STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL AND GROUP FIXED AND
VARIABLE DEFERRED ANNUITY CONTRACTS
issued by
CONSECO VARIABLE ANNUITY ACCOUNT F
(formerly Great American Reserve Variable Annuity Account F)
and
CONSECO VARIABLE INSURANCE COMPANY
(formerly Great American Reserve Insurance Company)
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1999, FOR THE INDIVIDUAL
AND GROUP FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS WHICH ARE 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 MAY 1, 1999.
TABLE OF CONTENTS
PAGE
COMPANY................................................................... 3
INDEPENDENT ACCOUNTANTS................................................... 3
LEGAL OPINIONS............................................................ 3
DISTRIBUTION.............................................................. 3
Reduction or Elimination of the Contingent Deferred Sales Charge...... 3
CALCULATION OF PERFORMANCE INFORMATION.................................... 4
Total Return.......................................................... 4
Performance Information............................................... 5
Historical Unit Values................................................ 5
Reporting Agencies.................................................... 6
FEDERAL TAX STATUS........................................................ 7
General............................................................... 7
Diversification....................................................... 8
Multiple Contracts.................................................... 9
Contracts Owned by Other than Natural Persons......................... 9
Tax Treatment of Assignments.......................................... 9
Income Tax Withholding................................................ 10
Tax Treatment of Withdrawals - Non-Qualified Contracts................ 10
Qualified Plans....................................................... 11
Tax Treatment of Withdrawals - Qualified Contracts.................... 15
Tax-Sheltered Annuities - Withdrawal Limitations...................... 16
Mandatory Distributions - Qualified Plans............................. 16
ANNUITY PROVISIONS........................................................ 16
Variable Annuity Payout............................................... 16
Annuity Unit.......................................................... 17
Fixed Annuity Payout.................................................. 17
FINANCIAL STATEMENTS ..................................................... 17
COMPANY
Information regarding Conseco Variable Insurance Company ("Company" or
"Conseco Variable") is contained in the prospectus. On October 7, 1998, the
Company changed its name from Great American Reserve Insurance Company to its
present name.
INDEPENDENT ACCOUNTANTS
The financial statements of Conseco Variable as of December 31, 1998 and
1997, and for the years ended December 31, 1998, 1997 and 1996, included in the
prospectus, have been audited by PricewaterhouseCoopers LLP, independent
accountants, as set forth in their report appearing therein.
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.
CALCULATION OF PERFORMANCE INFORMATION
TOTAL RETURN
From time to time, we 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 standardized average annual 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 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 Contract Maintenance Charge and Contingent Deferred Sales Charge. The
deduction of any Contract Maintenance Charge and Contingent Deferred Sales
Charge would reduce any percentage increase or make greater any percentage
decrease.
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:
P (1 + T)^n = 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.
You 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 your total return may be in any future period.
Performance Information
The Contracts are relatively new and therefore do not have a meaningful
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 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.
FEDERAL TAX STATUS
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.
GENERAL
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.
Regulations issued by the Treasury Department ("the Regulations") amplify
the diversification requirements for variable contracts set forth in the Code
and provide an alternative to the safe harbor provision described above. Under
the Regulations, an investment portfolio will be deemed adequately diversified
if: (1) no more than 55% of the value of the total assets of the portfolio is
represented by any one investment; (2) no more than 70% of the value of the
total assets of the portfolio is represented by any two investments; (3) no more
than 80% of the value of the total assets of the portfolio is represented by any
three investments; and (4) no more than 90% of the value of the total assets of
the portfolio is represented by any four investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
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. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
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. You should
therefore consult competent tax advisers should they wish to assign or pledge
your Contract.
If the Contract is issued pursuant to a retirement plan which receives
favorable treatment under the provision of Section 408 of the Code, it may not
be assigned, pledged or otherwise transferred except as allowed under applicable
law.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross
income of the 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 many cases, may
elect not to have taxes withheld or to have withholding done at a different
rate.
Certain distributions from retirement plans qualified under Section 401 or
Section 403(b) of the Code, which are not directly rolled over to another
eligible retirement plan or individual retirement account or individual
retirement annuity, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement generally does not apply to: a) a
series of substantially equal payments made at least annually for the life or
life expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary or for a specified period of 10 years
or more; or b) distributions which are required minimum distributions; or c) the
portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions); or d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 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 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.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However,
separate tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
QUALIFIED PLANS
The Contracts are designed to be suitable for use under various types of
Qualified Plans. Taxation of participants in each Qualified Plan varies with the
type of plan and terms and conditions of each specific plan. Owners, annuitants
and beneficiaries are cautioned that benefits under a Qualified Plan may be
subject to the terms and conditions of the plan regardless of the terms and
conditions of the Contracts issued pursuant to the plan. Some retirement plans
are subject to distribution and other requirements that are not incorporated
into the Company's administrative procedures. Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Contracts comply with applicable law.
Following are general descriptions of the types of Qualified Plans with which
the Contracts may be used. Such descriptions are not exhaustive and are for
general informational purposes only. The tax rules regarding Qualified Plans are
very complex and will have differing applications depending on individual facts
and circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations" below.) Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
b. 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 with 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 taxable income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.) Under certain
conditions, distributions from other IRAs and other Qualified Plans may be
rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
SIMPLE IRAs
Section 408(p) of the Code permits certain employers (generally those with less
than 100 employees) to establish a retirement program for employees using
Savings Incentive Match Plan Retirement Annuities ("SIMPLE IRA"). SIMPLE IRA
programs can only be established with the approval of and adoption by the
employer of the Contract Owner of the SIMPLE IRA. Contributions to SIMPLE IRAs
will be made pursuant to a salary reduction agreement in which an Owner would
authorize his/her employer to deduct a certain amount from his/her pay and
contribute it directly to the SIMPLE IRA. The Owner's employer will also make
contributions to the SIMPLE IRA in amounts based upon certain elections of the
employer. The only contributions that can be made to a SIMPLE IRA are salary
reduction contributions and employer contributions as described above, and
rollover contributions from other SIMPLE IRAs. Purchasers of Contracts to be
qualified as SIMPLE IRAs should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
ROTH IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues apply to all of
a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held a Roth IRA for at
least five taxable years and, in addition, that the distribution is made: (i)
after the individual reaches age 59 1/2, (ii) on the individual's death or
disability, or (iii) as a qualified first-time home purchase (subject to a
$10,000 lifetime maximum) for the individual, a spouse, child, grandchild, or
ancestor. Any distribution which is not a qualified distribution is taxable to
the extent of earnings in the distribution. Distributions are treated as made
from contributions first and therefore no distributions are taxable until
distributions exceed the amount of contributions and conversions to the Roth
IRA. The 10% penalty tax and the regular IRA exceptions to the 10% penalty tax
apply to taxable distributions from a Roth IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, ("conversion deposits") unless the individual has adjusted gross income
over $100,000 or the individual is a married taxpayer filing a separate return.
The individual must pay tax on any portion of the IRA being rolled over that
represents income or a previously deductible IRA contribution. However, for
rollovers in 1998, the individual may pay that tax ratably over the four taxable
year period beginning with tax year 1998. In addition, distribution of amounts
attributable to conversion deposits held for less than 5 taxable years will also
be subject to the penalty tax.
Purchasers of Contracts intended to be qualified as a Roth IRA should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
c. PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employees until distributed from the
Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Special considerations apply to plans covering self-employed
individuals, including limitations on contributions and benefits for key
employees or 5 percent owners. (See "Tax Treatment of Withdrawals - Qualified
Contracts" below.) Purchasers of Contracts for use with Pension or Profit
Sharing Plans should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
d. GOVERNMENT AND TAX-EXEMPT ORGANIZATION'S DEFERRED COMPENSATION PLAN
Under Code provisions, employees and independent contractors performing services
for state and local governments and other tax-exempt organizations may
participate in Deferred Compensation Plans. While participants in such Plans may
be permitted to specify the form of investment in which their Plan accounts will
participate, all such investments are owned by the sponsoring employer and are
subject to the claims of its creditors until December 31, 1998, or such earlier
date as may be established by Plan amendment. However, amounts deferred under a
Plan created on or after August 20, 1996 and amounts deferred under any 457 Plan
after December 31, 1998 must be held in trust, custodial account or annuity
contract for the exclusive benefit of Plan participants and their beneficiaries.
The amounts deferred under a Plan which meets the requirements of Section 457 of
the Code are not taxable as income to the participant until paid or otherwise
made available to the participant or beneficiary. As a general rule, the maximum
amount which can be deferred in any one year is the lesser of $7,500 ($8,000
beginning in 1998, as indexed for inflation) or 33 1/3 percent of the
participant's includable compensation. However, in limited circumstances, up to
$15,000 may be deferred in each of the last three years before normal retirement
age. Furthermore, the Code provides additional requirements and restrictions
regarding eligibility and distributions.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). This penalty is increased to 25% instead of 10% for SIMPLE IRAs if
distribution occurs within the first two years after the Owner first
participated in the SIMPLE IRA. 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) made on or after the date on which the Owner
or Annuitant (as applicable) reaches age 59 1/2; (b) following the death or
disability of the Owner or Annuitant (as applicable) (for this purpose
disability is as defined in Section 72(m) (7) of the Code); (c) after separation
from service, distributions that are part of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the Owner or Annuitant (as applicable) or the joint lives (or
joint life expectancies) of such Owner or Annuitant (as applicable) and his or
her designated Beneficiary; (d) to an Owner or Annuitant (as applicable) who has
separated from service after he has attained age 55; (e) made to the Owner or
Annuitant (as applicable) to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 to the Owner or Annuitant
(as applicable) for amounts paid during the taxable year for medical care; (f)
made to an alternate payee pursuant to a qualified domestic relations order;(g)
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 or Annuitant (as
applicable) and his or her spouse and dependents if the Owner or Annuitant (as
applicable) has received unemployment compensation for at least 12 weeks (this
exception will no longer apply after the Owner or Annuitant (as applicable) has
been re-employed for at least 60 days); (h) from an Individual Retirement
Annuity made to the Owner or Annuitant (as applicable) 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 or Annuitant (as applicable) for
the taxable year; and (i) distributions up to $10,000 from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8) of
the Code). The exceptions stated in (d) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in (c) above applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service. With respect to (c) above, if the series of
substantially equal periodic payments is modified before the later of your
attaining age 59 1/2 or 5 years from the date of the first periodic payment,
then the tax for the year of the modification is increased by an amount equal to
the tax which would have been imposed (the 10% penalty tax) but for the
exception, plus interest for the tax years in which the exception was used.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); (5) in the case of hardship; or (6) made pursuant
to a qualified domestic relations order, if otherwise permissible. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers and transfers between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
MANDATORY DISTRIBUTIONS - QUALIFIED PLANS
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
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.
ANNUITY UNIT
The value of an 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
assumed investment rate.
FIXED ANNUITY PAYOUT
A 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.
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.
Table of Contents
December 31, 1998
================================================================================
Great American Reserve Variable Annuity Account F Page
Statement of Assets and Liabilities as of December 31, 1998 ................ 2
Statement of Operations for the Period February 12, 1998,
through December 31, 1998 .................................................. 4
Statement of Changes in Net Assets for the Period
February 12, 1998, through December 31, 1998 ............................... 4
Notes to Financial Statements .............................................. 5
Report of Independent Accountants .......................................... 7
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT F
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
====================================================================================================================================
SHARES COST VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Market value adjustment cash account................................................ $ 120,019 $ 120,019
Investments in portfolio shares, at net asset value (Note 2):
The Alger American Fund:
Growth Portfolio................................................................ 114,219.6 5,158,600 6,078,770
Leveraged AllCap Portfolio...................................................... 46,592.2 1,343,565 1,626,068
MidCap Growth Portfolio......................................................... 66,801.8 1,704,451 1,928,568
Small Capitalization Portfolio.................................................. 39,050.4 1,555,610 1,717,050
American Century Variable Portfolios, Inc.:
International Fund.............................................................. 168,863.7 1,249,909 1,286,741
Value Fund...................................................................... 260,101.3 1,688,956 1,750,482
Income and Growth Fund.......................................................... 626,059.4 3,797,751 4,244,683
Berger Institutional Products Trust:
100 Fund........................................................................ 62,197.4 690,863 801,724
Growth and Income Fund.......................................................... 112,793.2 1,640,635 1,875,751
Small Company Growth Fund....................................................... 89,578.3 1,048,905 1,100,022
BIAM International Fund......................................................... 19,979.3 206,916 223,968
Conseco Series Trust:
Asset Allocation Portfolio...................................................... 307,340.7 4,080,368 4,200,729
Common Stock Portfolio.......................................................... 225,197.2 4,289,694 4,861,045
Corporate Bond Portfolio........................................................ 319,581.0 3,234,166 3,210,200
Government Securities Portfolio................................................. 132,405.0 1,624,581 1,608,197
Money Market Portfolio.......................................................... 8,068,401.7 8,068,402 8,068,402
Dreyfus Stock Index Fund.......................................................... 458,871.2 13,427,073 14,922,491
The Dreyfus Socially Responsible Growth Fund, Inc................................. 84,028.9 2,401,597 2,611,619
Dreyfus Variable Investment Fund:
Disciplined Stock Portfolio..................................................... 30,233.8 631,587 693,866
International Value Portfolio................................................... 10,435.8 140,686 140,361
Federated Insurance Series:
High Income Bond Fund II........................................................ 408,003.6 4,373,887 4,455,399
International Equity Fund II.................................................... 36,934.0 501,326 568,414
Utility Fund II................................................................. 169,884.2 2,407,864 2,594,132
Invesco Variable Investment Funds, Inc.:
High Yield Portfolio............................................................ 100,631.8 1,227,523 1,139,152
Industrial Income Portfolio..................................................... 44,540.0 795,029 828,889
Janus Aspen Series:
Aggressive Growth Portfolio..................................................... 88,455.0 2,016,298 2,440,473
Growth Portfolio................................................................ 228,817.8 4,586,279 5,386,372
Worldwide Growth Portfolio...................................................... 285,876.6 7,688,261 8,316,150
Lazard Retirement Series, Inc.:
Equity Portfolio................................................................ 93,247.5 918,253 1,030,385
Small Cap Portfolio............................................................. 44,590.6 415,147 424,503
Lord Abbett Series Fund, Inc.:
Growth and Income Portfolio..................................................... 125,804.8 2,575,285 2,597,742
Mitchell Hutchins Series Trust:
Growth & Income Portfolio....................................................... 17,622.4 254,859 260,988
Neuberger & Berman Advisers Management Trust:
Limited Maturity Bond Portfolio................................................. 228,925.9 3,123,523 3,163,756
Partners Portfolio.............................................................. 164,122.1 2,950,195 3,106,832
Strong Variable Insurance Funds, Inc.:
Growth Fund II.................................................................. 41,866.2 577,665 670,697
Strong Opportunity Fund II, Inc................................................... 91,192.0 1,867,677 1,980,691
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund............................................................. 28,186.3 338,407 346,128
Worldwide Emerging Markets Fund................................................. 34,233.7 253,667 243,744
Worldwide Hard Assets Fund...................................................... 9,580.0 88,437 88,136
Worldwide Real Estate Fund...................................................... 22,903.2 221,569 218,497
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets............................................................................................... 102,931,836
Liabilities:
Amounts due to Conseco Variable Insurance Company................................................................ 112,378
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (Note 6)........................................................................................ $102,819,458
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT F
Statement of Assets and Liabilities - Continued
December 31, 1998
<TABLE>
<CAPTION>
====================================================================================================================================
UNITS UNIT VALUE REPORTED VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets attributable to:
Contract owners' deferred annuity reserves:
Market value adjustment accounts - 1 Year......................................... $ 120,019
The Alger American Fund:
Growth Portfolio................................................................ 436,443.0 $ 13.912974 6,072,221
Leveraged AllCap Portfolio...................................................... 109,259.4 14.867397 1,624,403
MidCap Growth Portfolio......................................................... 155,495.9 12.390612 1,926,689
Small Capitalization Portfolio.................................................. 153,227.2 11.196182 1,715,560
American Century Variable Portfolios, Inc.:
International Fund.............................................................. 115,686.6 11.110331 1,285,316
Value Fund...................................................................... 171,138.0 10.217429 1,748,590
Income and Growth Fund.......................................................... 351,624.7 12.058202 4,239,961
Berger Institutional Products Trust:
100 Fund........................................................................ 74,888.9 10.694410 800,893
Growth and Income Fund.......................................................... 153,113.7 12.236958 1,873,646
Small Company Growth Fund....................................................... 112,139.8 9.799291 1,098,891
BIAM International Fund......................................................... 20,703.6 10.805593 223,714
Conseco Series Trust:
Asset Allocation Portfolio...................................................... 399,216.7 10.510299 4,195,887
Common Stock Portfolio.......................................................... 446,343.6 10.878030 4,855,339
Corporate Bond Portfolio........................................................ 308,575.7 10.392020 3,206,724
Government Securities Portfolio................................................. 153,270.2 10.479885 1,606,254
Money Market Portfolio.......................................................... 779,777.0 10.335375 8,059,287
Dreyfus Stock Index Fund.......................................................... 1,229,906.4 12.119694 14,906,089
The Dreyfus Socially Responsible Growth Fund, Inc................................. 212,780.0 12.260875 2,608,869
Dreyfus Variable Investment Fund:
Disciplined Stock Portfolio..................................................... 64,621.8 10.726492 693,166
International Value Portfolio................................................... 14,880.5 9.423371 140,225
Federated Insurance Series:
High Income Bond Fund II........................................................ 449,247.9 9.906275 4,450,373
International Equity Fund II.................................................... 49,555.0 11.457418 567,772
Utility Fund II................................................................. 227,544.8 11.387984 2,591,277
Invesco Variable Investment Funds, Inc.:
High Yield Portfolio............................................................ 119,636.8 9.512365 1,138,029
Industrial Income Portfolio..................................................... 80,397.0 10.299751 828,069
Janus Aspen Series:
Aggressive Growth Portfolio..................................................... 189,516.1 12.863730 2,437,884
Growth Portfolio................................................................ 424,913.2 12.663149 5,380,740
Worldwide Growth Portfolio...................................................... 698,806.4 11.887497 8,307,059
Lazard Retirement Series, Inc.:
Equity Portfolio................................................................ 93,996.5 10.950014 1,029,263
Small Cap Portfolio............................................................. 45,538.3 9.311319 424,022
Lord Abbett Series Fund, Inc. :
Growth and Income Portfolio..................................................... 240,000.3 10.812166 2,594,923
Mitchell Hutchins Series Trust:
Growth and Income Portfolio..................................................... 23,636.4 11.029509 260,698
Neuberger & Berman Advisers Management Trust:
Limited Maturity Bond Portfolio................................................. 308,952.7 10.228889 3,160,242
Partners Portfolio.............................................................. 308,590.6 10.056279 3,103,273
Strong Variable Insurance Funds, Inc.:
Growth Fund II.................................................................. 53,572.2 12.505960 669,972
Strong Opportunity Fund II, Inc................................................... 181,751.9 10.886238 1,978,595
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund............................................................. 31,389.1 11.014099 345,723
Worldwide Emerging Markets Fund................................................. 36,152.7 6.734480 243,470
Worldwide Hard Assets Fund...................................................... 12,475.6 7.058843 88,064
Worldwide Real Estate Fund...................................................... 25,254.3 8.642784 218,267
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets................................................................................................. $102,819,458
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT F
Statement of Operations
For the Period February 12, 1998, through December 31,1998
<TABLE>
<CAPTION>
====================================================================================================================================
<S> <C>
Investment income:
Dividends from investments in portfolio shares................................................................... $ 1,088,426
Expenses:
Mortality and expense risk fees.................................................................................. 378,316
Administrative fees.............................................................................................. 45,397
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses................................................................................................. 423,713
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income........................................................................................ 664,713
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) and unrealized appreciation (depreciation) on
investments:
Net realized losses on sales of investments in portfolio shares.................................................. (516,677)
Net change in unrealized appreciation of investments in portfolio shares......................................... 7,646,351
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain on investments in portfolio shares.................................................................... 7,129,674
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations................................................................... $ 7,794,387
====================================================================================================================================
</TABLE>
Statement of Changes in Net Assets
For the Period February 12, 1998, through December 31,1998
<TABLE>
<CAPTION>
====================================================================================================================================
<S> <C>
Changes from operations:
Net investment income............................................................................................ $ 664,713
Net realized losses on sales of investments in portfolio shares.................................................. (516,677)
Net change in unrealized appreciation of investments in portfolio shares......................................... 7,646,351
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations..................................................................... 7,794,387
- ------------------------------------------------------------------------------------------------------------------------------------
Changes from contract owners' transactions:
Net contract purchase payments................................................................................... 95,358,778
Contract redemptions............................................................................................. (690,158)
Net transfers from fixed account................................................................................. 356,451
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from contract owners' transactions.................................................. 95,025,071
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets................................................................................... 102,819,458
Net assets, beginning of period..................................................................................... --
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period.................................................................................... $102,819,458
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT F
Notes to Financial Statements
December 31, 1998
(1) General
Conseco Variable Insurance Company (the "Company") (formerly Great American
Reserve Insurance Company prior to its name change in October 1998) established
two separate accounts within Great American Reserve Variable Annuity Account F
("Account F"). It is anticipated that on May 1, 1999, a filing will be made with
the Securities and Exchange Commission to change the name of Great American
Reserve Variable Account F to Conseco Variable Account F. Both accounts were
established on September 26, 1997, and commenced operations on February 12,
1998. Account F is a segregated investment account for individual and group
variable annuity contracts which are registered under the Securities Act of
1933. One account, also named Great American Reserve Variable Annuity Account F
("Variable Account"), which serves the variable annuity portion of the contract,
is registered under the Investment Company Act of 1940, as amended, as a unit
investment trust. The other account, Conseco Variable Market Value Adjustment
Account ("MVA"), offers investment options which pay fixed rates of interest as
declared by the company for specified periods (one, three and five years) from
the date amounts are allocated to the MVA. The MVA is not registered as an
investment company under the Investment Company Act of 1940. The operations of
Account F are included in the operations the Company pursuant to the provisions
of the Texas Insurance Code. The Company is an indirect wholly owned subsidiary
of Conseco, Inc., a publicly-held specialized financial services holding company
listed on the New York Stock Exchange.
Besides the three guarantee periods of the MVA option, the following
Variable Account investment options are currently available:
THE ALGER AMERICAN FUND
Growth Portfolio
Leveraged AllCap Portfolio
MidCap Growth Portfolio
Small Capitalization Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
Income and Growth Fund
International Fund
Value Fund
BERGER INSTITUTIONAL PRODUCTS TRUST
100 Fund
Growth and Income Fund
Small Company Growth Fund
BIAM International Fund
CONSECO SERIES TRUST
Asset Allocation Portfolio
Common Stock Portfolio
Corporate Bond Portfolio
Government Securities Portfolio
Money Market Portfolio
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
DREYFUS STOCK INDEX FUND
DREYFUS VARIABLE INVESTMENT FUND
International Value Portfolio
Disciplined Stock Portfolio
FEDERATED INSURANCE SERIES
High Income Bond Fund II
International Equity Fund II
Utility Fund II
INVESCO VARIABLE INVESTMENT FUNDS, INC.
High Yield Portfolio
Industrial Income Portfolio
JANUS ASPEN SERIES
Aggressive Growth Portfolio
Growth Portfolio
Worldwide Growth Portfolio
LAZARD RETIREMENT SERIES, INC.
Equity Portfolio
Small Cap Portfolio
LORD ABBETT SERIES FUND, INC.
Growth and Income Portfolio
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio
Partners Portfolio
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth Fund II
STRONG OPPORTUNITY FUND II, Inc.
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund
Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
Worldwide Real Estate Fund
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported increases and decreases in net assets from
operations during the reporting period. Actual results could differ from those
estimates.
(2) Summary of Significant Accounting Policies
INVESTMENT VALUATION, TRANSACTIONS AND INCOME
Investments in portfolio shares are valued using the net asset value of the
respective portfolios at the end of each New York Stock Exchange business day.
Investment share transactions are accounted for on a trade date basis (the date
the order to purchase or redeem shares is executed) and dividend income is
recorded on the ex-dividend date. The cost of investments in portfolio shares
sold is determined on a first-in first-out basis. Account F does not hold any
investments which are restricted as to resale.
Net investment income and net realized gains (losses) and unrealized
appreciation (depreciation) on investments are allocated to the contracts on
each valuation date based on each contract's pro rata share of the assets of the
Variable Account F as of the beginning of the valuation date.
5
<PAGE>
(2) Summary of Significant Accounting Policies (Continued)
FEDERAL INCOME TAXES
No provision for federal income taxes has been made in the accompanying
financial statements because the operations of the Contract are included in the
total operations of the Company, which is treated as a life insurance company
for federal income tax purposes under the Internal Revenue Code. Net investment
income and realized gains (losses) are retained in the Contract and are not
taxable until received by the contract owner or beneficiary in the form of
annuity payments or other distributions.
ANNUITY RESERVES
Deferred annuity contract reserves are comprised of net contract purchase
payments less redemptions and benefits. These reserves are adjusted daily for
the net investment income and net realized gains (losses) and unrealized
appreciation (depreciation) on investments.
(3) Purchases and Sales of Investments in Portfolio Shares
The aggregate cost of purchases of investments in portfolio shares were
$110,554,029 for the period February 12, 1998, through December 31, 1998. The
aggregate proceeds from sales of investments in portfolio shares were
$14,871,886 for the period February 12, 1998, through December 31, 1998.
(4) Deductions and Expenses
Although periodic retirement payments to contract owners vary according to
the investment performance of the portfolios, such payments are not affected by
mortality or expense experience because the Company assumes the mortality and
expense risks under the contracts.
The mortality risk assumed by the Company results from the life annuity
payment option in the contracts in which the Company agrees to make annuity
payments regardless of how long a particular annuitant or other payee lives. The
annuity payments are determined in accordance with annuity purchase rate
provisions established at the time the contracts are issued. Based on the
actuarial determination of expected mortality, the Company is required to fund
any deficiency in the annuity payment reserves from its general account assets.
The expense risk assumed by the Company is the risk that the deductions for
sales and administrative expenses may prove insufficient to cover the actual
sales and administrative expenses. The Company deducts daily from the Variable
Account a fee, which is equal on an annual basis to 1.25 percent of the daily
value of the total investments of the Variable Account, for assuming the
mortality and expense risks. These fees were $378,316 for the period February
12, 1998, through December 31, 1998.
Pursuant to an agreement between the Variable Account and the Company
(which may be terminated by the Company at any time), the Company provides sales
and administrative services to the Variable Account, as well as a minimum death
benefit prior to retirement for the contracts. The Company may deduct a
percentage of amounts surrendered to cover sales expenses. The percentage varies
up to 7.00 percent based upon the number of years the contract has been held. In
addition, the Company deducts units from individual contracts annually and upon
full surrender to cover an administrative fee of $30, unless the value of the
contract is $50,000 or greater. This fee is recorded as a redemption in the
accompanying Statement of Changes of Net Assets. There were no sales and
administrative charges for the period February 12, 1998, through December 31,
1998. The Company also deducts daily from the Variable Account a fee, which is
equal on an annual basis to 0.15 percent of the daily value of the total
investments of the Variable Account, for administrative expenses. These expenses
were $45,397 for the period February 12, 1998, through December 31, 1998.
The MVA account is subject to a market value adjustment if the amounts are
withdrawn prior to the end of the guarantee period (with certain exceptions).
The adjustment can be positive or negative depending on the changes in the U.S.
Treasury rates during the holding period of the MVA contract. The adjustment
charge for the period February 12, 1998, through December 31, 1998, was $527.
(5) Other Transactions With Affiliates
Conseco Equity Sales, Inc., an affiliate of the Company, is the principal
underwriter and performs all variable annuity sales functions on behalf of the
Company through various retail broker/dealers including Conseco Financial
Services, Inc., an affiliate of the Company.
(6) Net Assets
Net assets consisted of the following at December 31, 1998:
================================================================================
Proceeds from the sales of units since organization,
less cost of units redeemed ............................... $ 95,025,071
Undistributed net investment income .......................... 664,713
Undistributed net realized losses on sales of investments .... (516,677)
Net unrealized appreciation of investments ................... 7,646,351
- --------------------------------------------------------------------------------
Net assets .............................................. $ 102,819,458
================================================================================
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To The Board of Directors of Conseco Variable
Insurance Company and Contract Owners of
Great American Reserve Variable Annuity
Account F
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the Great American
Reserve Variable Annuity Account F (the "Account") at December 31, 1998, and the
results of its operations and the changes in its net assets from inception
(February 12, 1998) through December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Account's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of portfolio shares owned at December 31,
1998 by correspondence with the custodians, provides a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 10, 1999>>
