars in millions)
Deferred income tax liabilities (assets):
<S> <C> <C>
Cost of policies purchased and cost of policies produced.................. $60.3 $44.7
Investments............................................................... (3.3) 8.6
Insurance liabilities..................................................... (19.7) (21.7)
Unrealized appreciation (depreciation).................................... (2.5) 7.2
Other..................................................................... (5.0) (7.7)
------- ------
Deferred income tax liabilities....................................... 29.8 31.1
Current income tax liabilities............................................... - 7.9
--------- -------
Income tax liabilities................................................ $29.8 $39.0
===== =====
</TABLE>
Income tax expense was as follows:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Current tax provision............................... $10.5 $11.9 $19.9 $20.0
Deferred tax provision (benefit).................... 4.9 (2.2) (3.4) 2.7
------- ------- ------- -------
Income tax expense........................... $15.4 $ 9.7 $16.5 $22.7
===== ====== ===== =====
</TABLE>
Income tax expense differed from that computed at the applicable statutory
rate of 35 percent for the following reasons:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Federal tax on income before income taxes at
statutory rate.................................... $14.4 $9.0 $15.6 $21.5
State taxes and other................................ .6 .5 .4 .5
Nondeductible items.................................. .4 .2 .5 .7
-------- ------ -------- -------
Income tax expense.............................. $15.4 $9.7 $16.5 $22.7
===== ==== ===== =====
</TABLE>
The Company is currently being examined by the Internal Revenue Service for
the 1994 tax year. The Company believes that the outcome of this examination
will not have a material impact on its financial position or results of
operations.
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
7. 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) were based on negotiated rates for periods prior to January 1, 1996.
Pursuant to new service agreements effective January 1, 1996, such fees 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 $44.1 million in
1996, $26.6 million in 1995 and $25.1 million in 1994.
During 1996, the Company purchased $31.5 million par value of senior
subordinated notes issued by subsidiaries of Conseco. Such notes had a carrying
value of $34.7 million at December 31, 1996, and are classified as "other
invested assets" in the accompanying balance sheet. In addition, during 1996,
the Company forgave receivables from Conseco totaling $9.9 million. This
transaction is reflected as a dividend to Conseco in the accompanying statement
of shareholder's equity.
8. OTHER OPERATING INFORMATION
Insurance policy income consisted of the following:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Direct premiums collected............................ $241.3 $ 82.8 $158.6 $ 240.3
Reinsurance assumed.................................. 1.7 .7 2.0 3.1
Reinsurance ceded.................................... (24.6) (11.2) (17.9) (35.3)
-------- -------- -------- ---------
Premiums collected, net of reinsurance.......... 218.4 72.3 142.7 208.1
Less premiums on universal life and products without
mortality risk which are recorded as additions to
insurance liabilities............................. (169.8) (50.8) (104.4) (146.0)
------- -------- ------- ------
Premiums on products with mortality and morbidity
risk, recorded as insurance policy income..... 48.6 21.5 38.3 62.1
Fees and surrender charges........................... 32.8 10.3 22.2 36.5
--------- -------- -------- ---------
Insurance policy income....................... $ 81.4 $ 31.8 $ 60.5 $ 98.6
======== ====== ======= ========
</TABLE>
The four states with the largest shares of the Company's premiums collected
in 1996 were Texas (29 percent), Florida (19 percent), California (9 percent)
and Michigan (7 percent). No other state's share of premiums collected exceeded
5 percent.
Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Policy maintenance expense........................... $37.8 $ 6.5 $14.0 $19.0
State premium taxes and guaranty assessments......... 4.4 1.6 1.1 3.0
Commission expense................................... 12.1 5.0 8.6 15.3
------ ------- ------ ------
Other operating costs and expenses............ $54.3 $13.1 $23.7 $37.3
===== ===== ===== =====
</TABLE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Anticipated returns from the investment of policyholder balances are
considered in determining the amortization of the cost of policies purchased and
cost of policies produced. Sales of fixed maturity investments during 1996, 1995
and 1994, changed the incidence of profits on such policies because investment
gains and losses were recognized currently and the expected future yields on the
investment of policyholder balances were affected. Accordingly, amortization of
the cost of policies purchased and cost of policies produced was increased by
$2.5 million in 1996, $10.0 million in the four months ended December 31, 1995,
$4.3 million for the eight months ended August 31, 1995, and $2.7 million in
1994.
The changes in the cost of policies purchased were as follows:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Balance, beginning of period......................... $120.0 $159.0 $173.9 $ 93.0
Amortization related to operations:
Cash flow realized.............................. (26.2) (9.4) (19.1) (30.4)
Interest added.................................. 13.1 5.0 12.7 20.8
Amortization related to sales of fixed maturity
investments..................................... (2.2) (8.3) (3.4) (2.6)
Amounts related to fair value adjustment of actively
managed fixed maturity securities............... 36.6 (26.3) (64.1) 93.1
Adjustment of balance due to new accounting
basis and other................................. 1.7 - 59.0 -
----------- ---------- ------ ----------
Balance, end of period............................... $143.0 $120.0 $159.0 $173.9
====== ======= ===== ======
</TABLE>
Based on current conditions and assumptions as to future events on all
policies in force, approximately 9.2 percent, 9.2 percent, 8.3 percent, 7.3
percent and 6.7 percent of the cost of policies purchased as of December 31,
1996, are expected to be amortized in each of the next five years, respectively.
The discount rates used to determine the amortization of the cost of policies
purchased ranged from 5 percent to 8 percent and averaged 5.5 percent.
The changes in the cost of policies produced were as follows:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Balance, beginning of period......................... $24.0 $25.9 $ 63.2 $30.8
Additions......................................... 13.2 3.0 6.6 9.4
Amortization related to operations................ (3.2) (.5) (4.0) (4.5)
Amortization related to sales of fixed maturity
investments..................................... (.3) (1.7) (.9) (.1)
Amounts related to fair value adjustment of actively
managed fixed maturity securities............... 4.5 (2.7) (12.0) 27.6
Adjustment of balance due to new accounting basis - - (27.0) -
--------- -------- ------- -------
Balance, end of period............................... $38.2 $24.0 $25.9 $63.2
===== ===== ===== ========
</TABLE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
9. STATEMENT OF CASH FLOWS
Income taxes paid during 1996, 1995, and 1994, were $18.1 million, $19.3
million and $20.3 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.
10. 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> December 31,
--------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Statutory capital and surplus.................................................. $140.3 $156.2
Asset valuation reserve ("AVR")................................................ 28.7 26.2
Interest maintenance reserve ("IMR")........................................... 63.1 64.7
-------- --------
Total...................................................................... $232.1 $247.1
====== ======
</TABLE>
The Company had statutory net income of $32.6 million, $38.4 million and
$37.7 million in 1996, 1995 and 1994, respectively.
Statutory accounting practices classify certain segregated portions of
surplus, called AVR and IMR, as liabilities. The purpose of these accounts is to
stabilize statutory net income and surplus against fluctuations in the market
value and creditworthiness of investments. The IMR captures all realized
investment gains and losses resulting from changes in interest rates and
provides for subsequent amortization of such amounts into statutory net income
on a basis reflecting the remaining life of the assets sold. The AVR captures
investment gains and losses related to changes in creditworthiness and is also
adjusted each year based on a formula related to the quality and loss experience
of the investment portfolio.
The following table compares the pre-tax income determined on a statutory
accounting basis with such income reported herein in accordance with GAAP:
<TABLE>
<CAPTION>
Year Four months Eight months Year
ended ended ended ended
December 31, December 31, August 31, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Pre-tax income as reported on a statutory accounting
basis before transfers to and from and
amortization of the IMR........................... $40.2 $ 33.6 $ 50.2 $ 58.6
GAAP adjustments:
Investments valuation............................. 4.9 (3.3) .8 7.5
Amortization related to operations................ (17.8) (5.3) (11.7) (16.0)
Amortization related to investment gains.......... (2.5) (10.0) (4.3) (2.7)
Deferral of cost of policies produced............. 13.2 3.0 6.6 9.4
Insurance liabilities............................. 3.2 5.1 2.5 2.5
Other ............................................ (.1) 2.7 .6 2.2
-------- -------- ---------- --------
Net effect of GAAP adjustments................ .9 (7.8) (5.5) 2.9
-------- -------- --------- --------
GAAP pre-tax income........................... $41.1 $ 25.8 $ 44.7 $ 61.5
===== ====== ====== ======
</TABLE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
State insurance laws generally restrict the ability of insurance companies
to pay dividends or make other distributions. Approximately $32.7 million of the
Company's net assets at December 31, 1996, are available for distribution in
1997 without permission of state regulatory authorities.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
PAGE
Company
Independent Accountants
Legal Opinions
Distribution
Performance Information
Tax Status
Annuity Provisions
Financial Statements
APPENDIX A
MARKET VALUE ADJUSTMENT
The market value adjustment reflects the impact that changing interest rates
have on the value of your money in a guarantee period of the MVA option. The
longer the period of time remaining in the term you selected, the greater the
impact of changing interest rates. The market value adjustment can be positive
or negative. We will apply the following factor to amounts withdrawn,
transferred or annuitized from a guarantee period in excess of the MVA waiver
amount (see below):
(1 + A) N/365
[_______] - 1
(1 + B)
where:
A is the U.S. Treasury rate that is in effect at the beginning of the
guarantee period for the length of the guarantee period you selected.
B is the current U.S. Treasury rate as of the date of the withdrawal or
transfer plus .005. The Treasury rate period is determined by N/365 rounded
to the next highest year.
N is the number of days remaining in the guarantee period.
If the Treasury rate is not available for the period, the rate will be
determined by interpolation. If no Treasury rates are available, an index will
be selected by Great American Reserve and which will be approved by the state
insurance commissioners.
MVA Waiver Amount: After the first year in a guarantee period, you can make one
withdrawal or transfer from a guarantee period each year of up to 10% of the
value in that guarantee period without the market value adjustment.
EXAMPLES OF THE MARKET VALUE ADJUSTMENT:
EXAMPLE 1: FIVE-YEAR GUARANTEE PERIOD; INCREASE IN TREASURY RATE
Assume you make a $50,000 payment allocated to a 5-year guarantee period on
January 1, 1998. The current 5-year Treasury rate is 6.00%, and the current
interest rate is 7.00%. On June 13, 1999 you surrender the contract with 3 years
and 202 days, or 1,297 days (12/31/2002-6/13/1999) remaining in the guarantee
period. The current Treasury rate at this point is found by rounding 3 years,
202 days to the next greatest year and taking the rate for that guarantee
period. In this case, we would look at the 4-year rate. Assume that the 4-year
Treasury rate on June 13, 1997 is 6.50%. The market value adjustment would be
calculated as follows:
Contract value at 6/13/1999 (529 days from the day your contract was issued):
(529/365)
$50,000 x(1.07) = $55,151.38 MVA Waiver Amount: $ 5,515.14 (10% after year 1)
Amount remaining: $49,636.24
(1,297/365)
$49,636.24 x [( (1+.06)/(1+.065+.005) ) -1] = -$1,628.83
resulting in an adjustment to the amount you withdraw as follows:
$49,636.24 - $1,628.83 + $5,515.14 = $53,522.55
EXAMPLE 2: FIVE-YEAR GUARANTEE PERIOD; DECREASE IN TREASURY RATE
Assuming the same facts as Example 1, but with a 4-year Treasury rate as of the
date of surrender of 5.00%, the following market value adjustment would result:
Contract value at 6/13/1999 (529 days from the day your contact was issued):
(529/365)
$50,000 x(1.07) = $55,151.38 MVA Waiver Amount: $ 5,515.14 (10% after 1 year)
Amount remaining: $49,636.24
(1,297/365)
$49,636.24 x [( (1+.06)/(1+.050+.005) ) - 1] = $840.99
resulting in an adjustment to the amount you withdraw as follows:
$49,636.24 + $840.99 + $5,515.14 = $55,992.37
(contingent deferred sales charges may also apply)
If you would like a free copy of the Statement of Additional
Information dated February 9, 1998, for this prospectus, please
complete this form, detach, and mail to:
Great American Reserve Insurance Company
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
-----------------------------------------------------------------
Please send me a free copy of the statement of additional
information for the fixed and variable annuity at the following
address:
Name: _____________________________________________
Mailing Address: _________________________________________
_________________________________________
Sincerely,
---------------------------
(Signature)
PART B
STATEMENT OF ADDITIONAL INFORMATION
GROUP AND INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
ISSUED BY
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT F
AND
GREAT AMERICAN RESERVE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED FEBRUARY 9, 1998, FOR THE GROUP
AND INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT WHICH IS DESCRIBED
HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL US AT (800)
342-6307 OR WRITE US AT OUR ADMINISTRATIVE OFFICE: 11815 N. Pennsylvania Street,
Carmel, Indiana 46032.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED FEBRUARY 9, 1998.
TABLE OF CONTENTS
Page
COMPANY
INDEPENDENT ACCOUNTANTS
LEGAL OPINIONS
DISTRIBUTION
Reduction or Elimination of the Contingent Deferred Sales Charge
PERFORMANCE INFORMATION
Total Return
Historical Unit Values
Reporting Agencies
TAX STATUS
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
ANNUITY PROVISIONS
Variable Annuity
Fixed Annuity
Annuity Unit
Net Investment Factor
Mortality and Expense Guarantee
FINANCIAL STATEMENTS
COMPANY
Information regarding Great American Reserve Insurance Company ("Company") is
contained in the prospectus.
INDEPENDENT ACCOUNTANTS
The financial statements of Great American Reserve as of December 31, 1996 and
1995, and for the year ended December 31, 1996, the four months ended December
31, 1995, the eight months ended August 31, 1995, and the year ended December
31, 1994, included in the prospectus, have been audited by Coopers & Lybrand
L.L.P., independent accountants, as set forth in their report appearing 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.
DISTRIBUTION
Conseco Equity Sales, Inc., an affiliate of the Company, acts as the
distributor. The offering is on a continuous basis.
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to reduction of the Contingent Deferred Sales Charge will be
determined by the Company after examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than for a
smaller group because of the ability to implement large numbers of Contracts
with fewer sales contacts.
2. The total amount of purchase payments to be received will be considered.
Per Contract sales expenses are likely to be less on larger purchase payments
than on smaller ones.
3. Any prior or existing relationship with the Company will be considered.
Per Contract sales expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the Contract with fewer
sales contacts.
4. There may be other circumstances, of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction or elimination of the Contingent Deferred Sales Charge.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. In no event will any reduction or elimination of the Contingent
Deferred Sales Charge be permitted where the reduction or elimination will be
unfairly discriminatory to any person.
PERFORMANCE INFORMATION
TOTAL RETURN
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of an investment portfolio over a period of time, usually a calendar
year, determined by dividing the increase (decrease) in value for that unit by
the Accumulation Unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of a 1.25% Mortality and Expense Risk Charge, a .15% Administrative
Charge, the expenses for the underlying investment portfolio being advertised
and any applicable Contract Maintenance Charges and Contingent Deferred Sales
Charges.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Contract Maintenance Charges and any applicable Contingent Deferred Sales
Charges to arrive at the ending hypothetical value. The average annual total
return is then determined by computing the fixed interest rate that a $1,000
purchase payment would have to earn annually, compounded annually, to grow to
the hypothetical value at the end of the time periods described. The formula
used in these calculations is:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used (or
fractional portion thereof) of a hypothetical $1,000 payment made at
the beginning of the time periods used.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of any
Contingent Deferred Sales Charge. The deduction of any Contingent Deferred Sales
Charge would reduce any percentage increase or make greater any percentage
decrease.
Owners should note that the investment results of each investment portfolio will
fluctuate over time, and any presentation of the investment portfolio's total
return for any period should not be considered as a representation of what an
investment may earn or what an Owner's total return may be in any future period.
The Contracts are new and therefore do not have investment performance history.
However, the corresponding Portfolios have been in existence for some time and
consequently have investment performance history. In order to demonstrate how
the actual investment experience of the Portfolios affects Accumulation Unit
values, the Company may develop performance information. The information will be
based upon the historical experience of the Portfolios and will be for the
periods shown.
Actual performance will vary and the hypothetical results which may be shown are
not necessarily representative of future results. Performance for periods ending
after those shown may vary substantially. The performance of the Accumulation
Units will be calculated for a specified period of time assuming an initial
Purchase Payment of $1,000 allocated to each Portfolio and a deduction of all
charges and deductions (see "Expenses" in the Prospectus for more information).
Performance may also be shown without certain charges being included. If the
charges were included in the calculations, the performance would be lower. The
percentage increases are determined by subtracting the initial Purchase Payment
from the ending value and dividing the remainder by the beginning value.
HISTORICAL UNIT VALUES
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment
portfolios against established market indices such as the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to the
investment portfolio being compared. The Standard & Poor's 500 Composite Stock
Price Index is an unmanaged, unweighted average of 500 stocks, the majority of
which are listed on the New York Stock Exchange. The Dow Jones Industrial
Average is an unmanaged, weighted average of thirty blue chip industrial
corporations listed on the New York Stock Exchange. Both the Standard & Poor's
500 Composite Stock Price Index and the Dow Jones Industrial Average assume
quarterly reinvestment of dividends.
REPORTING AGENCIES
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts with the unit values of
variable annuities issued by other insurance companies. Such information will be
derived from the Lipper Variable Insurance Products Performance Analysis
Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is published
by Lipper Analytical Services, Inc., a publisher of statistical data which
currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
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. THE COMPANY 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 ("Code") governs
taxation of annuities in general. An 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. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. 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. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
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 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.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contract. 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."
The Company intends that all investment portfolios 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 Owner control of the
investments of the Separate Account will cause the 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 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 Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the 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 Owners being
retroactively determined to be the owners of the assets of the Separate Account.
Due to the uncertainty in this area, the Company 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. 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 Owner if the 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. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the 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 Owner, in most cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Effective January 1, 1993, 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). Participants should consult their own tax counsel
or other tax adviser regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It 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. It 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.
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 - Individual Retirement Annuities" below.)
INDIVIDUAL RETIREMENT ANNUITIES
The Contracts offered by the Prospectus are designed to be suitable for use as
an Individual Retirement Annuity (IRA). Generally, individuals who purchase IRAs
are not taxed on increases to the value of the contributions until distribution
occurs. Following is a general description of IRAs which the Contract may be
used. The description is not exhaustive and is for general informational
purposes only.
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an IRA. Under applicable limitations,
certain amounts may be contributed to an IRA which will be deductible from the
individual's gross income. These IRAs are subject to limitations on eligibility,
contributions, transferability and distributions. (See "Tax Treatment of
Withdrawals - Individual Retirement Annuities" 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
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 $2,000 per
year. This limitation is phased out for adjusted gross income 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 $15,000
in the case of married taxpayers filing separately. An overall $2,000 annual
limitation continues 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 the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
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 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, 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.
Purchasers of Contracts 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 - INDIVIDUAL RETIREMENT ANNUITIES
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 Section 408(b) (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 Owner reaches age 59 1/2;
(b) distributions following the death or disability of the Owner (for this
purpose disability is as defined in Section 72(m) (7) of the Code); (c)
distributions that are part of substantially equal periodic payments made not
less frequently than annually for the life (or life expectancy) of the Owner or
the joint lives (or joint life expectancies) of such Owner and his or her
designated Beneficiary; (d) distributions made to the Owner to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner for amounts paid during the taxable year for medical
care; (e) 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
Owner and his or her spouse and dependents if the Owner has received
unemployment compensation for at least 12 weeks. This exception will no longer
apply after the Owner has been re-employed for at least 60 days; (f)
distributions made to the 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 Owner for the taxable year; and (g) distributions up to $10,000
made to the Owner which are qualified first-time home buyer distributions (as
defined in Section 72(t)(8) of the Code).
Generally, distributions from an IRA must begin no later than April 1st of the
calendar year following the year in which the participant attains age 70 1/2.
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.
ANNUITY PROVISIONS
The Company makes available payment plans on a fixed and variable basis.
VARIABLE ANNUITY PAYOUT
A Variable Annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable investment portfolio. Annuity Payments also depend upon the
age of the annuitant and any joint annuitant and the assumed interest factor
utilized. The Annuity Table used will depend upon the annuity option chosen. The
dollar amount of annuity payments after the first is determined as follows:
1. The dollar amount of the first variable annuity payment is divided by
the value of an annuity unit for each investment portfolio as of the annuity
date. This sets the number of annuity units for each monthly payment for the
applicable investment portfolio.
2. The fixed number of annuity units for each payment in each investment
portfolio is multiplied by the annuity unit value for that investment portfolio
for the last valuation period of the month preceding the month for which the
payment is due. This result is the dollar amount of the payment for each
applicable investment portfolio.
The total dollar amount of each variable annuity payment is the sum of all
variable annuity payments reduced by the applicable portion of the Contract
Maintenance Charge.
FIXED ANNUITY PAYOUT
All fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
investment portfolios. The dollar amount of each fixed annuity payment is
determined in accordance with Annuity Tables contained in the Contract.
ANNUITY UNIT
The value of any annuity unit was arbitrarily set initially at $10.
The annuity unit value at the end of any subsequent valuation period is
determined as follows:
1. The Net Investment Factor for the current valuation period is multiplied
by the value of the annuity unit for the immediately preceding valuation period.
2. The result in (1) is then divided by the Assumed Investment Rate Factor
which equals 1.00 plus the Assumed Investment Rate for the number of days since
the preceding valuation date. The Owner can choose either a 5% or a 3% Assumed
Investment Rate.
FINANCIAL STATEMENTS
The financial statements of the Company included in the Prospectus should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts and Certificates.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
The following financial statements of Great American Reserve Insurance
Company (the "Company") are included in Part A hereof:
1. Balance Sheet as of September 30, 1997 (unaudited).
2. Statement of Operations for the Nine Months ended September 30, 1997 and
1996 (unaudited).
3. Statement of Shareholder's Equity for the Nine Months ended September 30,
1997 and 1996 (unaudited).
4. Statement of Cash Flows for the Nine Months ended September 30, 1997 and
1996 (unaudited).
5. Notes to Financial Statements (unaudited).
6. Report of Independent Accountants.
7. Balance Sheet as of December 31, 1996 and 1995.
8. Statement of Operations for the year ended December 31, 1996, the four
months ended December 31, 1995, the eight months ended August 31, 1995,
and the year ended December 31, 1994.
9. Statement of Shareholder's Equity for the year ended December 31, 1996,
the four months ended December 31, 1995, the eight months ended August
31, 1995, and the year ended December 31, 1994.
10. Statement of Cash Flows for the year ended December 31, 1996, the four
months ended December 31, 1995, the eight months ended August 31, 1995,
and the year ended December 31, 1994.
11. Notes to Financial Statements.
B. EXHIBITS
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Separate Account.*
2. Not Applicable.
3. (i) Form of Principal Underwriters Agreement.
(ii) Form of Selling Agreement.*
4. (i) Individual Fixed and Variable Deferred Annuity
Contract.*
(ii) Allocated Fixed and Variable Group Annuity
Contract.*
(iii) Allocated Fixed and Variable Group Annuity
Certificate.*
5. Application Form.*
6. (i) Articles of Incorporation of the Company.*
(ii) Bylaws of the Company.*
7. Not Applicable.
8. (i) Form of Fund Participation Agreement by and among the Alger American
Fund, Great American Reserve Insurance Company and Fred Alger and
Company, Incorporated.
(ii) Form of Fund Participation Agreement by and among Great American
Reserve Insurance Company, Berger Institutional Products Trust and
BBOI Worldwide LLC.
(iii) Form of Fund Participation by and between Great American Reserve
Insurance Company, Insurance Management Series and Federated Securites
Corp.
(iv) Form of Fund Participation between Great American Reserve Insurance
Company, Van Eck Worldwide Insurance Trust and Van Eck Associates
Corporation.
(v) Form of Fund Participation Agreement by and between Lord Abbett Series
Fund, Inc., Lord, Abbett and Co. and Great American Reserve Insurance
Company.
(vi) Form of Fund Participation Agreement by and between American Century
Investment Services, Inc. and Great American Reserve Insurance Company.
9. Opinion and Consent of Counsel.
10. Consent of Independent Accountants.
11. Not Applicable.
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Company Organizational Chart.
27. Not Applicable.
*Incorporated by reference to Registrant's Form N-4 filed electronically
on November 14, 1997.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Executive Officers and Directors of the Company:
Name and Principal Position and Offices
Business Address* with Depositor
- ------------------- ---------------------------------------
Ngaire E. Cuneo Director
Stephen C. Hilbert Director and Chairman of the Board
Rollin M. Dick Director, Executive Vice President and
Chief Financial Officer
Donald F. Gongaware Director and President
John J. Sabl Director, Executive Vice President, General
Counsel and Secretary
*The Principal business address for all officers and directors listed above is
11825 N. Pennsylvania Street, Carmel, Indiana 46032.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The Company organizational chart is included herewith as Exhibit 15.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not Applicable.
ITEM 28. INDEMNIFICATION
The Bylaws (Article VI) of the Company provide, in part, that:
The Corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative,
by reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (collectively, "Agent") against expenses
(including attorneys' fees), judgments, fines, penalties, court costs and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement (whether with or
without court approval), conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the Agent did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. If several claims, issues or matters are involved, an
Agent may be entitled to indemnification as to some matters even though he is
not entitled as to other matters. Any director or officer of the Corporation
serving in any capacity of another corporation, of which a majority of the
shares entitled to vote in the election of its directors is held, directly or
indirectly, by the Corporation, shall be deemed to be doing so at the request of
the Corporation.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, 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 Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Conseco Equity Sales, Inc. is the principal underwriter for the following
investment companies (other than the Registrant):
GARCO Separate Account C
GARCO Separate Account E
Great American Reserve Variable Annuity Account G
Conseco Fund Group
(b) Conseco Equity Sales, Inc. ("CES") is the principal underwriter 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.
Name and Principal Positions and Offices
Business Address with Underwriter
------------------------ ---------------------------------------
L. Gregory Gloeckner President and Director
William P. Latimer 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
Christene H. Darnell Vice President, Management
Reporting
Lisa M. Zimmerman Assistant Vice President, Corporate Taxes
William Clemmer Vice President
Christine E. Monical Second Vice President and Assistant General
Counsel
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Lowell Short, whose address is 11825 N. Pennsylvania Street, Carmel, IN
46032, maintains physical possession of the accounts, books or documents of the
Separate Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. 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 sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. Great American Reserve Insurance Company (the "Company") hereby
represents that the fees and charges deducted under the Contracts described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it has caused this Registration Statement to
be signed on its behalf, in the City of Carmel, and State of Indiana on this 2nd
day of February, 1998.
GREAT AMERICAN RESERVE VARIABLE ANNUITY
ACCOUNT F
Registrant
By: GREAT AMERICAN RESERVE INSURANCE COMPANY
By: DONALD F. GONGAWARE*
------------------------------
Donald F. Gongaware, President
By: GREAT AMERICAN RESERVE INSURANCE COMPANY
Depositor
By: DONALD F. GONGAWARE*
-------------------------------
Donald F. Gongaware, President
*/s/WILLIAM P. LATIMER
- -----------------------------
William P. Latimer
Attorney-in-fact
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------ -------------------------- ---------------
/s/NGAIRE E. CUNEO Director 2-2-98
- ------------------------ -----------------
Ngaire E. Cuneo
/s/STEPHEN C. HILBERT Director and Chairman of 2-2-98
- ------------------------ the Board -----------------
Stephen C. Hilbert
/s/ROLLIN M. DICK Director, Executive Vice 2-2-98
- ------------------------ President and Chief -----------------
Rollin M. Dick Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer of the Registrant)
/s/JOHN J. SABL Director, Executive Vice 2-2-98
- ----------------------- President, General Counsel ----------------
John J. Sabl and Secretary
Director and President
DONALD F. GONGAWARE* (Principal Executive Officer 2-2-98
- ------------------------ of the Registrant) -----------------
Donald F. Gongaware
*/s/WILLIAM P. LATIMER
- -------------------------------
William P. Latimer
Attorney-in-fact
LIMITED POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, Donald F. Gongaware, a Director
and/or Officer of Great American Reserve Insurance Company ("Company"), a
corporation duly organized under the laws of the State of Texas, do hereby
appoint Karl W. Kindig and/or William P. Latimer, or either one of the foregoing
individually, as my attorney and agent, for me, and in my name as a Director
and/or Officer of this Company on behalf of the Company or otherwise, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of variable annuity and variable life
insurance contracts, including a market value adjustment option, under the
Securities Act of 1933, as amended, and the registration of unit investment
trusts under the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Act.
WITNESS my hand this 3rd day of November, 1997.
WITNESS:
/S/ DONALD F. GONGAWARE
- -----------------------------------------
Donald F. Gongaware
Director, President
(Principal Executive Officer)
EXHIBITS
TO
PRE-EFFECTIVE AMENDMENT NO 1
TO
FORM N-4
FOR
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT F
GREAT AMERICAN RESERVE INSURANCE COMPANY
INDEX TO EXHIBITS
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EXHIBIT PAGE
EX-99.B3(i) Form of Principal Underwriter's Agreement
EX-99.B8(i) Form of Fund Participation Agreement by and among the Alger American
Fund, Great American Reserve Insurance Company and Fred Alger and
Company, Incorporated.
EX-99.B8(ii) Form of Fund Participation Agreement by and among Great American
Reserve Insurance Company, Berger Institutional Products Trust and
BBOI Worldwide LLC.
EX-99.B8(iii)Form of Fund Participation by and between Great American Reserve
Insurance Company, Insurance Management Series and Federated Securites
Corp.
EX-99.B8(iv) Form of Fund Participation between Great American Reserve Insurance
Company, Van Eck Worldwide Insurance Trust and Van Eck Associates
Corporation.
EX-99.B8(v) Form of Fund Participation Agreement by and between Lord Abbett Series
Fund, Inc., Lord, Abbett and Co. and Great American Reserve Insurance
Company.
EX-99.B8(vi) Form of Fund Participation Agreement by and between American Century
Investment Services, Inc. and Great American Reserve Insurance Company
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Consent of Independent Accountants
EX-99.B15 Company Organizational Chart
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PRINCIPAL UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between GREAT AMERICAN RESERVE INSURANCE
COMPANY ("INSURANCE COMPANY") on behalf of GREAT AMERICAN RESERVE VARIABLE
ANNUITY ACCOUNT F (the "Variable Account") and CONSECO EQUITY SALES, INC.
("PRINCIPAL UNDERWRITER") as follows:
I
INSURANCE COMPANY proposes to issue and sell Individual and Group Fixed
and Variable Deferred Annuity Contracts and Certificates (the "Contracts") of
the Variable Account to the public through PRINCIPAL UNDERWRITER. The
PRINCIPAL UNDERWRITER agrees to provide sales service subject to the terms and
conditions hereof. The Contracts to be sold are more fully described in the
registration statement and prospectus hereinafter mentioned. Such Contracts
will be issued by INSURANCE COMPANY through the Variable Account.
II
INSURANCE COMPANY grants PRINCIPAL UNDERWRITER the exclusive right,
during the term of this Agreement, subject to registration requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 and the
provisions of the Securities Exchange Act of 1934, to be the distributor of
the Contracts issued through the Variable Account. PRINCIPAL UNDERWRITER will
sell the Contracts under such terms as set by INSURANCE COMPANY and will make
such sales to purchasers permitted to buy such Contracts as specified in the
prospectus.
III
PRINCIPAL UNDERWRITER shall be compensated for its distribution services
in such amount as to meet all of its obligations to selling broker-dealers
with respect to all Purchase Payments accepted by INSURANCE COMPANY on the
Contracts covered hereby.
IV
On behalf of the Variable Account, INSURANCE COMPANY shall furnish
PRINCIPAL UNDERWRITER with copies of all prospectuses, financial statements
and other documents which PRINCIPAL UNDERWRITER reasonably requests for use in
connection with the distribution of the Contracts. INSURANCE COMPANY shall
provide to PRINCIPAL UNDERWRITER such number of copies of the current
effective prospectuses as PRINCIPAL UNDERWRITER shall request.
V
PRINCIPAL UNDERWRITER is not authorized to give any information, or to
make any representations concerning the Contracts or the Variable Account of
INSURANCE COMPANY other than those contained in the current registration
statements or prospectuses relating to the Variable Account filed with the
Securities and Exchange Commission or such sales literature as may be
authorized by INSURANCE COMPANY.
VI
Both parties to this Agreement agree to keep the necessary records as
indicated by applicable state and federal law and to render the necessary
assistance to one another for the accurate and timely preparation of such
records.
VII
This Agreement shall be effective upon the execution hereof and will
remain in effect unless terminated as hereinafter provided. This Agreement
shall automatically be terminated in the event of its assignment by PRINCIPAL
UNDERWRITER.
This Agreement may at any time be terminated by either party hereto upon
60 days' written notice to the other party.
VIII
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been given on the
date of service if served personally on the party to whom notice is to be
given, or on the date of mailing if sent by First Class Mail, Registered or
Certified, postage prepaid and properly addressed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their respective officers thereunto duly authorized.
EXECUTED this ____ day of ___________, 1998.
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INSURANCE COMPANY
GREAT AMERICAN RESERVE INSURANCE COMPANY
BY:/s/ MICHAEL A. COLLIFLOWER
---------------------------------------------------
Michael A. Colliflower, Senior Vice President
ATTEST:
- ----------------------
Secretary
PRINCIPAL UNDERWRITER
CONSECO EQUITY SALES, INC.
BY:/s/ L. GREGORY GLOECKNER
---------------------------------------
L. Gregory Gloeckner, President
ATTEST:
- ----------------------
Secretary
</TABLE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 31 day of March , 1995, by and among The Alger
American Fund (the "Trust"), an open-end management investment company organized
as a Massachusetts business trust, Great American Reserve Insurance Company, a
life insurance company organized as a corporation under the laws of the State of
Texas, (the "Company"), on its own behalf and on behalf of each segregated asset
account of the Company set forth in Schedule A, as may be amended from time to
time (the "Accounts"), and Fred Alger and Company, Incorporated, a Delaware
corporation, the Trust's distributor (the "Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into the
following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income & Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of one or more Portfolios as
investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1. For purposes of this Article I, the Company shall be the Trust's agent for
the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio, provided
that the Company notifies the Trust of such purchase orders and requests
for redemption by 9:30 a.m. Eastern time on the next following Business
Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the Accounts at
the net asset value next computed after receipt of a purchase order by the
Trust (or its agent), as established in accordance with the provisions of
the then current prospectus of the Trust describing Portfolio purchase
procedures. The Company will transmit orders from time to time to the Trust
for the purchase and redemption of shares of the Portfolios. The Trustees
of the Trust (the "Trustees") may refuse to sell shares of any Portfolio to
any person, or suspend or terminate the offering of shares of any Portfolio
if such action is required by law or by regulatory authorities having
jurisdiction or if, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any
applicable state laws, such action is deemed in the best interests of the
shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on behalf
of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 2:00 p.m.
Eastern time on the next Business Day after the Trust (or its agent)
receives the purchase order. Upon receipt by the Trust of the federal funds
so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Trust for this purpose.
"Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Trust calculates its net asset value
pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the
net asset value next computed after receipt by the Trust (or its agent) of
the request for redemption, as established in accordance with the
provisions of the then current prospectus of the Trust describing Portfolio
redemption procedures. The Trust shall make payment for such shares in the
manner established from time to time by the Trust. Proceeds of redemption
with respect to a Portfolio will normally be paid to the Company for an
Account in federal funds transmitted by wire to the Company by order of the
Trust with the reasonable expectation of receipt by the Company by 2:00
p.m. Eastern time on the next Business Day after the receipt by the Trust
(or its agent) of the request for redemption. Such payment may be delayed
if, for example, the Portfolio's cash position so requires or if
extraordinary market conditions exist, but in no event shall payment be
delayed for a greater period than is permitted by the 1940 Act. The Trust
reserves the right to suspend the right of redemption, consistent with
Section 22(e) of the 1940 Act and any rules thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 on any Business Day may be netted
against one another for the purpose of determining the amount of any wire
transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book entry
only. Stock certificates will not be issued to the Company or the Accounts.
Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to the
Company of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Trust. The Company hereby elects to
receive all such income dividends and capital gain distributions as are
payable on a Portfolio's shares in additional shares of that Portfolio. The
Trust shall notify the Company of the number of shares so issued as payment
of such dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its
designated agent on a daily basis as soon as reasonably practical after the
net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available to the Company by 6:30 p.m.
Eastern time each Business Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts, to
the Fund Sponsor or its affiliates and to such other entities as may be
permitted by Section 817(h) of the Code, the regulations hereunder, or
judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company agrees
that it will use Trust shares only for the purposes of funding the
Contracts through the Accounts listed in Schedule A, as amended from time
to time.
1.10.The Trust agrees that all Participating Insurance Companies shall have the
obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.9 and Article IV of this Agreement.
ARTICLE II.
OBLIGATIONS OF THE PARTIES
2.1. The Trust shall prepare and be responsible for filing with the Commission
and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration
and qualification of shares of the Portfolios, preparation and filing of
the documents listed in this Section 2.1 and all taxes to which an issuer
is subject on the issuance and transfer of its shares.
2.2. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state law.
2.3. The Trust shall provide such documentation (including a final copy of the
Trust's prospectus as set in type or in camera-ready copy) and other
assistance as is reasonably necessary in order for the Company to print
together in one document the current prospectus for the Contracts issued by
the Company and the current prospectus for the Trust. The Trust shall bear
the expense of printing copies of its current prospectus that will be
distributed to existing Contract owners, and the Company shall bear the
expense of printing copies of the Trust's prospectus that are used in
connection with offering the Contracts issued by the Company.
2.4. The Trust and the Distributor shall provide (1) at the Trust's expense, one
copy of the Trust's current Statement of Additional Information ("SAI") to
the Company and to any Contract owner who requests such SAI, (2) at the
Company's expense, such additional copies of the Trust's current SAI as the
Company shall reasonably request and that the Company shall require in
accordance with applicable law in connection with offering the Contracts
issued by the Company.
2.5. The Trust, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require
for purposes of distributing to Contract owners. The Trust, at the
Company's expense, shall provide the Company with copies of its periodic
reports to shareholders and other communications to shareholders in such
quantity as the Company shall reasonably request for use in connection with
offering the Contracts issued by the Company. If requested by the Company
in lieu thereof, the Trust shall provide such documentation (including a
final copy of the Trust's proxy materials, periodic reports to shareholders
and other communications to shareholders, as set in type or in camera-ready
copy) and other assistance as reasonably necessary in order for the Company
to print such shareholder communications for distribution to Contract
owners.
2.6. The Company agrees and acknowledges that the Distributor is the sole owner
of the name and mark "Alger" and that all use of any designation comprised
in whole or part of such name or mark under this Agreement shall inure to
the benefit of the Distributor. Except as provided in Section 2.5, the
Company shall not use any such name or mark on its own behalf or on behalf
of the Accounts or Contracts in any registration statement, advertisement,
sales literature or other materials relating to the Accounts or Contracts
without the prior written consent of the Distributor. Upon termination of
this Agreement for any reason, the Company shall cease all use of any such
name or mark as soon as reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or its
designee a copy of each Contract prospectus and/or statement of additional
information describing the Contracts, each report to Contract owners, proxy
statement, application for exemption or request for no-action letter in
which the Trust or the Distributor is named contemporaneously with the
filing of such document with the Commission. The Company shall furnish, or
shall cause to be furnished, to the Trust or its designee each piece of
sales literature or other promotional material in which the Trust or the
Distributor is named, at least five Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to
such use within three Business Days after receipt of such material.
2.8. The Company shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented from
time to time), annual and semi-annual reports of the Trust, Trust-sponsored
proxy statements, or in sales literature or other promotional material
approved by the Trust or its designee, except as required by legal process
or regulatory authorities or with the prior written permission of the
Trust, the Distributor or their respective designees. The Trust and the
Distributor agree to respond to any request for approval on a prompt and
timely basis. The Company shall adopt and implement procedures reasonably
designed to ensure that "broker only" materials including information
therein about the Trust or the Distributor are not distributed to existing
or prospective Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a timely
basis, with such information about the Trust, the Portfolios and the
Distributor, in such form as the Company may reasonably require, as the
Company shall reasonably request in connection with the preparation of
registration statements, prospectuses and annual and semi-annual reports
pertaining to the Contracts.
2.10.The Trust and the Distributor shall not give, and agree that no affiliate
of either of them shall give, any information or make any representations
or statements on behalf of the Company or concerning the Company, the
Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus
may be amended or supplemented from time to time), or in materials approved
by the Company for distribution including sales literature or other
promotional materials, except as required by legal process or regulatory
authorities or with the prior written permission of the Company. The
Company agrees to respond to any request for approval on a prompt and
timely basis.
2.11.So long as, and to the extent that, the Commission interprets the 1940 Act
to require pass- through voting privileges for Contract owners, the Company
will provide pass-through voting privileges to Contract owners whose cash
values are invested, through the registered Accounts, in shares of one or
more Portfolios of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and
the Company shall be responsible for assuring that the Accounts calculate
voting privileges in the manner established by the Trust. With respect to
each registered Account, the Company will vote shares of each Portfolio of
the Trust held by a registered Account and for which no timely voting
instructions from Contract owners are received in the same proportion as
those shares for which voting instructions are received. The Company and
its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Portfolio shares held to fund the Contacts
without the prior written consent of the Trust, which consent may be
withheld in the Trust's sole discretion. The Company reserves the right, to
the extent permitted by law, to vote shares held in any Account in its sole
discretion.
2.12.The Company and the Trust will each provide to the other information about
the results of any regulatory examination relating to the Contracts or the
Trust, including relevant portions of any "deficiency letter" and any
response thereto.
2.13.No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto
from otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust, the Accounts or
both.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of Texas and
that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A, and
that GARCO Equity Sales, Inc., the principal underwriter for the Contracts,
is registered as a broker-dealer under the Securities Exchange Act of 1934
and is a member in good standing of the National Association of Securities
Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to any
issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act and
cause each Account to remain so registered to serve as a segregated asset
account for the Contracts, unless an exemption from registration is
available.
3.3. The Company represents and warrants that the Contracts will be registered
under the 1933 Act unless an exemption from registration is available prior
to any issuance or sale of the Contracts; the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material
respects with state insurance law suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and the
rules and regulations thereunder.
3.5. The Trust and the Distributor represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be registered under
the 1933 Act and sold in accordance with all applicable federal and state
laws, and the Trust shall be registered under the 1940 Act prior to and at
the time of any issuance or sale of such shares. The Trust shall amend its
registration statement under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of its shares.
The Trust shall register and qualify its shares for sale in accordance with
the laws of the various states only if and to the extent deemed advisable
by the Trust.
3.6. The Trust represents and warrants that the investments of each Portfolio
will comply with the diversification requirements for variable annuity,
endowment or life insurance contracts set forth in Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable
basis for believing any Portfolio has ceased to comply or might not so
comply and will immediately take all reasonable steps to adequately
diversify the Portfolio to achieve compliance within the grace period
afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will
make every effort to maintain such qualification and will notify the
Company immediately upon having a reasonable basis for believing it has
ceased to so qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than
the minimum coverage required by Rule 17g-1 or other applicable regulations
under the 1940 Act. Such bond shall include coverage for larceny and
embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents that it is duly organized and validly existing
under the laws of the State of Delaware and that it is registered, and will
remain registered, during the term of this Agreement, as a broker-dealer
under the Securities Exchange Act of 1934 and is a member in good standing
of the National Association of Securities Dealers, Inc.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1. The parties acknowledge that a Portfolio's shares may be made available for
investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. A material irreconcilable conflict may
arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Trust shall
promptly inform the Company of any determination by the Trustees that a
material irreconcilable conflict exists and of the implications thereof.
4.2. The Company agrees to report promptly any potential or existing conflicts
of which it is aware to the Trustees. The Company will assist the Trustees
in carrying out their responsibilities under the Shared Funding Exemptive
Order by providing the Trustees with all information reasonably necessary
for and requested by the Trustees to consider any issues raised including,
but not limited to, information as to a decision by the Company to
disregard Contract owner voting instructions. All communications from the
Company to the Trustees may be made in care of the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of contract owners, the Company shall, in cooperation
with other Participating Insurance Companies whose contract owners are also
affected, at its own expense and to the extent reasonably practicable (as
determined by the Trustees) take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, which steps could include:
(a) withdrawing the assets allocable to some or all of the Accounts from
the Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Trust, or submitting the question of whether or not such segregation should
be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., annuity
contract owners, life insurance contract owners, or variable contract
owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Contract owners the
option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the
Company may be required, at the Trust's election, to withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect
to such Account; provided, however that such withdrawal and termination
shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Any such withdrawal and termination must take place within six
(6) months after the Trust gives written notice that this provision is
being implemented. Until the end of such six (6) month period, the Trust
shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement
with respect to such Account within six (6) months after the Trustees
inform the Company in writing that the Trust has determined that such
decision has created a material irreconcilable conflict; provided, however,
that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by
a majority of the disinterested Trustees. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a majority of
the disinterested Trustees shall determine whether any proposed action
adequately remedies any material irreconcilable conflict, but in no event
will the Trust be required to establish a new funding medium for any
Contract. The Company shall not be required to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of
a majority of Contract owners materially adversely affected by the material
irreconcilable conflict. In the event that the Trustees determine that any
proposed action does not adequately remedy any material irreconcilable
conflict, then the Company will withdraw the Account's investment in the
Trust and terminate this Agreement within six (6) months after the Trustees
inform the Company in writing of the foregoing determination; provided,
however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as determined
by a majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such reports,
materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared
Funding Exemptive Order, and said reports, materials and data shall be
submitted more frequently if reasonably deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is adopted,
to provide exemptive relief from any provision of the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as defined
in the Shared Funding Exemptive Order) on terms and conditions materially
different from those contained in the Shared Funding Exemptive Order, then
the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-3(T), as
amended, or Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V.
INDEMNIFICATION
5.1. Indemnification By the Company. The Company agrees to indemnify and hold
harmless the Distributor, the Trust and each of its Trustees, officers,
employees and agents and each person, if any, who controls the Trust within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 5.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in a registration statement
or prospectus for the Contracts or in the Contracts themselves or in
sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of
the Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined
in Section 5.2(a) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide the
services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company; or
(f) arise out of or result from the provision by the Company to the Trust
of insufficient or incorrect information regarding the purchase or
sale of shares of any Portfolio, or the failure of the Company to
provide such information on a timely basis.
5.2. Indemnification by the Distributor. The Distributor agrees to indemnify and
hold harmless the Company and each of its directors, officers, employees,
and agents and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for the purposes of this Section 5.2) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Distributor, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto) (collectively, "Trust Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Distributor or the
Trust by or on behalf of the Company for use in Trust Documents or
otherwise for use in connection with the sale of the Contracts or
Trust shares and; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived form
Company Documents) or wrongful conduct of the Distributor or persons
under its control, with respect to the sale or acquisition of the
Contracts or Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading if such statement
or omission was made in reliance upon and accurately derived
from written information furnished to the Company by or on
behalf of the Trust; or
(d) arise out of or result from any failure by the Distributor or
the Trust to provide the services or furnish the materials
required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor or the
Trust in this Agreement or arise out of or result from any
other material breach of this Agreement by the Distributor or
the Trust.
5.3. None of the Company, the Trust or the Distributor shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any Losses incurred or assessed against an Indemnified Party
that arise from such Indemnified Party's willful misfeasance, bad faith or
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any claim made against an Indemnified party unless such
Indemnified Party shall have notified the other party in writing within a
reasonable time after the summons, or other first written notification,
giving information of the nature of the claim shall have been served upon
or otherwise received by such Indemnified Party (or after such Indemnified
Party shall have received notice of service upon or other notification to
any designated agent), but failure to notify the party against whom
indemnification is sought of any such claim shall not relieve that party
from any liability which it may have to the Indemnified Party in the
absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled
to assume the defense thereof, with counsel reasonably satisfactory to the
party named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained
by it, and the indemnifying party will not be liable to the Indemnified
Party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
ARTICLE VI.
TERMINATION
6.1. This Agreement shall terminate:
(a) at the option of any party upon 60 days advance written notice to the
other parties, unless a shorter time is agreed to by the parties;
(b) at the option of the Trust or the Distributor if the Contracts issued
by the Company cease to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code or if the Contracts are not
registered, issued or sold in accordance with applicable state and/or
federal law; or
(C) at the option of any party upon a determination by a majority of the
Trustees of the Trust, or a majority of its disinterested Trustees,
that a material irreconcilable conflict exists; or
(d) at the option of the Company upon institution of formal proceedings
against the Trust or the Distributor by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body
regarding the Trust's or the Distributor's duties under this Agreement
or related to the sale of Trust shares or the operation of the Trust;
or
(e) at the option of the Company if the Trust or a Portfolio fails to meet
the diversification requirements specified in Section 3.6 hereof; or.
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company, and
upon prompt notice by the Company to the other parties; or
(g) at the option of the Company in the event any of the shares of the
Portfolio are not registered, issued or sold in accordance with
applicable state and/or federal law, or such law precludes the use of
such shares as the underlying investment media of the Variable
Contracts issued or to be issued by the Company; or
(h) at the option of the Company, if the Portfolio fails to qualify as a
Regulated Investment Company under Subchapter M of the Code; or
(i) at the option of the Distributor if it shall determine in its sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at the
option of the Company, continue to make available additional shares of any
Portfolio and redeem shares of any Portfolio pursuant to the terms and
conditions of this Agreement for all Contracts in effect on the effective
date of termination of this Agreement.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall survive
the termination of this Agreement as long as shares of the Trust are held
on behalf of Contract owners in accordance with Section 6.2.
ARTICLE VII.
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Great American Reserve Insurance Company
11825 N. Pennsylvania St.
Carmel, IN 46032
Attn.: L. Gregory Gloeckner
ARTICLE VIII.
MISCELLANEOUS
8.1. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It shall
also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission
granting exemptive relief therefrom and the conditions of such orders.
Copies of any such orders shall be promptly forwarded by the Trust to the
Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and no Trustee, officer, agent or holder of
shares of beneficial interest of the Trust shall be personally liable for
any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the
National Association of Securities Dealers, Inc. and state insurance
regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other
party.
8.10.No provisions of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by both
parties.
8.11.Each party hereto shall, except as required by law or otherwise permitted
by this Agreement, treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose
such confidential information without the written consent of the affected
party unless such information has become publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
Fred Alger and Company, Incorporated
By: /s/ Gregory S. Duch
-----------------------
Name: Gregory S. Duch
Title: Executive Vice President & Treasurer
The Alger American Fund
By: /s/ Gregory S. Duch
-----------------------
Name: Gregory S. Duch
Title: Treasurer
Great American Reserve Insurance Company
By: /s/ L. Gregory Gloeckner
Name: L. Gregory Gloeckner
Title: Senior Vice President
SCHEDULE A
SEGREGATED ASSET ACCOUNTS
Separate Account C
Separate Account E
Separate Account F
PARTICIPATION AGREEMENT PRIVATE
Among
BERGER INSTITUTIONAL PRODUCTS TRUST
BBOI WORLDWIDE LLC
and
GREAT AMERICAN RESERVE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 3rd day of April, 1997 by and
among GREAT AMERICAN RESERVE INSURANCE COMPANY, (hereinafter the "Insurance
Company"), a Texas corporation, on its own behalf and on behalf of each
segregated asset account of the Insurance Company set forth on Schedule A hereto
as may be amended from time to time (each such account hereinafter referred to
as the "Account"), BERGER INSTITUTIONAL PRODUCTS TRUST, a Delaware business
trust (the "Trust") and BBOI WORLDWIDE LLC, a Delaware limited liability company
("BBOI Worldwide").
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for variable annuity
and life insurance contracts to be offered by separate accounts of insurance
companies which have entered into participation agreements substantially
identical to this Agreement ("Participating Insurance Companies") and for
qualified retirement and pension plans ("Qualified Plans"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission (the "Commission"), dated April 24, 1996 (File No. 812-9852),
granting Participating Insurance Companies and their separate accounts
exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (the "1940 Act") and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Trust to be sold to and held by Qualified Plans and by variable
annuity and variable life insurance separate accounts of life insurance
companies that may or may not be affiliated with one another (the "Mixed and
Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and the offering of its shares is registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, BBOI Worldwide is duly registered as an investment adviser under
the Investment Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Insurance Company has registered under the 1933 Act, or will
register under the 1933 Act, certain variable annuity or variable life insurance
contracts identified by the form number(s) listed on Schedule B to this
Agreement, as amended from time to time hereafter by mutual written agreement of
all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds at
net asset value on behalf of each Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Trust and BBOI Worldwide agree as follows:
ARTICLE I. Sale of Trust Shares
1.1. The Trust agrees to sell to the Insurance Company those shares of the
Trust which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Trust or its designee of the
order for the shares of the Trust. For purposes of this Section 1.1, the
Insurance Company shall be the designee of the Trust for receipt of such orders
from the Accounts and receipt by such designee shall constitute receipt by the
Trust; provided that the Trust receives notice of such order by 7:00 a.m.,
Mountain Time, on the next following Business Day. In this Agreement, "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Trust calculates its net asset value pursuant to the rules of
the Commission.
1.2. The Trust agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its Accounts
on those days on which the Trust calculates its Funds' net asset values pursuant
to rules of the Commission and the Trust shall use reasonable efforts to
calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the trustees of the
Trust may refuse to sell shares of any Fund to any person, or suspend or
terminate the offering of shares of any Fund if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole discretion
of the trustees of the Trust acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of that Fund.
1.3. The Trust agrees that shares of the Trust will be sold only to
Accounts of Participating Insurance Companies and to Qualified Plans. No shares
of any Fund will be sold to the general public.
1.4. The Trust will not sell its shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Sections 2.4, 3.4, 3.5, and Sections 7.1 - 7.7 of this Agreement is in
effect to govern such sales.
1.5. The Trust agrees to redeem, on the Insurance Company's request, any
full or fractional shares of the Trust held by the Account, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption. However, if one or more
Funds has determined to settle redemption transactions for all of its
shareholders on a delayed basis (more than one business day, but in no event
more than three Business Days, after the date on which the redemption order is
received, unless otherwise permitted by an order of the Commission under Section
22(e) of the 1940 Act), the Trust shall be permitted to delay sending redemption
proceeds to the Insurance Company by the same number of days that the Trust is
delaying sending redemption proceeds to the other shareholders of the Fund. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Trust for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Trust; provided that the Trust
receives notice of the request for redemption by 7:00 a.m., Mountain Time, on
the next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of each
Fund offered by the then-current prospectus of the Trust in accordance with the
provisions of that prospectus. The Insurance Company agrees that all net amounts
available under the Contracts shall be invested in the Trust, or in the
Insurance Company's general account, provided that such amounts may also be
invested in an investment company other than the Trust if (a) the other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
any Fund of the Trust in which the Account may invest; or (b) the other
investment company was available as a funding vehicle for the Contracts prior to
the date of this Agreement and the Insurance Company so informs the Trust and
BBOI Worldwide prior to their signing this Agreement; or (c) the Trust and BBOI
Worldwide consent in advance in writing to the use of the other investment
company.
1.7. The Insurance Company shall pay for Trust shares by 1:00 p.m.,
Mountain Time, on the next Business Day after an order to purchase Trust shares
is made in accordance with the provisions of Section 1.1 hereof. Payment shall
be in federal funds transmitted by wire. For the purpose of Sections 2.9 and
2.10, upon receipt by the Trust of the federal funds so wired, such funds shall
cease to be the responsibility of the Insurance Company and shall become the
responsibility of the Trust. Payment of net redemption proceeds (aggregate
redemptions of a Fund's shares by an Account minus aggregate purchases of that
Fund's shares by that Account) of less than $1 million for a given Business Day
will be made by wiring federal funds to the Insurance Company on the next
Business Day after receipt of the redemption request. Payment of net redemption
proceeds of $1 million or more will be by wiring federal funds within three
Business Days after receipt of the redemption request. However, payment may be
postponed under unusual circumstances, such as when normal trading is not taking
place on the New York Stock Exchange, an emergency as defined by the Securities
and Exchange Commission exists, or as permitted by the Securities and Exchange
Commission.
1.8. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Insurance Company or any
Account. Shares ordered from the Trust will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
1.9. The Trust shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Trust shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.10. The Trust shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 5:00 p.m.,
Mountain Time.
ARTICLE II. Representations, Warranties and Agreements
2.1. The Insurance Company represents, warrants and agrees that the
offerings of the Contracts are, or will be, registered under the 1933 Act; that
the Contracts will be issued and sold in compliance in all material respects
with all applicable federal and state laws and that the sale of the Contracts
shall comply in all material respects with applicable state insurance
suitability requirements. The Insurance Company further represents that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account prior to any issuance or
sale thereof as a segregated asset account under the Texas Insurance Code and
has registered, or warrants and agrees that prior to any issuance or sale of the
Contracts it will register, the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2. The Trust warrants and agrees that Trust shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sale in compliance with the laws of the State of Delaware and all applicable
federal securities laws and that the Trust is and shall remain registered under
the 1940 Act. The Trust warrants and agrees that it shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Trust
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Trust or
BBOI Worldwide.
2.3. The Trust represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and warrants and agrees that it will make all reasonable
efforts to maintain its qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Insurance Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in th future.
2.4. The Insurance Company represents that the Contracts are currently
treated as annuity or life insurance contracts under applicable provisions of
the Code and warrants and agrees that it will make every effort to maintain such
treatment and that it will notify the Trust and BBOI Worldwide immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Trust may elect to make payments to finance distribution expenses
pursuant to Rule 12b-1 under the 1940 Act. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, the Trust undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Trust, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Trust makes no representation warranties as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) complies or will comply with the insurance laws or
regulations of the various states.
2.7. The Trust represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and represents, warrants and
agrees that it does and will comply in all material respects with the 1940 Act.
2.8. BBOI Worldwide represents that it is and warrants that it shall remain
duly registered as an investment adviser under all applicable federal and state
securities laws and agrees that it shall perform its obligations for the Trust
in compliance in all material respects with the laws of the State of Colorado
and any applicable state and federal securities laws.
2.9. The Trust and BBOI Worldwide represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and other
individuals or entities described in Rule 17g-1 under the 1940 Act dealing with
the money and/or securities of the Trust are, and shall continue to be at all
times, covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust in an amount not less than the minimum coverage required currently by
Rule 17g-1 under the 1940 Act or related provisions as may be promulgated from
time to time. That fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
described in Rule 17g-1 under the 1940 Act are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than the minimum coverage required currently
for entities subject to the requirements of Rule 17g-1 of the 1940 Act or
related provisions or may be promulgated from time to time. The aforesaid bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
ARTICLE III. Disclosure Documents and Voting
3.1. BBOI Worldwide shall provide the Insurance Company (at the Insurance
Company's expense) with as many copies of the Trust's current prospectus as the
Insurance Company may reasonably request. If requested by the Insurance Company
in lieu thereof, the Trust shall provide such documentation (including a final
copy of the new prospectus as set in type at the Trust's expense) and other
assistance as is reasonably necessary in order for the Insurance Company once
each year (or more frequently if the prospectus for the Trust is amended) to
have the prospectus for the Contracts and the Trust's prospectus printed
together in one document (at the Insurance Company's expense).
3.2. The Trust's prospectus shall state that the Statement of Additional
Information for the Trust (the "SAI") is available from the Trust, and BBOI
Worldwide (or the Trust), at its expense, shall print and provide the SAI free
of charge to the Insurance Company and to any owner of a Contract or prospective
owner who requests the SAI.
3.3. The Trust, at its expense, shall provide the Insurance Company with
copies of its proxy material, reports to shareholders and other communications
to shareholders in such quantity as the Insurance Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii)vote the Trust shares in accordance with instructions received
from Contract owners; and
(iii)vote Trust shares for which no instructions have been received in
the same proportion as Trust shares of that Fund for which
instructions have been received;
so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Trust calculates voting privileges in a
manner consistent with the standards set forth on Schedule C attached hereto and
incorporated herein by this reference, which standards will also be provided to
the other Participating Insurance Companies. The Insurance Company shall fulfill
its obligation under, and abide by the terms and conditions of, the Mixed and
Shared Funding Exemptive Order.
3.5. The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings (except insofar as the Commission may interpret Section 16 of
the 1940 Act not to require such meetings) or, as the Trust currently intends,
comply with Section 16(c) of the 1940 Act (although the Trust is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, the Trust will act in accordance
with the Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of trustees and with whatever rules the Commission
may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Insurance Company shall furnish, or shall cause to be furnished,
to the Trust or its designee, each piece of sales literature or other
promotional material in which the Trust, a sub-adviser of one of the Funds, or
BBOI Worldwide is named, at least fifteen calendar days prior to its use. No
such material shall be used if the Trust or its designee objects to such use
within ten calendar days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the Trust's registration statement, prospectus or
SAI, as that registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust or
its designee or by BBOI Worldwide or its designee, except with the permission of
the Trust or BBOI Worldwide or their designees.
4.3. The Trust, BBOI Worldwide, or its designee shall furnish, or shall
cause to be furnished, to the Insurance Company or its designee, each piece of
sales literature or other promotional material in which the Insurance Company or
the Account is named at least fifteen calendar days prior to its use. No such
material shall be used if the Insurance Company or its designee objects to such
use within ten calendar days after receipt of that material.
4.4. The Trust and BBOI Worldwide, or their designees, shall not give any
information or make any representations on behalf of the Insurance Company or
concerning the Insurance Company, any Account, or the Contracts other than the
information or representations contained in a registration statement, prospectus
or statement of additional information for the Contracts, as that registration
statement, prospectus or statement of additional information may be amended or
supplemented from time to time or in published reports for any Account which are
in the public domain or approved by the Insurance Company for distribution to
Contract owners, or in sales literature or other promotional material approved
by the Insurance Company or its designee, except with the permission of the
Insurance Company.
4.5. The Trust will provide to the Insurance Company at least one complete
copy of each registration statement, prospectus, statement of additional
information, report, proxy statement, piece of sales literature or other
promotional material, application for exemption, request for no-action letter,
and any amendment to any of the above, that relate to the Trust or its shares,
contemporaneously with the filing of the document with the Commission, the
National Association of Securities Dealers, Inc. ("NASD"), or other regulatory
authorities.
4.6. The Insurance Company will provide to the Trust at least one complete
copy of each registration statement, prospectus, statement of additional
information, report, solicitation for voting instructions, piece of sales
literature and other promotional material, application for exemption, request
for no-action letter, and any amendment to any of the above, that relates to the
Contracts or the Account, contemporaneously with the filing of the document with
the Commission, the NASD, or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, shareholder
newsletters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested.
ARTICLE V. Fees and Expenses
5.1. The Trust and BBOI Worldwide shall pay no fee or other compensation to
the Insurance Company under this agreement, except as set forth in Section 5.4
and except that if the Trust or any Fund adopts and implements a plan pursuant
to Rule 12b-1 to finance distribution expenses, BBOI Worldwide or the Trust may
make payments to the Insurance Company in amounts consistent with that 12b-1
plan, subject to review by the trustees of the Trust.
5.2. All expenses incident to performance by the Trust under this Agreement
shall be paid by the Trust. The Trust shall see to it that any offering of its
shares is registered and that all of its shares are authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Trust or BBOI Worldwide, in accordance with applicable state
laws prior to their sale. The Trust shall bear the cost of registration and
qualification of the Trust's shares, preparation and filing of the Trust's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders, the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Trust's
shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Trust's prospectus, proxy materials and reports.
5.4. The Insurance Company bears the responsibility and correlative expense
for administrative and support services for Contract owners. BBOI Worldwide
recognizes the Insurance Company as the sole shareholder of shares of the Trust
issued under this Agreement. From time to time, BBOI Worldwide may pay amounts
from its past profits to the Insurance Company for providing certain
administrative services for the Trust or for providing other services that
relate to the Trust. In consideration of the savings resulting from such
arrangement, and to compensate the Insurance Company for its costs, BBOI
Worldwide agrees to pay to the Insurance Company an amount equal to 25 basis
points (0.25%) per annum of the average aggregate amount invested by the
Insurance Company in the Trust under this Agreement. Such payments will be made
only when the average aggregate amount invested exceeds $1,000,000. The parties
agree that such payments are for administrative services and investor support
services, and d not constitute payment for investment advisory, distribution or
other services. Payment of such amounts by BBOI Worldwide shall not increase the
fees paid by the Trust or its shareholders. The obligation to pay the amounts
provided for in this Section 5.4 may be assigned by BBOI Worldwide in its
discretion to Berger Associates, Inc., or other entity acceptable to the
Insurance Company.
ARTICLE VI. Diversification
6.1. The Trust will comply with Section 817(h) of the Code and Treasury
Regulation 1.817-5 relating to the diversification requirements for variable
annuity, endowment, modified endowment or life insurance contracts and any
amendments or other modifications to that Section or Regulation at all times
necessary to satisfy those requirements.
ARTICLE VII. Potential Conflicts
7.1. The trustees of the Trust will monitor the Trust for the existence of
any material irreconcilable conflict between the interests of the variable
Contract owners of all separate accounts investing in the Trust and the
participants of all Qualified Plans investing in the Trust. An irreconcilable
material conflict may arise for a variety of reasons, including: (a) an action
by any state insurance regulatory authority; (b) a change in applicable federal
or state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of variable contract owners. The trustees of
the Trust shall promptly inform the Insurance Company if they determine that an
irreconcilable material conflict exists and the implications thereof. The
trustees of the Trust shall have sole authority to determine whether an
irreconcilable material conflict exists and their determination shall be binding
upon the Insurance Company.
7.2. The Insurance Company and BBOI Worldwide each will report promptly any
potential or existing conflicts of which it is aware to the trustees of the
Trust. The Insurance Company and BBOI Worldwide each will assist the trustees of
the Trust in carrying out their responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the trustees of the Trust with all
information reasonably necessary for them to consider any issues raised. This
includes, but is not limited to, an obligation by the Insurance Company to
inform the trustees of the Trust whenever Contract owner voting instructions are
to be disregarded. These responsibilities shall be carried out by the Insurance
Company with a view only to the interests of the Contract owners and by BBOI
Worldwide with a view only to the interests of Contract holders and Qualified
Plan participants.
7.3. If it is determined by a majority of the trustees of the Trust, or a
majority of the trustees who are not interested persons of the Trust, any of its
Funds, or BBOI Worldwide (the "Independent Trustees"), that a material
irreconcilable conflict exists, the Insurance Company and/or other Participating
Insurance Companies or Qualified Plans that have executed participation
agreements shall, at their expense and to the extent reasonably practicable (as
determined by a majority of the Independent Trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Fund and reinvesting those assets in a different
investment medium, including (but not limited to) another Fund of the Trust, or
submitting the question whether such segregation should be implemented to a vote
of all affected variable contract owners and, as appropriate, segregating the
assets of any appropriate group (e.g., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected variable contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account and obtaining any necessary approvals or orders of the Commission in
connection therewith.
7.4. If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Trust's election, to withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to that Account; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Trustees. Any such
withdrawal and termination must take place within six (6) months after the Trust
gives written notice that this provision is being implemented, and, until the
end of that six month period, the Trust shall continue to accept and implement
orders by the Insurance Company for the purchase (and redemption) of shares of
the Trust.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Trust and
terminate this Agreement with respect to that Account within six months after
the trustees of the Trust inform the Insurance Company in writing that they have
determined that the state insurance regulator's decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent Trustees.
Until the end of the foregoing six month period, the Trust shall continue to
accept and implement orders by the Insurance Company for the purchase (and
redemption) of shares of the Trust.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. The
Insurance Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the trustees of the Trust
determine that any proposed action does not adequately remedy any irreconcilable
material conflict, then the Insurance Company will withdraw the Account's
investment in the Trust and terminate this Agreement within six (6) months after
the trustees of the Trust inform the Insurance Company in writing of the
foregoing determination, provided, however, that the withdrawal and termination
shall be limited to the extent required by the material irreconcilable conflict,
as determined by a majority of the Independent Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to those Sections are contained in
the Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Insurance Company
8.1(a). The Insurance Company agrees to indemnify and hold harmless
the Trust and each trustee, officer, employee or agent of the Trust, and
each person, if any, who controls the Trust within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Insurance Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale, acquisition, or redemption of the
Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to the
Insurance Company by or on behalf of the Trust for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
shares of the Trust;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the Trust
not supplied by the Insurance Company, or persons under its control)
or wrongful conduct of the Insurance Company or persons under its
control, with respect to the sale or distribution of the Contracts or
Trust Shares;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Trust or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished in writing to
the Trust by or on behalf of the Insurance Company;
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by the Insurance Company in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party
that may arise from that Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of that Indemnified Party's
duties or by reason of that Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the Trust, whichever is
applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless that Indemnified Party shall have notified the
Insurance Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim
shall have been served upon that Indemnified Party (or after the
Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Insurance Company of its obligations hereunder except to the extent that
the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the
action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified
Parties, the Insurance Company shall be entitled to participate, at its own
expense, in the defense of the action. The Insurance Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action; provided, however, that if the Indemnified Party
shall have reasonably concluded that there may be defenses available to it
which are different from or additional to those available to the Insurance
Company, the Insurance Company shall not have the right to assume said
defense, but shall pay the costs and expenses thereof (except that in no
event shall the Insurance Company be liable for the fees and expenses of
more than one counsel for Indemnified Parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice
fro the Insurance Company to the Indemnified Party of the Insurance
Company's election to assume the defense thereof, and in the absence of
such a reasonable conclusion that there may be different or additional
defenses available to the Indemnified Party, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and
the Insurance Company will not be liable to that party under this Agreement
for any legal or other expenses subsequently incurred by the party
independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Insurance
Company of the commencement of any litigation or proceedings against them
in connection with the issuance or sale of the Trust's shares or the
Contracts or the operation of the Trust.
8.2. Indemnification by BBOI Worldwide
8.2(a). BBOI Worldwide agrees to indemnify and hold harmless the
Insurance Company and each of its directors, officers, employees or agents,
and each person, if any, who controls the Insurance Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of BBOI Worldwide) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale, acquisition or redemption of the
Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Trust
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
the statement or omission or alleged statement or omission was made in
reliance upon and in conformity with information furnished in writing
to BBOI Worldwide or the Trust by or on behalf of the Insurance
Company for use in the registration statement or prospectus for the
Trust or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Trust shares;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by BBOI Worldwide or persons under its control)
or wrongful conduct of the Trust, BBOI Worldwide or persons under
their control, with respect to the sale or distribution of the
Contracts or shares of the Trust;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished in writing to the Insurance Company by or on
behalf of the Trust;
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by BBOI Worldwide in this
Agreement or arise out of or result from any other material breach of
this Agreement by BBOI Worldwide;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b) BBOI Worldwide shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party that may arise
from the Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by
reason of the Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Insurance Company or the Account,
whichever is applicable.
8.2(c) BBOI Worldwide shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless the Indemnified Party shall have notified BBOI Worldwide in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
the Indemnified Party (or after the Indemnified Party shall have received
notice of such service on any designated agent). Notwithstanding the
foregoing, the failure of any Indemnified Party to give notice as provided
herein shall not relieve BBOI Worldwide of its obligations hereunder except
to the extent that BBOI Worldwide has been prejudiced by such failure to
give notice. In addition, any failure by the Indemnified Party to notify
BBOI Worldwide of any such claim shall not relieve BBOI Worldwide from any
liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnifi cation
provision. In case any such action is brought against the Indemnified
Parties, BBOI Worldwide will be entitled to participate, at its own
expense, in the defense thereof. BBOI Worldwide also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in
the action; provided, however, that if the Indemnified Party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to BBOI Worldwide, BBOI
Worldwide shall not have the right to assume said defense, but shall pay
the costs and expenses thereof (except that in no event shall BBOI
Worldwide be liable for the fees and expenses of more than one counsel for
Indemnified Parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances). After notice from BBOI Worldwide to
the Indemnified Party of BBOI Worldwide's election to assume the defense
thereof, and in the absence of such a reasonable conclusion that there may
be different or additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and BBOI Worldwide will not be liable to that party
under this Agreement for any legal or other expenses subsequently incurred
by that party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.2(d) The Insurance Company agrees to notify BBOI Worldwide promptly
of the commencement of any litigation or proceedings against it or any of
its officers or directors in connection with the issuance or sale of the
Contracts or the operation of the Account.
8.3 Indemnification By the Trust
8.3(a). The Trust agrees to indemnify and hold harmless the Insurance
Company, and each of its directors, officers, employees and agents, and
each person, if any, who controls the Insurance Company within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.3) against any and all losses, claims, damages,
liabilities (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as those losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of any trustee(s) of the Trust,
are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation, warranty or agreement made by the Trust in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Trust;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party that may arise
from the Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by
reason of the Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Insurance Company, the Trust, BBOI
Worldwide or the Account, whichever is applicable.
8.3(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless the Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
the Indemnified Party (or after the Indemnified Party shall have received
notice of such service on any designated agent). Notwithstanding the
foregoing, the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Trust of its obligations hereunder except to
the extent that the Trust has been prejudiced by such failure to give
notice. In addition, any failure by the Indemnified Party to notify the
Trust of any such claim shall not relieve the Trust from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In cas
any such action is brought against the Indemnified Parties, the Trust will
be entitled to participate, at its own expense, in the defense thereof. The
Trust also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action; provided, however, that if
the Indemnified Party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the Trust, the Trust shall not have the right to assume said
defense, but shall pay the costs and expenses thereof (except that in no
event shall the Trust be liable for the fees and expenses of more than one
counsel for Indemnified Parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances). After notice from
the Trust to the Indemnified Party of the Trust's election to assume the
defense thereof, and in the absence of such a reasonable conclusion that
there may be different or additional defenses available to the Indemnified
Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to that
party under this Agreement for any legal or other expenses subsequently
incurred by that party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.3(d). The Insurance Company and BBOI Worldwide agree promptly to
notify the Trust of the commencement of any litigation or proceedings
against it or any of its respective officers or directors in connection
with this Agreement, the issuance or sale of the Contracts, the operation
of the Account, or the sale or acquisition of shares of the Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
any exemptions from those statutes, rules and regulations the Commission may
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written notice to
the other parties; provided, however, such notice shall not be given
earlier than one year following the date of this Agreement; or
(b) at the option of the Insurance Company to the extent that shares
of Funds are not reasonably available to meet the requirements of the
Contracts as determined by the Insurance Company, provided, however, that
such a termination shall apply only to the Fund(s) not reasonably
available. Prompt written notice of the election to terminate for such
cause shall be furnished by the Insurance Company to the Trust and BBOI
Worldwide; or
(c) at the option of the Trust or BBOI Worldwide, in the event that
formal administrative proceedings are instituted against the Insurance
Company by the NASD, the Commission, an insurance commissioner or any other
regulatory body regarding the Insurance Company's duties under this
Agreement or related to the sale of the Contracts, the operation of any
Account, or the purchase of the Trust's shares, provided, however, that the
Trust determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse effect upon
the ability of the Insurance Company to perform its obligations under this
Agreement; or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Trust or BBOI
Worldwide by the NASD, the Commission, or any state securities or insurance
department or any other regulatory body, provided, however, that the
Insurance Company determines in its sole judgement exercised in good faith,
that any such administrative proceedings will have a material adverse
effect upon the ability of the Trust or BBOI Worldwide to perfor its
obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to substitute
the shares of another investment company for the corresponding Fund shares
in accordance with the terms of the Contracts for which those Fund shares
had been selected to serve as the underlying investment media. The
Insurance Company will give at least 30 days' prior written notice to the
Trust of the date of any proposed vote to replace the Trust's shares; or
(f) at the option of the Insurance Company, in the event any of the
Trust's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or exemptions therefrom, or such law
precludes the use of those shares as the underlying investment media of the
Contracts issued or to be issued by the Insurance Company; or
(g) at the option of the Insurance Company, if the Trust ceases to
qualify as a regulated investment company under Subchapter M of the Code or
under any successor or similar provision, or if the Insurance Company
reasonably believes that the Trust may fail to so qualify; or
(h) at the option of the Insurance Company, if the Trust fails to meet
the diversification requirements specified in Article VI hereof; or
(i) at the option of either the Trust or BBOI Worldwide, if (1) the
Trust or BBOI Worldwide, respectively, shall determine, in their sole
judgment reasonably exercised in good faith, that the Insurance Company has
suffered a material adverse change in its business or financial condition
or is the subject of material adverse publicity and that material adverse
change or material adverse publicity will have a material adverse impact
upon the business and operations of either the Trust or BBOI Worldwide, (2)
the Trust or BBOI Worldwide shall notify the Insurance Company in writing
of that determination and its intent to terminate this Agreement, and (3)
after considering the actions taken by the Insurance Company and any other
changes in circumstances since the giving of such a notice, the
determination of the Trust or BBOI Worldwide shall continue to apply on the
sixtieth (60th) day following the giving of that notice, which sixtieth day
shall be the effective date of termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably exercised in good
faith, that either the Trust or BBOI Worldwide has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity and that material adverse change or material
adverse publicity will have a material adverse impact upon the business and
operations of the Insurance Company, (2) the Insurance Company shall notify
the Trust and BBOI Worldwide in writing of the determination and its intent
to terminate the Agreement, and (3) after considering the actions taken by
the Trust and/or BBOI Worldwide and any other changes in circumstances
since the giving of such a notice, the determination shall continue to
apply on the sixtieth (60th) day following the giving of the notice, which
sixtieth day shall be the effective date of termination.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. No termination of this Agreement shall be effective unless and until
the party terminating this Agreement gives prior written notice to all other
parties to this Agreement of its intent to terminate, which notice shall set
forth the basis for the termination. Furthermore,
(a) In the event that any termination is based upon the provisions of
Article VII, or the provision of Section 10.1(a), 10.1(i), 10.1(j), or
10.1(k) of this Agreement, the prior written notice shall be given in
advance of the effective date of termination as required by those
provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, the prior written notice
shall be given at least ninety (90) days before the effective date of
termination.
10.4. Notwithstanding any termination of this Agreement, subject to Section
1.2 of this Agreement and for so long as the Trust continues to exist, the Trust
and BBOI Worldwide shall at the option of the Insurance Company, continue to
make available additional shares of the Trust pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement ("Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.4 shall not apply to
any terminations under Article VII and the effect of Article VII terminations
shall be governed by Article VII of this Agreement.
10.5. The Insurance Company shall not redeem Trust shares attributable to
the Contracts (as opposed to Trust shares attributable to the Insurance
Company's assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (a "Legally Required Redemption"). Upon request, the Insurance
Company will promptly furnish to the Trust and BBOI Worldwide the opinion of
counsel for the Insurance Company (which counsel shall be reasonably
satisfactory to the Trust and BBOI Worldwide) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, the
Insurance Company shall not prevent new Contract owners from allocating payments
to a Fund that formerly was available under the Contracts without first giving
the Trust or BBOI Worldwide 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of that other party set forth below or at
such other address as the other party may from time to time specify in writing.
If to the Trust:
210 University Boulevard, Suite 900
Denver, Colorado 80206
Attention: Kevin R. Fay, Vice President
If to the Insurance Company:
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: L. Gregory Gloeckner, Chief Marketing Officer
If to BBOI Worldwide:
210 University Boulevard, Suite 900
Denver, Colorado 80206
Attention: Kevin R. Fay
ARTICLE XII. Miscellaneous
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party unless and until that information may come into the public
domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its books and records in connection with any
lawful investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns; provided, that no party may
assign this Agreement without the prior written consent of the others.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
as of the date specified below.
Insurance Company:
GREAT AMERICAN RESERVE INSURANCE COMPANY
By its authorized officer,
By:_____________________________________
Title:__________________________________
Date:___________________________________
Trust:
BERGER INSTITUTIONAL PRODUCTS TRUST
By its authorized officer,
By:_____________________________________
Title:__________________________________
Date:___________________________________
BBOI Worldwide:
BBOI WORLDWIDE LLC
By its authorized officer,
By:_____________________________________
Title:__________________________________
Date:___________________________________
Schedule A
Accounts
Name of Account
Great American Reserve-
1. Variable Annuity Account C
2. Variable Annuity Account E
3. Variable Annuity Account F
July 22, 1992
November 12, 1993
November 7, 1997
Schedule B
Contracts
Contract Form 22-4025/22-4026
Contract Form 22-4047/22-4048
Contract Form 22-4056
Schedule C
Proxy Voting Procedure
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Trust by BBOI Worldwide, the Trust and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by BBOI
Worldwide as early as possible before the date set by the Trust for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time BBOI Worldwide will inform the Insurance Company
of the Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Customers' accounts of the Record Date.
Note:The number of proxy statements is determined by the activities described
in Step #2. The Insurance Company will use its best efforts to call in the
number of Customers to BBOI Worldwide, as soon as possible, but no later
than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Insurance Company by the Trust. The Insurance Company, at
its expense, shall produce and personalize the Voting Instruction cards.
BBOI Worldwide must approve the Card before it is printed. Allow
approximately 2-4 business days for printing information on the Cards.
Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Trust).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
4. During this time, BBOI Worldwide will develop, produce, and the Trust will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Insurance Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to customers
by Insurance Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company) addressed to
the Insurance Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Trust.)
e. Cover letter - optional, supplied by Insurance Company and reviewed
and approved in advance by BBOI Worldwide.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing package
to ensure correctness and completeness. Copy of this approval sent to BBOI
Worldwide.
6. Package mailed by the Insurance Company.
* The Trust must allow at least a 15-day solicitation time to the Insurance
Company as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including) the meeting,
counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note:Postmarks are not generally needed. A need for postmark information would
be due to an insurance company's internal procedure.
8. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to the Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did not complete the system. Any questions on those
Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
10. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Trust receives the tabulations
stated in terms of a percentage and the number of shares.) BBOI Worldwide
must review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company to
BBOI Worldwide on the morning of the meeting not later than 10:00 a.m.
Denver time. BBOI Worldwide may request an earlier deadline if required to
calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Insurance Company as well as an original copy of the final vote.
BBOI Worldwide will provide a standard form for each Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or accounting purposes, BBOI
Worldwide will be permitted reasonable access to such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this day of , 1995, by and between Great American
Reserve Insurance Company (the "Insurer"), a life insurance company domiciled in
Texas, on its behalf and on behalf of the segregated asset accounts of the
Insurer listed on Exhibit A to this Agreement (the "Separate Accounts");
Insurance Management Series (the "Fund"), a Massachusetts business trust; and
Federated Securities Corp. (the "Distributor"), a Pennsylvania corporation.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interests ("shares"), each representing
an interest in a separate portfolio of assets known as a "portfolio" and each
portfolio has its own investment objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its
portfolios to separate accounts of insurance companies that fund variable
annuity contracts ("Variable Contracts") and to serve as an investment medium
for Variable Contracts offered by insurance companies that have entered into
participation agreements substantially similar to this agreement ("Participating
Insurance Companies"), and the Fund will be made available in the future to
offer shares of one or more of its portfolios to separate accounts of insurance
companies that fund variable life insurance policies (at which time such
policies would also be "Variable Contracts" hereunder), and
WHEREAS, the Fund is currently comprised of five separate portfolios, and
other portfolios may be established in the future; and
WHEREAS, the Fund has obtained an order from the SEC dated December 29,
1993 (File No. 812-8620), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurer wishes to purchase shares of one or more of the Fund's
portfolios on behalf of its Separate Accounts to serve as an investment medium
for Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's portfolios;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Distributor agrees to sell to the Insurer those shares of the
portfolios offered and made available by the Fund and identified on Exhibit B
("Portfolios") that the Insurer orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its agent of the order
for the shares of the Fund.
1.2 The Fund agrees to make available on each business day shares of the
Portfolios for purchase at the applicable net asset value per share by the
Insurer on behalf of its Separate Accounts; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio, if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, acting in good faith and in light of the
Trustees' fiduciary duties under applicable law, necessary in the best interests
of the shareholders of any Portfolio.
1.3 The Fund and the Distributor agree that shares of the Portfolios of the
Fund will be sold only to Participating Insurance Companies, their separate
accounts, and other persons consistent with each Portfolio being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code"), and the regulations thereunder. No shares of any Portfolio
will be sold directly to the general public to the extent not permitted by
applicable tax law.
1.4 The Fund and the Distributor will not sell shares of the Portfolios to
any insurance company or separate account unless an agreement containing
provisions substantially the same as the provisions in Article IV of this
Agreement is in effect to govern such sales.
1.5 Upon receipt of a request for redemption in proper form from the
Insurer, the Fund agrees to redeem any full or fractional shares of the
Portfolios held by the Insurer, ordinarily executing such requests on each
business day at the net asset value next computed after receipt and acceptance
by the Fund or its agent of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemption shall be paid
consistent with applicable rules of the SEC and procedures and policies of the
Fund as described in the current prospectus.
1.6 For purposes of Sections 1.2 and 1.5, the Insurer shall be the agent of
the Fund for the limited purpose of receiving and accepting purchase and
redemption orders from each Separate Account and receipt of such orders by 4:00
p.m. Eastern time by the Insurer shall be deemed to be receipt by the Fund for
purposes of Rule 22c-1 of the 1940 Act; provided that the Fund receives notice
of such orders on the next following business day prior to 4:00 p.m. Eastern
time on such day, although the Insurer will use its best efforts to provide such
notice by 12:00 noon Eastern time.
1.7 The Insurer agrees to purchase and redeem the shares of each Portfolio
in accordance with the provisions of the current prospectus for the Fund.
1.8 The Insurer shall pay for shares of the Portfolio on the next business
day after it places an order to purchase shares of the Portfolio. Payment shall
be in federal funds transmitted by wire.
1.9 Issuance and transfer of shares of the Portfolios will be by book entry
only unless otherwise agreed by the Fund. Stock certificates will not be issued
to the Insurer or the Separate Accounts unless otherwise agreed by the Fund.
Shares ordered from the Fund will be recorded in an appropriate title for the
Separate Accounts or the appropriate subaccounts of the Separate Accounts.
1.10 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Insurer of any income dividends or capital gain
distributions payable on the shares of the Portfolios. The Insurer hereby elects
to reinvest in the Portfolio all such dividends and distributions as are payable
on a Portfolio's shares and to receive such dividends and distributions in
additional shares of that Portfolio. The Insurer reserves the right to revoke
this election in writing and to receive all such dividends and distributions in
cash. The Fund shall notify the Insurer of the number of shares so issued as
payment of such dividends and distributions.
1.11 The Fund shall instruct its recordkeeping agent to advise the Insurer
on each business day of the net asset value per share for each Portfolio as soon
as reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available by
7:00 p.m. Eastern time.
ARTICLE II. Representations and Warranties
2.1 The Insurer represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it is taxed as
an insurance company under Subchapter L of the Code.
2.2 The Insurer represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the Texas Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under applicable federal and state law.
2.3 The Insurer represents and warrants that the Variable Contracts issued
by the Insurer or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively, (2) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act.
2.4 The Insurer represents and warrants that each of the Separate Accounts
(1) has been registered as a unit investment trust in accordance with the
provisions of the 1940 Act or, alternatively, (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5 The Insurer represents that it believes, in good faith, that the
Variable Contracts issued by the Insurer are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6 The Fund represents and warrants that it is duly organized as a
business trust under the laws of the Commonwealth of Massachusetts, and is in
good standing under applicable law.
2.7 The Fund represents and warrants that the shares of the Portfolios are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
2.8 The Fund represents, in good faith, that the Portfolios currently
comply with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable life insurance policies and variable annuity contracts.
2.9 The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. General Duties
3.1 The Fund shall take all such actions as are necessary to permit the
sale of the shares of each Portfolio to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the Portfolios sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund shall amend its
Registration Statement filed with the SEC under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of the
shares of the Portfolios. The Fund shall register and qualify the shares for
sale in accordance with the laws of the various states to the extent deemed
necessary by the Fund or the Distributor.
3.2 The Fund shall make every effort to maintain qualification of each
Portfolio as a Regulated Investment Company under Subchapter M of the Code (or
any successor or similar provision) and shall notify the Insurer immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
3.3 The Fund shall make every effort to enable each Portfolio to comply
with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable life insurance policies and variable annuity contracts and any
prospective amendments or other modifications to Section 817 or regulations
thereunder, and shall notify the Insurer immediately upon having a reasonable
basis for believing that any Portfolio has ceased to comply.
3.4 The Insurer shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Insurer, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.5 The Insurer shall make every effort to maintain the treatment of the
Variable Contracts issued by the Insurer as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code, and
shall notify the Fund and the Distributor immediately upon having a reasonable
basis for believing that such Variable Contracts have ceased to be so treated or
that they might not be so treated in the future.
3.6 The Insurer shall offer and sell the Variable Contracts issued by the
Insurer in accordance with applicable provisions of the 1933 Act, the 1934 Act,
the 1940 Act, the NASD Rules of Fair Practice, and state law respecting the
offering of variable life insurance policies and variable annuity contracts.
3.7 The Distributor shall sell and distribute the shares of the Portfolios
of the Fund in accordance with the applicable provisions of the 1933 Act, the
1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
3.8 During such time as the Fund engages in Mixed Funding or Shared
Funding, a majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund ("disinterested Trustees"),
as defined by Section 2(a)(19) of the 1940 Act and the rules thereunder, and as
modified by any applicable orders of the SEC, except that if this provision of
this Section 3.8 is not met by reason of the death, disqualification, or bona
fide resignation of any Trustee or Trustees, then the operation of this
provision shall be suspended (a) for a period of 45 days if the vacancy or
vacancies may be filled by the Fund's Board; (b) for a period of 60 days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
3.9 The Insurer and its agents will not in any way recommend any proposal
or oppose or interfere with any proposal submitted by the Fund at a meeting of
owners of Variable Contracts or shareholders of the Fund, and will in no way
recommend, oppose, or interfere with the solicitation of proxies for Fund shares
held by Contract Owners, without the prior written consent of the Fund, which
consent may be withheld in the Fund's sole discretion.
3.10 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
ARTICLE IV. Potential Conflicts
4.1 During such time as the Fund engages in Mixed Funding or Shared
Funding, the parties hereto shall comply with the conditions in this Article IV.
4.2 The Fund's Board of Trustees shall monitor the Fund for the existence
of any material irreconcilable conflict (1) between the interests of owners of
variable annuity contracts and variable life insurance policies, and (2) between
the interests of owners of Variable Contracts ("Variable Contract Owners")
issued by different Participating Life Insurance Companies that invest in the
Fund. A material irreconcilable conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio of
the Fund are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
Variable Contract Owners.
4.3 The Insurer agrees that it shall report any potential or existing
conflicts of which it is aware to the Fund's Board of Trustees. The Insurer will
be responsible for assisting the Board of Trustees of the Fund in carrying out
its responsibilities under the Mixed and Shared Funding Exemptive Order, or, if
the Fund is engaged in Mixed Funding or Shared Funding in reliance on Rule 6e-2,
6e-3(T), or any other regulation under the 1940 Act, the Insurer will be
responsible for assisting the Board of Trustees of the Fund in carrying out its
responsibilities under such regulation, by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
This includes, but is not limited to, an obligation by the Insurer to inform the
Board whenever Variable Contract Owner voting instructions are disregarded. The
Insurer shall carry out its responsibility under this Section 4.3 with a view
only to the interests of the Variable Contract Owners.
4.4 The Insurer agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Insurer shall, at its expenses and to the extent reasonably practicable (as
determined by a majority of the disinterested Trustees of the Board of the
Fund), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another portfolio of the Fund, or submitting the question as to
whether such segregation should be implemented to a vote of all affected
Variable Contract Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners or life insurance contract
owners of contracts issued by one or more Participating Insurance Companies),
that votes in favor of such segregation, or offering to the affected Variable
Contract Owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of the Insurer's decision to
disregard Variable Contract Owners' voting instructions and that decision
represents a minority position or would preclude a majority vote, the Insurer
shall be required, at the Fund's election, to withdraw the Separate Accounts'
investment in the Fund, provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees, and no
charge or penalty will be imposed as a result of such withdrawal. These
responsibilities shall be carried out with a view only to the interests of the
Variable Contract Owners. A majority of the disinterested Trustees of the Fund
shall determine whether or not any proposed action adequately remedies any
material irreconcilable conflict, but in no event will the Fund or its
investment adviser or the Distributor be required to establish a new funding
medium for any Variable Contract. The Insurer shall not be required by this
Section 4.4 to establish a new funding medium for any Variable Contract if any
offer to do so has been declined by vote of a majority of Variable Contract
Owners materially adversely affected by the material irreconcilable conflict.
4.5 The Insurer, at least annually, shall submit to the Fund's Board of
Trustees such reports, materials, or data as the Board reasonably may request so
that the Trustees of the Fund may fully carry out the obligations imposed upon
the Board by the conditions contained in the application for the Mixed and
Shared Funding Exemptive Order and said reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
4.6 All reports of potential or existing conflicts received by the Fund's
Board of Trustees, and all Board action with regard to determining the existence
of a conflict, notifying Participating Insurance Companies of a conflict, and
determining whether any proposed action adequately remedies a conflict, shall be
properly recorded in the minutes of the Board of Trustees of the Fund or other
appropriate records, and such minutes or other records shall be made available
to the SEC upon request.
4.7 The Board of Trustees of the Fund shall promptly notify the Insurer in
writing of its determination of the existence of an irreconcilable material
conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements; Voting
5.1 The Insurer shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by the
Insurer as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2 The Distributor shall provide the Insurer with as many copies of the
current prospectus of the Fund as the Insurer may reasonably request. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Insurer to either print a stand-alone document or print together in one
document the current prospectus for the Variable Contracts issued by the Insurer
and the current prospectus for the Fund, or a document combining the Fund
prospectus with prospectuses of other funds in which the Variable Contracts may
be invested. The Fund shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Variable Contract Owners, and
the Insurer shall bear the expense of printing copies of the Fund's prospectus
that are used in connection with offering the Variable Contracts issued by the
Insurer.
5.3 The Fund and the Distributor shall provide, at the Fund's expense, such
copies of the Fund's current Statement of Additional Information ("SAI") as may
reasonably be requested, to the Insurer and to any owner of a Variable Contract
issued by the Insurer who requests such SAI.
5.4 The Fund, at its expense, shall provide the Insurer with copies of its
proxy materials, periodic reports to shareholders, and other communications to
shareholders in such quantity as the Insurer shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by the Insurer.
The Fund, at the Insurer's expense, shall provide the Insurer with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as the Insurer shall reasonably request for use in connection with
offering the Variable Contracts issued by the Insurer. If requested by the
Insurer in lieu thereof, the Fund shall provide such documentation (including a
final copy of the Fund's proxy materials, periodic reports to shareholders, and
other communications to shareholders, as set in type or in camera-ready copy)
and other assistance as reasonably necessary in order for the Insurer to print
such shareholder communications for distribution to owners of Variable Contracts
issued by the Insurer.
5.5 For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act, the Insurer shall vote
shares of each Portfolio of the Fund held in a Separate Account or a subaccount
thereof, whether or not registered under the 1940 Act, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Insurer (or its designated agent) from owners of Variable Contracts funded by
such Separate Account or subaccount thereof having a voting interest in the
Portfolio. The Insurer shall vote shares of a Portfolio of the Fund held in a
Separate Account or a subaccount thereof that are attributable to the Variable
Contracts as to which no timely instructions are received, as well as shares
held in such Separate Account or subaccount thereof that are not attributable to
the Variable Contracts and owned beneficially by the Insurer (resulting from
charges against the Variable Contracts or otherwise), in the same proportion as
the votes cast by owners of the Variable Contracts funded by that Separate
Account or subaccount thereof having a voting interest in the Portfolio from
whom instructions have been timely received. The Insurer shall vote shares of
each Portfolio of the Fund held in its general account, if any, in the same
proportion as the votes cast with respect to shares of the Portfolio held in all
Separate Accounts of the Insurer or subaccounts thereof, in the aggregate.
5.6 During such time as the Fund engages in Mixed Funding or Shared
Funding, the Fund shall disclose in its prospectus that (1) the Fund is intended
to be a funding vehicle for variable annuity and variable life insurance
contracts offered by various insurance companies, (2) material irreconcilable
conflicts possibly may arise, and (3) the Board of Trustees of the Fund will
monitor events in order to identify the existence of any material irreconcilable
conflicts and to determine what action, if any, should be taken in response to
any such conflict. The Fund hereby notifies the Insurer that prospectus
disclosure may be appropriate regarding potential risks of offering shares of
the Fund to separate accounts funding both variable annuity contracts and
variable life insurance policies and to separate accounts funding Variable
Contracts of unaffiliated life insurance companies.
ARTICLE VI. Sales Material and Information
6.1 The Insurer shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund (or any Portfolio thereof) or its investment adviser or the
Distributor is named at least 15 days prior to the anticipated use of such
material, and no such sales literature or other promotional material shall be
used unless the Fund and the Distributor or the designee of either approve the
material or do not respond with comments on the material within 10 days from
receipt of the material.
6.2 The Insurer agrees that neither it nor any of its affiliates or agents
shall give any information or make any representations or statements on behalf
of the Fund or concerning the Fund other than the information or representations
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee
and by the Distributor or its designee, except with the permission of the Fund
or its designee and the Distributor or its designee.
6.3 The Fund or the Distributor or the designee of either shall furnish to
the Insurer or its designee, each piece of sales literature or other promotional
material in which the Insurer or its Separate Accounts are named at least 15
days prior to the anticipated use of such material, and no such material shall
be used unless the Insurer or its designee approves the material or does not
respond with comments on the material within 10 days from receipt of the
material.
6.4 The Fund and the Distributor agree that each and the affiliates and
agents of each shall not give any information or make any representations on
behalf of the Insurer or concerning the Insurer, the Separate Accounts, or the
Variable Contracts issued by the Insurer, other than the information or
representations contained in a registration statement or prospectus for such
Variable Contracts, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports for the Separate Accounts or
prepared for distribution to owners of such Variable Contracts, or in sales
literature or other promotional material approved by the Insurer or its
designee, except with the permission of the Insurer.
6.5 The Fund will provide to the Insurer at least one complete copy of the
Mixed and Shared Funding Exemptive Application and any amendments thereto, all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
6.6 The Insurer will provide to the Fund all prospectuses (which shall
include an offering memorandum if the Variable Contracts issued by the Insurer
or interests therein are not registered under the 1933 Act), Statements of
Additional Information, reports, solicitations for voting instructions relating
to the Fund, and all amendments or supplements to any of the above that relate
to the Variable Contracts issued by the Insurer or the Separate Accounts which
utilize the Fund as an underlying investment medium, promptly after the filing
of such document with the SEC or other regulatory authority.
6.7 For purposes of this Article VI, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use, in a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, computerized media, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees.
ARTICLE VII. Indemnification
7.1 Indemnification by the Insurer
7.1(a) The Insurer agrees to indemnify and hold harmless the Fund, each of
its Trustees and officers, any affiliated person of the Fund within the meaning
of Section 2(a)(3) of the 1940 Act, and the Distributor (collectively, the
"Indemnified Parties" for purposes of this Section 7.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Insurer) or litigation expenses (including legal and
other expenses), to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts issued by the Insurer
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus (which shall include an offering
memorandum) for the Variable Contracts issued by the Insurer or sales
literature for such Variable Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Insurer by or
on behalf of the Fund for use in the registration statement or
prospectus for the Variable Contracts issued by the Insurer or sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations contained in
the registration statement, prospectus or sales literature of the Fund
not supplied by the Insurer or persons under its control) or wrongful
conduct of the Insurer or any of its affiliates, employees or agents
with respect to the sale or distribution of the Variable Contracts
issued by the Insurer or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the Fund
by or on behalf of the Insurer; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Insurer in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Insurer;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
7.1(b) The Insurer shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation expenses to which an Indemnified Party would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of the Indemnified Party's duties or by reason of the
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Fund.
7.1(c) The Insurer shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Party shall have notified the Insurer in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Party shall have received notice of such
service on any designated agent), but failure to notify the Insurer of any
such claim shall not relieve the Insurer from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action
is brought against the Indemnified Parties, the Insurer shall be entitled
to participate, at its own expense, in the defense of such action. The
Insurer also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Insurer to such party of the Insurer's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurer will not be liable to
such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
7.1(d) The Indemnified Parties shall promptly notify the Insurer of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Variable
Contracts issued by the Insurer or the operation of the Fund.
7.2 Indemnification By the Distributor
7.2(a) The Distributor agrees to indemnify and hold harmless the
Insurer, its affiliated principal underwriter of the Variable Contracts,
and each of their directors and officers and any affiliated person of the
Insurer within the meaning of Section 2(a)(3) of the 1940 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Distributor) or
litigation expenses (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or litigation expenses are related to the sale or acquisition
of the Fund's shares or the Variable Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Distributor or the Fund or the designee of either by or on behalf
of the Insurer for use in the registration statement or prospectus for
the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in the registration statement or prospectus for the
Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Variable
Contracts issued by the Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representations (other than statements or representations contained in
the registration statement, prospectus or sales literature for the
Variable Contracts not supplied by the Distributor or any employees or
agents thereof) or wrongful conduct of the Fund or Distributor, or the
affiliates, employees, or agents of the Fund or the Distributor with
respect to the sale or distribution of the Variable Contracts issued
by the Insurer or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable Contracts issued
by the Insurer, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Insurer by or on behalf of
the Fund; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Distributor;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
7.2(b) The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation expenses to which an Indemnified Party would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of the Indemnified Party's duties or by reason of the
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Insurer or the Separate Accounts.
7.2(c) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Party shall have notified the Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Party shall have received notice of such
service on any designated agent), but failure to notify the Distributor of
any such claim shall not relieve the Distributor from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Distributor
will be entitled to participate, at is own expense, in the defense thereof.
The Distributor also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from
the Distributor to such party of the Distributor's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Distributor will not be
liable to such party under this Agreement for any legal or other expense
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
7.2(d) The Insurer shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Variable Contracts issued by the Insurer or the operation of the Separate
Accounts.
7.3 Indemnification by the Fund
7.3(a) The Fund agrees to indemnify and hold harmless the Insurer, its
affiliated principal underwriter of the Variable Contracts, and each of
their directors and officers and any affiliated person of the Insurer
within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Fund) or litigation expenses (including
legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or litigation expenses
are related to the sale or acquisition of the Fund's shares or the Variable
Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Distributor or the Fund or the designee of either by or on behalf
of the Insurer for use in the registration statement or prospectus for
the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Variable
Contracts issued by the Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations contained in
the registration statement, prospectus or sales literature for the
Variable Contracts not supplied by the Distributor or any employees or
agents thereof) or wrongful conduct of the Fund, or the affiliates,
employees, or agents of the Fund, with respect to the sale or
distribution of the Variable Contracts issued by the Insurer or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus or sales literature covering the Variable Contracts issued
by the Insurer, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Insurer by or on behalf of
the Fund; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Fund;
except to the extent provided in Sections 7.3(b) and 7.3(c) hereof.
7.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation expenses to which an Indemnified Party would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of the Indemnified Party's duties or by reason of the
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Insurer or the Separate Accounts.
7.3(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Party shall have received notice of such
service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The Fund also
shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Fund to such party
of the Fund's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it,
and the Fund will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs of
investigation.
7.3(d) The Insurer shall promptly notify the Fund of the com-mencement
of any litigation or proceedings against it or any of its officers or
directors in connection with the issuance or sale of the Variable Contracts
issued by the Insurer or the sale of the Fund's shares.
ARTICLE VIII. Applicable Law
8.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Pennsylvania.
8.2 This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Mixed and Shared Funding Exemptive Order),
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. Termination
9.1 This Agreement shall terminate:
(a) at the option of any party upon 180 days advance written notice to
the other parties; or
(b) at the option of the Insurer if shares of the Portfolios are not
reasonably available to meet the requirements of the Variable Contracts
issued by the Insurer, as determined by the Insurer, and upon prompt notice
by the Insurer to the other parties; or
(c) at the option of the Fund or the Distributor upon institution of
formal proceedings against the Insurer or its agent by the NASD, the SEC,
or any state securities or insurance department or any other regulatory
body regarding the Insurer's duties under this Agreement or related to the
sale of the Variable Contracts issued by the Insurer, the operation of the
Separate Accounts, or the purchase of the Fund shares; or
(d) at the option of the Insurer upon institution of formal
proceedings against the Fund or the Distributor by the NASD, the SEC, or
any state securities or insurance department or any other regulatory body;
or
(e) upon requisite vote of the Variable Contract Owners having an
interest in the Separate Accounts (or any subaccounts thereof) to
substitute the shares of another investment company for the corresponding
shares of the Fund or a Portfolio in accordance with the terms of the
Variable Contracts for which those shares had been selected or serve as the
underlying investment media; or
(f) in the event any of the shares of a Portfolio are not registered,
issued or sold in accordance with applicable state and/or federal law, or
such law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the Insurer; or
(g) by any party to the Agreement upon a determination by a majority
of the Trustees of the Fund, or a majority of its disinterested Trustees,
that an irreconcilable conflict, as described in Article IV hereof, exists;
or
(h) at the option of the Insurer if the Fund or a Portfolio fails to
meet the requirements under Subchapter M of the Code for qualification as a
Regulated Investment Company specified in Section 3.2 hereof or the
diversi-fication requirements specified in Section 3.3 hereof.
9.2 Each party to this Agreement shall promptly notify the other parties to
the Agreement of the institution against such party of any such formal
proceedings as described in Sections 9.1(c) and (d) hereof. The Insurer shall
give 60 days prior written notice to the Fund of the date of any proposed vote
of Variable Contract Owners to replace the Fund's shares as described in Section
9.1(e) hereof.
9.3 Except as necessary to implement Variable Contract Owner initiated
transactions, or as required by state insurance laws or regulations, the Insurer
shall not redeem Fund shares attributable to the Variable Contracts issued by
the Insurer (as opposed to Fund shares attributable to the Insurer's assets held
in the Separate Accounts), and the Insurer shall not prevent Variable Contract
Owners from allocating payments to a Portfolio, until 60 days after the Insurer
shall have notified the Fund or Distributor of its intention to do so.
9.4 Notwithstanding any termination of this Agreement, the Fund and the
Distributor shall at the option of the Insurer continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, based upon instructions from the owners of the
Existing Contracts, the Separate Accounts shall be permitted to reallocate
investments in the Portfolios of the Fund and redeem investments in the
Portfolios, and shall be permitted to invest in the Portfolios in the event that
owners of the Existing Contracts make additional purchase payments under the
Existing Contracts. If this Agreement terminates, the parties agree that
Sections 3.10, 7.1, 7.2, 7.3, 8.1, and 8.2, and, to the extent that all or a
portion of the assets of the Separate Accounts continue to be invested in the
Fund or any Portfolio of the Fund, Articles I, II, and IV and Sections 5.5 and
5.6 will remain in effect after termination.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Insurance Management Series
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Distributor:
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Insurer:
Great American Reserve Insurance Company
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attn.: President
ARTICLE XI: Miscellaneous
11.1 The Fund and the Insurer agree that if and to the extent Rule 6e-2 or
Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final
form, to the extent applicable, the Fund and the Insurer shall each take such
steps as may be necessary to comply with the Rule as amended or adopted in final
form.
11.2 A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that any agreements that are executed on behalf of the Fund by any Trustee
or officer of the Fund are executed in his or her capacity as Trustee or officer
and not individually. The obligations of this Agreement shall only be binding
upon the assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
11.3 Nothing in this Agreement shall impede the Fund's Trustees or
shareholders of the shares of the Fund's Portfolios from exercising any of the
rights provided to such Trustees or shareholders in the Fund's Agreement and
Declaration of Trust, as amended, a copy of which will be provided to the
Insurer upon request.
11.4 Administrative services to Variable Contract Owners shall be the
responsibility of Insurer. Insurer, on behalf of its separate accounts will be
the sole shareholder of record of Fund shares. Fund and Distributor recognize
that they will derive a substantial savings in administrative expense by virtue
of having a sole shareholder rather than multiple shareholders. In consideration
of the administrative savings resulting from having a sole shareholder rather
than multiple shareholders, Distributor agrees to pay to Insurer an amount
computed at an annual rate of .25 of 1% of the average daily net asset value of
shares held in subaccounts for which Insurer provides administrative services.
Distributor's payments to Insurer are for administrative services only and do
not constitute payment in any manner for investment advisory services.
11.5 It is understood that the name "Federated" or any derivative thereof
or logo associated with that name is the valuable property of the Distributor
and its affiliates, and that the Insurer has the right to use such name (or
derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Insurer shall forthwith cease to use such name
(or derivative or logo).
11.6 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.7 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.8 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
11.9 This Agreement may not be assigned by any party to the Agree-ment
except with the written consent of the other parties to the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
INSURANCE MANAGEMENT
SERIES
ATTEST:____________________ BY:____________________________
Name: ____________________ Name:__________________________
Title: ____________________ Title:_________________________
FEDERATED SECURITIES CORP.
ATTEST:____________________ BY:____________________________
Name: ____________________ Name:__________________________
Title: ____________________ Title:_________________________
GREAT AMERICAN RESERVE
INSURANCE COMPANY
ATTEST:____________________ BY:____________________________
Name: ____________________ Name:__________________________
Title: ____________________ Title:_________________________
FUND PARTICIPATION AGREEMENT
Great American Reserve Insurance Company ("Insurance Company"), Van Eck
Worldwide Insurance Trust ("Trust") and the Trust's investment adviser, Van Eck
Associates Corporation ("Adviser") hereby agree that shares of the series of the
Trust as listed on Exhibit A, as it may, from time to time, be amended
("Portfolios"), shall be made available to serve as an underlying investment
medium for Individual and Group Deferred Variable Annuity and Variable Life
Contracts ("Contracts") to be offered by Insurance Company subject to the
following provisions:
1. Insurance Company represents that it has established the segregated asset
accounts listed in Exhibit B (the "Variable Account"), each a separate
account under Texas law, and has registered each as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act") to serve as an
investment vehicle for the Contracts. The Contracts provide for the
allocation of net amounts received by Insurance Company to separate series
of the Variable Account for investment in the shares of specified
investment companies selected among those companies available through the
Variable Account to act as underlying investment media. Selection of a
particular investment company is made by the Contract owner who may change
such selection from time to time in accordance with the terms of the
applicable Contract.
2. Insurance Company agrees to make every reasonable effort to market its
Contracts. It will use its best efforts to give equal emphasis and
promotion to shares of the Trust as is given to other underlying
investments of the Variable Account. In marketing its Contracts, Insurance
Company will comply with all applicable state or Federal laws.
3. The Trust or the Adviser will provide closing net asset value, dividend and
capital gain information at the close of trading each business day to
Insurance Company. Insurance Company will use this data to calculate unit
values, which will in turn be used to process that same business day's
Variable Account unit value. The Variable Account processing will be done
the same evening, and orders will be placed the morning of the following
business day. Orders will be sent directly to the Trust or its specified
agent, and payment for purchases will be wired to a custodial account
designated by the Trust or the Adviser, so as to coincide with the order
for Trust shares. The Trust will execute the orders at the net asset value
as determined as of the close of trading on the prior day. Dividends and
capital gains distributions shall be reinvested in additional shares at the
ex-date net asset value.
4. All expenses incident to the performance by the Trust under this Agreement
shall be paid by the Trust. The Trust shall pay the cost of registration of
Trust shares with the Securities and Exchange Commission ("SEC"). The Trust
shall distribute, to the Variable Account, proxy material, periodic Trust
reports to shareholders and other material the Trust may require to be sent
to Contract owners. The Trust shall pay the cost of qualifying Trust shares
in states where required. The Trust will provide Insurance Company with a
reasonable quantity of the Trust's Prospectus and the reports to be used in
contemplation of this Agreement. The Trust will provide Insurance Company
with a copy of the Statement of Additional Information suitable for
duplication.
5. Insurance Company and its agents shall make no representations concerning
the Trust or Trust shares except those contained in the then current
prospectuses of the Trust and in current printed sales literature of the
Trust.
6. Administrative services to Contract owners shall be the responsibility of
Insurance Company, and shall not be the responsibility of the Trust or the
Adviser. The Trust and Adviser recognize that Insurance Company will be the
sole shareholder of Trust shares issued pursuant to the Contracts. Such
arrangement will result in multiple share orders.
7. The Trust shall comply with Sections 817(h) and 851 of the Internal Revenue
Code of 1986, if applicable, and the regulations thereunder, and the
applicable provisions of the 1940 Act relating to the diversification
requirements for variable annuity, endowment, and life insurance contracts.
Upon request, the Trust shall provide Insurance Company with a letter from
the appropriate Trust officer certifying the Trust's compliance with the
diversification requirements and qualification as a regulated investment
company.
8. Insurance Company agrees to inform the Board of Trustees of the Trust of
the existence of, or any potential for, any material irreconcilable
conflict of interest between the interests of the Contract owners of the
Variable Account investing in the Trust and/or any other separate account
of any other insurance company investing in the Trust.
A material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, or any
similar action by insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
(e) a difference in voting instructions given by Contract owners and
variable annuity insurance contract owners or by variable annuity or
life insurance contract owners of different life insurance companies
utilizing the Trust; or
(f) a decision by Insurance Company to disregard the voting instructions
of contract owners.
Insurance Company will be responsible for assisting the Board of
Trustees of the Trust in carrying out its responsibilities by
providing the Board with all information reasonably necessary for the
Board to consider any issue raised, including information as to a
decision by Insurance Company to disregard voting instructions of
Contract owners.
It is agreed that if it is determined by a majority of the members of
the Board of Trustees of the Trust or a majority of its disinterested
Trustees that a material irreconcilable conflict exists affecting
Insurance Company, Insurance Company shall, at its own expense, take
whatever steps are necessary to remedy or eliminate the irreconcilable
material conflict, which steps may include, but are not limited to,
(a) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Portfolio and reinvesting such assets
in a different investment medium, including another Portfolio of the
Trust or submitting the questions of whether such segregation should
be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any particular group (i.e.,
annuity Contract owners, life insurance Contract owners or qualified
Contract owners) that votes in favor of such segregation, or offering
to the affected Contract owners the option of making such a change;
(b) establishing a new registered management investment company or managed
separate account.
If a material irreconcilable conflict arises because of Insurance
Company's decision to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a
majority vote, Insurance Company may be required, at the Trust's
election, to withdraw the Variable Account's investment in the Trust.
No charge or penalty will be imposed against the Variable Account as a
result of such withdrawal. Insurance Company agrees that any remedial
action taken by it in resolving any material conflicts of interest
will be carried out with a view only to the interests of Contract
owners.
For purposes hereof, a majority of the disinterested members of the
Board of Trustees of the Trust shall determine whether any proposed
action adequately remedies any material irreconcilable conflict. In no
event will the Trust be required to establish a new funding medium for
any Contracts. Insurance Company shall not be required by the terms
hereof to establish a new funding medium for any Contracts if an offer
to do so has been declined by vote of a majority of affected Contract
owners.
The Trust will undertake to promptly make known to Insurance Company
the Board of Trustees' determination of the existence of a material
irreconcilable conflict and its implications.
9. This Agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of Insurance Company, the Adviser or the Trust upon six
months' advance written notice to the other parties;
(b) at the option of Insurance Company, if Trust shares are not available
for any reason to meet the requirements of Contracts as determined by
Insurance Company. Reasonable advance notice of election to terminate
shall be furnished by Insurance Company;
(c) at the option of Insurance Company, the Adviser or the Trust, upon
institution of formal proceedings against the Broker-Dealer or
Broker-Dealers marketing the Contracts, the Variable Account,
Insurance Company or the Trust by the National Association of
Securities Dealers ("NASD"), the SEC or any other regulatory body;
(d) upon a decision by Insurance Company, in accordance with regulations
of the SEC, to substitute such Trust shares with the shares of another
investment company for Contracts for which the Trust shares have been
selected to serve as the underlying investment medium. Insurance
Company will give 60 days' written notice to the Trust and the Adviser
of any proposed vote to replace Trust shares;
(e) upon assignment of this Agreement unless made with the written consent
of each other party;
(f) in the event Trust shares are not registered, issued or sold in
conformance with Federal law or such law precludes the use of Trust
shares as an underlying investment medium of Contracts issued or to be
issued by Insurance Company. Prompt notice shall be given by either
party to the other in the event the conditions of this provision
occur.
10. Termination as the result of any cause listed in the preceding paragraph
shall not affect the Trust's obligation to furnish Trust shares for
Contracts then in force for which the shares of the Trust serve or may
serve as an underlying medium, unless such further sale of Trust shares is
proscribed by law or the SEC or other regulatory body.
11. Each notice required by this Agreement shall be given by wire and confirmed
in writing to:
Great American Reserve Insurance Company
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Attn: Senior Vice President, Marketing
Van Eck Worldwide Insurance Trust
99 Park Avenue, 8th Floor
New York, New York 10016
Attn: President
Van Eck Associates Corporation
99 Park Aevnue, 8th Floor
New York, New York 10016
Attn: President
12. Advertising and sales literature with respect to the Trust prepared by
Insurance Company or its agents for use in marketing its Contracts will be
submitted to the Trust for review before such material is submitted to the
SEC or NASD for review.
13. Insurance Company will distribute all proxy material furnished by the Trust
and will vote Trust shares in accordance with instructions received from
the Contract owners of such Trust shares. Insurance Company shall vote the
Trust shares for which no instructions have been received in the same
proportion as Trust shares for which said instructions have been received
from Contract owners. Insurance Company and its agents will in no way
recommend action in connection with or oppose or interfere with the
solicitation of proxies for the Trust shares held for such Contract owners.
14. (a) Insurance Company agrees to indemnify and hold harmless the Trust, the
Adviser, and each of its trustees, directors, officers, employees,
agents and each person, if any, who controls the Trust within the
meaning of the Securities Act of 1933 (the "Act") (the Trust and such
persons collectively, "Trust Indemnified Person") against any losses,
claims, damages or liabilities to which a Trust Indemnified Person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in information furnished by
Insurance Company for use in the Registration Statement or prospectus
of the Trust or in the Registration Statement or prospectus for the
Variable Account, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in
the prospectus and Trust-prepared sales literature of the Trust) of
Insurance Company or its agents with respect to the sale and
distribution of contracts for which Trust shares are an underlying
investment or arise out of a breach of this Agreement; and Insurance
Company will reimburse any legal or other expenses reasonably incurred
by a Trust Indemnified Person in connection with investigating or
defending any such loss, claim, damage, liability or action. This
indemnity agreement will be in addition to any liability which
Insurance Company may otherwise have.
(b) The Trust agrees to indemnify and hold harmless Insurance Company and
each of its directors, officers, employees, agents and each person, if
any, who controls Insurance Company within the meaning of the Act
(Insurance Company and such persons collectively, "Insurance Company
Indemnified Person") against any losses, claims, damages or
liabilities to which an Insurance Company Indemnified Person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or prospectus or Trust-prepared sales literature of the Trust, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arise out
of or are based upon the Trust's failure to keep each of the Trust
options fully diversified and qualified as a regulated investment
company as required by the applicable provisions of the Internal
Revenue Code, the Investment Company Act of 1940, and any other law or
regulation, or arise out of a breach of this Agreement and the Trust
will reimburse any legal or other expenses reasonably incurred by an
Insurance Company Indemnified Person in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the Trust will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or omission or alleged
omission made in such Registration Statement or prospectus in
conformity with written information furnished to the Trust by
Insurance Company specifically for use therein or in Insurance
Company-prepared sales literature. This indemnity agreement will be in
addition to any liability which the Trust may otherwise have.
(c) The Adviser agrees to indemnify and hold harmless each Insurance
Company Indemnified Person against any losses, claims, damages or
liabilities to which an Insurance Company Indemnified Person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or prospectus or Adviser-prepared sales literature of the Trust, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arise out
of or are based upon the Adviser's failure to keep each of the Trust
and its Portfolios fully diversified and qualified as a regulated
investment company as required by the applicable provisions of the
Internal Revenue Code, the 1940 Act, and any other law or regulation,
or arise out of a breach of this Agreement and the Adviser will
reimburse any legal or other expenses reasonably incurred by each
Insurance Company Indemnified Person in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the Adviser will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement or prospectus in
conformity with written information furnished to the Adviser by
Insurance Company specifically for use therein or Insurance
Company-prepared sales literature. This indemnity agreement will be in
addition to any liability which the Adviser may otherwise have.
(d) The Trust and the Adviser shall indemnify and hold Insurance Company
harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to
pay directly due to the Trust's or Adviser's (or their designated
agent's) (1) incorrect calculation of the daily net asset value,
dividend rate or capital gain distribution rate; (2) incorrect
reporting of the daily net asset value, dividend rate or capital gain
distribution rate; or (3) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate. Any gain to Insurance
Company attributable to the Trust's, or Adviser's (or their designated
agent's) incorrect calculation or reporting of the daily net asset
value shall be immediately returned to the Trust.
(e) Promptly after receipt by an indemnified party under this paragraph of
notice of the commencement of action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying
party under this paragraph, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this paragraph. In case any
such action is brought against any indemnified party, and it notified
the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that
it may wish, assume the defense thereof, with counsel satisfactory to
such indemnified party, after notice from the indemnifying party to
such indemnified party under this paragraph for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation.
(f) Nothing herein shall entitle an indemnified party to special,
consequential or exemplary damages or damages of like kind or nature
and with respect to section 14(d) hereof all liability, loss and
damages shall be limited to the amount required to correct the value
of the account as if there had been no incorrect calculation or
reporting or untimely reporting of net asset value, dividend rate or
capital gain distribution rate.
15. If, in the course of future marketing of the Contracts, Insurance Company
or its agents shall request the continued assistance of the Trust's sales
personnel, compensation (which will be negotiated by the Trust and
Insurance Company) shall be paid by Insurance Company to the Trust.
GREAT AMERICAN RESERVE INSURANCE
COMPANY
_____________________________ By _______________________________
Date
VAN ECK WORLDWIDE INSURANCE TRUST
_____________________________ By _______________________________
Date
VAN ECK ASSOCIATES CORPORATION
_____________________________ By _______________________________
Date
EXHIBIT A
Worldwide Bond Fund (Formerly, Worldwide Income Fund)
Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund (Formerly, Gold and Natural Resources Fund)
Worldwide Real Estate Fund
EXHIBIT B
Great American Reserve Variable Account C
Great American Reserve Variable Account E
Conseco Advantage (Account F)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the ___ day of ________, 1997, by and between
Lord Abbett Series Fund, Inc. ("FUND"), a Maryland Corporation, Lord, Abbett &
Co. ("ADVISER"), a New York Partnership, and GREAT AMERICAN RESERVE INSURANCE
COMPANY (the "COMPANY"), a life insurance company organized under the laws of
the State of Indiana.
WHEREAS, FUND is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "'40 Act"), as
an open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several Portfolios
("Portfolios"), those currently available are listed on Appendix A hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies") and also offers its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, FUND intends to apply for an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Portfolios of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and Qualified Plans ("Exemptive
Order"); and
WHEREAS, the COMPANY has established or will establish one or more separate
accounts ("Separate Accounts") to offer Variable Contracts and is desirous of
having FUND as one of the underlying funding vehicles for such Variable
Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser under
the Investment Advisers Act of 1940 and as a broker-dealer under the Securities
Exchange Act of 1934, as amended and acts as the FUND's investment adviser and
its subsidiary Lord Abbett Distributors LLC, a New York limited liability
Company (the "Distributor") acts as principal underwriter; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
the COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the COMPANY,
FUND, and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
-------------------
1.1 FUND agrees to make available to the Separate Accounts of the COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to the COMPANY those shares of the selected
Portfolios of Fund which the COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by FUND or its designee
of the order for the shares of FUND. For purposes of this Section 1.2, the
COMPANY shall be the designee of FUND for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that the COMPANY receives the order by 4:00 p.m. New
York time and FUND receives notice from the COMPANY by telephone or facsimile
(or by such other means as FUND and the COMPANY may agree in writing) of such
order by 9:00 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which FUND calculates its net asset value pursuant to the rules of the
SEC.
1.3 FUND agrees to redeem on the COMPANY's request, any full or fractional
shares of FUND held by the COMPANY, executing such requests on a daily basis at
the net asset value next computed after receipt by FUND or its designee of the
request for redemption, in accordance with the provisions of this agreement and
FUND's Registration Statement. For purposes of this Section 1.3, the COMPANY
shall be the designee of FUND for receipt of requests for redemption from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that the COMPANY receives the request for redemption
by 4:00 p.m. New York time and FUND receives notice from the COMPANY by
telephone or facsimile (or by such other means as FUND and the COMPANY may agree
in writing) of such request for redemption by 9:00 a.m. New York time on the
next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to the
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolios of FUND. The COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. FUND shall notify the COMPANY or
its designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to the COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
In the event that FUND is unable to meet the 6:30 p.m. time stated herein, it
shall provide additional time for the COMPANY to place orders for the purchase
and redemption of shares. Such additional time shall be equal to the additional
time which FUND takes to make the net asset value available to the COMPANY. If
FUND provides the COMPANY with materially incorrect share net asset value
information through no fault of the COMPANY, the COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any material
error in the calculation of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to the COMPANY. If a
Separate Account due to such error has received amounts in excess of the amounts
to which it is entitled, the COMPANY, when requested by FUND, shall make
adjustments to the Separate Account to reflect the change in the values of the
shares as reflected in the unit values of the affected Variable Contract owners
who still have values in the Portfolio. When making adjustments for an error,
the FUND shall not net same day transactions in a Separate Account. No
adjustment for an error shall be taken in any Separate Account until such time
as the parties hereto have agreed to a resolution of the error, but the parties
shall use all reasonable efforts to reach such agreement within two business
days after the discovery of the error.
1.6 At the end of each Business Day, the COMPANY shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, the COMPANY shall process each such Business Day's
Separate Account transactions based on requests and premiums received by it by
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m. New York time) to determine the net dollar amount of FUND shares which
shall be purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders so determined shall be transmitted to FUND
by the COMPANY by 9:00 a.m. New York Time on the Business Day next following the
COMPANY's receipt of such requests and premiums in accordance with the terms of
Sections 1.2 and 1.3 hereof.
1.7 If the COMPANY's order requests the purchase of FUND shares, the
COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by the COMPANY.
If the COMPANY's order requests a net redemption resulting in a payment of
redemption proceeds to the COMPANY, FUND shall use its best efforts to wire the
redemption proceeds to the COMPANY by the next Business Day, unless doing so
would require FUND to dispose of Portfolio securities or otherwise incur
additional costs. In any event, proceeds shall be wired to the COMPANY within
three Business Days or such longer period permitted by the '40 Act or the rules,
orders or regulations thereunder and FUND shall notify the person designated in
writing by the COMPANY as the recipient for such notice of such delay by 3:00
p.m. New York Time the same Business Day that the COMPANY transmits the
redemption order to FUND. If the COMPANY's order requests the application of
redemption proceeds from the redemption of shares to the purchase of shares of
another Portfolio advised by ADVISER, FUND shall so apply such proceeds the same
Business Day that the COMPANY transmits such order to FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be sold only
to Participating Insurance Companies which have agreed to participate in FUND to
fund their Separate Accounts and/or to Qualified Plans, all in accordance with
the requirements of Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code") and Treasury Regulation 1.817-5. Shares of the Portfolios of
FUND will not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolios to any person, or
suspend or terminate the offering of the shares of any Portfolios if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board of Directors of the FUND (the "Board"), acting
in good faith and in light of its duties under federal and any applicable state
laws, deemed necessary, desirable or appropriate and in the best interests of
the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to the COMPANY or the Separate Accounts.
Shares ordered from Portfolios will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 The COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of Indiana and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws.
2.2 The COMPANY represents and warrants that it has registered or, prior to
any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the '40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 The COMPANY represents and warrants that the Variable Contracts will be
registered under the Securities Act of 1933 (the "'33 Act") unless an exemption
from registration is available prior to any issuance or sale of the Variable
Contracts and that the Variable Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state laws and further
that the sale of the Variable Contracts shall comply in all material respects
with state insurance law suitability requirements.
2.4 The COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Portfolio shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the '40 Act prior to and at the time of any issuance or sale of
such shares. FUND, subject to Section 1.9 above, shall amend its registration
statement under the '33 Act and the '40 Act from time to time as required in
order to effect the continuous offering of its shares. FUND shall register and
qualify its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify the COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
2.7 FUND represents and warrants that each Portfolio invested in by the
Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment for
each taxable year and will notify the COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that Distributor is and will be a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD") and is and will be registered as a broker-dealer with the SEC. ADVISER
further represents that Distributor will sell and distribute Portfolio shares in
accordance with all applicable state and federal laws and regulations, including
without limitation the '33 Act, the '34 Act and the '40 Act.
2.9 ADVISER represents and warrants that it and Distributor are still and
will remain duly registered and licensed in all material respects under all
applicable federal and state securities laws and shall perform its obligations
hereunder in compliance in all material respects with any applicable state and
federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
-------------------------------
3.1 FUND shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND.
Except for the costs and fees the Distributor is obligated to pay pursuant to
its distribution agreement with the FUND, the FUND shall bear the costs of
registration and qualification of shares of the Portfolios, preparation and
filing of the documents listed in this Section 3.1 and all taxes and filing fees
to which an issuer is subject on the issuance and transfer of its shares.
3.2 At least annually, FUND or its designee shall provide the COMPANY, free
of charge, with as many copies of the current prospectus for the shares of the
Portfolios as the COMPANY may reasonably request for distribution to existing
Variable Contract owners whose Variable Contracts are funded by such shares.
FUND or its designee shall provide the COMPANY, at the COMPANY's expense, with
as many more copies of the current prospectus for the shares as the COMPANY may
reasonably request for distribution to prospective purchasers of Variable
Contracts. If requested by the COMPANY in lieu thereof, FUND or its designee
shall provide such documentation (including a "camera ready" copy of the new
prospectus as set in type or, at the request of the COMPANY, as a diskette in
the form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once a year (or more frequently if the
prospectus for the shares is supplemented or amended) to have the prospectus for
the Variable Contracts and the prospectus for the FUND shares and any other fund
shares offered as investments for the Variable Contracts printed together in one
document.
3.3 FUND will provide the COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. The
COMPANY will provide FUND with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supple ments to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
---------------
4.1 The COMPANY will furnish, or will cause to be furnished, to FUND and
ADVISER, each piece of sales literature or other promotional material in which
FUND or ADVISER or DISTRIBUTOR is named, at least fifteen (15) Business Days
prior to its intended use. No such material will be used if FUND, ADVISER or
DISTRIBUTOR objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.2 FUND and DISTRIBUTOR will furnish, or will cause to be furnished, to
the COMPANY, each piece of sales literature or other promotional material in
which the COMPANY or its Separate Accounts are named, at least fifteen (15)
Business Days prior to its intended use. No such material will be used if the
COMPANY objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.3 FUND and its affiliates and agents shall not give any information or
make any representations on behalf of the COMPANY or concerning the COMPANY, the
Separate Accounts, or the Variable Contracts issued by the COMPANY, other than
the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by the COMPANY or its designee, except with the written permission of
the COMPANY.
4.4 The COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND , ADVISER or
DISTRIBUTOR or concerning FUND, ADVISER or DISTRIBUTOR other than the
information or representations contained in a registration statement or
prospectus for FUND, as such registration statement and prospectus may be
amended or supplemented from time to time, or in sales literature or other
promotional material approved by FUND, ADVISER or DISTRIBUTOR or its designee,
except with the written permission of FUND, ADVISER or DISTRIBUTOR, as the case
may be.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. rules, the
'40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
-------------------
5.1 The parties acknowledge that FUND intends to file an application with
the SEC to request an order granting relief from various provisions of the '40
Act and the rules thereunder to the extent necessary to permit FUND shares to be
sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans. It is anticipated that the Exemptive Order, when and if
issued, shall require FUND and each Participating Insurance Company to comply
with conditions and undertakings substantially as provided in this Section 5. If
the Exemptive Order imposes conditions materially different from those provided
for in this Section 5, the conditions and undertakings imposed by the Exemptive
Order shall govern this Agreement and the parties hereto agree to amend this
Agreement consistent with the Exemptive Order. The Fund will not enter into a
participation agreement with any other Participating Insurance Company unless it
imposes the same conditions and undertakings as are imposed on the COMPANY
hereby.
5.2 The Board will monitor FUND for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts investing in FUND. An irreconcilable material conflict may
arise for a variety of reasons, which may include: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of FUND are being managed;
(e) a difference in voting instructions given by variable annuity and variable
life insurance Contract owners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Variable Contract owners and (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
5.3 The COMPANY will report any potential or existing conflicts to the
Board. The COMPANY will be responsible for assisting the Board in carrying out
its duties in this regard by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. The responsibility
includes, but is not limited to, an obligation by the COMPANY to inform the
Board whenever it has determined to disregard Variable Contract owner voting
instructions. These responsibilities of the COMPANY will be carried out with a
view only to the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested members,
determines that a material irreconcilable conflict exists, affecting the
COMPANY, the COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested members), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from FUND or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of FUND, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group (i.e
variable annuity or variable life insurance Contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of the COMPANY's decision to disregard Variable Contract
owner voting instructions, and that decision represents a minority position or
would preclude a majority vote, the COMPANY may be required, at the election of
FUND to withdraw the Separate Account's investment in FUND, and no charge or
penalty will be imposed as a result of such withdrawal. The responsibility to
take such remedial action shall be carried out with a view only to the interests
of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict but in no event will
FUND or ADVISER (or any other investment adviser of FUND) be required to
establish a new funding medium for any Variable Contract. Further, the COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to the COMPANY.
5.6 No less than annually, the COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
------
6.1 The COMPANY will provide pass-through voting privileges to all Variable
Contract owners so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for Variable Contract owners.
Accordingly, the COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. The COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
FUND calculates voting privileges in a manner consistent with other
Participating Insurance Companies. The COMPANY will vote shares for which it has
not received timely voting instructions, as well as shares it owns, in the same
proportion as its votes those shares for which it has received voting
instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule
6e-3 is adopted, to provide exemptive relief from any provision of the '40 Act
or the rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the Exemptive
Order, then FUND, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
---------------
7.1 Indemnification by the COMPANY. The COMPANY agrees to indemnify and
hold harmless FUND, ADVISER and DISTRIBUTOR and each of their trustees,
directors, principals, officers, partners, employees and agents and each person,
if any, who controls FUND, ADVISER or DISTRIBUTOR within the meaning of Section
15 of the '33 Act (collectively, the "Indemnified Parties" for purposes of this
Article VII) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the COMPANY, which
consent shall not be unreasonably withheld) or litigation (including legal and
other expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of FUND's shares or the Variable
Contracts and:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration
Statement or prospectus for the Variable Contracts or contained in the
Variable Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the COMPANY by or on behalf
of an Indemnified Party for use in the registration statement or
prospectus for the Variable Contracts or in the Variable Contracts or
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Variable Contracts or FUND shares;
or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of FUND not supplied by the
COMPANY, or persons under its control) or wrongful conduct of the
COMPANY or persons under its control, with respect to the sale or
distribution of the Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature of FUND or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such state ment or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to FUND by or on behalf of the
COMPANY; or
(d) arise as a result of any failure by the COMPANY to provide the
services and furnish the materials under the terms of this Agreement;
or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the COMPANY in this Agreement or arise out of
or result from any other material breach of this Agreement by the
COMPANY.
7.2 The COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
7.3 The COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the COMPANY in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the COMPANY of any such claim shall not
relieve the COMPANY from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against an
Indemnified Party, the COMPANY shall be entitled to participate at its own
expense in the defense of such action. The COMPANY also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the COMPANY to such party of the COMPANY's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the COMPANY will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.4 Indemnification by FUND. FUND agrees to indemnify and hold harmless the
COMPANY and each of its directors, officers, employees, and agents and each
person, if any, who controls the COMPANY within the meaning of Section 15 of the
'33 Act (collectively, the "Indemnified Parties" for the purposes of this
Article VII) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of ADVISER which consent
shall not be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of FUND's shares or the Variable
Contracts and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus of FUND (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to FUND by or on behalf of the
COMPANY for use in the registration statement or prospectus for FUND
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts
not supplied by FUND or persons under its control) or wrongful conduct
of FUND or persons under their control, with respect to the sale or
distribution of the Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus
covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the COMPANY for
inclusion therein by or on behalf of FUND; or
(d) arise as a result of (i) a failure by FUND to provide the services and
furnish the materials under the terms of this Agreement; or (ii) a
failure by a Portfolio(s) invested in by the Separate Account to
comply with the diversification requirements of Section 817(h) of the
Code; or (iii) a failure by a Portfolio(s) invested in by the Separate
Account to qualify as a "regulated investment company" under
Subchapter M of the Code; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by FUND in this Agreement or arise out of or
result from any other material breach of this Agreement by FUND.
7.5 Indemnification by ADVISER. To the extent not covered by any applicable
insurance coverage of the Fund and the ADVISER, ADVISER agrees to indemnify and
hold harmless the Company and each of its directors, officers, employees, and
agents and each person, if any, who controls the COMPANY within the meaning of
Section 15 of the '33 Act (collectively, the "Indemnified Parties" for the
purposes of this Article VII) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
ADVISER which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisitions of FUND's shares
or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or in sales literature of FUND (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to ADVISER or FUND
by or on behalf of the COMPANY for use in the registration statement
or prospectus for FUND or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts
not supplied by ADVISER or persons under its control) or wrongful
conduct of FUND of ADVISER or persons under their control, with
respect to the sale or distribution of the Variable Contracts or FUND
shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature covering the Variable Contracts, or any amendment
thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
COMPANY for inclusion therein by or on behalf of FUND; or
(d) arise as a result of (i) a failure by FUND to provide the services and
furnish the materials under the terms of this Agreement; or (ii) a
failure by a Portfolio(s) invested in by the Separate Account to
comply with the diversification requirements of Section 817(h) of the
Code; or (iii) a failure by a Portfolio(s) invested in by the Separate
Account to qualify as a "regulated investment company" under
Subchapter M of the Code; or
(e) arise out of or result from any material breach of any representation
an/or warranty made by FUND or ADVISER in this Agreement or arise out
of or result from any other material breach of this Agreement by FUND
or ADVISER.
7.6 FUND or ADVISER shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
7.7 FUND or ADVISER, as the case may be, shall not be liable under this
indemnifi cation provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified FUND or ADVISER, as the
case may be, in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify FUND or ADVISER of any such claim shall not relieve FUND or ADVISER from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, FUND or
ADVISER shall be entitled to participate at its own expense in the defense
thereof. FUND or ADVISER also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
FUND or ADVISER to such party of FUND's or ADVISER's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and FUND or ADVISER will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
-----------------
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of the COMPANY or FUND at any time from the date hereof
upon 180 days' notice, unless a shorter time is agreed to by the
parties;
(b) At the option of the COMPANY, if FUND shares are not reasonably
available to meet the requirements of the Variable Contracts as
determined by the COMPANY. Prompt notice of election to terminate
shall be furnished by the COMPANY, said termination to be effective
ten days after receipt of notice unless FUND makes available a
sufficient number of shares to reasonably meet the requirements of the
Variable Contracts within said ten-day period;
(c) At the option of the COMPANY, upon the institution of formal
proceedings against FUND by the SEC, the National Association of
Securities Dealers, Inc., or any other regulatory body, the expected
or anticipated ruling, judgment or outcome of which would, in the
COMPANY's reasonable judgment, materially impair FUND's ability to
meet and perform FUND's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by the COMPANY with
said termination to be effective upon receipt of notice;
(d) At the option of FUND, upon the institution of formal proceedings
against the COMPANY by the SEC, the National Association of Securities
Dealers, Inc., or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in FUND's
reasonable judgment, materially impair the COMPANY's ability to meet
and perform its obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by FUND with said termination
to be effective upon receipt of notice;
(e) In the event FUND's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes
the use of such shares as the underlying investment medium of Variable
Contracts issued or to be issued by the COMPANY. Termination shall be
effective upon such occurrence without notice;
(f) At the option of FUND if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under
the Code, or if FUND reasonably believes that the Variable Contracts
may fail to so qualify. Termination shall be effective upon receipt of
notice by the COMPANY;
(g) At the option of the COMPANY, upon FUND's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of the COMPANY within ten days after written notice of
such breach is delivered to FUND;
(h) At the option of FUND, upon the COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of FUND within ten days after written notice of such
breach is delivered to the COMPANY;
(i) At the option of FUND, if the Variable Contracts are not registered,
issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence
without notice;
(j) In the event this Agreement is assigned without the prior written
consent of the COMPANY, FUND, and ADVISER, termination shall be
effective immediately upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2 hereof, FUND at the option of the COMPANY will continue to make available
additional FUND shares, as provided below, pursuant to the terms and conditions
of this Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts or the
COMPANY, whichever shall have legal authority to do so, shall be permitted to
reallocate investments in FUND, redeem investments in FUND and/or invest in FUND
upon the payment of additional premiums under the Existing Contracts.
Article IX. NOTICES
-------
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to FUND, or ADVISER.
Lord, Abbett & Co.
The GM Building - 767 Fifth Avenue
New York, New York 10153-0203
Attn: Thomas F. Konop
If to the COMPANY:
Great American Reserve Insurance Company
11815 N. Pennsylvania Street
Carmel, Indiana 46032-4572
Attention: Gregory Gloeckner
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
-------------
10.1 The COMPANY shall be reimbursed for distribution expenses as provided
for in the Distribution Plan attached hereto as Appendix C under the terms and
conditions set forth in such Distribution Plan.
10.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.5 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Indiana. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.6 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Board or officers of FUND or any
Portfolio shall be personally liable hereunder. No Portfolio shall be liable for
the liabilities of any other Portfolio. All persons dealing with FUND or a
Portfolio must look solely to the property of FUND or that Portfolio,
respectively, for enforcement of any claims against FUND or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with the COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with the COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.7 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the National
Association of Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
10.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by FUND,
ADVISER and the COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
Lord Abbett Series Fund, Inc.
By:_____________________________
Name:
Title:
Lord, Abbett & Co.
By:_____________________________
Name:
Title:
GREAT AMERICAN RESERVE
INSURANCE COMPANY
By:______________________________
Name:
Title:
APPENDIX A
----------
FUND and its Portfolios
Lord Abbett Series Fund, Inc. Growth and Income Portfolio
APPENDIX B
----------
Separate Accounts Selected Portfolios
Variable Annuity Account G Growth and Income Portfolio
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.5 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Indiana. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.6 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Board or officers of FUND or any
Portfolio shall be personally liable hereunder. No Portfolio shall be liable for
the liabilities of any other Portfolio. All persons dealing with FUND or a
Portfolio must look solely to the property of FUND or that Portfolio,
respectively, for enforcement of any claims against FUND or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with the COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with the COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.7 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the National
Association of Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
10.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by FUND,
ADVISER and the COMPANY.
10.10 If this Agreement terminates, the parties agree that Article 7 and
Sections 10.1, 10.6, 10.7 and 10.8 shall remain in effect after termination.
FUND PARTICIPATION AGREEMENT
THIS FUND PARTICIPATION AGREEMENT is made and entered into as of , 1997 by
and between GREAT AMERICAN RESERVE INSURANCE CO. (the "Company"), and AMERICAN
CENTURY INVESTMENT SERVICES, INC. (the "Distributor").
WHEREAS, the Company offers to the public certain group variable annuity
contracts and group variable life insurance contracts (the "Contracts"); and
WHEREAS, the Company wishes to offer as investment options under the
Contracts, TCI Advantage, TCI Balanced, TCI Growth, TCI Value and TCI
International (the "Funds"), each of which is a series of mutual fund shares
registered under the Investment Company Act of 1940, as amended, and issued by
TCI Portfolios, Inc. (the "Issuer"); and
WHEREAS, on the terms and conditions hereinafter set forth Distributor and
the Issuer desire to make shares of the Funds available as investment options
under the Contracts and to the Company to perform certain administrative
services on behalf of the Funds;
NOW, THEREFORE, the Company and Distributor agree as follows:
1. TRANSACTIONS IN THE FUNDS. Subject to the terms and conditions of this
Agreement, Distributor will make shares of the Funds available to be purchased,
exchanged, or redeemed, by the Company on behalf of the Accounts (defined in
SECTION 6(A) below) through a single account per Fund at the net asset value
applicable to each order. The Funds' shares shall be purchased and redeemed on a
net basis in such quantity and at such time as determined by the Company to
satisfy the requirements of the Contracts for which the Funds serve as
underlying investment media. Dividends and capital gains distributions will be
automatically reinvested in full and fractional shares of the Funds.
2. ADMINISTRATIVE SERVICES. The Company shall be solely responsible for
providing all administrative services for the Contracts owners. The Company
agrees that it will maintain and preserve all records as required by law to be
maintained and preserved, and will otherwise comply with all laws, rules and
regulations applicable to the marketing of the Contracts and the provision of
administrative services to the Contract owners.
3. PROCESSING AND TIMING OF TRANSACTIONS.
(a) Distributor hereby appoints the Company as its agent for the
limited purpose of accepting purchase and redemption orders for Fund shares
from the Plans and/or Participants, as applicable. On each day the New York
Stock Exchange (the "Exchange") is open for business (each, a "Business
Day"), the Company may receive instructions from the Plans and/or
Participants for the purchase or redemption of shares of the Funds
("Orders"). Orders received and accepted by the Company prior to the close
of regular trading on the Exchange (the "Close of Trading") on any given
Business Day (currently, 3:00 p.m. Central time) and transmitted to the
Issuer by 9:00 a.m. Central time on the next following Business Day will be
executed by the Issuer at the net asset value determined as of the Close of
Trading on the previous Business Day ("Day 1"). Any Orders received by the
Company after the Close of Trading, and all Orders that are transmitted to
the Issuer after 9:00 a.m. Central time on the next following Business Day,
will be executed by the Issuer at the net asset value next determined
following receipt of such Order. The day as of which an Order is executed
by the Issuer pursuant to the provisions set forth above is referred to
herein as the "Effective Trade Date".
(b) By 5:30 p.m. Central time on each Business Day, Distributor will
provide to the Company, via facsimile or other electronic transmission
acceptable to the Company, the Funds' net asset value, dividend and capital
gain information and, in the case of income funds, the daily accrual for
interest rate factor (mil rate), determined at the Close of Trading.
(c) By 9:00 a.m. Central time on each Business Day, the Company will
provide to Distributor via facsimile or other electronic transmission
acceptable to Distributor a report stating whether the Orders received by
the Company from Participants by the Close of Trading on the preceding
Business Day resulted in the Plan being a net purchaser or net seller of
shares of the Funds. As used in this Agreement, the phrase "other
electronic transmission acceptable to Distributor" includes the use of
remote computer terminals located at the premises of the Company, its
agents or affiliates, which terminals may be linked electronically to the
computer system of Distributor, its agents or affiliates (hereinafter,
"Remote Computer Terminals").
(d) Upon the timely receipt from the Company of the report described
in (c) above, Distributor will execute the purchase or redemption
transactions (as the case may be) at the net asset value computed as of the
Close of Trading on Day l. Payment for net purchase transactions shall be
made by wire transfer to the custodial account designated the Funds on the
Business Day next following the Effective Trade Date. Such wire transfers
shall be initiated by the Company's bank prior to 3:00 p.m. Central time
and received by the Funds prior to 5:00 p.m. Central time on the Business
Day next following the Effective Trade Date. If payments for a purchase
Order is not timely received, such Order will be executed at the net asset
value next computed following receipt of payment. Payments for net
redemption transactions shall be made by wire transfer by the Issuer to the
account designated by the appropriate receiving party within the time
period set forth in the applicable Fund's then-current prospectus;
provided, however, Distributor will use all reasonable efforts to settle
all redemption's on the Business Day following the Effective Trade Date. On
any Business Day when the Federal Reserve Wire Transfer System is closed,
all communication and processing rules will be suspended for the settlement
of Orders. Orders will be settled on the next Business Day on which the
Federal Reserve Wire Transfer System is open and the Effective Trade Date
will apply.
4. PROSPECTUS AND PROXY MATERIALS.
(a) Distributor shall provide to the shareholder of record copies of
the Issuer's proxy materials, periodic fund reports to shareholders and
other materials that are required by law to be sent to the Issuer's
shareholders. In addition, Distributor shall provide the Company with a
sufficient quantity of prospectuses of the Funds to be used in conjunction
with the transactions contemplated by this Agreement, together with such
additional copies of the Issuer's prospectuses as may be reasonably
requested by Company. If the Company provides for pass-through voting by
the Contract owners, Distributor will provide the Company with a sufficient
quantity of proxy materials for each Contract owner.
(b) The cost of preparing, printing and shipping of the prospectuses,
proxy materials periodic fund reports and other materials of the Issuer to
the Company shall be paid by Distributor or its agents or affiliates;
provided, however, that if at any time Distributor or its agent reasonably
deems the usage by the Company of such items to be excessive, it may, prior
to the delivery of any quantity of materials in excess of what is deemed
reasonable, request that the Company demonstrate the reasonableness of such
usage. If the Distributor believes the reasonableness of such usage has not
been adequately demonstrated, it may request that the Company pay the cost
of printing (including press time) and delivery of any excess copies of
such materials. Unless the Company agrees to make such payments,
Distributor may refuse to supply such additional materials and this section
shall not be interpreted as requiring delivery by Distributor or Issuer of
any copies in excess of the number of copies required by law.
(c) The cost of distribution, if any, of any prospectuses, proxy
materials, periodic fund reports and other materials of the Issuer to the
Contract owners shall be paid by the Company and shall not be the
responsibility of Distributor or the Issuer.
5. COMPENSATION AND EXPENSES.
(a) The Accounts shall be the sole shareholder of Fund shares
purchased for the Contract owners pursuant to this Agreement (the "Record
Owners"). The Company and the Record Owners shall properly complete any
applications or other forms required by Distributor or the Issuer from time
to time.
(b) Distributor acknowledges that it will derive a substantial savings
in administrative expenses, such as a reduction in expenses related to
postage, shareholder communications and recordkeeping, by virtue of having
a single shareholder account per Fund for the Accounts rather than having
each Contract owner as a shareholder. In consideration of the
Administrative Services and performance of all other obligations under this
Agreement by the Company, Distributor will pay the Company a fee (the
"Administrative Services fee") equal to 20 basis points per annum of the
average aggregate amount invested by the Company under this Agreement,
commencing with the month in which the average aggregate market value of
investments by the Company (on behalf of the Contract owners) in the Funds
exceeds $10 million. No payment obligation shall arise until the Company's
average aggregate investment in the Funds reaches $10 million, and such
payment obligation, once commenced, shall be suspended with respect to any
month during which the Company's average aggregate investment in the Funds
drops below $ 10 million.
(c) The parties understand that Distributor customarily pays, out of
its management fee, another affiliated corporation for the type of
administrative services to be provided by the Company to the Contract
owners. The parties agree that the payments by Distributor to the Company,
like Distributor's payments to its affiliated corporation, are for
administrative services only and do not constitute payment in any manner
for investment advisory services or for costs of distribution.
(d) For the purposes of computing the payment to the Company
contemplated by this SECTION 5, the average aggregate amount invested by
the Accounts in the Funds over a one month period shall be computed by
totaling the Company's aggregate investment (share net asset value
multiplied by total number of shares of the Funds held by the Company) on
each Business Day during the month and dividing by the total number of
Business Days during such month.
(e) Distributor will calculate the amount of the payment to be made
pursuant to this SECTION 5 at the end of each calendar quarter and will
make such payment to the Company within 30 days thereafter. The check for
such payment will be accompanied by a statement showing the calculation of
the amounts being paid by Distributor for the relevant months and such
other supporting data as may be reasonably requested by the Company and
shall be mailed to:
Great American Reserve Insurance Co.
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: Separate Accounts
(f) In the event Distributor reduces its management fee with respect
to any Fund after the date hereof, Distributor may amend the Administrative
Services fee payable with regard to such Fund by providing the Company 30
days' advance written notice of any such adjustment. The revised
Administrative Services fee shall become effective as of the latter of 30
days from the date of delivery of the notice or the date prescribed in the
notice.
6. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants that: (i) this Agreement has
been duly authorized by all necessary corporate action and, when executed
and delivered, shall constitute the legal, valid and binding obligation of
the Company, enforceable in accordance with its terms; (ii) it has
established the Separate Account C and the Separate Account E (the
"Accounts"), each of which is a separate account under Texas Insurance law,
and has registered each Account as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act") to serve as an investment
vehicle for the Contracts; (iii) each Contract provides for the allocation
of net amounts received by the Company to an Account for investment in the
shares of one of more specified investment companies selected among those
companies available through the Account to act as underlying investment
media; (iv) selection of a particular investment company is made by the
Contract owner under a particular Contract, who may change such selection
from time to time in accordance with the terms of the applicable Contract;
and (v) the activities of the Company contemplated by the Agreement comply
with all provisions of federal and state insurance, securities, and tax
laws applicable to such activities.
(b) Distributor represents that: (i) this Agreement has been duly
authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of
Distributor enforceable in accordance with its terms; and (ii) the
investments of the Funds will at all times be adequately diversified within
the meaning of Section 817(h) of the Internal Revenue Service Code of 1986,
as amended (the "Code"), and the regulations thereunder, and that at all
times while this Agreement is in effect, all beneficial interests in each
of the Funds will be owned by one or more insurance companies or by any
other party permitted under Section 1.817-5(f)(3) of the Regulations
promulgated under the Code.
7. ADDITIONAL COVENANTS AND AGREEMENTS.
(a) Each party shall comply with all provisions of federal and state
laws applicable to its respective activities under this Agreement.
(b) Each party shall promptly notify the other parties in the event
that it is, for any reason, unable to perform any of its obligations under
this Agreement.
(c) The Company covenants and agrees that all Orders accepted and
transmitted by it hereunder with respect to each Account on any Business
Day will be based upon instructions that it received from the Contract
owners in proper form prior to the Close of Trading of the Exchange on that
Business Day.
(d) The Company covenants and agrees that all Orders transmitted to
the Issuer, whether by telephone, telecopy, or other electronic
transmission acceptable to Distributor, shall be sent by or under the
authority and direction of a person designated by the Company as being duly
authorized to act on behalf of the owner of the Accounts. Absent actual
knowledge to the contrary, Distributor shall be entitled to rely on the
existence of such authority and to assume that any person transmitting
Orders for the purchase, redemption or transfer of Fund shares on behalf of
the Company is "an appropriate person" as used in Sections 8-107 and 8-401
of the Uniform Commercial Code with respect to the transmission of
instructions regarding Fund shares on behalf of the owner of such Fund
shares. The Company shall maintain the confidentiality of all passwords and
security procedures issued, installed or otherwise put in place with
respect to the use of Remote Computer Terminals and assumes full
responsibility for the security therefor. The Company further agrees to be
solely responsible for the accuracy, propriety and consequences of all data
transmitted to Distributor by the Company by telephone, telecopy or other
electronic transmission acceptable to Distributor.
(e) The Company agrees to make every reasonable effort to market its
Contracts. It will use its best efforts to give equal emphasis and
promotion to shares of the Funds as is given to other underlying
investments of the Accounts.
(f) The Company shall not, without the written consent of Distributor,
make representations concerning the Issuer or the shares of the Funds
except those contained in the then current prospectus and in current
printed sales literature approved by Distributor or the Issuer.
(g) Advertising and sales literature with respect to the Issuer or the
Funds prepared by the Company or its agents, if any, for use in marketing
shares of the Funds as underlying investment media to Contract owners shall
be submitted to Distributor for review investment media to Contract owners
shall be subject to review and: before such material is used.
(h) The Company will provide to Distributor at least one complete copy
of all registration statements, prospectuses, statements of additional
information, annual and semi-annual reports, proxy statements, and all
amendments or supplements to any of the above that include a description of
or information regarding the Funds promptly after the filing of such
document with the SEC or other regulatory authority.
8. USE OF NAMES. Except as otherwise expressly provided for in this
Agreement, neither Distributor nor the Funds shall use any trademark, trade
name, service mark or logo of the Company, or any variation of any such
trademark, trade name, service mark or logo, without the Company's prior written
consent, the granting of which shall be at the Company's sole option. Except as
otherwise expressly provided for in this Agreement, the Company shall not use
any trademark, trade name, service mark or logo of the Issuer or Distributor, or
any variation of any such trademarks, trade names, service marks, or logos,
without the prior written consent of either the Issuer or Distributor, as
appropriate, the granting of which shall be at the sole option of Distributor
and/or the Issuer.
9. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring such privileges. It shall be the responsibility of the Company to
assure that it and the separate accounts of the other Participating
Companies (as defined in SECTION 11(A) below) participating in any Fund
calculate voting privileges in a consistent manner.
(b) The Company will distribute to Contract owners all proxy material
furnished by Distributor and will vote shares in accordance with
instructions received from such Contract owners. The Company shall vote
Fund shares for which no instructions have been received in the same
proportion as shares for which such instructions have been received. The
Company and its agents shall not oppose or interfere with the solicitation
of proxies for Fund shares held for such Contract owners.
10. INDEMNITY.
(a) Distributor agrees to indemnify and hold harmless the Company and
its officers, directors, employees, agents, affiliates and each person, if
any, who controls the Company within the meaning of the Securities Act of
1933 (collectively, the "Indemnified Parties" for purposes of this SECTION
10(A)) against any losses, claims, expenses, damages or liabilities
(including amounts paid in settlement thereof or litigation expenses
(including legal and other expenses) (collectively, "Losses"), to which the
Indemnified Parties may become subject, insofar as such Losses result from
a breach by Distributor of a material provision of this Agreement.
Distributor will reimburse any legal or other expenses reasonably incurred
by the Indemnified Parties in connection with investigating or defending
any such Losses. Distributor shall not be liable for indemnification
hereunder if such Losses are attributable to the negligence or misconduct
of the Company in performing its obligations under this Agreement.
(b) The Company agrees to indemnify and hold harmless Distributor and
the Issuer and their respective officers, directors, employees, agents,
affiliates and each person, if any, who controls the Issuer or Distributor
within the meaning of the Securities Act of 1933 (collectively. the
"Indemnified Parties" for purposes of this Section 10(b)) against any
Losses to which Indemnified Parties may become subject, insofar as such
Losses (i) result from a breach by the Company of a material-provision of
this Agreement, or (ii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any
registration statement or prospectus of the Company regarding the
Contracts, if any, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
(iii) result from the use by any person of a Remote Computer Terminal, The
Company will reimburse any legal or other expenses reasonably incurred by
the Indemnified Parties in connection with investigating or defending any
such Losses. The Company shall not be liable for indemnification hereunder
if such Losses are attributable to the negligence or misconduct of
Distributor or the Issuer in performing their obligations under this
Agreement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than under this
SECTION 10. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein and, to the
extent that it may wish to, assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party under this SECTION 10 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any such action,
the indemnifying party shall not, without the prior written consent of the
indemnified parties in such action, settle or compromise the liability of
the indemnified parties in such action, or permit a default or consent to
the entry of any judgment in respect thereof, unless in connection with
such settlement, compromise or consent, each indemnified party receives
from such claimant an unconditional release from all liability in respect
of such claim.
11. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by Distributor on December 21, 1987, with the SEC
and the order issued by the SEC in response thereto (the "Shared Funding
Exemptive Order"). The Company has reviewed the conditions to the requested
relief set forth in such application for exemptive relief As set forth in
such application, the Board of Directors of the Issuer (the "Board") will
monitor the Issuer for the existence of any material irreconcilable
conflict between the interests of the contract owners of all separate
accounts ("Participating Companies") investing in funds of the Issuer. An
irreconcilable material conflict may arise for a variety of reasons,
including: (i) an action by any state insurance regulatory authority; (ii)
a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar actions by insurance, tax or
securities regulatory authorities; (iii) an administrative or judicial
decision in any relevant proceeding; (iv) the manner in which the
investments of any portfolio are being managed; (v) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (vi) a decision by an insurer to disregard
the voting instructions of contract owners. The Board shall promptly inform
the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in
carrying out its responsibilities under the Shared Funding Exemptive Order
by providing the Board with all information reasonably necessary for the
Board to consider any issues raised. This includes, but is not limited to,
an obligation by the Company to inform the Board whenever contract owner
voting instructions are disregarded.
(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable conflict exists
with regard to contract owner investments in a Fund, the Board shall give
prompt notice to all Participating Companies. If the Board determines that
the Company is responsible for causing or creating said conflict, the
Company shall at its sole -cost and expense, and to the extent reasonably
practicable (as determined by a majority of the disinterested Board
members), take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may include but
shall not be limited to:
(i) withdrawing the assets allocable to the Accounts from the
Fund and reinvesting such assets in a different investment medium or
submitting the question of whether such segregation should be
implemented to a vote of all affected contract owners and as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable
contract owners of one or more Participating Companies) that votes in
favor of such segregation, or offering to the affected contract owners
the option of making such a change; and/or
(ii) establishing a new registered management investment company
or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contract owner voting instructions
and said decision represents a minority position or would preclude a
majority vote by all of its contract owners having an interest in the
Issuer, the Company at its sole cost, may be required, at the Board's
election, to withdraw an Account's investment in the Issuer and terminate
this Agreement; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
members of the Board.
(e) For the purpose of this SECTION 11, a majority of the
disinterested Board members shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the Issuer be required to establish a new funding medium for any
Contract. The Company shall not be required by this SECTION 11 to establish
a new funding medium for any Contract if an offer to do so has been
declined by vote of a majority of the Contract owners materially adversely
affected by the irreconcilable material conflict.
12. TERMINATION; WITHDRAWAL OF OFFERING. This Agreement may be terminated
by either party upon 180 days' prior written notice to the other parties.
Notwithstanding the above, each Issuer reserves the right, without prior notice,
to suspend sales of shares of any Fund, in whole or in part, or to make a
limited offering of shares of any of the Funds in the event that (A) any
regulatory body commences formal proceedings against the Company, Distributor,
affiliates of Distributor, or any of the Issuers, which proceedings Distributor
reasonably believes may have a material adverse impact on the ability
of-Distributor, the Issuers or the Company to perform its obligations under this
Agreement or (B) in the judgment of Distributor, declining to accept any
additional instructions for the purchase or sale of shares of any such Fund is
warranted by market, economic or terminated immediately (i) by any party as a
result of any other breach of this Agreement by another party, which breach is
not cured within 30 days after receipt of notice from the other party, or (ii)
by any party upon a determination that continuing to perform under this
Agreement would, in the reasonable opinion of the terminating party's counsel,
violate any applicable federal or state law, rule, regulation or judicial order.
Termination of this Agreement shall not affect the obligations of the parties to
make payments under SECTION 3 for Orders received by the Company prior to such
termination and shall not affect the Issuers' obligation to maintain the
Accounts in the name of the Plans or any successor trustee or recordkeeper for
the Plans. Following termination, Distributor shall not have any Administrative
Services payment obligation to the Company (except for payment obligations
accrued but not yet paid as of the termination date).
13. CONTINUATION OF AGREEMENT. Termination as the result of any cause
listed in SECTION 12 shall not affect the Distributor's obligation to cause the
Issuer to furnish its shares to Contracts then in force for which its shares
serve or may serve as the underlying medium (unless such further sale of Fund
shares is proscribed by law or the SEC or other regulatory body). Following
termination, Distributor shall not have any Administrative Services payment
obligation to the Company (except for payment obligations accrued but not yet
paid as of the termination date).
14. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees that this
Agreement and the arrangement described herein are intended to be non-exclusive
and that each of the parties is free to enter into similar agreements and
arrangements with other entities.
15. SURVIVAL. The provisions of SECTION 8 (use of names) and SECTION 10
(indemnity) of this Agreement shall survive termination of this Agreement.
16. AMENDMENT. Neither this Agreement, nor any provision hereof, may be
amended, waived, discharged or terminated orally, but only by an instrument in
writing signed by all of the parties hereto.
17. NOTICES. All notices and other communications hereunder shall be given
or made in writing and shall be delivered personally, or sent by telex,
telecopier, express delivery or registered or certified mail, postage prepaid,
return receipt requested, to the party or parties to whom they are directed at
the following addresses, or at such other addresses as may be designated by
notice from such party to all other parties.
Great American Reserve Insurance Co.
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: L. Gregory Gloeckner
(317) 817-2706 (office number)
(317) 817-2342 (telecopy number)
To the Issuer or Distributor:
American Century Mutual Funds
4500 Main Street
Kansas City, Missouri 641 11
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a manner prescribed in this
SECTION 17 shall be deemed to have been delivered on receipt.
18. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned without the
written consent of all parties to the Agreement at the time of such assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.
20. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT. This Agreement, including the Attachments hereto,
constitutes the entire agreement between the parties with respect to the matters
dealt with herein, and supersedes all previous agreements, written or oral, with
respect to such matters.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
AMERICAN CENTURY INVESTMENT GREAT AMERICAN RESERVE
SERVICES, INC. INSURANCE, CO.
By:____________________________ By:___________________________
William M. Lyons L. Gregory Gloeckner
Executive Vice President Executive Vice President
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
February 2, 1998
Board of Directors
Great American Reserve Insurance Company
11825 N. Pennsylvania Street
Carmel, IN 46032-4572
Re: Opinion of Counsel - Great American Reserve
Variable Annuity Account F
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Pre-Effective Amendment to a
Registration Statement on Form N-4 for the Individual and Group Variable
Deferred Annuity Contracts and Certificates (the "Contracts") to be issued by
Great American Reserve Insurance Company and its separate account, Great
American Reserve Variable Annuity Account F.
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. Great American Reserve Variable Annuity Account F is a Unit Investment
Trust as the 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/Certificate
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/Certificate 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 captions "Legal Opinions"
contained in the Prospectus and the Statement of Additional Information which
forms a part of the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/ LYNN KORMAN STONE
__________________________
Lynn Korman Stone
We consent to the inclusion in this registration statement on Form N-4
(File No. 333-40309), of our report dated March 14, 1997 on our audit of the
financial statements of Great American Reserve Insurance Company. We also
consent to the reference to our firm under the caption "Independent
Accountants."
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
January 30, 1998
ORGANIZATIONAL CHART
December 31, 997
Conseco, Inc., a publicly traded holding company which owns 100% of the
following:
Conseco Capital Management, Inc.
Conseco Private Capital Group, Inc.
Conseco Risk Management, Inc.
Conseco Mortgage Capital, Inc.
Conseco Group Risk Management Company
Lincoln American Life Insurance Company
Marketing Distribution Systems Consulting Group, Inc.
CIHC, Incorporated
Conseco Equity Sales, Inc.
CNC Real Estate, Inc.
Conseco Entertainment, Inc.
Conseco Partnership Management, Inc. owns 100% of American Life Holdings, Inc.
Conseco HPLP is owned 99% by Conseco, Inc. and 1% by Conseco Entertainment
Conseco LLC is owned 90% by CIHC and 10% by Conseco, Inc.
Conseco Entertainment LLC is owned 99% by Conseco Entertainment Inc. and 1% by
CIHC
American Life Holdings, Inc. owns 100% of American Life Holding Company
American Life Holding Company owns 100% of American Life & Casualty Insurance
Co. which owns 100% of Vulcan Life Insurance Company
Conseco Global Investments, Inc.
Conseco Risk Management, Inc. owns 100% of the following:
Wells & Company
CRM Acquisition Company which owns 100% of Wellsco, Inc.
Marketing Distribution Systems Consulting Group, Inc. owns 100% of the
following:
MDS Securities Incorporated
BankMark School of Business
Investment Services Center of Delaware, Inc.
Bankmark, Inc.
Community Insurance Agency, Inc. (NH)
InveStar Insurance Agency, Inc. (IN)
InveStar Insurance Agency, Inc. (OH)
Marketing Distribution Systems, Inc.
MDS of New Jersey, Inc. which owns 100% of Community Insurance Agency, Inc.
(MA)
CICH, Incorporated owns 100% of the following:
K.F. Agency, Inc.
Wabash Life Insurance Company owns 100% of the following:
Independent Processing Services, Inc.
Philadelphia LIC owns 100% of the following:
Lamar LIC
Conseco LIC
Conseco Travel Services, Inc.
Stratford Capital Group Inc.
K.F. Insurance Agency of Massachusetts Inc.
American Life Holdings, Inc.
K.F. Agency of Texas
Capitol American Financial Corporation owns 100% of the following:
Capitol American LIC which owns 100% of the following:
Frontier National LIC
Capitol National LIC
Bankers Life Insurance Company of Illinois
Jefferson National Life Insurance Company of Texas which owns 100% of the
following:
Beneficial Standard Life Insurance Company
American Travelers Life Insurance Company which owns 100% of the following:
Continental Life Insurance Company
United General Life Insurance Company
Conseco Life Insurance Company of New York
Great American Reserve Insurance Company
Bankers National Life Insurance Company which owns 100% of the following:
National Fidelity LIC
KP Acquisition Corp.
NACT, Inc.:
Conseco Services LLC owns 100% of the following:
Conseco Marketing LLC
Pioneer Financial Services, Inc. owns 100% of the following:
PL Holdings Inc.
National Benefit Plans, Inc. which owns 100% of the following:
Design Securities Corporaiton
Conseco Teleservices, Inc.
Target Ad Group, Inc.
Design Benefit Plans, Inc. which owns 100% of the following:
Continental Marketing Corporation of Illinois, Inc.
DBP of Nevada, Inc.
Design Benefit Plans of Oregon, Inc.
Pioneer Life Insurance Company which owns 100% of the following:
Health & Life Insurance Company of America
Manhattan National Life Insurance Company which owns 100% of
the following:
Connecticut National Life Insurance Company
MNL Marketing Corporation
Pioneer Sequros
Especializados, S.A. de C.V.
Integrated Networks, Inc.
Administrators Service Corp.
Direct Financial Services, Inc. which owns 100% of the following:
Erie International Insurance Company, Inc.
Association Management Corp. which owns 100% of the following:
Pioneer Savers Plan, Inc.
Independent Savers Plan, Inc.
Network Air Medical Systems Inc.
Partners Health Group, Inc.
Personal Health Care, Inc. which owns 100% of the following:
Healthscope, Inc.
The Nations Health Plan, Inc.
Preferred Health Choice, Inc.
Geneva International Insurance Company, Inc.
Response Air Ambulance Network, Inc.
United Life Holdings, Inc.
Markman International LLC
United Group Holdings Inc. which owns 100% of the following:
National Group LIC
Continental Life and Accident Company
Wabash Life Insurance company owns 100% of Philadelphia Life Insurance Company
American Life Holdings, Inc. owns 100% of American Life Holding Company
Capitol American Financial Corporation owns 100% of Capitol American Life
Insurance Company
Bankers Life Insurance Company of Illinois owns 100% of Bankers Life &
Casualty Company
Bankers Life & Casualty Company owns 100% of Certified Life Insurance Company
