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CONSECO(R)
Step up.(SM)
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ISSUED BY
CONSECO VARIABLE
INSURANCE COMPANY
Conseco
ADVANTAGE PLUS
--------------------------
FIXED AND VARIABLE ANNUITY
MAY 1, 2000
PROSPECTUS
CONSECO VARIABLE INSURANCE COMPANY
CONSECO VARIABLE ANNUITY ACCOUNT H
This cover is not part of the prospectus.
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CONSECO(R)
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THE FIXED AND VARIABLE ANNUITY
ISSUED BY
CONSECO VARIABLE ANNUITY ACCOUNT H
AND
CONSECO VARIABLE INSURANCE COMPANY
This prospectus describes the individual flexible premium deferred annuity
contract, fixed and variable accounts (CONTRACT) offered by Conseco Variable
Insurance Company (we, us, our). This contract provides for the accumulation of
contract values and subsequent annuity payments on a fixed basis, a variable
basis or a combination of both.
The annuity contract has 48 investment options--a fixed account of ours and
47 investment portfolios listed below. You can put your money in the fixed
account and/or the investment portfolios. Your investments in the portfolios are
not guaranteed. You could lose your money. Currently, you can invest in up to 15
investment portfolios at one time. In certain states, your contract may not
contain a fixed account option. Money you direct into the fixed account earns
interest at a rate guaranteed by us.
CONSECO SERIES TRUST
MANAGED BY CONSECO CAPITAL MANAGEMENT, INC.
o Conseco 20 Focus Portfolio
o Equity Portfolio
o Balanced Portfolio
o High Yield Portfolio
o Fixed Income Portfolio
o Government Securities Portfolio
o Money Market Portfolio
THE ALGER AMERICAN FUND
MANAGED BY FRED ALGER MANAGEMENT, INC.
o Alger American Growth Portfolio
o Alger American Leveraged AllCap Portfolio
o Alger American MidCap Growth Portfolio
o Alger American Small Capitalization Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
MANAGED BY AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.
o VP Income & Growth
o VP International
o VP Value
BERGER INSTITUTIONAL PRODUCTS TRUST
MANAGED BY BERGER LLC
o Berger IPT--Growth Fund
o Berger IPT--Growth and Income Fund
o Berger IPT--Small Company Growth Fund
o Berger IPT--New Generation Fund
MANAGED BY BBOI WORLDWIDE LLC
o Berger/BIAM IPT--International Fund
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
MANAGED BY THE DREYFUS CORPORATION
DREYFUS STOCK INDEX FUND
MANAGED BY THE DREYFUS CORPORATION
DREYFUS VARIABLE INVESTMENT FUND ("DREYFUS VIF")
MANAGED BY THE DREYFUS CORPORATION
o Dreyfus VIF Disciplined Stock Portfolio
o Dreyfus VIF International Value Portfolio
FEDERATED INSURANCE SERIES
MANAGED BY FEDERATED INVESTMENT MANAGEMENT CO.
o Federated High Income Bond Fund II
o Federated Utility Fund II
MANAGED BY FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
o Federated International Equity Fund II
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
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INVESCO VARIABLE INVESTMENT FUNDS, INC.
(NOT AVAILABLE FOR NEW SALES AS OF MAY 1, 2000)
MANAGED BY INVESCO FUNDS GROUP, INC.
o INVESCO VIF--High Yield Fund
o INVESCO VIF--Equity Income Fund
JANUS ASPEN SERIES
MANAGED BY JANUS CAPITAL CORPORATION
o Aggressive Growth Portfolio
o Growth Portfolio
o Worldwide Growth Portfolio
LAZARD RETIREMENT SERIES, INC.
MANAGED BY LAZARD ASSET MANAGEMENT
o Lazard Retirement Equity Portfolio
o Lazard Retirement Small Cap Portfolio
LORD ABBETT SERIES FUND, INC.
MANAGED BY LORD, ABBETT & CO.
o Growth & Income Portfolio
MITCHELL HUTCHINS SERIES TRUST
MANAGED BY MITCHELL HUTCHINS ASSET MANAGEMENT INC.
o Growth and Income Portfolio
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
MANAGED BY NEUBERGER BERMAN MANAGEMENT INC.
o Limited Maturity Bond Portfolio
o Partners Portfolio
RYDEX VARIABLE TRUST
MANAGED BY PADCO ADVISORS II, INC.
o OTC Fund
o Nova Fund
SELIGMAN PORTFOLIOS, INC.
MANAGED BY J. & W. SELIGMAN & CO. INCORPORATED
o Seligman Communications and Information Portfolio
o Seligman Global Technology Portfolio
STRONG OPPORTUNITY FUND II, INC.
ADVISED BY STRONG CAPITAL MANAGEMENT, INC.
o Opportunity Fund II
STRONG VARIABLE INSURANCE FUNDS, INC.
ADVISED BY STRONG CAPITAL MANAGEMENT, INC.
o Strong MidCap Growth Fund II
VAN ECK WORLDWIDE INSURANCE TRUST
MANAGED BY VAN ECK ASSOCIATES CORPORATION
o Worldwide Bond Fund
o Worldwide Emerging Markets Fund
o Worldwide Hard Assets Fund
o Worldwide Real Estate Fund
The expenses for a contract with a purchase payment credit are higher than
a contract without the purchase payment credit (also referred to as a bonus) and
the amount of the purchase payment credit may be more than offset by the
additional expenses attributable to the credit.
Please read this prospectus before investing. You should keep it for future
reference. It contains important information about the contract.
To learn more about the contract, you can obtain a copy of our Statement of
Additional Information (SAI) dated May 1, 2000. The SAI has been filed with the
Securities and Exchange Commission (SEC) and is legally a part of this
prospectus. The SEC has a Web site (http://www.sec.gov) that contains the SAI,
material incorporated by reference, and other information regarding companies
that file electronically with the SEC. The Table of Contents of the SAI is on
page 37 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 46032-4555.
THE CONTRACTS:
o ARE NOT BANK DEPOSITS O ARE NOT FEDERALLY INSURED
o ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
o ARE NOT GUARANTEED AND MAY BE SUBJECT TO LOSS OF PRINCIPAL
May 1, 2000
2
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CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
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TABLE OF CONTENTS
PAGE
INDEX OF SPECIAL TERMS ..................................................... 5
HIGHLIGHTS ................................................................. 6
FEE TABLE .................................................................. 7
THE COMPANY ................................................................ 16
THE CONSECO ADVANTAGE PLUS ANNUITY CONTRACT ................................ 16
PURCHASE ................................................................... 16
Purchase Payments ........................................................ 16
Purchase Payment Credit Feature .......................................... 16
Allocation of Purchase Payments .......................................... 17
Free Look ................................................................ 17
INVESTMENT OPTIONS ......................................................... 17
Investment Portfolios .................................................... 17
The Fixed Account ........................................................ 19
The General Account ...................................................... 19
Voting Rights ............................................................ 19
Substitution ............................................................. 19
Transfers ................................................................ 19
Dollar Cost Averaging Program ............................................ 20
Rebalancing Program ...................................................... 20
Asset Allocation Program ................................................. 21
Sweep Program ............................................................ 21
EXPENSES ................................................................... 21
Insurance Charges ........................................................ 21
Contract Maintenance Charge .............................................. 22
Contingent Deferred Sales Charge ......................................... 22
Reduction or Elimination of the Contingent Deferred Sales Charge ......... 22
Transfer Fee ............................................................. 23
Premium Taxes ............................................................ 23
Income Taxes ............................................................. 23
Investment Portfolio Expenses ............................................ 23
CONTRACT VALUE ............................................................. 23
Accumulation Units ....................................................... 23
ACCESS TO YOUR MONEY ....................................................... 24
Systematic Withdrawal Program ............................................ 24
Suspension of Payments or Transfers ...................................... 24
DEATH BENEFIT .............................................................. 25
Upon Your Death During the Accumulation Period ........................... 25
Death Benefit Amount During the Accumulation Period ...................... 25
Payment of Death Benefit During the Accumulation Period .................. 25
Death of Contract Owner During the Annuity Period ........................ 26
Death of Annuitant ....................................................... 26
3
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TABLE OF CONTENTS CONT'D
PAGE
ANNUITY PAYMENTS (THE ANNUITY PERIOD) ...................................... 26
Annuity Payment Amount ................................................... 26
Annuity Options .......................................................... 27
TAXES ...................................................................... 28
Annuity Contracts in General ............................................. 28
Qualified and Non-Qualified Contracts .................................... 28
Withdrawals--Non-Qualified Contracts ..................................... 28
Withdrawals--Qualified Contracts ......................................... 28
Withdrawals--Tax-Sheltered Annuities ..................................... 29
Diversification .......................................................... 29
Investor Control ......................................................... 29
PERFORMANCE ................................................................ 29
OTHER INFORMATION .......................................................... 30
The Separate Account ..................................................... 30
Distributor .............................................................. 30
Ownership ................................................................ 30
Beneficiary .............................................................. 30
Assignment ............................................................... 30
Financial Statements ..................................................... 30
APPENDIX A ................................................................. 31
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ............... 37
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CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
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INDEX OF SPECIAL TERMS
Because of the complex nature of the contract, we have used certain words
or terms in this prospectus which may need an explanation. We have identified
the following as some of these words or terms. The page that is indicated here
is where we believe you will find the best explanation for the word or term.
These words and terms are in italics on the indicated page.
Page
Accumulation Period ........................................................ 16
Accumulation Unit .......................................................... 23
Annuitant .................................................................. 26
Annuity Date ............................................................... 26
Annuity Options ............................................................ 26
Annuity Payments ........................................................... 26
Annuity Period ............................................................. 16
Annuity Unit ............................................................... 23
Beneficiary ................................................................ 30
Contract ................................................................... 1
Investment Portfolios ...................................................... 17
Joint Owner ................................................................ 30
Non-Qualified .............................................................. 28
Owner ...................................................................... 30
Purchase Payment ........................................................... 16
Qualified .................................................................. 28
Tax-Deferral ............................................................... 28
5
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HIGHLIGHTS
The variable annuity contract that we are offering is a contract between
you (the owner) and us (the insurance company). The contract provides a way for
you to invest on a tax-deferred basis in the sub-accounts (also referred to as
investment portfolios) of Conseco Variable Annuity Account H (Separate Account)
and the fixed account. The contract is intended to be used to accumulate money
for retirement or other long-term tax-deferred investment purposes.
The contract has a purchase payment credit feature under which we will
credit an additional 4% to each purchase payment (purchase payment credit or
bonus) you make. We call this the bonus feature. The contract also offers a
guaranteed minimum death benefit option and a guaranteed minimum income benefit
option. These options guarantee minimum death benefit and annuity payment
amounts. There is an additional charge for these options.
All deferred annuity contracts, like the contract, have two periods: the
accumulation period and the annuity period. During the accumulation period, any
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you make a withdrawal. If you make a withdrawal during the accumulation
period, we may assess a charge of up to 8% of each purchase payment withdrawn.
The annuity period occurs when you begin receiving regular annuity payments from
your contract.
You can choose to receive annuity payments on a variable basis, on a fixed
basis or a combination of both. If you choose variable payments, the amount of
the variable annuity payments will depend upon the investment performance of the
investment portfolios you select for the annuity period. If you choose fixed
payments, the amount of the fixed annuity payments are constant for the entire
annuity period.
FREE LOOK. If you cancel the contract within 10 days after receiving it (or
whatever longer time period is required in your state), we will cancel the
contract without assessing a contingent deferred sales charge. You will receive
whatever your contract is worth on the day we receive your request for
cancellation (less the purchase payment credit). This may be more or less than
your original payment. We will return your original payment if required by law.
TAX PENALTY. The earnings in your contract are not taxed until you take
money out of your contract. If you take money out during the accumulation
period, earnings come out first and are taxed as ordinary income. If you are
younger than age 59 1/2 when you take money out, you may be charged a 10%
federal tax penalty on those earnings. Payments during the annuity period are
considered partly a return of your original investment. The part of each payment
that is a return of your investment is not taxable as income.
INQUIRIES. If you need more information, please contact us at:
Conseco Variable Insurance Company
11815 N. Pennsylvania Street
Carmel, Indiana 46032
(800) 824-2726
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CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
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FEE TABLE
The purpose of the Fee Table is to show you the various contract expenses
you will pay directly or indirectly. The Fee Table reflects expenses of the
Separate Account as well as the investment portfolios.
OWNER TRANSACTION EXPENSES:
CONTINGENT DEFERRED SALES CHARGE: (as a percentage of Purchase Payments)(See
Note 1 on page 9)
NO. OF CONTRACT YEARS FROM CONTINGENT DEFERRED
RECEIPT OF PURCHASE PAYMENT SALES CHARGE PERCENT
------------------------------------------------------------
0-1............................................ 8%
2.............................................. 8%
3.............................................. 8%
4.............................................. 8%
5.............................................. 7%
6.............................................. 6%
7.............................................. 5%
8.............................................. 3%
9.............................................. 1%
10 or more..................................... 0%
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TRANSFER FEE: (See Note 2) No charge for one transfer in each 30 day
period during the accumulation period.
Thereafter, we will charge a fee of $25 per
transfer. We will not charge for the two
transfers allowed each contract year during
the annuity period.
CONTRACT MAINTENANCE CHARGE: $30 per contract per year
(See Note 3)
SEPARATE ACCOUNT ANNUAL EXPENSES: (See Note 4)
(as a percentage of average
account value)
INSURANCE CHARGES
(COMPRISED OF THE
MORTALITY AND TOTAL
EXPENSE RISK SEPARATE
CHARGE AND ACCOUNT
ADMINISTRATIVE ANNUAL
CHARGE) EXPENSES
------------------ --------
Standard contract ........................... 1.40% 1.40%
Contract with guaranteed minimum
death benefit (current charge) ............ 1.70% 1.70%
Contract with guaranteed minimum
death benefit (maximum charge) ............ 1.90% 1.90%
Contract with guaranteed minimum
death benefit and guaranteed
minimum income benefit (current charge) ... 2.00% 2.00%
Contract with guaranteed minimum
death benefit and guaranteed minimum
income benefit (maximum charge) ........... 2.40% 2.40%
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INVESTMENT PORTFOLIO EXPENSES:
(as a percentage of the average daily net assets of an investment portfolio)
TOTAL ANNUAL
PORTFOLIO
OTHER EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE
REIMBURSEMENT, REIMBURSEMENT,
MANAGE- IF ANY, FOR IF ANY, FOR
MENT 12B-1 CERTAIN CERTAIN
FEES FEES PORTFOLIOS) PORTFOLIOS)
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CONSECO SERIES TRUST (5)
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Conseco 20 Focus Portfolio (6) .... 0.80% -- 0.10% 0.90%
Equity Portfolio .................. 0.75% -- 0.02% 0.77%
Balanced Portfolio ................ 0.75% -- 0.00% 0.75%
High Yield Portfolio (6) .......... 0.80% -- 0.10% 0.90%
Fixed Income Portfolio ............ 0.60% -- 0.07% 0.67%
Government Securities Portfolio ... 0.60% -- 0.06% 0.66%
Money Market Portfolio (7) ........ 0.35% -- 0.05% 0.40%
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THE ALGER AMERICAN FUND
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Alger American Growth Portfolio ... 0.75% -- 0.04% 0.79%
Alger American Leveraged
AllCap Portfolio (8) ............ 0.85% -- 0.08% 0.93%
Alger American Mid Cap
Growth Portfolio ................ 0.80% -- 0.05% 0.85%
Alger American Small
Capitalization Portfolio ........ 0.85% -- 0.05% 0.90%
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AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
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VP Income & Growth(9) ............. 0.70% -- 0.00% 0.70%
VP International (9) .............. 1.34% -- 0.00% 1.34%
VP Value(9) ....................... 1.00% -- 0.00% 1.00%
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BERGER INSTITUTIONAL PRODUCTS TRUST
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Berger IPT-Growth Fund (10) ....... 0.75% -- 0.25% 1.00%
Berger IPT-Growth and
Income Fund (10) ................ 0.75% -- 0.25% 1.00%
Berger IPT-Small Company
Growth Fund (10) ................ 0.85% -- 0.30% 1.15%
Berger IPT-New Generation
Fund (10) ....................... 0.85% -- 0.30% 1.15%
Berger/BIAM IPT-International
Fund (10) ....................... 0.90% -- 0.30% 1.20%
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THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC. 0.75% -- 0.04% 0.79%
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DREYFUS STOCK INDEX FUND .......... 0.25% -- 0.01% 0.26%
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DREYFUS VARIABLE INVESTMENT FUND
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Dreyfus VIF Disciplined
Stock Portfolio ................. 0.75% -- 0.06% 0.81%
Dreyfus VIF International
Value Portfolio ................. 1.00% -- 0.35% 1.35%
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FEDERATED INSURANCE SERIES
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Federated High Income
Bond Fund II .................... 0.60% -- 0.19% 0.79%
Federated International
Equity Fund II (11) ............. 0.54% -- 0.71% 1.25%
Federated Utility Fund II ......... 0.75% -- 0.19% 0.94%
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INVESCO VARIABLE INVESTMENT FUNDS, INC.
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INVESCO VIF--High Yield
Fund (12) ....................... 0.60% -- 0.47% 1.07%
INVESCO VIF--Equity Income
Fund (12) ....................... 0.75% -- 0.42% 1.17%
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JANUS ASPEN SERIES
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Aggressive Growth Portfolio (13) .. 0.65% -- 0.02% 0.67%
Growth Portfolio (13) ............. 0.65% -- 0.02% 0.67%
Worldwide Growth Portfolio (13) ... 0.65% -- 0.05% 0.70%
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LAZARD RETIREMENT SERIES, INC.
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Lazard Retirement Equity
Portfolio (14) .................. 0.75% 0.25% 0.25% 1.25%
Lazard Retirement Small Cap
Portfolio (14) .................. 0.75% 0.25% 0.25% 1.25%
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CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
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TOTAL ANNUAL
PORTFOLIO
OTHER EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE
REIMBURSEMENT, REIMBURSEMENT,
MANAGE- IF ANY, FOR IF ANY, FOR
MENT 12B-1 CERTAIN CERTAIN
FEES FEES PORTFOLIOS) PORTFOLIOS)
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LORD ABBETT SERIES FUND, INC.
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Growth & Income Portfolio ......... 0.50% -- 0.37% 0.87%
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MITCHELL HUTCHINS SERIES TRUST
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Growth and Income Portfolio ....... 0.70% -- 0.53% 1.23%
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NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
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Limited Maturity Bond Portfolio ... 0.65% -- 0.11% 0.76%
Partners Portfolio ................ 0.80% -- 0.07% 0.87%
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RYDEX VARIABLE TRUST
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OTC Fund .......................... 0.75% -- 0.80% 1.55%
Nova Fund ......................... 0.75% -- 0.80% 1.55%
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SELIGMAN PORTFOLIOS, INC.
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Seligman Communications and
Information Portfolio (15) ...... 0.75% 0.25% 0.11% 1.11%
Seligman Global Technology
Portfolio (15) .................. 1.00% 0.15% 0.40% 1.55%
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STRONG OPPORTUNITY FUND II, INC.
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Opportunity Fund II ............... 1.00% -- 0.14% 1.14%
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STRONG VARIABLE INSURANCE FUNDS, INC.
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Strong Mid Cap Growth
Fund II (16) .................... 1.00% -- 0.15% 1.15%
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VAN ECK WORLDWIDE INSURANCE TRUST (17)
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Worldwide Bond Fund ............... 1.00% -- 0.22% 1.22%
Worldwide Emerging Markets Fund ... 1.00% -- 0.54% 1.54%
Worldwide Hard Assets Fund ........ 1.00% -- 0.26% 1.26%
Worldwide Real Estate Fund ........ 1.00% -- 2.23% 3.23%
EXPLANATION OF FEE TABLE AND EXAMPLES:
1. Once each contract 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);
(ii) the IRS minimum distribution requirement for your contract if
issued in connection with certain Individual Retirement Annuities;
or
(iii) the total of your purchase payments that have been in the contract
more than 9 complete years.
2. We will not charge you the transfer fee even if there is more than one
transfer in a 30-day period during the accumulation period if the transfer is
for the dollar cost averaging or rebalancing programs. We will also not charge
you a transfer fee on transfers made at the end of the free look period. All
reallocations made on the same day count as one transfer.
3. We will not charge the contract maintenance charge if the value of your
contract is $50,000 or more. However, if you make a complete withdrawal, we will
charge the full contract maintenance charge for the year.
4. The Fee Table and contract refer to Insurance Charges. The Insurance
Charge is equivalent to the aggregate charges that until recently were referred
to as a Mortality and Expense Risk Charge and an Administrative Charge by many
companies issuing variable annuity contracts. Throughout this
9
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prospectus we will refer to this charge as an Insurance Charge.
The Fee Table reflects the current Insurance Charges for your contract. We
reserve the right to increase the Insurance Charge, in the future, for contracts
with the guaranteed minimum death benefit and for contracts with the guaranteed
minimum death benefit and the guaranteed minimum income benefit. These maximum
charges are also reflected in the Fee Table.
5. The Adviser, Conseco Capital Management, Inc., and the Administrator,
Conseco Services, LLC, have contractually agreed to waive a portion of their
fees and/or pay a portion of the Portfolio's expenses through 4/30/01 to ensure
that total annual operating expenses do not exceed: 0.90% for Conseco 20 Focus
Portfolio; 0.85% for Equity Portfolio; 0.85% for Balanced Portfolio; 0.90% for
High Yield Portfolio; 0.70% for Fixed Income Portfolio; 0.70% for Government
Securities Portfolio and 0.45% for Money Market Portfolio. The Adviser and
Administrator may recover any money waived under the contract provisions, to the
extent that actual fees and expenses are less than the expense limitation, for a
period of 3 years, after the date of the waiver.
6. Because these Portfolios have not completed a full fiscal year, other
expenses are estimated.
7. Conseco Capital Management, Inc., since May 1, 1993, has waived its
management fees in excess of the annual rates set forth above. Absent such fee
waivers, the management fees for the Money Market Portfolio would be 0.60%.
8. The Alger American Leveraged AllCap Portfolio's "Other Expenses"
includes .01% of interest expense.
9. The fund has a stepped fee schedule. As a result, the fund's management
fee rate generally decreases as the fund's assets increase.
10. The Funds' investment advisers have agreed to waive their advisory fee
and reimburse the Funds for additional expenses to the extent that normal
operating expenses in any fiscal year, including the investment advisory fee but
excluding brokerage commissions, interest, taxes and extraordinary expenses, of
each of the Berger IPT--Growth Fund and the Berger IPT--Growth and Income Fund
exceed 1.00%, the normal operating expenses in any fiscal year of each of the
Berger IPT--Small Company Growth Fund and the Berger IPT--New Generation Fund
exceed 1.15%, and the normal operating expenses of the Berger/BIAM
IPT--International Fund exceed 1.20% of the respective Fund's average daily net
assets. Absent the waiver and reimbursement, Other Expenses for the Berger
IPT--Growth Fund, the Berger IPT--New Generation Fund, the Berger IPT--Growth
and Income Fund, the Berger IPT--Small Company Growth Fund and the Berger/BIAM
IPT--International Fund would have been 1.43%, 0.43%, 0.64%, 2.10% and 1.55%,
respectively, and their Total Annual Portfolio Expenses would have been 2.18%,
1.18%, 1.49%, 2.95% and 2.45%, respectively. These waivers/reimbursements may
not be terminated or amended except by a vote of the Fund's Board of Trustees.
Expenses shown for the Berger IPT--New Generation Fund are based on estimates
for the Fund's first full year of operations.
11. Absent a voluntary waiver of the management fee and the voluntary
reimbursement of certain other operating expenses by Federated Global Investment
Management Corp., the Management Fee and Total Annual Portfolio Expenses for
International Equity Fund II would have been 0.75% and 1.46%, respectively.
12. The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown, because its custodian fees were reduced under an expense
offset arrangement. The expense information in the table has been restated from
the financials to reflect a change in the administrative services fee. Certain
expenses of the Fund were absorbed voluntarily by INVESCO in order to ensure
that expenses did not exceed 1.05% of the High Yield Fund's average net assets
and 1.15% of the Equity Income Fund's average net assets pursuant to a
commitment between the Fund and INVESCO. This commitment may be changed at any
time following consultation with the board of directors. Without such
absorption, but excluding any expense offset arrangements, Other Expenses and
Total Annual Operating Expenses for the fiscal year ended December 31, 1999 were
0.48% and 1.08% respectively of the High Yield Fund's average net assets, and
0.44% and 1.19% respectively of the Equity Income Fund's average net assets.
13. Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Growth,
Aggressive Growth and Worldwide
10
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CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
================================================================================
Growth Portfolios. All expenses are shown without the effect of expense offset
arrangements.
14. Effective May 1, 1999, Lazard Asset Management, the Fund's investment
adviser, has voluntarily agreed to reimburse all expenses through December 31,
2000 to the extent total annual portfolio expenses exceed in any fiscal year
1.25% of the Portfolio's average daily net assets. Absent such an agreement with
the adviser, the total annual portfolio expenses for the year ended December 31,
1999 would have been 5.63% for the Lazard Retirement Equity Portfolio and 7.31%
for the Lazard Retirement Small Cap Portfolio.
15. The amount of the Management Fee and Other Expenses are actual expenses
for the fiscal year ended December 31, 1999. Seligman Communications and
Information Fund and Seligman Global Technology Fund began offering shares
charging 12b-1 fees effective May 1, 2000. J. & W. Seligman & Co. Incorporated
("Seligman") voluntarily agreed to reimburse expenses of Seligman Global
Technology Portfolio, other than the management fee, which exceed .40%. Without
reimbursement, other expenses and total annual portfolio expenses would have
been .41% and 1.56% respectively, for Seligman Global Technology Portfolio.
There is no assurance that Seligman will continue this policy in the future.
16. Strong Capital Management, Inc., the fund's advisor of the Strong Mid
Cap Growth Fund II is currently absorbing expenses of 0.02%. Without these
absorptions, the expenses would have been 1.17% for the year ended December 31,
1999. The Adviser has no current intention to, but may in the future,
discontinue or modify any waiver of fees or absorption of expenses at its
discretion with appropriate notification to its shareholders.
17. Van Eck Associates Corporation (the "Adviser") agreed to assume
expenses (excluding interest, foreign taxes and brokerage commissions) exceeding
1.50% of the Worldwide Emerging Markets Fund's average daily net assets for the
period January 1, 1999 to May 12, 1999. For the period May 13, 1999 to December
31, 1999, the Adviser agreed to assume expenses (excluding interest, foreign
taxes and brokerage commissions) exceeding 1.30% of average daily net assets.
For the Worldwide Real Estate Fund, the Adviser agreed to assume expenses
(excluding interest, foreign taxes and brokerage commissions) for the period
January 2, 1999 to February 28, 1999. The Adviser also agreed to assume expenses
exceeding 1.50% of the Worldwide Real Estate Fund's average daily net assets for
the period March 3, 1999 to December 31, 1999. The Worldwide Real Estate Fund
expenses were also reduced by a fee arrangement based on cash balances left on
deposit with the custodian and a directed brokerage arrangement where the Fund
directs certain portfolio trades to a broker that, in turn, pays a portion of
the Fund's expenses.
11
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EXAMPLES:
The Examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. For purposes
of these examples, the assumed average contract size is $30,000.
The examples in Chart 1 below assume that you do not elect the guaranteed
minimum death benefit or the guaranteed minimum income benefit. The examples in
Chart 2 below assume that you elect the guaranteed minimum death benefit and the
guaranteed minimum income benefit and the maximum insurance charges (as opposed
to the current charges for your Contract) apply.
Premium taxes are not reflected. Premium taxes may apply depending on the
state where you live.
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, and assuming the entire $1,000 is
invested in the option listed:
(a) If you surrender your contract at the end of each time period or if
you annuitize your contract (except if your annuity date is on or
after the 5th contract anniversary and you choose an annuity option
that has a life contingency for a minimum of 5 years);
(b) If you do not surrender your contract.
TIME PERIODS
CHART 1 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
CONSECO SERIES TRUST
Conseco 20 Focus ............................................ (a)$106 (a)$170
(b)$ 31 (b)$ 95
Equity ...................................................... (a)$105 (a)$166
(b)$ 30 (b)$ 91
Balanced .................................................... (a)$104 (a)$165
(b)$ 30 (b)$ 91
High Yield .................................................. (a)$106 (a)$170
(b)$ 31 (b)$ 95
Fixed Income ................................................ (a)$104 (a)$163
(b)$ 29 (b)$ 88
Government Securities ....................................... (a)$103 (a)$162
(b)$ 29 (b)$ 88
Money Market ................................................ (a)$101 (a)$154
(b)$ 26 (b)$ 80
THE ALGER AMERICAN FUND
Alger American Growth ....................................... (a)$105 (a)$166
(b)$ 30 (b)$ 92
Alger American Leveraged AllCap ............................. (a)$106 (a)$171
(b)$ 32 (b)$ 96
Alger American MidCap Growth ................................ (a)$105 (a)$168
(b)$ 31 (b)$ 94
Alger American Small Capitalization ......................... (a)$106 (a)$170
(b)$ 31 (b)$ 95
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth .......................................... (a)$104 (a)$164
(b)$ 29 (b)$ 89
VP International ............................................ (a)$111 (a)$183
(b)$ 36 (b)$109
VP Value .................................................... (a)$107 (a)$173
(b)$ 32 (b)$ 99
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth .......................................... (a)$107 (a)$173
(b)$ 32 (b)$ 99
Berger IPT--Growth and Income ............................... (a)$107 (a)$173
(b)$ 32 (b)$ 99
Berger IPT--Small Company Growth ............................ (a)$109 (a)$178
(b)$ 34 (b)$103
Berger IPT--New Generation .................................. (a)$109 (a)$178
(b)$ 34 (b)$103
Berger/BIAM IPT--International .............................. (a)$109 (a)$179
(b)$ 34 (b)$105
12
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CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
================================================================================
TIME PERIODS
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. .......... (a)$105 (a)$166
(b)$ 30 (b)$ 92
DREYFUS STOCK INDEX FUND .................................... (a)$ 99 (a)$150
(b)$ 25 (b)$ 76
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio ..................... (a)$105 (a)$167
(b)$ 30 (b)$ 93
Dreyfus VIF International Value Portfolio ................... (a)$111 (a)$184
(b)$ 36 (b)$109
FEDERATED INSURANCE SERIES
Federated High Income Bond II ............................... (a)$105 (a)$166
(b)$ 30 (b)$ 92
Federated International Equity II ........................... (a)$110 (a)$181
(b)$ 35 (b)$106
Federated Utility II ........................................ (a)$106 (a)$171
(b)$ 32 (b)$ 97
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--High Yield ..................................... (a)$108 (a)$175
(b)$ 33 (b)$101
INVESCO VIF--Equity Income .................................. (a)$109 (a)$178
(b)$ 34 (b)$104
JANUS ASPEN SERIES
Aggressive Growth ........................................... (a)$104 (a)$163
(b)$ 29 (b)$ 88
Growth ...................................................... (a)$104 (a)$163
(b)$ 29 (b)$ 88
Worldwide Growth ............................................ (a)$104 (a)$164
(b)$ 29 (b)$ 89
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity .................................... (a)$110 (a)$181
(b)$ 35 (b)$106
Lazard Retirement Small Cap ................................. (a)$110 (a)$181
(b)$ 35 (b)$106
LORD ABBETT SERIES FUND, INC.
Growth & Income ............................................. (a)$106 (a)$169
(b)$ 31 (b)$ 95
MITCHELL HUTCHINS SERIES TRUST
Growth and Income ........................................... (a)$109 (a)$180
(b)$ 35 (b)$106
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond ....................................... (a)$104 (a)$165
(b)$ 30 (b)$ 91
Partners .................................................... (a)$105 (a)$169
(b)$ 31 (b)$ 94
RYDEX VARIABLE TRUST
OTC ......................................................... (a)$113 (a)$190
(b)$ 38 (b)$115
Nova ........................................................ (a)$113 (a)$190
(b)$ 38 (b)$115
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio ........... (a)$108 (a)$176
(b)$ 33 (b)$102
Seligman Global Technology Portfolio ........................ (a)$113 (a)$190
(b)$ 38 (b)$115
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II ......................................... (a)$108 (a)$177
(b)$ 34 (b)$103
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong MidCap Growth II ..................................... (a)$109 (a)$178
(b)$ 34 (b)$103
13
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================================================================================
TIME PERIODS
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond .............................................. (a)$109 (a)$180
(b)$ 35 (b)$105
Worldwide Emerging Markets .................................. (a)$113 (a)$190
(b)$ 38 (b)$115
Worldwide Hard Assets ....................................... (a)$110 (a)$181
(b)$ 35 (b)$107
Worldwide Real Estate. ...................................... (a)$130 (a)$241
(b)$ 55 (b)$166
CHART 2
- -------------------------------------------------------------------------------
CONSECO SERIES TRUST
Conseco 20 Focus ............................................ (a)$109 (a)$178
(b)$ 34 (b)$103
Equity ...................................................... (a)$107 (a)$174
(b)$ 32 (b)$ 99
Balanced .................................................... (a)$107 (a)$173
(b)$ 32 (b)$ 99
High Yield .................................................. (a)$109 (a)$178
(b)$ 34 (b)$103
Fixed Income ................................................ (a)$106 (a)$170
(b)$ 31 (b)$ 96
Government Securities ....................................... (a)$106 (a)$170
(b)$ 31 (b)$ 96
Money Market ................................................ (a)$103 (a)$162
(b)$ 29 (b)$ 88
THE ALGER AMERICAN FUND
Alger American Growth ....................................... (a)$107 (a)$174
(b)$ 33 (b)$100
Alger American Leveraged AllCap ............................. (a)$109 (a)$179
(b)$ 34 (b)$104
Alger American MidCap Growth ................................ (a)$108 (a)$176
(b)$ 33 (b)$102
Alger American Small Capitalization ......................... (a)$109 (a)$178
(b)$ 34 (b)$103
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth .......................................... (a)$106 (a)$171
(b)$ 32 (b)$ 97
VP International ............................................ (a)$113 (a)$191
(b)$ 38 (b)$117
VP Value .................................................... (a)$110 (a)$181
(b)$ 35 (b)$106
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth .......................................... (a)$110 (a)$181
(b)$ 35 (b)$106
Berger IPT--Growth and Income ............................... (a)$110 (a)$181
(b)$ 35 (b)$106
Berger IPT--Small Company Growth ............................ (a)$111 (a)$185
(b)$ 36 (b)$111
Berger IPT--New Generation .................................. (a)$111 (a)$185
(b)$ 36 (b)$111
Berger/BIAM IPT--International .............................. (a)$112 (a)$187
(b)$ 37 (b)$112
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. .......... (a)$107 (a)$174
(b)$ 33 (b)$100
DREYFUS STOCK INDEX FUND .................................... (a)$102 (a)$158
(b)$ 27 (b)$ 83
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF--Disciplined Stock .............................. (a)$108 (a)$175
(b)$ 33 (b)$100
14
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
================================================================================
TIME PERIODS
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
Dreyfus VIF--International Value ............................ (a)$113 (a)$191
(b)$ 38 (b)$117
FEDERATED INSURANCE SERIES
Federated High Income Bond II ............................... (a)$107 (a)$174
(b)$ 33 (b)$100
Federated International Equity II ........................... (a)$112 (a)$188
(b)$ 37 (b)$114
Federated Utility II ........................................ (a)$109 (a)$179
(b)$ 34 (b)$104
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--High Yield ..................................... (a)$110 (a)$183
(b)$ 36 (b)$108
INVESCO VIF--Equity Income .................................. (a)$111 (a)$186
(b)$ 37 (b)$111
JANUS ASPEN SERIES
Aggressive Growth ........................................... (a)$106 (a)$170
(b)$ 31 (b)$ 96
Growth ...................................................... (a)$106 (a)$170
(b)$ 31 (b)$ 96
Worldwide Growth ............................................ (a)$106 (a)$171
(b)$ 32 (b)$ 97
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity .................................... (a)$112 (a)$188
(b)$ 37 (b)$114
Lazard Retirement Small Cap ................................. (a)$112 (a)$188
(b)$ 37 (b)$114
LORD ABBETT SERIES FUND, INC.
Growth & Income ............................................. (a)$108 (a)$177
(b)$ 33 (b)$102
MITCHELL HUTCHINS SERIES TRUST
Growth and Income ........................................... (a)$112 (a)$188
(b)$ 37 (b)$113
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond ....................................... (a)$107 (a)$173
(b)$ 32 (b)$ 99
Partners .................................................... (a)$108 (a)$177
(b)$ 33 (b)$102
RYDEX VARIABLE TRUST
OTC ......................................................... (a)$115 (a)$198
(b)$ 41 (b)$123
Nova ........................................................ (a)$115 (a)$198
(b)$ 41 (b)$123
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio ........... (a)$111 (a)$184
(b)$ 36 (b)$110
Seligman Global Technology Portfolio ........................ (a)$115 (a)$198
(b)$ 41 (b)$123
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II ......................................... (a)$111 (a)$185
(b)$ 36 (b)$111
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong MidCap Growth II ..................................... (a)$111 (a)$185
(b)$ 36 (b)$111
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond. ............................................. (a)$112 (a)$188
(b)$ 37 (b)$113
Worldwide Emerging Markets .................................. (a)$115 (a)$197
(b)$ 40 (b)$123
Worldwide Hard Assets ....................................... (a)$112 (a)$189
(b)$ 38 (b)$114
Worldwide Real Estate ....................................... (a)$133 (a)$248
(b)$ 58 (b)$173
15
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THE COMPANY
Conseco Variable Insurance Company (Conseco Variable) was originally
organized in 1937. Prior to October 7, 1998, Conseco Variable Insurance Company
was known as Great American Reserve Insurance Company. In certain states, we may
still use the name Great American Reserve Insurance Company until our name
change is approved in the state.
We are principally engaged in the life insurance business in 49 states and
the District of Columbia. We are a stock company organized under the laws of the
state of Texas and are an indirect wholly-owned subsidiary of Conseco, Inc.
Headquartered in Carmel, Indiana, Conseco, Inc. is one of middle America's
leading sources for investment, insurance and lending products. Through its
subsidiaries and a nationwide network of insurance agents and finance dealers,
Conseco, Inc. provides solutions for wealth protection and wealth creation to
more than 12 million customers.
THE CONSECO ADVANTAGE PLUS
ANNUITY CONTRACT
This prospectus describes the variable annuity contract we are offering. An
annuity is a contract between you (the owner) and our insurance company, where
you make purchase payments and we promise to pay you an income in the form of
periodic annuity payments. Until you decide to begin receiving annuity payments,
your contract is in the ACCUMULATION PERIOD. Once you begin receiving annuity
payments, your contract is in the ANNUITY PERIOD.
The contract benefits from tax deferral. Tax deferral means that you are
not taxed on any earnings or appreciation on the assets in your contract until
you take money out of your contract.
The contract is called a variable annuity because you can choose among the
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 period depends upon the investment performance
of the investment portfolio(s) you select.
You can choose to receive annuity payments on a variable basis, fixed basis
or a combination of both. If you choose variable payments, the amount of the
annuity payments you receive will depend upon the investment performance of the
investment portfolio(s) you select for the annuity period. If you select to
receive payments on a fixed basis, the payments you receive will remain level.
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 a qualified contract, the minimum we
will accept is $2,000. We will accept up to $2,000,000 in purchase payments
without our prior approval.
You can make additional purchase payments of $500 or more to a
non-qualified contract and $50 each month to a qualified contract. If you select
the automatic payment check option, you can make additional payments of $200
each month for non-qualified contracts and $50 each month for qualified
contracts.
PURCHASE PAYMENT CREDIT FEATURE
Each time you make a purchase payment, we will credit an additional 4% to
that purchase payment. We refer to these amounts as purchase payment credits or
the bonus. Purchase payment credits will be allocated in the same way as your
purchase payment. An amount equal to the credits will be deducted if you make a
withdrawal during the Free Look Period. After the Free Look Period ends, you
will have a vested interest in the purchase payment credit amount. We will not
deduct any earnings that result from the purchase payment credit at any time.
Contract charges are deducted from contract value. Therefore, when we
credit your contract with a purchase payment credit, your contract incurs
expenses on the total contract value, which includes on the purchase payment
credit amount. When you cancel your contract during the Free Look Period, you
will forfeit your purchase payment credit. Since charges will have been assessed
during the Free Look Period against the higher amount (that is, the purchase
payment plus the credit amount), it is possible that upon surrender,
particularly in a declining market, you will receive less money back than you
would have if you had not received the purchase payment credit. We expect to
profit from certain charges assessed under
16
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
================================================================================
the contract, including certain charges (i.e., the contingent deferred sales
charge and the insurance charge) associated with the purchase payment credit.
The purchase payment credit feature may not be available in your state.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment as you
direct to the fixed account (if available), and/or one or more of the investment
portfolios you select. Currently, you can allocate money to as many as 15
investment portfolios at any one time including the fixed account. When you make
additional purchase payments, we will allocate them in the same way as your
first purchase payment, unless you tell us otherwise. Allocation percentages
must be in whole numbers.
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 to get it. 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 as of the business day they are received.
Our business day closes when the New York Stock Exchange closes, usually 4:00
P.M. Eastern standard time.
FREE LOOK
If you change your mind about owning the contract, you can cancel it within
10 days after receiving it (or whatever longer time period is required in your
state). When you cancel the contract within this time period, we will not assess
a contingent deferred sales charge. On the day we receive your request at our
administrative office, we will return the value of your contract, less the
purchase payment credits. In some states, we may be required to refund your
purchase payment. If you have purchased the contract as an IRA, we are required
to return your purchase payment if you decide to cancel your contract within 10
days after receiving it (or whatever period is required in your state).
INVESTMENT OPTIONS
INVESTMENT PORTFOLIOS
The contract offers 47 INVESTMENT PORTFOLIOS which are listed below. YOU
CAN INVEST IN UP TO 15 INVESTMENT PORTFOLIOS AT ANY ONE TIME. Additional
investment portfolios may be available in the future.
You should read the prospectuses for these funds carefully. Copies of these
prospectuses will be sent to you with your contract. If you would like a copy of
the fund prospectuses, call us at: (800) 557-7043. See Appendix A which contains
a summary of investment objectives and strategies for each portfolio.
The investment objectives and policies of certain of the investment
portfolios are similar to the investment objectives and policies of other mutual
funds that certain of the investment advisers manage. Although the objectives
and policies may be similar, the investment results of the investment portfolios
may be higher or lower than the results of such other mutual funds. The
investment advisers cannot guarantee, and make no representation, that the
investment results of similar funds will be comparable even though the
portfolios have the same investment advisers.
A portfolio's performance may be affected by risks specific to certain
types of investments, such as foreign securities, derivative investments,
non-investment grade debt securities, initial public offerings (IPOs) or
companies with relatively small market capitalizations. IPOs and other
investment techniques may have a magnified performance impact on a portfolio
with a small asset base. A portfolio may not experience similar performance as
its assets grow.
CONSECO SERIES TRUST
Managed by Conseco Capital Management, Inc.
(Conseco Capital Management, Inc. is an affiliate
of Conseco Variable)
Conseco 20 Focus Portfolio
Equity Portfolio
Balanced Portfolio
High Yield Portfolio
Fixed Income Portfolio
Government Securities Portfolio
Money Market Portfolio
17
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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 Income & Growth
VP International
VP Value
BERGER INSTITUTIONAL PRODUCTS TRUST
Managed by Berger LLC (formerly, Berger
Associates, Inc.)
Berger IPT--Growth Fund
Berger IPT--Growth and Income Fund
Berger IPT--Small Company Growth Fund
Berger IPT--New Generation Fund
Managed by BBOI Worldwide LLC
Berger/BIAM IPT--International Fund
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
Managed by The Dreyfus Corporation (NCM Capital Management Group, Inc.--
sub-investment adviser)
DREYFUS STOCK INDEX FUND
Managed by The Dreyfus Corporation
(Mellon Equity Associates-index fund manager)
DREYFUS VARIABLE INVESTMENT FUND
Managed by The Dreyfus Corporation
Dreyfus VIF Disciplined Stock Portfolio
Dreyfus VIF International Value Portfolio
FEDERATED INSURANCE SERIES
Managed by Federated Investment Management Company
Federated High Income Bond Fund II
Federated Utility Fund II
Managed by Federated Global Investment Management Corp.
Federated International Equity Fund II
INVESCO VARIABLE INVESTMENT FUNDS, INC.
(NOT AVAILABLE FOR NEW SALES AS OF MAY 1, 2000)
Managed by INVESCO Funds Group, Inc.
INVESCO VIF--High Yield Fund
INVESCO VIF--Equity Income Fund
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 & Income Portfolio
MITCHELL HUTCHINS SERIES TRUST
Managed by Mitchell Hutchins Asset
Management, Inc.
Growth and Income Portfolio
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Managed by Neuberger Berman
Management Inc.
Limited Maturity Bond Portfolio
Partners Portfolio
RYDEX VARIABLE TRUST
Managed by PADCO Advisors II, Inc.
OTC Fund
Nova Fund
SELIGMAN PORTFOLIOS, INC.
Managed by J. & W. Seligman & Co. Incorporated
Seligman Communications and Information Portfolio
Seligman Global Technology Portfolio
STRONG OPPORTUNITY FUND II, INC.
Advised by Strong Capital Management, Inc.
Opportunity Fund II
STRONG VARIABLE INSURANCE FUNDS, INC.
Advised by Strong Capital Management, Inc.
Strong Mid Cap Growth Fund II
VAN ECK WORLDWIDE INSURANCE TRUST
Managed by Van Eck Associates Corporation
Worldwide Bond Fund
Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
Worldwide Real Estate Fund
18
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CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
================================================================================
Shares of the investment portfolios may be 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 us.
Certain investment portfolios may also be sold directly to qualified plans. The
funds believe that offering their shares in this manner will not be
disadvantageous to you.
We may enter into certain arrangements under which we are reimbursed by the
investment portfolios' advisers, distributors and/or affiliates for the
administrative services which we provide to the portfolios.
THE FIXED ACCOUNT
You can invest in the fixed account. The fixed account offers an interest rate
that is guaranteed to be no less than 3% annually. If you select the fixed
account, your money will be placed with our other general account assets. The
fixed account option may not be available in your state.
THE GENERAL ACCOUNT
During the annuity period, if you elect a fixed annuity your annuity
payments will be paid out of our general account. We guarantee a specified
interest rate used in determining the payments. If you elect a fixed annuity,
the payments you receive will remain level. Fixed annuity payments from our
general account are only available during the annuity period.
VOTING RIGHTS
We are the legal owner of the investment portfolio shares. However, when an
investment portfolio solicits proxies in conjunction with a vote of
shareholders, we are 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 we
determine that we are no longer required to follow this voting procedure, we
will vote the shares ourselves.
SUBSTITUTION
We may, in the interest of shareholders, deem it necessary to discontinue
one or more of the investment portfolios or substitute one of the investment
portfolios you have selected with another investment portfolio. We will notify
you of our intent to do this. We will obtain prior approval from the Securities
and Exchange Commission before any such change is made.
TRANSFERS
You can transfer money among the fixed account and the investment
portfolios. Currently, you can allocate money to up to 15 investment portfolios
at any one time.
TRANSFERS DURING THE ACCUMULATION PERIOD. You can make a transfer to or
from the fixed account, and to or from any investment portfolio by providing us
with a written request. The following apply to any transfer during the
accumulation period:
1. Currently, there are no limits on the number of transfers that can be
made. However, if you make more than one transfer in a 30-day period, a transfer
fee of $25 may be deducted.
2. The minimum amount which you can transfer is $500 or your entire value
in the investment portfolio. This requirement is waived if the transfer is
pursuant to the dollar cost averaging or rebalancing programs, or made at the
end of the Free Look Period.
3. You must leave at least $500 in each investment portfolio after you make
a transfer unless the entire amount is being transferred.
4. Transfers out of the Fixed Account are limited to 20% of the value of
your contract in the fixed account every 6 months. This requirement is waived if
the transfer is pursuant to the dollar cost averaging program.
5. Your right to make transfers is subject to modification if we determine,
in our sole opinion, that the exercise of the right by one or more owners is, or
would be, to the disadvantage of other owners. Restrictions may be applied in
any manner reasonably designed to prevent any use of the transfer right which is
considered by us to be to the disadvantage of other owners. A modification could
be applied to transfers to, or from, one or more of the investment portfolios
and could include, but is not limited to:
a. the requirement of a minimum time period between each transfer;
b. not accepting a transfer request from an agent acting under a power of
attorney on behalf of more than one owner; or
c. limiting the dollar amount that may be transferred between investment
portfolios by an owner at any one time.
6. We reserve the right, at any time, and without prior notice to any
party, to terminate, suspend or modify the transfer privilege during the
accumulation period.
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TRANSFERS DURING THE ANNUITY PERIOD. You can only make 2 transfers every
contract year during the annuity period. The 2 transfers are free. The following
also apply to any transfer during the annuity period:
1. You can make transfers at least 30 days before the due date of the next
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 after a
transfer unless the entire amount is being transferred.
4. No transfers can be made between the general account and the investment
portfolios. You may only make transfers between the investment portfolios. 5. We
reserve the right, at any time, and without prior notice to any party, to
terminate, suspend or modify the transfer privilege during the annuity period.
TELEPHONE/INTERNET TRANSFERS. You can elect to make transfers by telephone.
You may also elect to make transfers over the internet. Internet transfers may
not be available (check with your registered representative). Internet transfers
are subject to our administrative rules and procedures. If you do not want the
ability to make transfers by telephone or through the internet, you should
notify us in writing. You can also authorize someone else to make transfers for
you. If you own the contract with a joint owner, unless we are instructed
otherwise, we will accept instructions from either you or the other owner. We
will use reasonable procedures to confirm that instructions given to us by
telephone are genuine. All telephone calls will be recorded and the caller will
be asked to produce personalized data about the owner before we will make the
telephone transfer. Personalized data will also be required for internet
transfers. We will send you a written confirmation of the transfer. If we fail
to use such procedures we may be liable for any losses due to unauthorized or
fraudulent instructions.
This product is not designed for professional market timing organizations.
We reserve the right to modify the transfer privileges described above.
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). 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. However, this is not guaranteed.
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 between 6-60 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. You cannot cancel the
dollar cost averaging program once it starts. A transfer request will not
automatically terminate the program.
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.
There is no additional charge for this program. However, we reserve the right to
charge for this program in the future. We reserve the right, at any time and
without prior notice, to terminate, suspend or modify this program.
Dollar cost averaging does not assure a profit and does not protect against
loss in declining markets. Dollar cost averaging involves continuous investment
in the selected investment portfolio(s) regardless of fluctuating price levels
of the investment portfolio(s). You should consider your financial ability to
continue the dollar cost averaging program through periods of fluctuating price
levels.
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. The rebalancing program may also be available
through the internet (check with your registered representative regarding
availability). Rebalancing over the internet is subject to our administrative
rules and procedures. 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
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account. You can discontinue rebalancing at any time. You can change your
rebalancing requests at any time in writing or through internet access which we
must receive before the next rebalancing date. If you participate in the
rebalancing program, the transfers made under the program are not taken into
account in determining any transfer fee. Currently, there is no charge for
participating in the rebalancing program. We reserve the right, at any time and
without prior notice, to terminate, suspend or modify this program.
EXAMPLE:
Assume that you want your initial purchase payment split between 2
investment portfolios. You want 40% to be in the Fixed Income Portfolio and 60%
to be in the Growth Portfolio. Over the next 2 1/2 months the bond market does
very well while the stock market performs poorly. At the end of the first
quarter, the Fixed Income Portfolio now represents 50% of your holdings because
of its increase in value. If you had chosen to have your holdings rebalanced
quarterly, on the first day of the next quarter, we would sell some of your
units in the Fixed Income Portfolio to bring its value back to 40% and use the
money to buy more units in the Growth Portfolio to increase those holdings to
60%.
ASSET ALLOCATION PROGRAM
We understand the importance to you of having 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. Conseco Variable 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.
Conseco Variable 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. Further, if you are under age 59 1/2, it 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.
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, we make a deduction for our insurance charges. The insurance
charges do not apply to amounts allocated to the fixed account. The insurance
charges, on an annual basis, are equal to 1.40% of the average daily value of
the contract invested in an investment portfolio if you do not select either the
guaranteed minimum death benefit or the guaranteed minimum income benefit.
If, at the time of application, you select the guaranteed minimum death
benefit, the insurance charges for your contract are equal to 1.70% on an annual
basis. If, at the time of application, you select the guaranteed minimum death
benefit and the guaranteed minimum income benefit, the insurance charges for
your contract are equal to 2.00% on an annual basis. We may increase the
insurance charges for your contract up to 1.90%, on an annual basis, if you
select the guaranteed minimum death benefit. We may increase the insurance
charges for your contract up to 2.40%, on an annual basis, if you select the
guaranteed minimum death benefit and the guaranteed minimum income benefit.
This charge is included in part of our calculation of the value of the
accumulation units and the annuity units. The insurance charge is for all the
insurance benefits, e.g., guarantee of annuity rates, the death benefit, for
certain expenses of the contract, and for assuming the risk (expense risk) that
the current charges will be insufficient in the future to cover the cost of
administering the contract. If the charges are insufficient, then we will bear
the loss. We do, however, expect to profit from this charge.
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CONTRACT MAINTENANCE CHARGE
During the accumulation period, every year on the anniversary of the date
when your contract was issued, we deduct $30 from your contract as a contract
maintenance charge. This charge is for certain..administrative expenses
associated with the contract.
No contract maintenance charge is deducted during the annuity period. We do
not deduct the contract maintenance charge if the value of your contract is
$50,000 or more on the contract anniversary. If you make a full withdrawal on
other than a contract anniversary, and the value of your contract is less than
$50,000, we will deduct the full contract maintenance charge at the time of the
full withdrawal. If, when you begin to receive annuity payments, the annuity
date is a different date than your contract anniversary we will deduct the full
contract maintenance charge on the annuity date unless the contract value on the
annuity date is $50,000 or more.
The contract maintenance charge will be deducted first from the fixed
account. If there is insufficient value in the fixed account, the fee will then
be deducted from the investment portfolio with the largest balance.
CONTINGENT DEFERRED SALES CHARGE
During the accumulation period, you can make withdrawals from your
contract. A contingent deferred sales charge may be assessed against purchase
payments withdrawn. We keep track of each purchase payment you make. Subject to
the waivers discussed below, if you make a withdrawal and it has been less than
the stated number of years since you made your purchase payment, we will assess
a contingent deferred sales charge. The contingent deferred sales charge
compensates us for expenses associated with selling the contract. The charge is
as follows:
NO. OF CONTRACT YEARS CONTINGENT
FROM RECEIPT OF DEFERRED SALES
PURCHASE PAYMENT CHARGE
--------------------------------------
0-1.............................. 8%
2................................ 8%
3................................ 8%
4................................ 8%
5................................ 7%
6................................ 6%
7................................ 5%
8................................ 3%
9................................ 1%
10 or more....................... 0%
Each purchase payment has its own contingent deferred sales charge period.
When you make a withdrawal, the charge is deducted first from purchase payments
(oldest to newest), and then from earnings.
For tax purposes, withdrawals are generally considered to have come from
earnings first.
FREE WITHDRAWALS. Once each contract year you can take money out of your
contract, without the contingent deferred sales charge, of an amount equal to
the greater of:
o 10% of the value of your contract (on a non-cumulative basis);
o the IRS minimum distribution requirement for this contract if it was
issued as an individual retirement annuity; or
o the total of your purchase payments that have been in the contract for
more than 9 complete years.
UNEMPLOYMENT BENEFIT. We will allow a one time free partial withdrawal of
up to 50% of your contract value if:
o your contract has been in force for at least 1 year;
o you provide us with a letter of determination from your state's
Department of Labor indicating that you qualify for and have been
receiving unemployment benefits for at least 60 consecutive days;
o you were employed on a full time basis and working at least 30 hours per
week on the date your contract was issued;
o your employment was involuntarily terminated by your employer; and
o you certify to us that you are still unemployed when you make the
withdrawal request.
This benefit may not be available in your state.
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
We will reduce or eliminate the amount of the contingent deferred sales
charge when the contract is sold under circumstances which reduce our 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 us. We will not deduct a contingent deferred sales charge when a contract
is issued to an officer, director or employee of our company or any of our
affiliates. Any circumstances resulting
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in the reduction or elimination of the contingent deferred sales charge requires
our prior approval. In no event will reduction or 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
period. If you make more than one transfer in a 30-day period, you may be
charged a transfer fee of $25 per transfer. The two transfers permitted each
year during the annuity period are free. We reserve the right to change the
transfer fee.
The transfer fee is deducted from the investment option that you transfer
your funds from. If you transfer your entire interest from an investment option,
the transfer fee is deducted from the amount transferred. If there are multiple
investment options from which you transfer funds, the transfer fee will be
deducted first from the fixed account, and then from the investment portfolio
with the largest balance that is involved in the 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 or rebalancing program it will not count in determining the transfer
fee. All reallocations made on the same date count as one transfer.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for the payment of these
taxes and will make a deduction from the value of the contract for them. These
taxes are due either when the contract is issued or when annuity payments begin.
It is our current practice to deduct these taxes when either annuity payments
begin, a death benefit is paid or upon partial or full surrender of the
contract. We may in the future discontinue this practice and assess the charge
when the tax is due. Premium taxes currently range from 0% to 3.5%, depending on
the jurisdiction.
INCOME TAXES
We will deduct from the contract any income taxes which we incur 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 fund prospectuses.
CONTRACT VALUE
Your contract value is the sum of your interest in the various investment
portfolios and our fixed account. Your interest in the investment portfolio(s)
will vary depending upon the investment performance of the portfolios you
choose. In order to keep track of your contract value in an investment
portfolio, we use a unit of measure called an ACCUMULATION UNIT. During the
annuity period of your contract we call the unit an ANNUITY UNIT. The value of
your contract is affected by the investment performance of the portfolios, the
expenses of the portfolios and the deduction of charges under the contract.
ACCUMULATION UNITS
Initially, the accumulation unit value for each account was arbitrarily
set. Every business day, we determine the value of an accumulation unit for each
of the investment portfolios by multiplying the accumulation unit value for the
previous period by a factor for the current period. The factor is determined by:
1. dividing the value of an investment portfolio share at the end of the
current period (and any charges for taxes) by the value of an investment
portfolio share for the previous period; and
2. subtracting the daily amount of the insurance charges.
The value of an accumulation unit may go up or down from business day to
business 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, including any purchase payment credit,
to an investment portfolio by the value of the accumulation unit for that
investment portfolio. When you make a withdrawal, we deduct accumulation units
from your contract representing the withdrawal. We also deduct accumulation
units when we deduct certain charges under the contract.
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.
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EXAMPLE:
On Wednesday, we receive an additional purchase payment of $4,000 from you
and we credit your contract with the 4% purchase payment credit. You have told
us you want this to go to the Equity Portfolio. When the New York Stock Exchange
closes on that Wednesday, we determine that the value of an accumulation unit
for the Equity Portfolio is $12.25. We then divide $4,160 ($4,000 purchase
payment plus $160 credit) by $12.25 and credit your contract on Wednesday night
with 339.59 accumulation units for the Equity Portfolio.
ACCESS TO YOUR MONEY
You can have access to the money in your contract:
o by making a withdrawal (either a partial or a complete withdrawal);
o by electing to receive annuity payments; or
o when a death benefit is paid to your beneficiary.
In general, withdrawals can only be made during the accumulation period.
When you make a complete withdrawal, you will receive the value of the
contract on the day you made the withdrawal, (i) less any applicable contingent
deferred sales charge; (ii) less any contract maintenance charge; and (iii) less
any applicable premium tax. This amount is the contract withdrawal value.
You must tell us which account (investment portfolio(s), and/or the fixed
account) you want the partial withdrawal to come from. Under most circumstances,
the amount of any partial withdrawal from any investment portfolio, or the fixed
account must be at least $500. We require that after a partial withdrawal is
made, that at least $500 is left in at least one investment portfolio. If you do
not have at least $500 in one investment portfolio, we reserve the right to
terminate the contract and pay you the contract withdrawal value.
Once we receive your written request for a withdrawal from an investment
portfolio we will pay the amount of any withdrawal within 7 days.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
SYSTEMATIC WITHDRAWAL PROGRAM
The systematic withdrawal program allows you to choose to receive your
automatic payments either monthly, quarterly, semi-annually or annually. You
must have at least $5,000 in your contract to start the program. You can
instruct us to withdraw a specific amount which can be a percentage of the value
of your contract or a dollar amount. You can instruct us to withdraw a level
dollar amount or percentage from specified investment options (largest account
balance or on a pro-rata basis). If you do a reallocation and do not specify
investment options, all systematic withdrawals will then default to a pro-rata
basis. The systematic withdrawal program will end any time you designate or when
the contract value is exhausted, whichever occurs first. 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. We do not have any charge for
this program, however, the withdrawal may be subject to a contingent deferred
sales charge.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS (UNDER 403(B) CONTRACTS,
SEE "TAXES--WITHDRAWALS--TAX-SHELTERED ANNUITIES") MAY APPLY TO SYSTEMATIC
WITHDRAWALS.
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone payments for withdrawals 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 we cannot reasonably
value the shares of the investment portfolios;
4. during any other period when the SEC, by order, so permits for the
protection of owners.
We have 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.
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DEATH BENEFIT
UPON YOUR DEATH DURING THE ACCUMULATION PERIOD
If you, or your joint owner, die before annuity payments begin, we will pay
a death benefit to your beneficiary. If you have a joint owner, the surviving
joint owner will be treated as the primary beneficiary. Any other beneficiary
designation on record at the time of death will be treated as a contingent
beneficiary.
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD
If death occurs prior to age 80, the amount of the death benefit will be
the greater of:
(1) the value of your contract as of the business day we receive proof of
death and a payment election; or
(2) the total purchase payments you have made, less any adjusted partial
withdrawals and contingent deferred sales charges.
If you are age 80 or over, the death benefit will be equal to the value of
your contract.
OPTIONAL GUARANTEED MINIMUM DEATH BENEFIT. For an extra charge, at the time
you purchase the contract, you can choose the optional guaranteed minimum death
benefit option. Under this option, if you die before age 80, the death benefit
will be the greater of:
(1) the total purchase payments you have made, less all partial
withdrawals, contingent deferred sales charges and any applicable premium taxes;
(2) the value of your contract as of the business day we receive proof of
death and a payment election; or
(3) the largest contract value on any contract anniversary before the owner
or joint owner's death, less any adjusted partial withdrawals, and limited to no
more than twice the amount of purchase payments paid less any adjusted partial
withdrawals.
Adjusted partial withdrawal means:
o the amount of the partial withdrawal (including the applicable
contingent deferred sales charges and premium taxes); multiplied by
o the amount of the death benefit just before the partial withdrawal;
divided by
o the value of your contract just before the partial withdrawal.
If death occurs at age 80 or later, the death benefit will be the greater
of: (1) the contract value as of the business day we receive proof of death and
a payment election; or (2) the death benefit as of the last contract anniversary
before your 80th birthday, less any adjusted partial withdrawal.
If joint owners are named, the death benefit is determined based on the age
of the oldest owner and is payable on the first death. If the owner is a
non-natural person, the death of an annuitant will be treated as the death of
the owner.
THIS BENEFIT MAY NOT BE AVAILABLE IN YOUR STATE.
The value of your contract for purposes of calculating any death benefit
amount will be determined as of the business day we receive due proof of death
and an election for the payment method (see below). After the death benefit
amount is calculated, it will remain in the investment portfolios and/or the
fixed account until distribution begins. Until we distribute the death benefit
amount, the death benefit amount in the investment portfolios will be subject to
investment risk.
PAYMENT OF THE DEATH BENEFIT DURING THE ACCUMULATION PERIOD
Unless already selected by you, a beneficiary must elect the death benefit
to be paid under one of the options described below in the event of your death
during the accumulation period.
OPTION 1--lump sum payment of the death benefit; or
OPTION 2--the payment of the entire death benefit within 5 years of the
date of death of the owner or any joint owner; or
OPTION 3--payment of the death benefit under an annuity option over the
lifetime of the beneficiary, or over a period not extending beyond the life
expectancy of the beneficiary, with distribution beginning within 1 year of the
date of your death or of any joint owner.
Any portion of the death benefit not applied under Option 3 within 1 year
of the date of your death, or that of a joint owner, must be distributed within
5 years of the date of death.
Unless you have previously designated one of the payment options above, a
beneficiary who is a spouse of the owner may elect to:
o continue the contract in his or her own name at the then current
contract value;
o elect a lump sum payment of the death benefit; or
o apply the death benefit to an annuity option.
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If a lump sum payment is requested, the amount will be paid within 7 days,
unless the suspension of payments provision is in effect. Payment to the
beneficiary, in any other form than a lump sum, may only be elected during the
60 day period beginning with the date of receipt by us of proof of death.
DEATH OF CONTRACT OWNER DURING THE ANNUITY PERIOD
If you or a joint owner, who is not the annuitant, dies during the annuity
period, any remaining payments under the annuity option elected will continue to
be made at least as rapidly as under the method of distribution in effect at the
time of the owner's or joint owner's death. Upon the owner's death during the
annuity period, the beneficiary becomes the owner. Upon the death of any Joint
Owner during the annuity period, the surviving owner, if any, will be treated as
the primary beneficiary.
DEATH OF ANNUITANT
If the annuitant, who is not an owner or joint owner, dies during the
accumulation period, you will automatically become the annuitant. You may
designate a new annuitant subject to our approval. 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 annuity period, the death
benefit, if any, will be as provided for in the annuity option selected. The
death benefit will be paid at least as rapidly as under the method of
distribution in effect at the annuitant's death.
ANNUITY PAYMENTS
(THE ANNUITY PERIOD)
Under the contract you can receive regular income payments. We call these
payments ANNUITY PAYMENTS. You can choose the month and year in which those
payments begin. We call that date the ANNUITY DATE. Your annuity date must be
the first day of a calendar month and 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. To receive the
guaranteed minimum income benefit, there are certain annuity date requirements
(see below). The ANNUITANT is the person whose life we look to when we determine
annuity payments. You can change the annuity date at any time prior to 30 days
of the existing annuity date by providing us with a written request.
You can also choose among income plans. We call those ANNUITY OPTIONS. You
can elect an annuity option by providing us with a written request. You can
change the annuity option any time before 30 days of the existing 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.
During the annuity period, you can choose to have payments come from the
investment portfolios, the fixed account or both. If you do not 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.
ANNUITY PAYMENT AMOUNT
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things:
1) The value of your contract in the investment portfolio(s) on the annuity
date;
2) The 3% or 5% (as you selected) assumed investment rate used in the
annuity table for the contract; and
3) The performance of the investment portfolio(s) you selected.
You can choose either a 3% or a 5% assumed investment rate. If the actual
performance exceeds the 3% or 5% (as you selected) assumed investment rate, your
annuity payments will increase. Similarly, if the actual rate is less than 3% or
5% (as you selected) your annuity payments will decrease.
On the annuity date, the value of your contract, less any premium tax, 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 on or after the 5th contract anniversary, and you choose an annuity
option that has a life contingency for a minimum of 5 years, we will apply the
value of your contract, less any premium tax and less any contract maintenance
charge to the annuity option you elect.
Annuity payments are made monthly unless you have less than $5,000 to apply
toward a payment. In that case, we may make a single lump sum pay-
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ment to you instead of annuity payments. Likewise, if your annuity payments
would be less than $50 a month, we have the right to change the frequency of
payments so that your annuity payments are at least $50.
OPTIONAL GUARANTEED MINIMUM INCOME BENEFIT. For an extra charge, you can
elect the guaranteed minimum income benefit. YOU MAY NOT SELECT THIS BENEFIT
UNLESS YOU ALSO SELECT THE OPTIONAL GUARANTEED MINIMUM DEATH BENEFIT.
Under the guaranteed minimum income benefit, a guaranteed minimum amount
will be applied to your annuity option to provide annuity payments. Prior to
your 80th birthday, this amount is equal to:
1) the largest contract value on any contract anniversary; less
2) any adjusted partial withdrawals.
This amount is limited to no more than twice the amount of purchase
payments made less any adjusted partial withdrawals.
Adjusted partial withdrawal is equal to the partial withdrawal amount,
including the contingent deferred sales charge and any applicable premium taxes;
multiplied by the amount of the guaranteed minimum income benefit just before
the partial withdrawal; divided by the value of your contract just before the
partial withdrawal.
The guaranteed minimum income amount after your 80th birthday is equal to
the greater of (1) the value of your contract, less any premium tax, less any
contingent deferred sales charge, and less any contract maintenance charge; or
(2) the guaranteed minimum income benefit as of the last contract anniversary
before your 80th birthday less any adjusted partial withdrawals.
If you elect this benefit, the following limitations will apply:
o You must choose either annuity option 2 or 4, unless otherwise agreed to
by us. If you do not choose an annuity option, Annuity Option 2. Life
Income With Period Certain, will be applied.
o If you are age 50 or over on the date we issue the contract, the annuity
date must be on or after the later of your 65th birthday, or the 7th
contract anniversary.
o If you are under age 50 on the date we issue your contract, the annuity
date must be on or after the 15th contract anniversary.
o The annuity date selected must occur within 30 days following a contract
anniversary.
o If there are joint owners, the age of the oldest owner will be used to
determine the guaranteed minimum income benefit. If the contract is
owned by a non-natural person, then owner will mean the annuitant for
purposes of this benefit.
On the annuity date, the initial income benefit will not be less than the
guaranteed minimum income benefit base applied to the guaranteed annuity payment
factors under the annuity option elected.
THIS BENEFIT MAY NOT BE AVAILABLE IN YOUR STATE.
ANNUITY OPTIONS
You can choose one of the following annuity options or any other annuity
option which is acceptable to us. After annuity payments begin, you cannot
change the annuity option.
OPTION 1. INCOME FOR A SPECIFIED PERIOD. We will pay income for a specific
number of years in equal installments. However, you may elect to receive a
single lump sum payment which will be equal to the present value of the
remaining payments (as of the date of proof of death) discounted at the assumed
investment rate for a variable annuity payout option.
OPTION 2. LIFE INCOME WITH PERIOD CERTAIN. We will make monthly annuity
payments so long as the annuitant is alive and then for a specified period
certain. If an annuitant, who is not the owner, dies before we have made all of
the payments, we will continue to make the payments for the remainder of the
guaranteed period to you. If you do not want to receive payments, you can
request a single lump sum payment which will be equal to the present value of
the remaining payments (as of the date of proof of death) discounted at the
assumed investment rate for a variable annuity payout option.
OPTION 3. INCOME OF SPECIFIED AMOUNT. We will pay income of a specified
amount until the principal and interest are exhausted. However, you may elect to
receive a single lump sum payment which will be equal to the present value of
the remaining payments (as of the date of proof of death) discounted at the
assumed investment rate for a variable annuity payout option.
OPTION 4. JOINT AND SURVIVOR ANNUITY. We will make monthly annuity payments
so long as the annuitant and a joint annuitant are both alive. The annuitant
must be at least 50 years old, and the joint annuitant must be at least 45 years
old at the time of the first payment.
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TAXES
NOTE: WE HAVE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE TO ANY INDIVIDUAL.
YOU SHOULD CONSULT YOUR OWN TAX ADVISER ABOUT YOUR OWN CIRCUMSTANCES. WE HAVE
INCLUDED AN ADDITIONAL DISCUSSION REGARDING TAXES IN THE STATEMENT OF ADDITIONAL
INFORMATION.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs,
usually retirement. Congress recognized how important saving for retirement was
and provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the
earnings on the money held in your annuity contract until you take the money
out. This is referred to as TAX-DEFERRAL. There are different rules as to how
you will be taxed depending on how you take the money out and the type of
contract -- qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your
contract until a distribution occurs -- either as a withdrawal or as annuity
payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For annuity payments, different rules apply. A
portion of each annuity payment is treated as a partial return of your purchase
payments and will not be taxed. The remaining portion of the annuity payment
will be treated as ordinary income. How the annuity payment is divided between
taxable and non-taxable portions depends upon the period over which the annuity
payments are expected to be made. Annuity payments received after you have
received all of your purchase payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the contract as
an agent for a natural person), the contract 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 any pension
plan, specially sponsored program or an Individual Retirement Annuity (IRA),
your contract is referred to as a NON-QUALIFIED CONTRACT.
If you purchase the contract under a pension plan, specially sponsored
program or an IRA, your contract is referred to as a QUALIFIED CONTRACT.
A qualified contract will not provide any necessary or additional tax
deferral if it is used to fund a qualified plan that is tax deferred. However,
the contract has features and benefits other than tax deferral that may make it
an appropriate investment for a qualified plan. You should consult your tax
adviser regarding these features and benefits prior to purchasing a qualified
contract.
WITHDRAWALS--NON-QUALIFIED CONTRACTS
If you make a withdrawal from your contract, the Code generally treats such
a withdrawal as first coming from earnings and then from your purchase payments.
Such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract
which is included in income may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the
Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which are allocable to purchase payments made prior to August 14,
1982.
WITHDRAWALS--QUALIFIED CONTRACTS
If you make a withdrawal from your qualified contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
pre-tax purchase payments to the after-tax purchase payments in your contract.
If all of your purchase payments were made with pre-tax money then the full
amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of qualified contracts.
The Code also provides that any amount received under a qualified contract
which is included in income may be subject to a penalty. The amount of
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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 to you after leaving your employment in a series of substantially
equal periodic payments made annually (or more frequently) under a
lifetime annuity;
(5) paid to you after you have attained age 55 and you have left your
employment;
(6) paid for certain allowable medical expenses (as defined in the Code);
(7) paid pursuant to a qualified domestic relations order;
(8) paid on account of an IRS levy upon the qualified contract;
(9) paid from an IRA for medical insurance (as defined in the Code);
(10) paid from an IRA for qualified higher education expenses; or
(11) paid from an IRA for up to $10,000 for qualified first-time homebuyer
expenses (as defined in the Code).
The exceptions in (5) and (7) above do not apply to IRAs. The exception in
(4) above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of
Additional Information.
WITHDRAWALS--TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of amounts attributable to purchase payments
made by owners under a salary reduction agreement. Withdrawals can only be made
when a contract owner:
(1) reaches age 59 1/2;
(2) leaves his or her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code);
(5) in the case of hardship; or
(6) pursuant to a qualified domestic relations order, if otherwise
permitted.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings. You should consult your own tax adviser about
your own circumstances.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity
must satisfy certain diversification requirements in order to be treated as an
annuity contract. We believe that the 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 us would
be considered the owner of the shares of the investment portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the contract. It is unknown to what extent under federal tax
law, owners are permitted to select investment portfolios, to make transfers
among the investment portfolios or the number and type of investment portfolios
owners may select from without being considered the owner of the shares. If any
guidance is provided which is considered a new position, then the guidance would
generally be applied prospectively. However, if such guidance is considered not
to be a new position, it may be applied retroactively. This would mean that you,
as the owner of the contract, could be treated as the owner of the investment
portfolios.
Due to the uncertainty in this area, we reserve the right to modify the
contract as reasonably deemed necessary to maintain favorable tax treatment.
PERFORMANCE
We may periodically advertise performance of the annuity investment in the
various investment portfolios. We 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 standardized average annual total return figures which
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reflect the deduction of the insurance charges, contract maintenance charge,
contingent deferred sales charge and the fees and expenses of the investment
portfolio. Any performance advertised will reflect the bonus credits applied to
a contract.
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
historical performance.
We may, from time to time, include in our 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.
OTHER INFORMATION
THE SEPARATE ACCOUNT
We established a separate account, Conseco Variable Annuity Account H
(Separate Account), to hold the assets that underlie the contracts. Our Board of
Directors adopted a resolution to establish the Separate Account under Texas
Insurance law on November 1, 1999. The Separate Account is registered with the
SEC as a unit investment trust under the Investment Company Act of 1940.
The assets of the Separate Account are held in our name on behalf of the
Separate Account and legally belong to us. However, those assets that underlie
the contracts, are not chargeable with liabilities arising out of any other
business we 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 we may issue.
The obligations under the contracts are obligations of Conseco Variable
Insurance Company.
DISTRIBUTOR
Conseco Equity Sales, Inc. (CES), 11815 N. Pennsylvania Street, Carmel,
Indiana 46032, acts as the distributor of the contracts. CES, our affiliate, 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-dealer commissions may cost up to 8.50% of purchase payments and may
include reimbursement of promotional or distribution expenses associated with
the marketing of the contracts. We 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
OWNER. You, as the OWNER of the contract, have all the rights under the
contract. The owner is as designated at the time the contract is issued, unless
changed. You can change the owner at any time. A change will automatically
revoke any prior owner designation. The change request must be in writing.
JOINT OWNER. The contract can be owned by JOINT OWNERS. Any joint owner
must be the spouse of the other owner (except where not permitted under state
law). Upon the death of either joint owner, the surviving joint owner will be
the primary 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 in a written notice.
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. We will not
be bound by the assignment until we receive the written notice of the
assignment. We 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.
FINANCIAL STATEMENTS
Our consolidated financial statements have been included in the Statement
of Additional Informa-tion. There are no financial statements for the Separate
Account because the Separate Account commenced operations on February 11, 2000.
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APPENDIX A -- PARTICIPATING INVESTMENT PORTFOLIOS
Below is a summary of the investment objectives and strategies of each
investment portfolio available under the contract. THERE CAN BE NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES WILL BE ACHIEVED.
The fund prospectuses contain more complete information including a
description of the investment objectives, policies, restrictions and risks of
each portfolio.
CONSECO SERIES TRUST
Conseco Series Trust is managed by Conseco Capital Management, Inc. (CCM)
which is an affiliate of Conseco Variable. Conseco Series Trust is a mutual fund
with multiple portfolios. The following portfolios are available under the
contract:
CONSECO 20 FOCUS PORTFOLIO
The Conseco 20 Focus Portfolio seeks capital appreciation. Normally, the
Portfolio will invest at least 65% of its assets in common stocks of companies
that the Adviser believes have above-average growth prospects. The Portfolio is
non-diversified and will normally concentrate its investments in a core position
of approximately 20--30 common stocks.
EQUITY PORTFOLIO
The Equity Portfolio seeks to provide a high total return consistent with
preservation of capital and a prudent level of risk. The portfolio will invest
primarily in selected equity securities, including common stocks and other
securities having the investment characteristics of common stocks, such as
convertible securities and warrants.
BALANCED PORTFOLIO
The Balanced Portfolio seeks a high total investment return, consistent
with the preservation of capital and prudent investment risk. Normally, the
portfolio invests approximately 50-65% of its assets in equity securities, and
the remainder in a combination of fixed income securities, or cash equivalents.
HIGH YIELD PORTFOLIO
The High Yield Portfolio seeks to provide a high level of current income
with a secondary objective of capital appreciation. Normally, the adviser
invests at least 65% of the Portfolio's assets in below investment grade
securities (those rated BB+/Ba1 or lower by independent rating agencies).
FIXED INCOME PORTFOLIO
The Fixed Income Portfolio seeks the highest level of income consistent
with preservation of capital. The portfolio invests primarily in investment
grade debt securities.
GOVERNMENT SECURITIES PORTFOLIO
The Government Securities Portfolio seeks safety of capital, liquidity and
current income. The portfolio will invest primarily in securities issued by the
U.S. government or an agency or instrumentality of the U.S. government.
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks current income consistent with stability of
capital and liquidity. The portfolio may invest in U.S. government securities,
bank obligations, commercial paper obligations, short-term corporate debt
securities and municipal obligations.
THE ALGER AMERICAN FUND
The Alger American Fund is a mutual fund with multiple portfolios. The
manager of the fund is Fred Alger Management, Inc. The following portfolios are
available under the contract:
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio seeks long-term capital appreciation.
It focuses on growing companies that generally have broad product lines,
markets, financial resources and depth of management. Under normal
circumstances, the portfolio invests primarily in the equity securities of large
companies.
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
The Alger American Leveraged AllCap Portfolio seeks long-term capital
appreciation. Under normal circumstances, the portfolio invests in the equity
securities of companies of any size which demonstrate promising growth
potential. The portfolio can borrow money in amounts of up to one-third of its
total assets to buy additional securities.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
The Alger American MidCap Growth Portfolio seeks long-term capital
appreciation. It focuses on midsize companies with promising growth potential.
Under normal circumstances, the portfolio invests primarily in the equity
securities of compa-
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nies having a market capitalization within the range of companies in the S&P
MidCap 400 Index.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
The Alger American Small Capitalization Portfolio seeks long-term capital
appreciation. It focuses on small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding marketplace. Under
normal circumstances, the portfolio invests primarily in the equity securities
of small capitalization companies.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century Variable Portfolios, Inc. is a mutual fund with multiple
portfolios. The fund's investment adviser is American Century Investment
Management, Inc. The following portfolios are available under the contract:
VP INCOME & GROWTH FUND
The VP Income & Growth Fund seeks dividend growth, current income and
capital appreciation by investing in common stocks. The fund's investment
strategy utilizes quantitative management techniques in a two-step process that
draws heavily on computer technology.
VP INTERNATIONAL FUND
The VP International Fund seeks capital growth. The fund managers use a
growth investment strategy developed by American Century to invest in stocks of
companies that they believe will increase in value over time. This strategy
looks for companies with earnings and revenue growth. Interna-tional investment
involves special risk considera- tions. These include economic and political
conditions, expected inflation rates and currency fluctuations.
VP VALUE FUND
The VP Value Fund seeks long-term capital growth. Income is a secondary
objective. In selecting stocks for the VP Value Fund, the fund managers look for
stocks of medium to large companies that they believe are undervalued at the
time of purchase.
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger Institutional Products Trust is a mutual fund with multiple
portfolios. Berger LLC (formerly, Berger Associates, Inc.) is the investment
advisor for the Berger IPT--Growth Fund, the Berger IPT--Growth and Income Fund,
the Berger IPT--Small Company Growth Fund and the Berger IPT--New Generation
Fund. BBOI Worldwide LLC, a joint venture between Berger LLC and Bank of Ireland
Asset Management (U.S.) Limited (BIAM), is the investment advisor for the
Berger/BIAM IPT--International Fund. BBOI Worldwide LLC has delegated daily
management of the Fund to BIAM. Berger LLC and BIAM have entered into an
agreement to dissolve BBOI Worldwide LLC. The dissolution of BBOI Worldwide LLC
will have no effect on the investment advisory services provided to the Fund.
Contingent upon shareholder approval, when BBOI Worldwide LLC is dissolved,
Berger LLC will become the Fund's advisor and BIAM will continue to be
responsible for day-to-day management of the Fund's portfolio as sub-advisor. If
approved by shareholders, these advisory changes are expected to take place in
the first half of this year. The following portfolios are available under the
contract:
BERGER IPT--GROWTH FUND
(FORMERLY, BERGER IPT-100 FUND)
The Berger IPT-Growth Fund aims for long-term capital appreciation. In
pursuing that goal, the fund primarily invests in the common stocks of
established companies with the potential for strong earnings growth.
BERGER IPT--GROWTH AND INCOME FUND
The Berger IPT--Growth and Income Fund aims for capital appreciation and
has a secondary goal of investing in securities that produce current income for
the portfolio. In pursuing these goals, the fund primarily invests in the
securities of well-established, growing companies.
BERGER IPT--SMALL COMPANY GROWTH FUND
The Berger IPT--Small Company Growth Fund aims for capital appreciation. In
pursuing that goal, the fund primarily invests in the common stocks of small
companies with the potential for rapid earnings growth.
BERGER IPT--NEW GENERATION FUND
The Berger IPT--New Generation Fund seeks capital appreciation. In pursuing
that goal, the Fund primarily invests in the common stocks of companies believed
to have the potential to change the direction or dynamics of the industries in
which
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they operate or significantly influence the way businesses or consumers conduct
their affairs.
BERGER/BIAM IPT--INTERNATIONAL FUND
The Berger/BIAM IPT--International Fund aims for long-term capital
appreciation. In pursuing that goal, the fund primarily invests in a portfolio
consisting of common stocks of well-established foreign companies.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is a mutual fund. The
investment adviser for the fund is The Dreyfus Corporation.
The Dreyfus Socially Responsible Growth Fund, Inc. seeks to provide capital
growth, with current income as a secondary goal. To pursue these goals, the fund
invests primarily in the common stock of companies that, in the opinion of the
fund's management, meet traditional investment standards and conduct their
business in a manner that contributes to the enhancement of the quality of life
in America.
DREYFUS STOCK INDEX FUND
The Dreyfus Stock Index Fund is a mutual fund. The investment adviser for
the fund is The Dreyfus Corporation.
The Dreyfus Stock Index Fund seeks to match the total return of the
Standard & Poor's 500 Composite Stock Price Index. To pursue this goal, the fund
generally invests in all 500 stocks in the S&P 500 in proportion to their
weighting in the index.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Variable Investment Fund ("Dreyfus VIF") is a mutual fund with
multiple portfolios. The investment adviser for the portfolios is The Dreyfus
Corporation. The following portfolios are available under the contract:
DREYFUS VIF DISCIPLINED STOCK PORTFOLIO
The Dreyfus VIF Disciplined Stock Portfolio seeks investment returns (consisting
of capital appreciation and income) that are greater than the total return
performance of stocks represented by the Standard & Poor's 500 Composite Stock
Price Index. To pursue this goal, the portfolio invests in a blended portfolio
of growth and value stocks chosen through a disciplined investment process.
DREYFUS VIF INTERNATIONAL VALUE PORTFOLIO
The Dreyfus VIF International Value Portfolio seeks long-term capital
growth. To pursue this goal, the portfolio ordinarily invests most of its assets
in equity securities of foreign issuers which Dreyfus considers to be "value"
companies.
FEDERATED INSURANCE SERIES
Federated Insurance Series is a mutual fund with multiple portfolios.
Federated Investment Management Company is the adviser to the Federated High
Income Bond Fund II and the Federated Utility Fund II and Federated Global
Investment Management Corp. is the adviser to the Federated International Equity
Fund II. The following portfolios are available under the contract:
FEDERATED HIGH INCOME BOND FUND II
The Federated High Income Bond Fund II's investment objective is to seek
high current income by investing primarily in a professionally managed,
diversified portfolio of fixed income securities. The fund pursues its
investment objective by investing in a diversified portfolio of high-yield,
lower-rated corporate bonds.
FEDERATED UTILITY FUND II
The Federated Utility Fund II's investment objective is to achieve high
current income and moderate capital appreciation. The fund pursues its
investment objective by investing under normal market conditions, at least 65%
of its assets in equity securities (including convertible securities) of
companies that derive at least 50% of their revenues from the provision of
electricity, gas and telecommunications related services.
FEDERATED INTERNATIONAL EQUITY FUND II
The Federated International Equity Fund II's investment objective is to
obtain a total return on its assets. The fund's total return will consist of two
components: (1) changes in the market value of its portfolio securities (both
realized and unrealized appreciation); and (2) income received from its
portfolio securities.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
(NOT AVAILABLE FOR NEW SALES AS OF MAY 1, 2000)
INVESCO Variable Investment Funds, Inc. is a mutual fund with multiple
portfolios. INVESCO Funds Group, Inc. is the investment adviser for the
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Fund. The following portfolios are available under the contract:
INVESCO VIF--EQUITY INCOME FUND
The INVESCO VIF--Equity Income Fund's primary goal is high current income,
with growth of capital as a secondary objective. The fund normally invests at
least 65% of its assets in dividend-paying common and preferred stocks, although
in recent years that percentage has been somewhat higher.
INVESCO VIF--HIGH YIELD FUND
The INVESCO VIF--High Yield Fund seeks to provide a high level of current
income, with growth of capital as a secondary objective. It invests
substantially all of its assets in lower-rated debt securities, commonly called
"junk bonds" and preferred stock, including securities issued by foreign
companies.
JANUS ASPEN SERIES
Janus Aspen Series is a mutual fund with multiple portfolios. Janus Capital
Corporation is the investment adviser to the fund. The following portfolios are
available under the contract:
AGGRESSIVE GROWTH PORTFOLIO
The Aggressive Growth Portfolio seeks long-term growth of capital. It
pursues its objective by investing primarily in common stocks selected for their
growth potential, and normally invests at least 50% of its equity assets in
medium-sized companies.
GROWTH PORTFOLIO
The Growth Portfolio seeks long-term growth of capital in a manner
consistent with the preservation of capital. It pursues its objective by
investing primarily in common stocks selected for their growth potential.
Although the Portfolio can invest in companies of any size, it generally invests
in larger, more established companies.
WORLDWIDE GROWTH PORTFOLIO
The Worldwide Growth Portfolio seeks long-term growth of capital in a
manner consistent with the preservation of capital. It pursues its objective by
investing primarily in common stocks of companies of any size throughout the
world. The portfolio normally invests in issuers from at least five different
countries, including the United States. The portfolio may at times invest in
fewer than five countries or even a single country.
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Series, Inc. is a mutual fund with multiple portfolios.
Lazard Asset Manage-ment serves as the investment manager of the portfolios. The
investment manager is a division of Lazard Freres, a New York limited liability
company, which is registered as an investment adviser with the SEC. The
following portfolios are available under the contract:
LAZARD RETIREMENT EQUITY PORTFOLIO
The Lazard Retirement Equity Portfolio seeks long-term capital
appreciation. The portfolio invests primarily in equity securities, principally
common stocks, of relatively large U.S. companies (those whose total market
value is more than $1 billion) that the investment manager believes are
undervalued based on their earnings, cash flow or asset values.
LAZARD RETIREMENT SMALL CAP PORTFOLIO
The Lazard Retirement Small Cap Portfolio seeks long-term capital
appreciation. The portfolio invests primarily in equity securities, principally
common stocks, of relatively small U.S. companies in the range of the Russell
2000 Index that the investment manager believes are undervalued based on their
earnings, cash flow or asset values.
LORD ABBETT SERIES FUND, INC.
Lord Abbett Series Fund, Inc. is a mutual fund with multiple portfolios.
The fund's investment adviser is Lord, Abbett & Co. The following portfolio is
available under the contract:
GROWTH & INCOME PORTFOLIO
The Growth & Income Portfolio's investment objective is long-term growth of
capital and income without excessive fluctuations in market value.
MITCHELL HUTCHINS SERIES TRUST
Mitchell Hutchins Series Trust is a mutual fund with multiple portfolios.
Mitchell Hutchins Asset Management Inc. is the investment adviser of the fund.
The following portfolio is available under the contract:
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio's investment objective is current income
and capital growth. The portfolio invests primarily in dividend-paying stocks of
companies that its investment adviser believes have potential for rapid earnings
growth.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust is a mutual fund with multiple
portfolios. Neuberg-
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er Berman Management Inc. is the investment adviser. The following portfolios
are available under the contract:
LIMITED MATURITY BOND PORTFOLIO
The Limited Maturity Bond Portfolio seeks the highest available current
income consistent with liquidity and low risk to principal; total return is a
secondary goal. To pursue these goals, the portfolio invests mainly in
investment-grade bonds and other debt securities from U.S. government and
corporate issuers. These may include mortgage- and asset-backed securities.
PARTNERS PORTFOLIO
The Partners Portfolio seeks growth of capital. To pursue this goal, the
portfolio invests mainly in common stocks of mid- to large-capitalization
companies. The managers look for well-managed companies whose stock prices are
believed to be undervalued.
RYDEX VARIABLE TRUST
Rydex Variable Trust is a mutual fund with multiple portfolios which are
managed by PADCO Advisors II, Inc. The following portfolios are available under
the contract:
OTC FUND
The OTC Fund seeks to provide investment results that correspond to a
benchmark for over-the-counter securities. The Fund's current benchmark is the
NASDAQ 100 IndexTM. The Fund invests principally in securities of companies
included in the NASDAQ 100 IndexTM. It also may invest in other instruments
whose performance is expected to correspond to that of the Index, and may engage
in futures and options transactions.
NOVA FUND
The Nova Fund seeks to provide investment returns that correspond to 150%
of the daily performance of the Standard & Poor's 500 Composite Stock Price
Index. Unlike traditional index funds, as its primary investment strategy, the
Fund invests to a significant extent in futures contracts and options on:
securities, futures contracts and stock indexes. On a day-to-day basis, the Fund
holds U.S. government securities to collateralize these futures and options
contracts.
SELIGMAN PORTFOLIOS, INC.
Seligman Portfolios, Inc. is a mutual fund with multiple portfolios which
are managed by J. & W. Seligman & Co. Incorporated. The following portfolios are
available under the contract:
SELIGMAN COMMUNICATIONS AND INFORMATION PORTFOLIO
The Seligman Communications and Information Portfolio seeks capital gain.
The Portfolio invests at least 80% of its net assets, exclusive of government
securities, short-term notes, and cash and cash equivalents, in securities of
companies operating in the communications, information and related industries.
The Portfolio generally invests at least 65% of its total assets in securities
of companies engaged in these industries. The Portfolio may invest in companies
of any size.
SELIGMAN GLOBAL TECHNOLOGY PORTFOLIO
The Seligman Global Technology Portfolio seeks long-term capital
appreciation. The Portfolio generally invests at least 65% of its assets in
equity securities of U.S. and non-U.S. companies with business operations in
technology and technology-related industries. The Portfolio may invest in
companies of any size.
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II, Inc. is a mutual fund. Strong Capital
Management, Inc. is the investment advisor for the fund. The following portfolio
is available under the contract:
OPPORTUNITY FUND II
The Opportunity Fund II seeks capital growth. The fund invests primarily in
stocks of medium-capitalization companies that the fund's manager believes are
underpriced, yet have attractive growth prospects.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Variable Insurance Funds, Inc. is a mutual fund. Strong Capital
Management, Inc. is the investment advisor for the fund. The following portfolio
is available under the contract:
MID-CAP GROWTH FUND II
The Mid-Cap Growth Fund II seeks capital appreciation. The fund invests at
least 65% of its assets in stocks of medium-capitalization companies that the
fund's managers believe have favorable prospects for accelerating growth of
earnings, cash flow, or asset value.
35
<PAGE>
================================================================================
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is a mutual fund with multiple
portfolios. Van Eck Associates Corporation serves as investment adviser to the
funds. The following portfolios are available under the contract:
WORLDWIDE BOND FUND
The Worldwide Bond Fund seeks high total return income plus capital
appreciation by investing globally, primarily in a variety of debt securities.
The fund's long-term assets will consist of debt securities rated B or better by
Standard & Poor's or Moody's Investors' Service.
WORLDWIDE EMERGING MARKETS FUND
The Worldwide Emerging Markets Fund seeks long-term capital appreciation by
investing in equity securities in emerging markets around the world. The fund
emphasizes investment in countries that have relatively low gross national
product per capita, as well as the potential for rapid economic growth.
WORLDWIDE HARD ASSETS FUND
The Worldwide Hard Assets Fund seeks long-term capital appreciation by
investing primarily in "hard asset securities." Income is a secondary
consideration.
WORLDWIDE REAL ESTATE FUND
The Worldwide Real Estate Fund seeks a high total return by investing in
equity securities of companies that own significant real estate or that
principally do business in real estate.
36
<PAGE>
================================================================================
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
Company
Independent Accountants
Legal Opinions
Distribution
Reduction or Elimination of Contingent Deferred
Sales Charge
Calculation of Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
- --------------------------------------------------------------------------------
If you would like a free copy of the Statement of Additional Information
dated May 1, 2000 for this Prospectus, please complete this form, detach, and
mail to:
Conseco Variable Insurance Company
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Gentlemen:
Please send me a free copy of the Statement of Additional Information for the
Conseco Variable Annuity Account H fixed and variable annuity at the following
address:
Name:
----------------------------------------------------
Mailing Address:
-----------------------------------------
---------------------------------------------------------
Sincerely,
-------------------------------------------
(Signature)
- --------------------------------------------------------------------------------
Conseco Variable Insurance Company
11815 N. Pennsylvania Street
Carmel, Indiana 46032
(C) 2000, Conseco Variable Insurance Company
37
<PAGE>
[LOGO OMITTED]
CONSECO(R)
Step up.(SM)
ANNUITIES ARE NOT FDIC INSURED. ANNUITIES ARE NOT
OBLIGATIONS OF ANY BANK. THE FINANCIAL INSTITUTION DOES
NOT GUARANTEE PERFORMANCE BY THE INSURER ISSUING THE
ANNUITY, NOR IS IT INSURED BY THE FDIC, NCUSIF,
OR ANY OTHER FEDERAL ENTITY.
[NO FDIC LOGO] [NO BANK LOGO]
CONSECO EQUITY SALES, INC., IS A BROKER-DEALER FOR CONSECO VARIABLE
INSURANCE COMPANY. CONSECO EQUITY SALES IS THE PRINCIPAL UNDERWRITER OF
VARIABLE ANNUITY PRODUCTS, AND THE SECURITIES WITHIN, THAT ARE ISSUED
THROUGH CONSECO VARIABLE INSURANCE COMPANY. BOTH COMPANIES ARE SUBSIDIARIES
OF CONSECO, INC., A FINANCIAL SERVICES ORGANIZATION HEADQUARTERED IN
CARMEL, INDIANA. CONSECO, THROUGH ITS SUBSIDIARY COMPANIES, HELPS 13
MILLION CUSTOMERS STEP UP TO A BETTER, MORE SECURE FUTURE.
CONSECO EQUITY SALES , INC., IS A MEMBER OF THE NASD.
CONSECO VARIABLE INSURANCE COMPANY
11815 N. Pennsylvania Street
Carmel, IN 46032
CV205 (03/00) 08445
(C) 2000 Conseco Variable Insurance Company
CONSECO.COM
CONSECO, THE OFFICIAL FINANCIAL SERVICES PROVIDER OF [NASCAR LOGO]
[LOGO: INSURANCE MARKETPLACE STANDARDS ASSOCIATION]
[LOGO: RETIRE ON YOUR TERMS VARIABLE ANNUITIES]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL VARIABLE DEFERRED ANNUITY CONTRACTS
issued by
CONSECO VARIABLE ANNUITY ACCOUNT H
and
CONSECO VARIABLE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 2000, FOR THE INDIVIDUAL
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, 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
COMPANY ............................................................... 1
INDEPENDENT ACCOUNTANTS ............................................... 1
LEGAL OPINIONS ........................................................ 1
DISTRIBUTION .......................................................... 1
Reduction or Elimination of the Contingent Deferred Sales Charge ..... 1
CALCULATION OF PERFORMANCE INFORMATION ................................ 2
Total Return ......................................................... 2
Performance Information .............................................. 2
Historical Unit Values ............................................... 8
Reporting Agencies ................................................... 8
FEDERAL TAX STATUS 9
General .............................................................. 9
Diversification ...................................................... 10
Multiple Contracts ................................................... 11
Partial 1035 Exchanges ............................................... 11
Contracts Owned by Other than Natural Persons ........................ 11
Tax Treatment of Assignments ......................................... 11
Death Benefits ....................................................... 12
Income Tax Withholding ............................................... 12
Tax Treatment of Withdrawals-- Non-Qualified Contracts ............... 12
Qualified Plans ...................................................... 12
Roth IRAs ............................................................ 14
Tax Treatment of Withdrawals-- Qualified Contracts ................... 15
Tax-Sheltered Annuities-- Withdrawal Limitations ..................... 16
Mandatory Distributions-- Qualified Plans ............................ 16
ANNUITY PROVISIONS .................................................... 17
Variable Annuity Payout .............................................. 17
Annuity Unit ......................................................... 17
Fixed Annuity Payout ................................................. 17
FINANCIAL STATEMENTS .................................................. 18
<PAGE>
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, 1999 and 1998,
and for the years ended December 31, 1999, 1998 and 1997, included in this
statement of additional information, have been audited by PricewaterhouseCoopers
LLP, 2900 One American Square, Indianapolis, Indiana 46282, 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
1
<PAGE>
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 the Insurance Charge and 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:
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.
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 your total return may be in any future period.
PERFORMANCE INFORMATION
The Contracts and the Separate Account are new and therefore do not have a
meaningful investment performance history. However, certain 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 has
developed performance
2
<PAGE>
information. The information is based upon the historical experience of the
Portfolios and is for the periods shown.
Future performance of the portfolios will vary and the results shown are not
necessarily representative of future results. Performance for periods ending
after those shown may vary substantially from the examples shown. The
performance of the portfolios is calculated for a specified period of time by
assuming an initial purchase payment of $1,000 allocated to the portfolio. The
percentage increases (decreases) are determined by subtracting the initial
purchase payment from the ending value and dividing the remainder by the
beginning value. The performance may also show figures when no withdrawal is
assumed.
The following charts reflect performance information for the periods shown. The
performance information reflects performance commencing from the inception date
of the underlying portfolio (which date may precede the inception date that the
Separate Account first invested in the underlying portfolio). Column A is
average annual total return which reflects the deduction of the insurance
charges, contract maintenance charge, contingent deferred sales charge and the
fees and expenses of the portfolios. Column B reflects the deduction of the
insurance charges and the fees and expenses of the portfolios.
Chart 1 is for the standard contracts; Chart 2 is for contracts with the
guaranteed minimum death benefit; and Chart 3 is for contracts with the
guaranteed minimum death benefit and guaranteed minimum income benefit.
Performance is not shown for the Conseco 20 Focus Portfolio, the High Yield
Portfolio and the Berger IPT -- New Generation Fund because the Portfolios
commenced operations on May 1, 2000.
Performance shown for the Seligman Communications and Information Portfolio and
the Seligman Global Technology Portfolio does not reflect the 12b-1 fees these
portfolios will incur beginning May 1, 2000. The imposition of 12b-1 fees will
reduce future performance.
TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
COLUMN A COLUMN B
PORTFOLIO 10 YRS/ 10 YRS/
INCEPTION SINCE SINCE
DATE 1 YR 3 YRS 5 YRS INCEPTION 1 YR 3 YRS 5 YRS INCEPTION
---------- ----- ----- ----- --------- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSECO SERIES TRUST
Balanced Portfolio ............................. 07/25/94 18.59% 14.61% 15.01% 14.77% 29.04% 17.91% 16.74% 16.14%
Equity Portfolio ............................... 07/25/94 35.30% 21.90% 22.05% 22.14% 47.20% 25.42% 23.88% 23.60%
Fixed Income Portfolio ......................... 07/25/94 (9.74%) 0.92% 3.66% 4.93% (1.77%) 3.84% 5.23% 6.18%
Government Securities Portfolio ................ 07/25/94 (11.62%) (0.84%) 1.30% 1.35% (3.82%) 2.03% 2.83% 2.56%
Money Market Portfolio ......................... 07/25/94 (4.95%) (0.79%) (0.57%) (0.34%) 3.43% 2.08% 0.94% 0.86%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio ................ 12/31/89 21.20% 30.12% 27.22% 23.23% 31.89% 33.86% 29.14% 23.27%
Alger American Leveraged AllCap Portfolio ...... 01/24/95 61.38% 43.88% N/A 42.41% 75.59% 48.01% N/A 44.60%
Alger American MidCap Growth Portfolio ......... 04/30/93 19.49% 19.78% 22.44% 23.94% 30.02% 23.23% 24.28% 24.94%
Alger American Small Capitalization Portfolio .. 12/31/89 29.98% 17.74% 19.35% 18.28% 41.43% 21.14% 21.15% 18.32%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth ............................. 02/06/98 6.95% N/A N/A 14.92% 16.38% N/A N/A 20.30%
VP International ............................... 05/02/94 48.19% 26.65% 20.81% 20.84% 61.77% 30.57% 22.87% 22.41%
VP Value ....................................... 05/01/96 (10.55%) 5.06% N/A 14.17% (2.23%) 8.39% N/A 17.08%
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B
PORTFOLIO 10 YRS/ 10 YRS/
INCEPTION SINCE SINCE
DATE 1 YR 3 YRS 5 YRS INCEPTION 1 YR 3 YRS 5 YRS INCEPTION
---------- ----- ----- ----- ---------- ---- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund ........................ 05/01/96 35.16% 20.39% N/A 17.86% 47.06% 23.86% N/A 20.68%
Berger IPT--Growth and Income Fund ............. 05/01/96 44.15% 29.84% N/A 27.94% 56.84% 33.58% N/A 30.98%
Berger IPT--Small Company Growth Fund .......... 05/01/96 73.55% 27.92% N/A 22.48% 88.79% 31.60% N/A 25.40%
Berger/BIAM IPT--International Fund ............ 04/30/97 19.10% N/A N/A 10.64% 29.58% N/A N/A 14.23%
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC. .............................. 10/07/93 17.89% 24.04% 25.31% 23.74% 28.27% 27.61% 27.20% 24.83%
DREYFUS STOCK INDEX FUND ....................... 12/31/89 9.29% 22.06% 24.52% 18.51% 18.93% 25.57% 26.39% 18.55%
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio ........ 04/30/96 7.39% 17.48% N/A 19.21% 16.85% 20.86% N/A 22.03%
Dreyfus VIF International Value Portfolio ...... 05/01/96 15.90% 8.56% N/A 7.64% 26.10% 11.69% N/A 10.22%
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II ............. 03/01/94 (7.29%) 1.64% 7.43% 5.79% 0.88% 4.58% 9.06% 6.99%
Federated Utility Fund II ...................... 02/10/94 (7.85%) 8.97% 12.16% 11.31% 0.28% 12.11% 13.86% 12.54%
Federated International Equity Fund II ......... 05/08/95 67.59% 31.25% N/A 22.35% 82.32% 35.02% N/A 24.34%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--High Yield Fund ................... 12/15/93 (0.96%) 3.29% 5.13% 7.45% 7.77% 6.27% 6.73% 8.61%
INVESCO VIF--Equity Income Fund ................ 12/15/93 4.16% 12.10% 14.66% 16.07% 13.34% 15.33% 16.39% 17.31%
JANUS ASPEN SERIES
Aggressive Growth Portfolio .................... 09/13/93 104.31% 44.48% 32.66% 34.61% 122.28% 48.64% 34.67% 35.75%
Growth Portfolio ............................... 09/13/93 30.49% 28.48% 26.49% 24.92% 41.98% 32.18% 28.40% 25.98%
Worldwide Growth Portfolio ..................... 09/13/93 49.06% 31.83% 30.11% 27.43% 62.17% 35.62% 32.07% 28.51%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio ............. 01/30/98 (2.41%) N/A N/A 3.53% 6.66% N/A N/A 8.42%
Lazard Retirement Small Cap Portfolio .......... 11/04/97 (4.73%) N/A N/A (5.19%) 3.67% N/A N/A (1.26%)
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio ...................... 12/31/89 5.36% 12.98% 17.20% 14.58% 15.12% 16.51% 19.17% 14.75%
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio .................... 02/06/98 (0.01%) N/A N/A 5.50% 8.80% N/A N/A 10.46%
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
Limited Maturity Bond Portfolio ................ 12/31/89 (8.04%) 0.00% 2.75% 4.68% 0.07% 2.89% 4.32% 4.73%
Partners Portfolio ............................. 03/22/94 (2.70%) 9.10% 17.87% 16.56% 5.88% 12.25% 19.64% 17.86%
RYDEX VARIABLE TRUST
OTC Fund ....................................... 10/25/96 82.03% 51.70% N/A 48.26% 98.07% 56.03% N/A 52.34%
Nova Fund ...................................... 10/25/96 11.11% 19.72% N/A 18.47% 20.90% 23.14% N/A 21.70%
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio 10/13/94 38.59% 16.24% 16.79% 17.34% 50.80% 19.60% 18.54% 18.81%
Seligman Global Technology Portfolio ........... 05/02/96 77.10% 32.23% N/A 27.17% 92.68% 36.04% N/A 30.20%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B
PORTFOLIO 10 YRS/ 10 YRS/
INCEPTION SINCE SINCE
DATE 1 YR 3 YRS 5 YRS INCEPTION 1 YR 3 YRS 5 YRS INCEPTION
---------- ----- ----- ----- ---------- ---- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II ......................... 05/08/92 22.27% 19.27% 20.06% 19.27% 33.03% 22.70% 21.87% 19.78%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong MidCap Growth Fund II ................ 12/31/96 72.10% 39.91% N/A 39.91% 87.24% 43.90% N/A 43.90%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund ......................... 12/31/89 (16.48%) (2.01%) 2.31% 7.33% (9.10%) 0.82% 3.86% 7.36%
Worldwide Emerging Markets Fund ............. 12/27/95 81.04% 0.70% N/A 6.20% 97.51% 3.94% N/A 8.69%
Worldwide Hard Assets Fund .................. 12/31/89 9.28% (15.78%) (5.01%) 2.78% 19.32% (13.01%) (3.31%) 3.00%
Worldwide Real Estate Fund .................. 02/06/98 (11.59%) N/A N/A (12.96%) (3.38%) N/A N/A (8.58%)
</TABLE>
TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
COLUMN A COLUMN B
PORTFOLIO 10 YRS/ 10 YRS/
INCEPTION SINCE SINCE
DATE 1 YR 3 YRS 5 YRS INCEPTION 1 YR 3 YRS 5 YRS INCEPTION
---------- ----- ----- ----- ---------- ---- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSECO SERIES TRUST
Balanced Portfolio ......................... 07/25/94 18.24% 14.09% 14.66% 14.42% 28.65% 17.39% 16.35% 15.75%
Equity Portfolio ........................... 07/25/94 34.89% 21.36% 21.64% 21.73% 46.76% 24.86% 23.44% 23.16%
Fixed Income Portfolio ..................... 07/25/94 (10.01%) 0.47% 3.09% 4.34% (2.07%) 3.38% 4.65% 5.59%
Government Securities Portfolio ............ 07/25/94 (11.89%) (1.11%) 1.03% 1.08% (4.11%) 1.74% 2.54% 2.27%
Money Market Portfolio ..................... 07/25/94 (5.28%) (1.12%) (0.90%) (0.67%) 3.08% 1.73% 0.59% 2.50%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio ............ 12/31/89 20.34% 29.26% 26.61% 22.45% 31.49% 33.26% 28.73% 22.65%
Alger American Leveraged AllCap
Portfolio ................................ 01/24/95 60.90% 43.19% N/A 41.98% 75.06% 47.31% N/A 44.16%
Alger American MidCap Growth Portfolio ..... 04/30/93 19.13% 19.42% 22.17% 23.56% 29.63% 22.84% 24.01% 24.57%
Alger American Small Capitalization
Portfolio ................................ 12/31/89 29.60% 17.22% 18.78% 17.58% 41.00% 20.60% 20.57% 17.62%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth ......................... 02/06/98 6.63% N/A N/A 14.57% 16.0% N/A N/A 19.93%
VP International ........................... 05/02/94 47.89% 26.35% 20.38% 20.33% 61.28% 29.98% 22.20% 21.70%
VP Value ................................... 05/01/96 (10.42%) 4.56% N/A 13.67% (2.52% 7.58% N/A 16.27%
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund .................... 05/01/96 34.25% 19.57% N/A 17.04% 46.62% 23.31% N/A 20.07%
Berger IPT--Growth and Income Fund ......... 05/01/96 43.18% 29.16% N/A 27.33% 56.37% 33.18% N/A 30.58%
Berger IPT--Small Company Growth Fund ...... 05/01/96 72.49% 27.06% N/A 21.63% 88.23% 31.01% N/A 24.77%
Berger/BIAM IPT--International Fund ........ 04/30/97 18.29% N/A N/A 10.47% 29.20% N/A N/A 14.06%
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC. .......................... 10/07/93 17.53% 23.55% 24.61% 23.01% 27.89% 27.10% 26.48% 24.08%
DREYFUS STOCK INDEX FUND ................... 12/31/89 8.97% 21.52% 24.05% 17.87% 18.57% 25.01% 25.91% 17.91%
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio .... 04/30/96 7.02% 17.24% N/A 18.87% 16.45% 20.62% N/A 21.67%
Dreyfus VIF International Value
Portfolio ................................ 05/01/96 15.50% 8.36% N/A 7.33% 25.67% 11.48% N/A 9.91%
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B
PORTFOLIO 10 YRS/ 10 YRS/
INCEPTION SINCE SINCE
DATE 1 YR 3 YRS 5 YRS INCEPTION 1 YR 3 YRS 5 YRS INCEPTION
--------- ---- ----- ---- ----------- ---- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II .............. 03/01/94 (7.57%) 1.43% 6.99% 5.51% 0.58% 4.36% 8.61% 6.69%
Federated Utility Fund II ....................... 02/10/94 (8.13%) 8.59% 11.61% 10.73% (0.02%) 11.72% 13.30% 11.95%
Federated International Equity Fund II .......... 05/08/95 67.09% 30.66% N/A 21.69% 81.77% 34.42% N/A 23.67%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--High Yield Fund .................... 12/15/93 (1.34%) 1.99% 3.83% 7.12% 7.36% 5.86% 6.32% 8.28%
INVESCO VIF--Equity Income Fund ................. 12/15/93 3.76% 11.70% 14.26% 15.71% 12.91% 14.90% 15.99% 16.96%
JANUS ASPEN SERIES
Aggressive Growth Portfolio ..................... 09/13/93 103.70% 43.84% 31.94% 33.83% 121.62% 47.98% 33.93% 34.96%
Growth Portfolio ................................ 09/13/93 30.10% 27.91% 25.80% 24.19% 41.56% 31.59% 27.70% 25.25%
Worldwide Growth Portfolio ...................... 09/13/93 48.61% 31.24% 29.40% 26.68% 61.68% 35.01 31.35% 27.76%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio .............. 01/30/98 (2.28%) N/A N/A 3.43% 6.34% N/A N/A 8.10%
Lazard Retirement Small Cap Portfolio ........... 11/04/97 (5.02%) N/A N/A (5.61%) 3.35 N/A N/A (1.69%)
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio ....................... 12/31/89 5.04% 12.66% 16.88% 14.26% 14.78% 16.19% 18.85% 14.43%
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio ..................... 02/06/98 (0.31%) N/A N/A 5.17% 8.47% N/A N/A 10.11%
Limited Maturity Bond Portfolio ................. 12/31/89 (8.32%) (0.47%) 2.18% 4.20% (0.23%) 2.41% 3.73% 4.25%
Partners Portfolio .............................. 03/22/94 (2.99%) 8.60% 17.21% 15.88% 5.56% 11.73% 18.97% 17.18%
OTC Fund ........................................ 10/25/96 80.77% 50.65% N/A 47.23% 96.69% 54.95% N/A 51.27%
Nova Fund ....................................... 10/25/96 10.78% 19.36% N/A 18.12% 20.54% 22.77% N/A 21.33%
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio 10/13/94 38.18% 15.90% 16.44% 16.99% 50.35 19.24% 18.19% 18.45%
Seligman Global Technology Portfolio ............ 05/02/96 76.58% 31.84% N/A 26.78% 92.10% 35.63% N/A 29.80%
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II ............................. 05/08/92 21.90% 18.78% 19.43% 18.56% 32.64% 22.20% 21.23% 19.07%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Midcap Growth Fund II .................... 12/31/96 71.59% 39.40% N/A 39.40% 86.68% 43.34% N/A 43.34%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund ............................. 12/31/89 (16.76%) (2.29%) 2.03% 7.05 (9.38%) 0.54% 3.58% 7.08%
Worldwide Emerging Markets Fund ................. 12/27/95 80.50% 0.25% N/A 5.66% 96.92% 3.47% N/A 8.14%
Worldwide Hard Assets Fund ...................... 12/31/89 8.95% (16.11%)(5.34%) 2.45% 18.96% (13.37%) (3.67%) 2.64%
Worldwide Real Estate Fund ...................... 02/06/98 (11.85%) N/A N/A (13.98%) (3.67%) N/A N/A (9.65%)
</TABLE>
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TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
COLUMN A COLUMN B
PORTFOLIO 10 YRS/ 10 YRS/
INCEPTION SINCE SINCE
DATE 1 YR 3 YRS 5 YRS INCEPTION 1 YR 3 YRS 5 YRS INCEPTION
-------- ----- ----- ----- --------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSECO SERIES TRUST
Balanced Portfolio ......................... 07/25/94 17.88% 13.75% 14.30% 14.06% 28.26% 17.03% 15.99% 15.39%
Equity Portfolio ........................... 07/25/94 34.49% 21.00% 21.23% 21.32% 46.32% 24.49% 23.00% 22.72%
Fixed Income Portfolio ..................... 07/25/94 (10.28%) 0.17% 2.78% 4.03% (2.36%) 3.07% 4.34% 5.27%
Government Securities Portfolio ............ 07/25/94 (12.15%) (1.37%) 0.77% 0.82% (4.40%) 1.45% 2.25% 1.98%
Money Market Portfolio ..................... 07/25/94 (5.56%) (1.40%) (1.18%) (0.95%) 2.77% 1.42% 0.28% 2.19%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio ............ 12/31/89 20.48% 29.15% 26.44% 22.24% 31.10% 32.86% 28.35% 22.28%
Alger American Leveraged AllCap
Portfolio ................................ 01/24/95 60.42% 42.76% N/A 41.56% 74.54% 46.87% N/A 43.73%
Alger American MidCap Growth
Portfolio ................................ 04/30/93 18.78% 19.07% 21.80% 23.19% 29.24% 22.45% 23.64% 24.20%
Alger American Small Capitalization
Portfolio ................................ 12/31/89 29.21% 16.87% 18.43% 17.23% 40.58% 20.24% 20.21% 17.27%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth ......................... 02/06/98 6.31% N/A N/A 14.21% 15.68% N/A N/A 19.56%
VP International ........................... 05/02/94 47.51% 25.97% 20.02% 19.96% 60.80% 29.59% 21.83% 21.33%
VP Value ................................... 05/01/96 (10.69%) 4.25% N/A 13.36% (2.81%) 7.26% N/A 15.95%
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund .................... 05/01/96 33.84% 19.21% N/A 16.68% 46.18% 22.94% N/A 19.70%
Berger IPT--Growth and Income Fund ......... 05/01/96 42.75% 28.77% N/A 26.94% 87.67% 30.62% N/A 24.39%
Berger IPT--Small Company Growth Fund ...... 05/01/96 71.98% 26.68% N/A 21.26% 87.67% 30.62% N/A 24.39%
Berger/BIAM IPT--International Fund ........ 04/30/97 17.93% N/A N/A 10.13% 28.81% N/A N/A 13.72%
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC. .......................... 10/07/93 17.18% 23.18% 24.24% 22.63% 27.51% 26.72% 26.11% 23.71%
DREYFUS STOCK INDEX FUND ................... 12/31/89 8.64% 21.15% 23.67% 17.52% 18.22% 24.64% 25.54% 17.56%
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio .... 04/30/96 6.70% 16.89% N/A 18.51% 16.10% 20.26% N/A 21.31%
Dreyfus VIF International Value Portfolio .. 05/01/96 15.15% 8.03% N/A 7.00% 25.29% 11.15% N/A 9.57%
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II ......... 03/01/94 (7.85%) 1.12% 6.67% 5.23% 0.28% 4.05% 8.29% 6.39%
Federated Utility Fund II .................. 02/10/94 (8.40%) 8.26% 11.28% 10.39% (0.32%) 11.39% 12.96% 11.61%
Federated International Equity Fund II ..... 05/08/95 66.59% 30.27% N/A 21.32% 81.23% 34.02% N/A 23.29%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--High Yield Fund ............... 12/15/93 (1.63%) 1.29% 3.13% 6.80% 7.04% 5.54% 6.00% 7.95%
INVESCO VIF--Equity Income Fund ............ 12/15/93 3.45% 11.39% 13.86% 15.36% 12.57% 14.56% 15.65% 16.60%
JANUS ASPEN SERIES
Aggressive Growth Portfolio ................ 09/13/93 103.10% 43.41% 31.54% 33.42% 120.95% 47.53% 33.53% 34.56%
Growth Portfolio ........................... 09/13/93 29.71% 27.52% 25.42% 23.82% 41.14% 31.19% 27.31% 24.87%
Worldwide Growth Portfolio ................. 09/13/93 48.17% 30.85% 29.01% 26.30% 61.20% 34.61% 30.95% 27.38%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio ......... 01/30/98 (2.57%) N/A N/A 3.12% 6.02% N/A N/A 7.77%
Lazard Retirement Small Cap Portfolio ...... 11/04/97 (5.30%) N/A N/A (5.90%) 3.05% N/A N/A (1.99%)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B
PORTFOLIO 10 YRS/ 10 YRS/
INCEPTION SINCE SINCE
DATE 1 YR 3 YRS 5 YRS INCEPTION 1 YR 3 YRS 5 YRS INCEPTION
-------- ----- ----- ----- --------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio ................. 12/31/89 4.73% 12.35% 16.57% 13.95% 14.43% 15.88% 18.54% 14.12%
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio ............... 02/06/98 (0.61%) N/A N/A 4.84% 8.15% N/A N/A 9.77%
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
Limited Maturity Bond Portfolio ........... 12/31/89 (8.59%) (0.77%) 1.87% 3.89% (0.53%) 2.10% 3.42% 3.42%
Partners Portfolio ........................ 03/22/94 (3.28%) 8.27% 16.85% 15.53% 5.24% 11.39% 18.61% 16.82%
RYDEX VARIABLE TRUST
OTC Fund .................................. 10/25/96 80.23% 50.20% N/A 46.79% 96.11% 54.49% N/A 50.82%
Nova Fund ................................. 10/25/96 10.45% 19.00% N/A 17.76% 20.18% 22.40% N/A 20.97%
SELIGMAN PORTFOLIOS, INC. .................
Seligman Communications and
Information Portfolio ................... 10/13/94 37.77% 15.55% 16.09% 16.63% 49.90% 18.89% 17.83% 18.09%
Seligman Global Technology Portfolio ...... 05/02/96 76.05% 31.44% N/A 26.39% 91.53% 35.23% N/A 29.40%
STRONG OPPORTUNITY FUND II, INC ...........
Opportunity Fund II ....................... 05/08/92 21.54% 18.42% 19.07% 18.20% 32.24% 21.83% 20.86% 18.71%
STRONG VARIABLE INSURANCE FUNDS, INC ......
Strong Midcap Growth Fund II .............. 12/31/96 71.08% 38.89% N/A 38.89% 86.12% 43.42% N/A 43.42%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund ....................... 12/31/89 (17.06%) (2.59%) 1.73% 6.75% (9.68%) 0.24% 3.28% 6.78%
Worldwide Emerging Markets Fund ........... 12/27/95 79.96% (0.29%) N/A 5.12% 96.38% 2.93% N/A 7.60%
Worldwide Hard Assets Fund ................ 12/31/89 8.62% (16.44%) (5.67%) 2.12% 18.61% (13.72%) (4.02%) 2.29%
Worldwide Real Estate Fund ................ 02/06/98 (12.11%) N/A N/A (14.24%) (4.06%) N/A N/A (9.94%)
</TABLE>
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.
8
<PAGE>
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
9
<PAGE>
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.
10
<PAGE>
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.
PARTIAL 1035 EXCHANGES
Section 1035 of the Code provides that an annuity contract may be exchanged in a
tax-free transaction for another annuity contract. In 1998 in CONWAY VS.
COMMISSIONER, the Tax Court held that the direct transfer of a portion of an
annuity contract into another annuity contract qualified as a non-taxable
exchange. On November 22, 1999, the Internal Revenue Service filed an Action on
Decision which indicated that it acquiesced in the Tax Court decision in CONWAY.
However, in its acquiesence with the decision of the Tax Court, the Internal
Revenue Service stated that it will challenge transactions where taxpayers enter
into a series of partial exchanges and annuitizations as part of a design to
avoid application of the 10% premature distribution penalty or other limitations
imposed on annuity contracts under the Code. In the absence of further guidance
from the Internal Revenue Service it is unclear what specific types of partial
exchange designs and transactions will be challenged by the Internal Revenue
Service. Due to the uncertainty in this area, owners should consult their own
tax advisers prior to entering into a partial exchange of an annuity contract.
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 you 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.
11
<PAGE>
DEATH BENEFITS
Any death benefits paid under the Contract are taxable to the beneficiary.
The rules governing the taxation of payments from an annuity contract, as
discussed above, generally apply to the payment of death benefits and depend on
whether the death benefits are paid as a lump sum or as annuity payments. Estate
taxes may also apply.
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 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
12
<PAGE>
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. The Company is not bound by the terms and conditions
of such plans to the extent such terms conflict with the terms of a Contract,
unless the Company specifically consents to be bound. Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Contracts comply with applicable law.
A Qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a Qualified Plan that is tax deferred. However, the
Contract has features and benefits other than tax deferral that may make it an
appropriate investment for a Qualified Plan. 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,
13
<PAGE>
contributions, transferability and distributions. (See "Tax Treatment of
Withdrawals -- Qualified Contracts" below.) Under certain conditions,
distributions from other IRAs and other Qualified Plans may be rolled over or
transferred on a tax-deferred basis into an IRA. Sales of Contracts for use with
IRAs are subject to special requirements imposed by the Code, including the
requirement that certain informational disclosure be given to persons desiring
to establish an IRA. Purchasers of Contracts to be qualified as Individual
Retirement Annuities should obtain competent tax advice as to the tax treatment
and suitability of such an investment.
ROTH IRAS
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues 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
14
<PAGE>
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
SECTION 457
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 under Section 457 of the Code. 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 $8,000 or 33 1/3
percent of the participant's includible compensation. However, in limited
circumstances, the plan may provide for additional catch-up contributions in
each of the last three years before normal retirement age. Furthermore, the Code
provides additional requirements and restrictions regarding eligibility and
distributions.
All of the assets and income of a Plan established by a governmental employer
after August 20, 1996, must be held in trust for the exclusive benefit of
participants and their beneficiaries. For this purpose, custodial accounts and
certain annuity contracts are treated as trusts. Plans that were in existence on
August 20, 1996 may be amended to satisfy the trust and exclusive benefit
requirements any time prior to January 1, 1999, and must be amended not later
than that date to continue to receive favorable tax treatment. The requirement
of a trust does not apply to amounts under a Plan of a tax exempt
(non-governmental) employer. In addition, the requirement of a trust does not
apply to amounts under a Plan of a governmental employer if the Plan is not an
eligible plan within the meaning of section 457(b) of the Code. In the absence
of such a trust, amounts under the plan will be subject to the claims of the
employer's general creditors.
In general, distributions from a Plan are prohibited under section 457 of the
Code unless made after the participating employee:
attains age 70 1/2,
separates from service,
dies, or
suffers an unforeseeable financial emergency as defined in the Code.
Under present federal tax law, amounts accumulated in a Plan under section 457
of the Code cannot be transferred or rolled over on a tax-deferred basis except
for certain transfers to other Plans under section 457.
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). To the extent amounts are not includible in gross income because
they have been rolled over to
15
<PAGE>
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) made on account of an IRS levy upon the qualified contract;
(h) 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); (i) 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 (j) 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 591/2; (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. There are no mandatory distribution requirements for Roth IRAs prior to
death. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
16
<PAGE>
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.
The calculation of the first annuity payment is made on the annuity date. The
Company assesses the insurance charges during both the accumulation phase and
the annuity phase. The deduction of the insurance charges will affect the amount
of the first and any subsequent annuity payments. In addition, under certain
circumstances, the Company may assess a contingent deferred sales charge and/or
the contract maintenance charge on the annuity date which would affect the
amount of the first annuity payment (see "Expenses" and "Annuity Payments" in
the prospectus).
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 investment portfolio 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
previous valuation period.
The owner can choose either a 5% or a 3% 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.
17
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Contracts.
18
<PAGE>
- --------------------------------------------------------------------------------
Conseco Variable Insurance Company
Financial Statements as of December 31, 1999 and 1998,
and for the years ended December 31, 1999, 1998 and 1997
19
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
Conseco Variable Insurance Company
In our opinion, the accompanying balance sheet and the related statements
of operations, shareholder's equity and cash flows present fairly, in all
material respects, the financial position of Conseco Variable Insurance Company
(the "Company") at December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
April 13, 2000
20
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET
December 31, 1999 and 1998
(Dollars in millions)
ASSETS
1999 1998
-------- --------
Investments:
Actively managed fixed maturities at
fair value (amortized cost:
1999 - $1,491.8; 1998 - $1,520.5) ............ $1,398.7 $1,524.1
Equity securities at fair value
(cost: 1999 - $47.8 million;
1998 - $46.0 million) ......................... 49.8 45.7
Mortgage loans .................................... 108.0 110.2
Policy loans ...................................... 75.5 79.6
Other invested assets ............................. 50.8 120.3
-------- --------
Total investments ........................... 1,682.8 1,879.9
Cash and cash equivalents ............................. 81.5 48.4
Accrued investment income ............................. 35.6 30.5
Cost of policies purchased ............................ 131.6 98.0
Cost of policies produced ............................. 147.6 82.5
Reinsurance receivables ............................... 26.4 22.2
Goodwill .............................................. 45.3 46.7
Assets held in separate accounts ...................... 1,457.0 696.4
Other assets .......................................... 6.0 7.1
-------- --------
Total assets ................................ $3,613.8 $2,911.7
======== ========
(continued on next page)
The accompanying notes are an integral part
of the financial statements.
21
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET (Continued)
December 31, 1999 and 1998
(Dollars in millions, except per share amount)
LIABILITIES AND SHAREHOLDER'S EQUITY
1999 1998
-------- --------
Liabilities:
Insurance liabilities:
Interest-sensitive products ....................... $1,289.2 $1,365.2
Traditional products .............................. 242.8 246.2
Claims payable and other policyholder funds ....... 64.1 62.6
Liabilities related to separate accounts .......... 1,457.0 696.4
Income tax liabilities ............................... 33.4 37.5
Investment borrowings ................................ 135.1 65.7
Other liabilities .................................... 16.5 33.0
-------- --------
Total liabilities ............................ 3,238.1 2,506.6
-------- --------
Shareholder's equity:
Common stock and additional paid-in capital
(par value $4.80 per share, 1,065,000
shares authorized, 1,043,565 shares issued
and outstanding) .................................. 380.8 380.8
Accumulated other comprehensive loss ................. (28.4) (.8)
Retained earnings .................................... 23.3 25.1
-------- --------
Total shareholder's equity ................... 375.7 405.1
-------- --------
Total liabilities and shareholder's equity ... $3,613.8 $2,911.7
======== ========
The accompanying notes are an integral part
of the financial statements.
22
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
(Dollars in millions)
1999 1998 1997
------- ------- -------
Revenues:
Insurance policy income .................. $ 72.1 $ 73.6 $ 75.7
Net investment income .................... 297.6 198.0 222.6
Net gains (losses) from
sale of investments .................... (10.0) 18.5 13.3
------- ------- -------
Total revenues ..................... 359.7 290.1 311.6
------- ------- -------
Benefits and expenses:
Insurance policy benefits ................ 266.8 170.6 191.0
Amortization ............................. 13.8 33.6 27.1
Other operating costs and expenses ....... 40.3 38.7 32.2
------- ------- -------
Total benefits and expenses ........ 320.9 242.9 250.3
------- ------- -------
Income before income taxes ......... 38.8 47.2 61.3
Income tax expense ........................... 13.6 16.6 22.1
------- ------- -------
Net income ......................... $ 25.2 $ 30.6 $ 39.2
======= ======= =======
The accompanying notes are an integral part
of the financial statements.
23
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
for the years ended December 31, 1999, 1998 and 1997
(Dollars in millions)
Accumulated
Common other
stock and compre-
additional hensive
paid-in income Retained
Total capital (loss) earnings
------ ------ ------ ------
Balance, December 31, 1996 ................ $396.9 $380.8 $ (4.6) $ 20.7
Comprehensive income, net of tax:
Net income ............................ 39.2 -- -- 39.2
Change in unrealized appreciation
(depreciation) of securities
(net of applicable income tax
expense of $7.2) .................... 13.3 -- 13.3 --
------
Total comprehensive income ........ 52.5
Dividends on common stock ............... (32.5) -- -- (32.5)
------ ------ ------ ------
Balance, December 31, 1997 ................ 416.9 380.8 8.7 27.4
Comprehensive income, net of tax:
Net income ........................... 30.6 -- -- 30.6
Change in unrealized appreciation
(depreciation) of securities
(net of applicable income tax
benefit of $5.1) ................... (9.5) -- (9.5) --
------
Total comprehensive income ........ 21.1
Dividends on common stock ............... (32.9) -- -- (32.9)
------ ------ ------ ------
Balance, December 31, 1998 ................ 405.1 380.8 (.8) 25.1
Comprehensive loss, net of tax:
Net income .............................. 25.2 -- -- 25.2
Change in unrealized depreciation of
securities (net of applicable income
tax benefit of $15.7 million) ........ (27.6) -- (27.6) --
------
Total comprehensive loss ......... (2.4)
Dividends on common stock ............... (27.0) -- -- (27.0)
------ ------ ------ ------
Balance, December 31, 1999 ................ $375.7 $380.8 $(28.4) $ 23.3
====== ====== ====== ======
The accompanying notes are an integral part
of the financial statements.
24
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
(Dollars in millions)
1999 1998 1997
------- ------- -------
Cash flows from operating activities:
Net income .................................. $ 25.2 $ 30.6 $ 39.2
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization .......................... 13.8 43.0 27.1
Income taxes .......................... 11.4 (1.2) 6.7
Insurance liabilities ................. 162.6 120.0 95.2
Accrual and amortization of
investment income ................... (11.4) 1.6 .3
Deferral of cost of policies
produced ............................ (62.7) (35.3) (31.8)
Net (gains) losses from sale
of investments ...................... 10.0 (18.5) (13.3)
Other ................................. .7 (38.3) (4.6)
------- ------- -------
Net cash provided by operating
activities .......................... 149.6 101.9 118.8
------- ------- -------
Cash flows from investing activities:
Sales of investments ........................ 904.8 1,185.0 755.2
Maturities and redemptions .................. 109.0 145.5 150.4
Purchases of investments .................... (1,502.0) (1,420.7) (923.5)
------- ------- -------
Net cash used by investing
activities .......................... (488.2) (90.2) (17.9)
------- ------- -------
Cash flows from financing activities:
Deposits to insurance liabilities ........... 654.1 400.4 255.9
Investment borrowings ....................... 69.4 4.7 12.6
Withdrawals from insurance liabilities ...... (324.8) (385.0) (302.2)
Dividends paid on common stock .............. (27.0) (32.9) (32.5)
------- ------- -------
Net cash provided (used) by
financing activities ................ 371.7 (12.8) (66.2)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents ................ 33.1 (1.1) 34.7
Cash and cash equivalents, beginning of year ... 48.4 49.5 14.8
------- ------- -------
Cash and cash equivalents, end of year ......... $ 81.5 $ 48.4 $ 49.5
======= ======= =======
The accompanying notes are an integral part
of the financial statements.
25
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Conseco Variable Insurance Company ("we" or the "Company") markets
tax-qualified annuities and certain employee benefit-related insurance products
through professional independent agents. Prior to its name change in October
1998, the Company was named Great American Reserve Insurance Company. Since
August 1995, the Company has been a wholly owned subsidiary of Conseco, Inc.
("Conseco"), a financial services holding company operating throughout the
United States. Conseco's life insurance subsidiaries develop, market and
administer supplemental health insurance, annuity, individual life insurance,
individual and group major medical insurance and other insurance products.
Conseco's finance subsidiaries originate, purchase, sell and service consumer
and commercial finance loans. On March 31, 2000, Conseco announced its plan to
explore the sale of its finance subsidiaries and its hiring of Lehman Brothers
to assist in the planned sale.
The following summary explains the accounting policies we use to arrive at
the more significant numbers in our financial statements. We prepare our
financial statements in accordance with generally accepted accounting principles
("GAAP"). We follow the accounting standards established by the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants and the Securities and Exchange Commission. We reclassified certain
amounts in our 1998 and 1997 financial statements and notes to conform with the
1999 presentation.
INVESTMENTS
FIXED MATURITIES are securities that mature more than one year after
issuance and include bonds, notes receivable and redeemable preferred stock.
Fixed maturities that we may sell prior to maturity are classified as ACTIVELY
MANAGED and are carried at estimated fair value, with any unrealized gain or
loss, net of tax and related adjustments, recorded as a component of
shareholder's equity. Fixed maturity securities that we intend to sell in the
near term are classified as TRADING and included in other invested assets. We
include any unrealized gain or loss on trading securities in net investment
gains.
EQUITY SECURITIES include investments in common stocks and non-redeemable
preferred stock. We carry these investments at estimated fair value. We record
any unrealized gain or loss, net of tax and related adjustments, as a component
of shareholder's equity.
MORTGAGE LOANS held in our investment portfolio are carried at amortized
unpaid balances, net of provisions for estimated losses.
POLICY LOANS are stated at their current unpaid principal balances.
OTHER INVESTED ASSETS include trading securities and certain
non-traditional investments. Non-traditional investments include investments in
certain limited partnerships, mineral rights and promissory notes; we account
for them using either the cost method, or for investments in partnerships over
whose operations the Company exercises significant influence, the equity method.
We defer any fees received or costs incurred when we originate investments
(primarily mortgage loans). We amortize fees, costs, discounts and premiums as
yield adjustments over the contractual lives of the investments. We consider
anticipated prepayments on mortgage-backed securities in determining estimated
future yields on such securities.
26
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
When we sell a security (other than a trading security), we report the
difference between our sale proceeds and its amortized cost (determined based on
specific identification) as an investment gain or loss.
We regularly evaluate all of our investments based on current economic
conditions, credit loss experience and other investee-specific developments. If
there is a decline in a security's net realizable value that is other than
temporary, we treat it as a realized loss and reduce our cost basis of the
security to its estimated fair value.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include commercial paper, invested cash and other
investments purchased with maturities of less than three months. We carry them
at amortized cost, which approximates their estimated fair value.
SEPARATE ACCOUNTS
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policyholders. The assets of these accounts are
legally segregated. They are not subject to the claims that may arise out of any
other business of the Company. We report separate account assets at market
value; the underlying investment risks are assumed by the contract holders. We
record the related liabilities at amounts equal to the market value of the
underlying assets. We record the fees earned for administrative and
contractholder services performed for the separate accounts in insurance policy
income.
COST OF POLICIES PRODUCED
The costs that vary with, and are primarily related to, producing new
insurance business are referred to as cost of policies produced. We amortize
these costs using the interest rate credited to the underlying policy: (i) in
relation to the estimated gross profits for universal life-type and
investment-type products; or (ii) in relation to future anticipated premium
revenue for other products.
When we realize a gain or loss on investments backing our universal life or
investment-type products, we adjust the amortization to reflect the change in
estimated gross profits from the products due to the current realized gain or
loss and the effect of the event on future investment yields. We also adjust the
cost of policies produced for the change in amortization that would have been
recorded if actively managed fixed maturity securities had been sold at their
stated aggregate fair value and the proceeds reinvested at current yields. We
include the impact of this adjustment in accumulated other comprehensive income
(loss) within shareholder's equity.
Each year, we evaluate the recoverability of the unamortized balance of the
cost of policies produced. We consider estimated future gross profits or future
premiums, expected mortality or morbidity, interest earned and credited rates,
persistency and expenses in determining whether the balance is recoverable.
COST OF POLICIES PURCHASED
The cost assigned to the right to receive future cash flows from contracts
existing at the date of an acquisition is referred to as the cost of policies
purchased. The balance of this account is amortized, evaluated for recovery, and
adjusted for the impact of unrealized gains (losses) in the same manner as the
cost of policies produced described above.
The discount rate we use to determine the value of the cost of policies
purchased is the rate of return we need to earn in order to invest in the
business being acquired. In determining this required rate of return, we
consider many factors including: (i) the magnitude of the risks associated with
each of the actuarial assumptions used in determining expected future cash
flows; (ii) the cost of our capital required to fund the acquisition; (iii) the
likelihood of changes in projected future cash flows that might occur if there
are changes in insurance regulations and tax laws; (iv) the acquired company's
compatibility with other
27
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Company activities that may favorably affect future cash flows; (v) the
complexity of the acquired company; and (vi) recent prices (i.e., discount rates
used in determining valuations) paid by others to acquire similar blocks of
business.
GOODWILL
Goodwill is the excess of the amount paid to acquire the Company over the
fair value of its net assets. Our analysis indicates that the anticipated
ongoing cash flows from the earnings of the Company extends significantly beyond
the maximum 40-year period allowed for goodwill amortization. Accordingly, we
amortize goodwill on the straight-line basis generally over a 40-year period. At
December 31, 1999, the total accumulated amortization of goodwill was $16.1
million. We continually monitor the value of our goodwill based on our estimates
of future earnings. We determine whether goodwill is fully recoverable from
projected undiscounted net cash flows from our earnings over the remaining
amortization period. If we were to determine that changes in such projected cash
flows no longer support the recoverability of goodwill over the remaining
amortization period, we would reduce its carrying value with a corresponding
charge to expense or shorten the amortization period (no such changes have
occurred).
RECOGNITION OF INSURANCE POLICY INCOME AND RELATED BENEFITS AND EXPENSES ON
INSURANCE CONTRACTS
Generally, we recognize insurance premiums for traditional life and
accident and health contracts as earned over the premium-paying periods. We
establish reserves for future benefits on a net-level premium method based upon
assumptions as to investment yields, mortality, morbidity, withdrawals and
dividends. We record premiums for universal life-type and investment-type
contracts that do not involve significant mortality or morbidity risk as
deposits to insurance liabilities. Revenues for these contracts consist of
mortality, morbidity, expense and surrender charges. We establish reserves for
the estimated present value of the remaining net costs of all reported and
unreported claims.
REINSURANCE
In the normal course of business, we seek to limit our exposure to loss on
any single insured or to certain groups of policies by ceding reinsurance to
other insurance enterprises. We currently retain no more than $.5 million of
mortality risk on any one policy. We diversify the risk of reinsurance loss by
using a number of reinsurers that have strong claims-paying ratings. If any
reinsurer could not meet its obligations, the Company would assume the
liability. The likelihood of a material loss being incurred as the result of the
failure of one of our reinsurers is considered remote. The cost of reinsurance
is recognized over the life of the reinsured policies using assumptions
consistent with those used to account for the underlying policy. The cost of
reinsurance ceded totaled $23.1 million, $21.0 million and $24.2 million in
1999, 1998 and 1997, respectively. A receivable is recorded for the reinsured
portion of insurance policy benefits paid and liabilities for insurance
products. Reinsurance recoveries netted against insurance policy benefits
totaled $20.8 million, $21.8 million and $14.9 million in 1999, 1998 and 1997,
respectively.
INCOME TAXES
Our income tax expense includes deferred income taxes arising from
temporary differences between the tax and financial reporting bases of assets
and liabilities. In assessing the realization of deferred income tax assets, we
consider whether it is more likely than not that the deferred income tax assets
will be realized. The ultimate realization of deferred income tax assets depends
upon generating future taxable income during the periods in which temporary
differences become deductible. If future income is not generated as expected,
deferred income tax assets may need to be written off (no such write-offs have
occurred).
INVESTMENT BORROWINGS
As part of our investment strategy, we may enter into reverse repurchase
agreements and dollar-roll transactions to increase our investment return or to
improve our liquidity. We account for these transactions as collateral
borrowings, where the amount borrowed is equal to the sales price of the
underlying securities. Reverse repurchase agreements involve a sale of
securities and an agreement to repurchase the same securities at a later date at
an agreed-upon price. Dollar rolls are similar to reverse
28
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
repurchase agreements except that, with dollar rolls, the repurchase involves
securities that are only substantially the same as the securities sold. Such
borrowings averaged $137.7 million during 1999 and $66.0 million during 1998.
These borrowings 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 5.0 percent and 4.4 percent in 1999 and
1998, respectively. The primary risk associated with short-term collateralized
borrowings is that a counterparty will be unable to perform under the terms of
the contract. Our exposure is limited to the excess of the net replacement cost
of the securities over the value of the short-term investments (such excess was
not material at December 31, 1999). We believe the counterparties to our reverse
repurchase and dollar-roll agreements are financially responsible and that the
counterparty risk is minimal.
USE OF ESTIMATES
When we prepare financial statements in conformity with GAAP, we are
required to make estimates and assumptions that significantly affect various
reported amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting periods. For example, we use significant estimates
and assumptions in calculating values for the cost of policies produced, the
cost of policies purchased, goodwill, insurance liabilities, liabilities related
to litigation, guaranty fund assessment accruals and deferred income taxes. If
our future experience differs materially from these estimates and assumptions,
our financial statements could be affected.
FAIR VALUES OF FINANCIAL INSTRUMENTS
We use the following methods and assumptions to determine the estimated
fair values of financial instruments:
INVESTMENT SECURITIES. For fixed maturity securities (including redeemable
preferred stocks) and for equity and trading securities, we use quotes from
independent pricing services, where available. For investment securities
for which such quotes are not available, we use values obtained from
broker-dealer market makers or by discounting expected future cash flows
using a current market rate appropriate for the yield, credit quality, and
(for fixed maturity securities) the maturity of the investment being
priced.
CASH AND CASH EQUIVALENTS. The carrying amount for these instruments
approximates their estimated fair value.
MORTGAGE LOANS AND POLICY LOANS. We discount future expected cash flows for
loans included in our investment portfolio based on interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. We aggregate loans with similar characteristics in our
calculations.
OTHER INVESTED ASSETS. We use quoted market prices, where available. When
quotes are not available, we estimate the fair value based on: (i)
discounted future expected cash flows; or (ii) independent transactions
which establish a value for our investment. When we are unable to estimate
a fair value, we assume a market value equal to carrying value.
INSURANCE LIABILITIES FOR INTEREST-SENSITIVE PRODUCTS. We discount future
expected cash flows based on interest rates currently being offered for
similar contracts with similar maturities.
INVESTMENT BORROWINGS. Due to the short-term nature of these borrowings
(terms generally less than 30 days), estimated fair values are assumed to
approximate the carrying amount reported in the balance sheet.
Here are the estimated fair values of our financial instruments:
29
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
1999 1998
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Dollars in millions)
Financial assets:
Actively managed fixed maturities ... $1,398.7 $1,398.7 $1,524.1 $1,524.1
Equity securities ................... 49.8 49.8 45.7 45.7
Mortgage loans ...................... 108.0 102.8 110.2 119.0
Policy loans ........................ 75.5 75.5 79.6 79.6
Other invested assets ............... 50.8 50.8 120.3 120.3
Cash and cash equivalents ........... 81.5 81.5 48.4 48.4
Financial liabilities:
Insurance liabilities for
interest-sensitive products (1) ... 1,289.2 1,289.2 1,365.2 1,365.2
Investment borrowings ............... 135.1 135.1 65.7 65.7
- --------------------
(1) The estimated fair value of the liabilities for interest-sensitive
products was approximately equal to its carrying value at December 31,
1999 and 1998. This was because interest rates credited on the vast
majority of account balances approximate current rates paid on similar
products and because these rates are not generally guaranteed beyond
one year. We are not required to disclose fair values for insurance
liabilities, other than those for interest-sensitive products .
However, we take into consideration the estimated fair values of all
insurance liabilities in our overall management of interest rate risk.
We attempt to minimize exposure to changing interest rates by matching
investment maturities with amounts due under insurance contracts.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by
Statement of Financial Accounting Standards No. 137, "Deferral of the Effective
Date of FASB Statement No. 133" requires all derivative instruments to be
recorded on the balance sheet at estimated fair value. Changes in the fair value
of derivative instruments are to be recorded each period either in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, on the type of hedge
transaction. SFAS 133 is required to be implemented in year 2001. We are
currently evaluating the impact of SFAS 133; at present, we do not believe it
will have a material effect on our consolidated financial position or results of
operations. Because of ongoing changes to implementation guidance, we do not
plan on adopting the new standard until the first quarter of 2001.
We implemented the Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1") on
January 1, 1999. SOP 98-1 defines internal use software and when the costs
associated with internal use software should be capitalized. The implementation
of SOP 98-1 did not have a material effect on our consolidated financial
position or results of operations.
2. INVESTMENTS:
At December 31, 1999, the amortized cost and estimated fair value of
actively managed fixed maturities and equity securities were as follows:
Gross Gross Esti-
unre- unre- mated
Amortized alized alized fair
cost gains losses value
-------- ------ ----- --------
(Dollars in millions)
Investment grade:
Corporate securities ..................... $ 840.6 $ 2.2 $59.3 $ 783.5
United States Treasury securities
and obligations of United States
government corporations and agencies ... 15.5 .1 .7 14.9
States and political subdivisions ........ 11.7 -- 1.1 10.6
Debt securities issued by
foreign governments .................... 12.2 -- 1.6 10.6
Mortgage-backed securities ............... 482.3 .2 22.7 459.8
Below-investment grade
(primarily corporate securities) .......... 129.5 2.4 12.6 119.3
-------- ------ ----- --------
Total actively managed
fixed maturities ..................... $1,491.8 $ 4.9 $98.0 $1,398.7
======== ====== ===== ========
Equity securities ........................... $47.8 $3.9 $1.9 $49.8
===== ==== ==== =====
30
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
At December 31, 1998, the amortized cost and estimated fair value of
actively managed fixed maturities and equity securities were as follows:
Gross Gross Esti-
unre- unre- mated
Amortized alized alized fair
cost gains losses value
-------- ------ ----- --------
(Dollars in millions)
Investment grade:
Corporate securities ...................... $ 860.4 $20.7 $15.0 $ 866.1
United States Treasury securities
and obligations of United States
government corporations
and agencies ............................ 26.9 .8 .2 27.5
States and political subdivisions ......... 17.3 .3 -- 17.6
Debt securities issued by
foreign governments ..................... 11.7 -- .8 10.9
Mortgage-backed securities ................ 487.4 8.0 1.2 494.2
Below-investment grade
(primarily corporate securities) ........... 116.8 1.2 10.2 107.8
-------- ----- ----- --------
Total actively managed
fixed maturities ...................... $1,520.5 $31.0 $27.4 $1,524.1
======== ===== ===== ========
Equity securities ............................ $ 46.0 $ .8 $ 1.1 $ 45.7
======== ===== ===== ========
Accumulated other comprehensive loss included in shareholder's equity as of
December 31, 1999 and 1998, is summarized as follows:
1999 1998
------- -------
(Dollars in millions)
Unrealized gains (losses) on investments ............. $ (90.8) $ .9
Adjustments to cost of policies purchased
and cost of policies produced ...................... 46.3 (2.1)
Deferred income tax benefit .......................... 16.1 .4
------- -------
Accumulated other comprehensive loss .......... $ (28.4) $ (.8)
======= =======
The following table sets forth the amortized cost and estimated fair value
of actively managed fixed maturities at December 31, 1999, by contractual
maturity. Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Most of the mortgage-backed securities shown below
provide for periodic payments throughout their lives.
31
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Estimated
Amortized fair
cost value
-------- --------
(Dollars in millions)
Due in one year or less ................................ $ 8.2 $ 8.2
Due after one year through five years .................. 90.8 89.5
Due after five years through ten years ................. 279.9 259.6
Due after ten years .................................... 628.2 579.4
-------- --------
Subtotal .......................................... 1,007.1 936.7
Mortgage-backed securities (a) ......................... 484.7 462.0
-------- --------
Total actively managed fixed maturities ........ $1,491.8 $1,398.7
======== ========
- ----------
(a) Includes below-investment grade mortgage-backed securities with an
amortized cost and estimated fair value of $2.4 million and $2.2 million,
respectively.
Net investment income consisted of the following:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Actively managed fixed maturity securities ....... $ 114.8 $ 118.4 $ 133.6
Equity securities ................................ 12.2 3.2 1.7
Mortgage loans ................................... 9.9 12.1 16.4
Policy loans ..................................... 4.8 5.1 5.4
Other invested assets ............................ 3.5 13.3 7.7
Cash and cash equivalents ........................ 2.1 2.9 3.4
Separate accounts ................................ 151.8 44.1 55.7
------- ------- -------
Gross investment income ...................... 299.1 199.1 223.9
Investment expenses .............................. 1.5 1.1 1.3
------- ------- -------
Net investment income ..................... $ 297.6 $ 198.0 $ 222.6
======= ======= =======
The Company had no significant fixed maturity investments or mortgage loans
that were not accruing investment income in 1999, 1998 and 1997.
Investment gains (losses), net of investment expenses, were included in
revenue as follows:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Fixed maturities:
Gross gains .................................... $ 8.6 $ 34.0 $ 20.6
Gross losses ................................... (14.5) (12.4) (5.1)
Other than temporary decline in fair value ..... (1.3) -- (.3)
------- ------- -------
Net investment gains (losses) from fixed
maturities before expenses ................. (7.2) 21.6 15.2
Other ............................................ .7 .1 2.2
------- ------- -------
Net investment gains (losses) before expenses (6.5) 21.7 17.4
Investment expenses .............................. 3.5 3.2 4.1
------- ------- -------
Net investment gains (losses) ................ $ (10.0) $ 18.5 $ 13.3
======= ======= =======
32
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
At December 31, 1999, the mortgage loan balance was primarily comprised of
commercial loans. Approximately 16 percent, 11 percent, 10 percent, 8 percent, 8
percent and 8 percent of the mortgage loan balance were on properties located in
Michigan, Texas, Florida, California, Georgia and Tennessee, respectively. No
other state comprised greater than 7 percent of the mortgage loan balance.
Noncurrent mortgage loans were insignificant at December 31, 1999. At December
31, 1999, our allowance for loss on mortgage loans was $.3 million.
Life insurance companies are required to maintain certain investments on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $11.5 million at December 31, 1999.
The Company had no investments in any single entity in excess of 10 percent
of shareholder's equity at December 31, 1999, other than investments issued or
guaranteed by the United States government or a United States government agency.
3. INSURANCE LIABILITIES:
These liabilities consisted of the following:
<TABLE>
<CAPTION>
Interest
Withdrawal Mortality rate
assumption assumption assumption 1999 1998
----------- ---------- ---------- -------- --------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Interest-sensitive products:
Investment contracts ........ N/A N/A (c) $ 976.7 $1,036.0
Universal life-type contracts N/A N/A N/A 312.5 329.2
-------- --------
Total interest-sensitive
products ................ 1,289.2 1,365.2
-------- --------
Traditional products:
Traditional life insurance
contracts ................. Company (a) 7.6% 137.0 139.9
experience
Limited-payment contracts ... Company (b) 7.5% 105.8 106.3
experience, -------- --------
if applicable
Total traditional
products ............... 242.8 246.2
-------- --------
Claims payable and other
policyholder funds ............ N/A N/A N/A 64.1 62.6
Liabilities related to
separate accounts ............. N/A N/A N/A 1,457.0 696.4
-------- --------
Total ....................... $3,053.1 $2,370.4
======== ========
<FN>
- -------------
(a) Principally, modifications of the 1975 - 80 Basic, Select and Ultimate
Tables.
(b) Principally, the 1984 United States Population Table and the NAIC 1983
Individual Annuitant Mortality Table.
(c) At December 31, 1999 and 1998, approximately 97 percent and 95 percent,
respectively, of this liability represented account balances where future
benefits are not guaranteed. The weighted average interest rate on the
remainder of the liabilities representing the present value of guaranteed
future benefits was approximately 6 percent at December 31, 1999.
</FN>
</TABLE>
33
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
4. INCOME TAXES:
Income tax liabilities were comprised of the following:
1999 1998
----- -----
(Dollars in millions)
Deferred income tax liabilities (assets):
Investments (primarily actively managed
fixed maturities) ................................ $ 3.6 $ 5.4
Cost of policies purchased and cost
of policies produced ............................. 75.3 56.7
Insurance liabilities .............................. (39.2) (28.2)
Unrealized depreciation ............................ (16.1) (.4)
Other .............................................. 10.2 (2.2)
----- -----
Deferred income tax liabilities ............... 33.8 31.3
Current income tax liabilities (assets) ................ (.4) 6.2
----- -----
Income tax liabilities ........................ $33.4 $37.5
===== =====
Income tax expense was as follows:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Current tax provision ..................... $ 4.3 $ 20.8 $ 16.3
Deferred tax provision (benefit) .......... 9.3 (4.2) 5.8
------- ------- -------
Income tax expense ............... $ 13.6 $ 16.6 $ 22.1
======= ======= =======
A reconciliation of the income tax provisions based on the U.S. statutory
corporate tax rate to the provisions reflected in the statement of operations is
as follows:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Tax on income before income taxes at
statutory rate .......................... 35.0% 35.0% 35.0%
State taxes ............................... 1.5 1.0 .7
Other ..................................... (1.4) (.8) .3
------- ------- -------
Income tax expense ............... 35.1% 35.2% 36.0%
======= ======= =======
5. OTHER DISCLOSURES:
LITIGATION
The Company is involved on an ongoing basis in lawsuits related to its
operations. Although the ultimate outcome of certain of such matters cannot be
predicted, such lawsuits currently pending against the Company are not expected,
individually or in the aggregate, to have a material adverse effect on the
Company's financial condition, cash flows or results of operations.
GUARANTY FUND ASSESSMENTS
The balance sheet at December 31, 1999, includes: (i) accruals of $1.6
million, representing our estimate of all known assessments that will be levied
against the Company by various state guaranty associations based on premiums
written through
34
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
December 31, 1999; and (ii) receivables of $1.1 million that we estimate will be
recovered through a reduction in future premium taxes as a result of such
assessments. These estimates are subject to change when the associations
determine more precisely the losses that have occurred and how such losses will
be allocated among the insurance companies. We recognized expense for such
assessments of $1.1 million in 1999, $1.1 million in 1998 and $1.2 million in
1997.
RELATED PARTY TRANSACTIONS
The Company operates without direct employees through management and
service agreements with subsidiaries of Conseco. Fees for such services
(including data processing, executive management and investment management
services) are based on Conseco's direct and directly allocable costs plus a 10
percent margin. Total fees incurred by the Company under such agreements were
$43.4 million in 1999, $37.8 million in 1998 and $36.7 million in 1997.
During 1998 and 1997, the Company purchased $13.0 million and $11.2 million
par value, respectively, of senior subordinated notes issued by subsidiaries of
Conseco. The total carrying value of such notes purchased during 1998, 1997 and
prior years was $45.5 million at December 31, 1998. Such notes are classified as
"other invested assets" in the accompanying balance sheet. In 1999, all such
notes were repurchased from the Company by Conseco or its subsidiaries.
6. OTHER OPERATING STATEMENT DATA:
Insurance policy income consisted of the following:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Traditional products:
Direct premiums collected ...................... $ 700.4 $ 445.8 $ 309.6
Reinsurance assumed ............................ 18.7 15.6 14.9
Reinsurance ceded .............................. (23.1) (21.0) (24.2)
------- ------- -------
Premiums collected, net of reinsurance ..... 696.0 440.4 300.3
Less premiums on universal life and
products without mortality and morbidity
risk which are recorded as additions to
insurance liabilities ........................ 654.1 400.4 255.9
------- ------- -------
Premiums on traditional products with
mortality or morbidity risk, recorded
as insurance policy income ............... 41.9 40.0 44.4
Fees and surrender charges on interest-
sensitive products ............................. 30.2 33.6 31.3
------- ------- -------
Insurance policy income .................... $ 72.1 $ 73.6 $ 75.7
======= ======= =======
The five states with the largest shares of 1999 collected premiums were
California (14 percent), Texas (14 percent), Florida (13 percent), Michigan (8.8
percent) and Indiana (5.2 percent). No other state accounted for more than 4
percent of total collected premiums.
Changes in the cost of policies purchased were as follows:
35
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
1999 1998 1997
------- ------- -------
(Dollars in millions)
Balance, beginning of year ....................... $ 98.0 $ 106.4 $ 143.0
Amortization ................................. (4.1) (21.1) (15.4)
Amounts related to fair value adjustment
of actively managed fixed maturities ....... 37.7 11.8 (21.2)
Other ........................................ -- .9 --
------- ------- -------
Balance, end of year ............................. $ 131.6 $ 98.0 $ 106.4
======= ======= =======
Based on current conditions and assumptions as to future events on all
policies in force, the Company expects to amortize approximately 9 percent of
the December 31, 1999, balance of cost of policies purchased in 2000, 10 percent
in 2001, 9 percent in 2002, 7 percent in 2003 and 6 percent in 2004. The
discount rates used to determine the amortization of the cost of policies
purchased ranged from 3.6 percent to 8.0 percent and averaged 5.8 percent.
Changes in the cost of policies produced were as follows:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Balance, beginning of year ....................... $ 82.5 $ 55.9 $ 38.2
Additions .................................... 62.7 35.3 31.8
Amortization ................................. (8.3) (11.0) (10.2)
Amounts related to fair value adjustment
of actively managed fixed maturities ....... 10.7 2.3 (3.9)
------- ------- -------
Balance, end of year ............................. $ 147.6 $ 82.5 $ 55.9
======= ======= =======
7. STATEMENT OF CASH FLOWS:
Income taxes paid during 1999, 1998, and 1997, were $2.1 million, $17.1
million and $14.8 million, respectively.
8. STATUTORY INFORMATION:
Statutory accounting practices prescribed or permitted by regulatory
authorities for insurance companies differ from GAAP. The Company reported the
following amounts to regulatory agencies:
1999 1998
------ ------
(Dollars
in millions)
Statutory capital and surplus .................................. $112.6 $134.0
Asset valuation reserve ........................................ 41.4 30.9
Interest maintenance reserve ................................... 66.7 73.1
------ ------
Total .......................................................... $220.7 $238.0
====== ======
Our statutory net income was $14.6 million, $32.7 million and $32.7 million
in 1999, 1998 and 1997, respectively. Statutory net income differs from net
income presented in our financial statements prepared in accordance with GAAP,
primarily because for GAAP reporting we are required to defer and amortize costs
that vary with and are primarily related to the production of new business as
described in note 1.
State insurance laws generally restrict the ability of insurance companies
to pay dividends or make other distributions. We may pay dividends to our parent
in 2000 of $12.8 million without permission from state regulatory authorities.
In 1998, the National Association of Insurance Commissioners adopted
codified statutory accounting principles, which are expected to constitute the
only source of prescribed statutory accounting practices and are effective in
2001. The changes to statutory accounting practices resulting from the
codification are not expected to have a material effect on the statutory capital
and surplus or statutory operating earnings data shown above.
36
