File Nos. 333-90737
811-09693
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2 [X]
(Check appropriate box or boxes.)
CONSECO VARIABLE ANNUITY ACCOUNT H
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(Exact Name of Registrant)
CONSECO VARIABLE INSURANCE COMPANY
----------------------------------------
(Name of Depositor)
11815 N. Pennsylvania Street
Carmel, Indiana 46032-4572
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (317) 817-3700
Name and Address of Agent for Service
Michael A. Colliflower
Conseco Variable Insurance Company
11815 N. Pennsylvania Street
Carmel, Indiana 46032-4572
(317) 817-3700
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X___ on May 1, 2000 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
_____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Variable Annuity Contracts
CROSS REFERENCE SHEET
(required by Rule 495)
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<CAPTION>
ITEM NO. Location
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PART A
Item 1. Cover Page Cover Page
Item 2. Definitions Index of Special Terms
Item 3. Synopsis Highlights
Item 4. Condensed Financial Information Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies Other Information -
Conseco Variable; The
Separate Account;
Investment Options;
Appendix A
Item 6. Deductions and Expenses Expenses
Item 7. General Description of Variable
Annuity Contracts The Annuity Contract
Item 8. Annuity Period Annuity Payments
(The Annuity Period)
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Purchase
Item 11. Redemptions Access to Your Money
Item 12. Taxes Taxes
Item 13. Legal Proceedings None
Item 14. Table of Contents of the Statement
of Additional Information Table of Contents of the
Statement of Additional
Information
</TABLE>
CROSS REFERENCE SHEET
(required by Rule 495)
<TABLE>
<CAPTION>
ITEM NO. LOCATION
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<S> <C> <C>
PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History Company
Item 18. Services Not Applicable
Item 19. Purchase of Securities Being Offered Not Applicable
Item 20. Underwriters Distribution
Item 21. Calculation of Performance Data Calculation of Performance
Information
Item 22. Annuity Payments Annuity Provisions
Item 23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered in Part C to this Registration Statement.
PART A
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 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
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 __ 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.
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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.
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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......................................................
HIGHLIGHTS..................................................................
FEE TABLE...................................................................
THE COMPANY.................................................................
THE CONSECO ADVANTAGE PLUS ANNUITY CONTRACT.................................
PURCHASE....................................................................
Purchase Payments.........................................................
Purchase Payment Credit Feature...........................................
Allocation of Purchase Payments...........................................
Free Look.................................................................
INVESTMENT OPTIONS..........................................................
Investment Portfolios.....................................................
The Fixed Account.........................................................
The General Account.......................................................
Voting Rights.............................................................
Substitution..............................................................
Transfers.................................................................
Dollar Cost Averaging Program.............................................
Rebalancing Program.......................................................
Asset Allocation Program..................................................
Sweep Program.............................................................
EXPENSES....................................................................
Insurance Charges.........................................................
Contract Maintenance Charge...............................................
Contingent Deferred Sales Charge..........................................
Reduction or Elimination of the Contingent Deferred Sales Charge..........
Transfer Fee..............................................................
Premium Taxes.............................................................
Income Taxes..............................................................
Investment Portfolio Expense..............................................
CONTRACT VALUE..............................................................
Accumulation Units........................................................
ACCESS TO YOUR MONEY........................................................
Systematic Withdrawal Program.............................................
Suspension of Payments or Transfers.......................................
DEATH BENEFIT...............................................................
Upon Your Death During the Accumulation Period............................
Death Benefit Amount During the Accumulation Period.......................
Payment of Death Benefit During the Accumulation Period..................
Death of Contract Owner During the Annuity Period.........................
Death of Annuitant........................................................
ANNUITY PAYMENTS (THE ANNUITY PERIOD).......................................
Annuity Payment Amount....................................................
Annuity Options...........................................................
TAXES ......................................................................
Annuity Contracts in General..............................................
Qualified and Non-Qualified Contracts.....................................
Withdrawals - Non-Qualified Contracts.....................................
Withdrawals - Qualified Contracts.........................................
Withdrawals - Tax-Sheltered Annuities.....................................
Diversification...........................................................
Investor Control..........................................................
PERFORMANCE.................................................................
OTHER INFORMATION...........................................................
The Separate Account......................................................
Distributor...............................................................
Ownership.................................................................
Beneficiary...............................................................
Assignment................................................................
Financial Statements......................................................
APPENDIX A..................................................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................
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.........................................................
Accumulation Unit...........................................................
Annuitant...................................................................
Annuity Date................................................................
Annuity Options.............................................................
Annuity Payments............................................................
Annuity Period..............................................................
Annuity Unit................................................................
Beneficiary.................................................................
Contract....................................................................
Investment Portfolios.......................................................
Joint Owner.................................................................
Non-Qualified...............................................................
Owner.......................................................................
Purchase Payment............................................................
Qualified...................................................................
Tax-Deferral................................................................
3
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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 the 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
4
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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 __)
NO. OF CONTRACT YEARS FROM CONTINGENT DEFERRED
RECEIPT OF PURCHASE PAYMENT SALES CHARGE PERCENT
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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)
<TABLE>
<CAPTION>
INSURANCE CHARGES
(COMPRISED OF THE
MORTALITY AND EXPENSE
RISK CHARGE AND TOTAL SEPARATE ACCOUNT
ADMINISTRATIVE CHARGE) ANNUAL EXPENSES
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<S> <C> <C>
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%
</TABLE>
5
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INVESTMENT PORTFOLIO EXPENSES:
(as a percentage of the average daily net assets of an investment portfolio)
<TABLE>
<CAPTION>
TOTAL ANNUAL
OTHER EXPENSES PORTFOLIO
(AFTER EXPENSE EXPENSES
REIMBURSEMENT, (AFTER EXPENSE
IF ANY, REIMBURSEMENT,
MANAGEMENT 12b-1 FOR CERTAIN IF ANY, FOR
FEES FEES PORTFOLIOS) CERTAIN PORTFOLIOS)
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<S> <C> <C> <C> <C>
CONSECO SERIES TRUST (5)
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%
THE ALGER AMERICAN FUND
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%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
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%
BERGER INSTITUTIONAL PRODUCTS TRUST
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%
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC. ............................... 0.75% -- 0.04% 0.79%
DREYFUS STOCK INDEX FUND ........................ 0.25% -- 0.01% 0.26%
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio ......... 0.75% -- 0.06% 0.81%
Dreyfus VIF International Value Portfolio ....... 1.00% -- 0.35% 1.35%
FEDERATED INSURANCE SERIES
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%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - High Yield Fund (12)............... 0.60% -- 0.47% 1.07%
INVESCO VIF - Equity Income Fund (12)............ 0.75% -- 0.42% 1.17%
JANUS ASPEN SERIES, Institutional Shares
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%
LAZARD RETIREMENT SERIES, INC.
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%
</TABLE>
CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
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<TABLE>
<CAPTION>
TOTAL ANNUAL
OTHER EXPENSES PORTFOLIO
(AFTER EXPENSE EXPENSES
REIMBURSEMENT, (AFTER EXPENSE
IF ANY, REIMBURSEMENT,
MANAGEMENT 12b-1 FOR CERTAIN IF ANY, FOR
FEES FEES PORTFOLIOS) CERTAIN PORTFOLIOS)
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<S> <C> <C> <C> <C>
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio ....................... 0.50% -- 0.37% 0.87%
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio ..................... 0.70% -- 0.53% 1.23%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio ................. 0.65% -- 0.11% 0.76%
Partners Portfolio .............................. 0.80% -- 0.07% 0.87%
RYDEX VARIABLE TRUST
OTC Fund......................................... 0.75% - 0.80% 1.55%
Nova Fund........................................ 0.75% - 0.80% 1.55%
SELIGMAN PORTFOLIOS, INC.
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%
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II ............................ 1.00% -- 0.14% 1.14%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II (16) .............. 1.00% -- 0.15% 1.15%
VAN ECK WORLDWIDE INSURANCE TRUST (17)
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%
</TABLE>
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 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 rate 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 Portfolio Expenses were lower than the
figures shown because its custodian fees were reduced under an expense offset
arrangement. The expense information presented in the table has been restated
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% for the High Yield Fund's average
net assets and 1.15% for 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 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.
9
<PAGE>
- - ------------------------------------------------------------------------------
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 sub-account 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.
<TABLE>
<CAPTION>
TIME PERIODS
CHART 1 1 YEAR 3 YEARS
- - ------------------------------------------------------------------------------
CONSECO SERIES TRUST
<S> <C> <C> <C>
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
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ........ (a)$105 (a)$166
(b)$ 30 (b)$ 92
10
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
- - --------------------------------------------------------------------------------
TIME PERIODS
1 YEAR 3 YEARS
- - --------------------------------------------------------------------------------
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)$106 (a)$169
(b)$ 31 (b)$ 95
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
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
11
<PAGE>
- - --------------------------------------------------------------------------------
TIME PERIODS
CHART 2 1 YEAR 3 YEARS
- - --------------------------------------------------------------------------------
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
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
12
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
- - --------------------------------------------------------------------------------
TIME PERIODS
1 YEAR 3 YEARS
- - --------------------------------------------------------------------------------
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
</TABLE>
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
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 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 such as 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
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
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 funds.
16
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
- - ------------------------------------------------------------------------------
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.
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 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 21/2 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 591/2, 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 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.
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 FROM CONTINGENT DEFERRED
RECEIPT OF PURCHASE PAYMENT SALES 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 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 attached 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.
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.
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.
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CONSECO VARIABLE INSURANCE COMPANY
2000 ACCOUNT H
INDIVIDUAL ANNUITY
- - ------------------------------------------------------------------------------
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.
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.
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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 payment 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.
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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.
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 591/2;
(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 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 591/2;
(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 591/2;
(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 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 its advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
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 Information. There are no financial statements for the Separate
Account because the Separate Account commenced operations on February 11, 2000.
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 companies 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.
International investment involves special risk considerations. 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 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 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 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. 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 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 your 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 Management 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. Neuberger 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 Index . The Fund invests principally in securities
of companies included in the NASDAQ 100 Index. 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 US
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 US and non-US 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.
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.
- - ------------------------------------------------------------------------------
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
PART B
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.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
COMPANY .......................................................................................................
INDEPENDENT ACCOUNTANTS..........................................................................................
LEGAL OPINIONS...................................................................................................
DISTRIBUTION.....................................................................................................
Reduction or Elimination of the Contingent Deferred Sales Charge........................................
CALCULATION OF PERFORMANCE INFORMATION...........................................................................
Total Return............................................................................................
Performance Information.................................................................................
Historical Unit Values..................................................................................
Reporting Agencies......................................................................................
FEDERAL TAX STATUS...............................................................................................
General ...............................................................................................
Diversification.........................................................................................
Multiple Contracts......................................................................................
Partial 1035 Exchanges..................................................................................
Contracts Owned by Other than Natural Persons...........................................................
Tax Treatment of Assignments............................................................................
Death Benefits..........................................................................................
Income Tax Withholding..................................................................................
Tax Treatment of Withdrawals - Non-Qualified Contracts..................................................
Qualified Plans.........................................................................................
Roth IRAs...............................................................................................
Tax Treatment of Withdrawals - Qualified Contracts......................................................
Tax-Sheltered Annuities - Withdrawal Limitations........................................................
Mandatory Distributions - Qualified Plans...............................................................
ANNUITY PROVISIONS...............................................................................................
Variable Annuity Payout.................................................................................
Annuity Unit............................................................................................
Fixed Annuity Payout....................................................................................
FINANCIAL STATEMENTS.............................................................................................
</TABLE>
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 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 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1999:
CHART 1
Column A Column B
Portfolio 1 yr 3 yrs 5 yrs 10 yrs/ 1 yr 3 yrs
Inception Date since
inception
--------------------------------------------------------------------------------------------------
CONSECO SERIES TRUST
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced Portfolio 07/25/94 18.59% 14.61% 15.01% 14.77% 29.04%
Equity Portfolio 07/25/94 35.30% 21.90% 22.05% 22.14% 47.20%
Fixed Income Portfolio 07/25/94 (9.74%) 0.92% 3.66% 4.93% (1.77%)
Government Securities Portfolio 07/25/94 (11.62%) (0.84%) 1.30% 1.35% (3.82%)
Money Market Portfolio 07/25/94 (4.95%) (0.79%) (0.57%) (0.34%) 3.43%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio 12/31/89 21.20% 30.12% 27.22% 23.23% 31.89%
Alger American Leveraged AllCap Portfolio 01/24/95 61.38% 43.88% N/A 42.41% 75.59%
Alger American MidCap Growth Portfolio 04/30/93 19.49% 19.78% 22.44% 23.94% 30.02%
Alger American Small Capitalization Portfolio 12/31/89 29.98% 17.74% 19.35% 18.28% 41.43%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth 02/06/98 6.95% N/A N/A 14.92% 16.38%
VP International 05/02/94 48.19% 26.65% 20.81% 20.84% 61.77%
VP Value 05/01/96 (10.55%) 5.06% N/A 14.17% (2.23%)
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund 05/01/96 35.16% 20.39% N/A 17.86% 47.06%
Berger IPT--Growth and Income Fund 05/01/96 44.15% 29.84% N/A 27.94% 56.84%
Berger IPT--Small Company Growth Fund 05/01/96 73.55% 27.92% N/A 22.48% 88.79%
Berger/BIAM IPT--International Fund 04/30/97 19.10% N/A N/A 10.64% 29.58%
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. 10/07/93 17.89% 24.04% 25.31% 23.74% 28.27%
DREYFUS STOCK INDEX FUND 12/31/89 9.29% 22.06% 24.52% 18.51% 18.93%
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio 04/30/96 7.39% 17.48% N/A 19.21% 16.85%
Dreyfus VIF International Value Portfolio 05/01/96 15.90% 8.56% N/A 7.64% 26.10%
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II 03/01/94 (7.29%) 1.64% 7.43% 5.79% 0.88%
Federated Utility Fund II 02/10/94 (7.85%) 8.97% 12.16% 11.31% 0.28%
Federated International Equity Fund II 05/08/95 67.59% 31.25% N/A 22.35% 82.32%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - High Yield Fund 12/15/93 (0.96%) 3.29% 5.13% 7.45% 7.77%
INVESCO VIF - Equity Income Fund 12/15/93 4.16% 12.10% 14.66% 16.07% 13.34%
JANUS ASPEN SERIES
Aggressive Growth Portfolio 09/13/93 104.31% 44.48% 32.66% 34.61% 122.28%
Growth Portfolio 09/13/93 30.49% 28.48% 26.49% 24.92% 41.98%
Worldwide Growth Portfolio 09/13/93 49.06% 31.83% 30.11% 27.43% 62.17%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio 01/30/98 (2.41%) N/A N/A 3.53% 6.66%
Lazard Retirement Small Cap Portfolio 11/04/97 (4.73%) N/A N/A (5.19%) 3.67%
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio 12/31/89 5.36% 12.98% 17.20% 14.58% 15.12%
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio 02/06/98 (0.01%) N/A N/A 5.50% 8.80%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio 12/31/89 (8.04%) 0.00% 2.75% 4.68% 0.07%
Partners Portfolio 03/22/94 (2.70%) 9.10% 17.87% 16.56% 5.88%
RYDEX VARIABLE TRUST
OTC Fund 10/25/96 82.03% 51.70% N/A 48.26% 98.07%
Nova Fund 10/25/96 11.11% 19.72% N/A 18.47% 20.90%
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio 10/13/94 38.59% 16.24% 16.79% 17.34% 50.80%
Seligman Global Technology Portfolio 05/02/96 77.10% 32.23% N/A 27.17% 92.68%
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II 05/08/92 22.27% 19.27% 20.06% 19.27% 33.03%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong MidCap Growth Fund II 12/31/96 72.10% 39.91% N/A 39.91% 87.24%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund 12/31/89 (16.48%) (2.01%) 2.31% 7.33% (9.10%)
Worldwide Emerging Markets Fund 12/27/95 81.04% 0.70% N/A 6.20% 97.51%
Worldwide Hard Assets Fund 12/31/89 9.28% (15.78%) (5.01%) 2.78% 19.32%
Worldwide Real Estate Fund 02/06/98 (11.59%) N/A N/A (12.96%) (3.38%)
</TABLE>
5 yrs 10 yrs/
since
inception
- ---------------
17.91% 16.74% 16.14%
25.42% 23.88% 23.60%
3.84% 5.23% 6.18%
2.03% 2.83% 2.56%
2.08% 0.94% 0.86%
33.86% 29.14% 23.27%
48.01% N/A 44.60%
23.23% 24.28% 24.94%
21.14% 21.15% 18.32%
N/A N/A 20.30%
30.57% 22.87% 22.41%
8.39% N/A 17.08%
23.86% N/A 20.68%
33.58% N/A 30.98%
31.60% N/A 25.40%
N/A N/A 14.23%
27.61% 27.20% 24.83%
25.57% 26.39% 18.55%
20.86% N/A 22.03%
11.69% N/A 10.22%
4.58% 9.06% 6.99%
12.11% 13.86% 12.54%
35.02% N/A 24.34%
6.27% 6.73% 8.61%
15.33% 16.39% 17.31%
48.64% 34.67% 35.75%
32.18% 28.40% 25.98%
35.62% 32.07% 28.51%
N/A N/A 8.42%
N/A N/A (1.26%)
16.51% 19.17% 14.75%
N/A N/A 10.46%
2.89% 4.32% 4.73%
12.25% 19.64% 17.86%
56.03% N/A 52.34%
23.14% N/A 21.70%
19.60% 18.54% 18.81%
36.04% N/A 30.20%
22.70% 21.87% 19.78%
43.90% N/A 43.90%
0.82% 3.86% 7.36%
3.94% N/A 8.69%
(13.01%) (3.31%) 3.00%
N/A N/A (8.58%)
<TABLE>
<CAPTION>
TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1999:
CHART 2
Column A Column B
Portfolio 1 yr 3 yrs 5 yrs 10 yrs/ 1 yr 3 yrs
Inception Date since
inception
--------------------------------------------------------------------------------------------------
CONSECO SERIES TRUST
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced Portfolio 07/25/94 18.24% 14.09% 14.66% 14.42% 28.65%
Equity Portfolio 07/25/94 34.89% 21.36% 21.64% 21.73% 46.76%
Fixed Income Portfolio 07/25/94 (10.01%) 0.47% 3.09% 4.34% (2.07%)
Government Securities Portfolio 07/25/94 (11.89%) (1.11%) 1.03% 1.08% (4.11%)
Money Market Portfolio 07/25/94 (5.28%) (1.12%) (0.90%) (0.67%) 3.08%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio 12/31/89 20.34% 29.26% 26.61% 22.45& 31.49%
Alger American Leveraged AllCap Portfolio 01/24/95 60.90% 43.19% N/A 41.98% 75.06%
Alger American MidCap Growth Portfolio 04/30/93 19.13% 19.42% 22.17% 23.56% 29.63%
Alger American Small Capitalization Portfolio 12/31/89 29.60% 17.22% 18.78% 17.58% 41.00%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth 02/06/98 6.63% N/A N/A 14.57% 16.03%
VP International 05/02/94 47.89% 26.35% 20.38% 20.33% 61.28%
VP Value 05/01/96 (10.42%) 4.56% N/A 13.67% (2.52%)
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund 05/01/96 34.25% 19.57% N/A 17.04% 46.62%
Berger IPT--Growth and Income Fund 05/01/96 43.18% 29.16% N/A 27.33% 56.37%
Berger IPT--Small Company Growth Fund 05/01/96 72.49% 27.06% N/A 21.63% 88.23%
Berger/BIAM IPT--International Fund 04/30/97 18.29% N/A N/A 10.47% 29.20%
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. 10/07/93 17.53% 23.55% 24.61% 23.01% 27.89%
DREYFUS STOCK INDEX FUND 12/31/89 8.97% 21.52% 24.05% 17.87% 18.57%
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio 04/30/96 7.02% 17.24% N/A 18.87% 16.45%
Dreyfus VIF International Value Portfolio 05/01/96 15.50% 8.36% N/A 7.33% 25.67%
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II 03/01/94 (7.57%) 1.43% 6.99% 5.51% 0.58%
Federated Utility Fund II 02/10/94 (8.13%) 8.59% 11.61% 10.73% (0.02%)
Federated International Equity Fund II 05/08/95 67.09% 30.66% N/A 21.69% 81.77%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - High Yield Fund 12/15/93 (1.34%) 1.99% 3.83% 7.12% 7.36%
INVESCO VIF - Equity Income Fund 12/15/93 3.76% 11.70% 14.26% 15.71% 12.91%
JANUS ASPEN SERIES
Aggressive Growth Portfolio 09/13/93 103.70% 43.84% 31.94% 33.83% 121.62%
Growth Portfolio 09/13/93 30.10% 27.91% 25.80% 24.19% 41.56%
Worldwide Growth Portfolio 09/13/93 48.61% 31.24% 29.40% 26.68% 61.68%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio 01/30/98 (2.28%) N/A N/A 3.43% 6.34%
Lazard Retirement Small Cap Portfolio 11/04/97 (5.02%) N/A N/a (5.61%) 3.35%
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio 12/31/89 5.04% 12.66% 16.88% 14.26% 14.78%
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio 02/06/98 (0.31%) N/A N/A 5.17% 8.47%
Limited Maturity Bond Portfolio 12/31/89 (8.32%) (0.47)% 2.18% 4.20% (0.23%)
Partners Portfolio 03/22/94 (2.99%) 8.60% 17.21% 15.88% 5.56%
OTC Fund 10/25/96 80.77% 50.65% N/A 47.23% 96.69%
Nova Fund 10/25/96 10.78% 19.36% N/A 18.12% 20.54%
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio 10/13/94 38.18% 15.90% 16.44% 16.99% 50.35%
Seligman Global Technology Portfolio 05/02/96 76.58% 31.84% N/A 26.78% 92.10%
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II 05/08/92 21.90% 18.78% 19.43% 18.56% 32.64%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong MidCap Growth Fund II 12/31/96 71.59% 39.40% N/A 39.40% 86.68%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund 12/31/89 (16.76%) (2.29%) 2.03% 7.05% (9.38%)
Worldwide Emerging Markets Fund 12/27/95 80.50% 0.25% N/A 5.66% 96.92%
Worldwide Hard Assets Fund 12/31/89 8.95% (16.11%) (5.34%) 2.45% 18.96%
Worldwide Real Estate Fund 02/06/98 (11.85%) N/A N/A (13.98%) (3.67%)
</TABLE>
5 yrs 10 yrs/
since
inception
- ---------------
17.39% 16.35% 15.75%
24.86% 23.44% 23.16%
3.38% 4.65% 5.59%
1.74% 2.54% 2.27%
1.73% 0.59% 2.50%
33.26% 28.73% 22.65%
47.31% N/A 44.16%
22.84% 24.01% 24.57%
20.60% 20.57% 17.62%
N/A N/A 19.93%
29.98% 22.20% 21.70%
7.58% N/A 16.27%
23.31% N/A 20.07%
33.18% N/A 30.58%
31.01% N/A 24.77%
N/A N/A 14.06%
27.10% 26.48% 24.08%
25.01% 25.91% 17.91%
20.62% N/A 21.67%
11.48% N/A 9.91%
4.36% 8.61% 6.69%
11.72% 13.30% 11.95%
34.42% N/A 23.67%
5.86% 6.32% 8.28%
14.90% 15.99% 16.96%
47.98% 33.93% 34.96%
31.59% 27.70% 25.25%
35.01% 31.35% 27.76%
N/A N/A 8.10%
N/A N/A (1.69%)
16.19% 18.85% 14.43%
N/A N/A 10.11%
2.41% 3.73% 4.25%
11.73% 18.97% 17.18%
54.95 N/A 51.27%
22.77% N/A 21.33%
19.24% 18.19% 18.45%
35.63% N/A 29.80%
22.20% 21.23% 19.07%
43.34% N/A 43.34%
0.54% 3.58% 7.08%
3.47% N/A 8.14%
(13.37%) (3.67%) 2.64%
N/A N/A (9.65%)
<TABLE>
<CAPTION>
TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1999:
CHART 3
Column A Column B
Portfolio 1 yr 3 yrs 5 yrs 10 yrs/ 1 yr 3 yrs
Inception Date since
inception
--------------------------------------------------------------------------------------------------
CONSECO SERIES TRUST
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced Portfolio 07/25/94 17.88% 13.75% 14.30% 14.06% 28.26%
Equity Portfolio 07/25/94 34.49% 21.00% 21.23% 21.32% 46.32%
Fixed Income Portfolio 07/25/94 (10.28%) 0.17% 2.78% 4.03% (2.36%)
Government Securities Portfolio 07/25/94 (12.15%) (1.37%) 0.77% 0.82% (4.40%)
Money Market Portfolio 07/25/94 (5.56%) (1.40%) (1.18%) (0.95%) 2.77%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio 12/31/89 20.48% 29.15% 26.44% 22.24% 31.10%
Alger American Leveraged AllCap Portfolio 01/24/95 60.42% 42.76% N/A 41.56% 74.54%
Alger American MidCap Growth Portfolio 04/30/93 18.78% 19.07% 21.80% 23.19% 29.24%
Alger American Small Capitalization Portfolio 12/31/89 29.21% 16.87% 18.43% 17.23% 40.58%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth 02/06/98 6.31% N/A N/A 14.21% 15.68%
VP International 05/02/94 47.51% 25.97% 20.02% 19.96% 60.80%
VP Value 05/01/96 (10.69%) 4.25% N/A 13.36% (2.81%)
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund 05/01/96 33.84% 19.21% N/A 16.68% 46.18%
Berger IPT--Growth and Income Fund 05/01/96 42.75% 28.77% N/A 26.94% 55.91%
Berger IPT--Small Company Growth Fund 05/01/96 71.98% 26.68% N/A 21.26% 87.67%
Berger/BIAM IPT--International Fund 04/30/97 17.93% N/A N/A 10.13% 28.81%
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. 10/07/93 17.18% 23.18% 24.24% 22.63% 27.51%
DREYFUS STOCK INDEX FUND 12/31/89 8.64% 21.15% 23.67% 17.52% 18.22%
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio 04/30/96 6.70% 16.89% N/A 18.51% 16.10%
Dreyfus VIF International Value Portfolio 05/01/96 15.15% 8.03% N/A 7.00% 25.29%
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II 03/01/94 (7.85%) 1.12% 6.67% 5.23% 0.28%
Federated Utility Fund II 02/10/94 (8.40%) 8.26% 11.28% 10.39% (0.32%)
Federated International Equity Fund II 05/08/95 66.59% 30.27% N/A 21.32% 81.23%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - High Yield Fund 12/15/93 (1.63%) 1.29% 3.13% 6.80% 7.04%
INVESCO VIF - Equity Income Fund 12/15/93 3.45% 11.39% 13.86% 15.36% 12.57%
JANUS ASPEN SERIES
Aggressive Growth Portfolio 09/13/93 103.10% 43.41% 31.54% 33.42% 120.95%
Growth Portfolio 09/13/93 29.71% 27.52% 25.42% 23.82% 41.14%
Worldwide Growth Portfolio 09/13/93 48.17% 30.85% 29.01% 26.30% 61.20%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio 01/30/98 (2.57%) N/A N/A 3.12% 6.02%
Lazard Retirement Small Cap Portfolio 11/04/97 (5.30%) N/A N/A (5.90%) 3.05%
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio 12/31/89 4.73% 12.35% 16.57% 13.95% 14.43%
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio 02/06/98 (0.61%) N/A N/A 4.84% 8.15%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio 12/31/89 (8.59%) (0.77%) 1.87% 3.89% (0.53%)
Partners Portfolio 03/22/94 (3.28%) 8.27% 16.85% 15.53% 5.24%
RYDEX VARIABLE TRUST
OTC Fund 10/25/96 80.23% 50.20% N/A 46.79% 96.11%
Nova Fund 10/25/96 10.45% 19.00% N/A 17.76% 20.18%
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio 10/13/94 37.77% 15.55% 16.09% 16.63% 49.90%
Seligman Global Technology Portfolio 05/02/96 76.05% 31.44% N/A 26.39% 91.53%
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II 05/08/92 21.54% 18.42% 19.07% 18.20% 32.24%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong MidCap Growth Fund II 12/31/96 71.08% 38.89% N/A 38.89% 86.12%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund 12/31/89 (17.06%) (2.59%) 1.73% 6.75% (9.68%)
Worldwide Emerging Markets Fund 12/27/95 79.96% (0.29%) N/A 5.12% 96.38%
Worldwide Hard Assets Fund 12/31/89 8.62% (16.44%) (5.67%) 2.12% 18.61%
Worldwide Real Estate Fund 02/06/98 (12.11%) N/A N/A (14.24%) (4.06%)
</TABLE>
5 yrs 10 yrs/
since
inception
- ---------------
17.03% 15.99% 15.39%
24.49% 23.00% 22.72%
3.07% 4.34% 5.27%
1.45% 2.25% 1.98%
1.42% 0.28% 2.19%
32.86% 28.35% 22.28%
46.87% N/A 43.73%
22.45% 23.64% 24.20%
20.24% 20.21% 17.27%
N/A N/A 19.56%
29.59% 21.83% 21.33%
7.26% N/A 15.95%
22.94% N/A 19.70%
32.78% N/A 30.18%
30.62% N/A 24.39%
N/A N/A 13.72%
26.72% 26.11% 23.71%
24.64% 25.54% 17.56%
20.26% N/A 21.31%
11.15% N/A 9.57%
4.05% 8.29% 6.39%
11.39% 12.96% 11.61%
34.02% N/A 23.29%
5.54% 6.00% 7.95%
14.56% 15.65% 16.60%
47.53% 33.53% 34.56%
31.19% 27.31% 24.87%
34.61% 30.95% 27.38%
N/A N/A 7.77%
N/A N/A (1.99%)
15.88% 18.54% 14.12%
N/A N/A 9.77%
2.10% 3.42% 3.42%
11.39% 18.61% 16.82%
54.49% N/A 50.82%
22.40% N/A 20.97%
18.89% 17.83% 18.09%
35.23% N/A 29.40%
21.83% 20.86% 18.71%
43.42% N/A 43.42%
0.24% 3.28% 6.78%
2.93% N/A 7.60%
(13.72%) (4.02%) 2.29%
N/A N/A (9.94%)
HISTORICAL UNIT VALUES
The Company may also show historical Accumulation Unit values in
certain advertisements containing illustrations. These illustrations will be
based on actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment
portfolios against established market indices such as the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to the
investment portfolio being compared. The Standard & Poor's 500 Composite Stock
Price Index is an unmanaged, unweighted average of 500 stocks, the majority of
which are listed on the New York Stock Exchange. The Dow Jones Industrial
Average is an unmanaged, weighted average of thirty blue chip industrial
corporations listed on the New York Stock Exchange. Both the Standard & Poor's
500 Composite Stock Price Index and the Dow Jones Industrial Average assume
quarterly reinvestment of dividends.
REPORTING AGENCIES
The Company may also distribute sales literature which compares the
performance of the Accumulation Unit values of the Contracts with the unit
values of variable annuities issued by other insurance companies. Such
information will be derived from the Lipper Variable Insurance Products
Performance Analysis Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is
published by Lipper Analytical Services, Inc., a publisher of statistical data
which currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis
compiled by Variable Annuity Research & Data Service of Roswell, Georgia and
published by Financial Planning Resources, Inc. The VARDS rankings may or may
not reflect the deduction of asset-based insurance charges. In addition, VARDS
prepares risk adjusted rankings, which consider the effects of market risk on
total return performance. This type of ranking may address the question as to
which funds provide the highest total return with the least amount of risk.
Other ranking services may be used as sources of performance comparison, such as
CDA/Weisenberger. Morningstar rates a variable annuity against its peers with
similar investment objectives. Morningstar does not rate any variable annuity
that has less than three years of performance data.
FEDERAL TAX STATUS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING
OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE
FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT
SPECIAL RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX
LAWS.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended ("Code")
governs taxation of annuities in general. An Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the annuity option selected. For a lump
sum payment received as a total withdrawal (total surrender), the recipient is
taxed on the portion of the payment that exceeds the cost basis of the Contract.
For non-qualified Contracts, this cost basis is generally the purchase payments,
while for qualified Contracts there may be no cost basis. The taxable portion of
the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an
exclusion amount is includible in taxable income. The exclusion amount for
payments based on a fixed annuity option is determined by multiplying the
payment by the ratio that the cost basis of the Contract (adjusted for any
period or refund feature) bears to the expected return under the Contract. The
exclusion amount for payments based on a variable annuity option is determined
by dividing the cost basis of the Contract (adjusted for any period certain or
refund guarantee) by the number of years over which the annuity is expected to
be paid. Payments received after the investment in the Contract has been
recovered (i.e. when the total of the excludable amount equals the investment in
the Contract) are fully taxable. The taxable portion is taxed at ordinary income
tax rates. For certain types of Qualified Plans there may be no cost basis in
the Contract within the meaning of Section 72 of the Code. Owners, annuitants
and beneficiaries under the Contracts should seek competent financial advice
about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
Regulations issued by the Treasury Department ("the Regulations")
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment portfolios underlying the
Contracts will be managed in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification
Regulations do not provide guidance regarding the circumstances in which Owner
control of the investments of the Separate Account will cause the Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owners
being retroactively determined to be the owners of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which
are issued within a calendar year to the same contract owner by one company or
its affiliates are treated as one annuity contract for purposes of determining
the tax consequences of any distribution. Such treatment may result in adverse
tax consequences including more rapid taxation of the distributed amounts from
such combination of contracts. For purposes of this rule, contracts received in
a Section 1035 exchange will be considered issued in the year of the exchange.
Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year.
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.
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 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, 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
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 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 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); (5) in the case of hardship; or (6) made pursuant
to a qualified domestic relations order, if otherwise permissible. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers and transfers between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
MANDATORY DISTRIBUTIONS - QUALIFIED PLANS
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. 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
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.
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.
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
--------------------------------
PricewaterhouseCoopers LLP
April 13, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET
December 31, 1999 and 1998
(Dollars in millions)
ASSETS
1999 1998
---- ----
<S> <C> <C>
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
======== ========
</TABLE>
(continued on next page)
The accompanying notes are an
integral part of the financial
statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
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
---- ----
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
(Dollars in millions)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
for the years ended December 31, 1999, 1998 and 1997
(Dollars in millions)
Common stock Accumulated other
and additional comprehensive Retained
Total paid-in capital income (loss) earnings
----- --------------- ------------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 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
====== ====== ====== ======
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
(Dollars in millions)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
========= ========= =======
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-6
<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.
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.
F-7
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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 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
F-8
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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 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.
F-9
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C>
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
F-10
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
<FN>
(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.
</FN>
</TABLE>
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:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Investment grade:
Corporate securities................................................ $ 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
===== ==== ==== =====
</TABLE>
F-11
<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:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Investment grade:
Corporate securities................................................ $ 860.4 $20.7 $15.0 $ 866.1
United States Treasury securities and obligations of
United States government corporations and agencies................ 26.9 .8 .2 27.5
States and political subdivisions................................... 17.3 .3 - 17.6
Debt securities issued by foreign governments....................... 11.7 - .8 10.9
Mortgage-backed securities ......................................... 487.4 8.0 1.2 494.2
Below-investment grade (primarily corporate securities)................ 116.8 1.2 10.2 107.8
-------- ----- ----- --------
Total actively managed fixed maturities........................... $1,520.5 $31.0 $27.4 $1,524.1
======== ===== ===== ========
Equity securities...................................................... $ 46.0 $ .8 $ 1.1 $ 45.7
======== ===== ===== ========
</TABLE>
Accumulated other comprehensive loss included in shareholder's equity as of
December 31, 1999 and 1998, is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
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)
====== =====
</TABLE>
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.
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
---- -----
(Dollars in millions)
<S> <C> <C>
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
======== ========
<FN>
- --------------------
(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.
</FN>
</TABLE>
F-12
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Net investment income consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
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
====== ====== =====
</TABLE>
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.
F-13
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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>
4. INCOME TAXES:
Income tax liabilities were comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
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
====== ======
</TABLE>
F-14
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Income tax expense was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
A reconciliation of the income tax provisions based on the U.S. statutory
corporate tax rate to the provisions reflected in the statement of operations is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Tax on income before income taxes at statutory rate....................................... 35.0% 35.0% 35.0%
State taxes............................................................................... 1.5 1.0 .7
Other..................................................................................... (1.4) (.8) .3
---- ---- ----
Income tax expense............................................................... 35.1% 35.2% 36.0%
==== ==== ====
</TABLE>
5. OTHER DISCLOSURES:
Litigation
The Company is involved on an ongoing basis in lawsuits related to its
operations. Although the ultimate outcome of certain of such matters cannot be
predicted, 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 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.
F-15
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
6. OTHER OPERATING STATEMENT DATA:
Insurance policy income consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
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
====== ====== =====
</TABLE>
F-16
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
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:
<TABLE>
<CAPTION>
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
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
====== ======
</TABLE>
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.
F-17
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
The financial statements of Conseco Variable Insurance Company
(the "Company") are included in Part B hereof.
B. EXHIBITS
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Separate Account.+
2. Not Applicable.
3. (i) Form of Principal Underwriters Agreement.++
(ii) Form of Selling Agreement.++
4. (i) Individual Variable Deferred Annuity Contract.+
(ii) Guaranteed Minimum Death Benefit Rider+
(iii) Guaranteed Minimum Income Benefit Rider+
(iv) Unemployment Benefit Rider+
5. Application Form.
6. (i) Articles of Incorporation of the Company.*
(ii) Articles of Amendment to the Articles of Incorporation
of the Company
(iii) Amended and Restated By-Laws of the Company
7. Not Applicable.
8. (i) Form of Fund Participation Agreement by and among The Alger American
Fund, Great American Reserve Insurance Company and Fred Alger and
Company, Incorporated.**
(ii) Form of Fund Participation Agreement by and among Great American
Reserve Insurance Company, Berger Institutional Products Trust and
BBOI Worldwide LLC.**
(iii)Form of Fund Participation by and between Great American Reserve
Insurance Company, Insurance Management Series and Federated
Securities Corp.**
(iv) Form of Fund Participation between Great American Reserve Insurance
Company, Van Eck Worldwide Insurance Trust and Van Eck Associates
Corporation.**
(v) Form of Fund Participation Agreement by and between Lord Abbett Series
Fund, Inc., Lord, Abbett and Co. and Great American Reserve Insurance
Company.**
(vi) Form of Fund Participation Agreement by and between American Century
Investment Services, Inc. and Great American Reserve Insurance
Company.**
(vii)Form of Fund Participation Agreement between INVESCO Variable
Investment Funds, Inc., INVESCO Funds Group, Inc. and the Company.***
(viii) Form of Fund Participation Agreement between Rydex Variable Trust and
the Company.
9. Opinion and Consent of Counsel.
10. Consent of Independent Accountants.
11. Not Applicable.
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Company Organizational Chart.
*Incorporated by reference to Form N-4 (Conseco Variable Annuity Account F -
File Nos. 333-40309 and 811-08483) filed electronically on November 14, 1997.
**Incorporated by reference to Pre-Effective Amendment No. 1 to Form N-4
(Conseco Variable Annuity Account F - File Nos. 333-40309 and 811-08483) filed
electronically on February 3, 1998.
***Incorporated by reference to Conseco Variable Annuity Account G, Form N-4,
File Nos. 333-00373 and 811-07501, filed electronically on January 23, 1996.
+Incorporated by reference to Form N-4 (Conseco Variable Annuity Account H -
File Nos. 333-90737 and 811-09693) filed electronically on November 12, 1999.
++Incorporated by reference to Pre-Effective Amendment No. 1 to Form N-4
(File Nos. 333-90737 and 811-09693) filed electronically on February 4, 2000.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Executive Officers and Directors of the Company which
are engaged directly or indirectly in activities relating to the Registrant or
the Contracts offered by the Registrant:
Name and Principal Position and Offices
Business Address* with Depositor
- ------------------- ---------------------------------------
Ngaire E. Cuneo Director
Stephen C. Hilbert Director and Chairman of the Board
Rollin M. Dick Director, Executive Vice President and
Chief Financial Officer
Thomas J. Kilian Director and President
John J. Sabl Director, Executive Vice President, General
Counsel and Secretary
James S. Adams Senior Vice President, Chief Accounting Officer
and Treasurer
*The Principal business address for all officers and directors listed above is
11825 N. Pennsylvania Street, Carmel, Indiana 46032.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Company organizational chart is filed as Exhibit 15 herein.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 13, 2000, there were 36 non-qualified contract owners and
73 qualified contract owners.
ITEM 28. INDEMNIFICATION
The Bylaws (Article VI) of the Company provide, in part, that:
The Corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that he is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
(collectively, "Agent") against expenses (including attorneys' fees),
judgments, fines, penalties, court costs and amounts paid in settlement
actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order,
settlement (whether with or without court approval), conviction or upon
a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the Agent did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. If several claims,
issues or matters are involved, an Agent may be entitled to indemnification as
to some matters even though he is not entitled as to other matters. Any director
or officer of the Corporation serving in any capacity of another corporation, of
which a majority of the shares entitled to vote in the election of its directors
is held, directly or indirectly, by the Corporation, shall be deemed to be doing
so at the request of the Corporation.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Conseco Equity Sales, Inc. is the principal underwriter for the following
investment companies (other than the Registrant):
Conseco Variable Annuity Account C
Conseco Variable Annuity Account E
Conseco Variable Annuity Account F
Conseco Variable Annuity Account G
Conseco Fund Group
Rydex Advisor Variable Annuity Account
BMA Variable Life Account A
(b) Conseco Equity Sales, Inc. ("CES") is the principal underwriter for the
Contracts. The following persons are the officers and directors of CES. The
principal business address for each officer and director of CES is 11815 N.
Pennsylvania Street, Carmel, Indiana 46032.
Name and Principal Positions and Offices
Business Address with Underwriter
------------------------ ---------------------------------------
L. Gregory Gloeckner President and Director
William P. Kovacs Vice President, General Counsel,
Secretary and Director
James S. Adams Senior Vice President, Chief Accounting Officer,
Treasurer and Director
William T. Devanney, Jr. Senior Vice President, Corporate
Taxes
Christene H. Darnell Vice President, Management
Reporting
Donald B. Johnston Vice President, Director Mutual Fund
Sales & Marketing
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
K. Lowell Short, whose address is 11815 N. Pennsylvania Street, Carmel, IN
46032, maintains physical possession of the accounts, books or documents of the
Separate Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. Conseco Variable Insurance Company (the "Company") hereby represents
that the fees and charges deducted under the Contracts described in the
Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
e. The Securities and Exchange Commission (the "SEC") issued the American
Counsel of Life Insurance an industry wide no-action letter dated November 28,
1988, stating that the SEC would not recommend any enforcement action if
registered separate accounts funding tax-sheltered annuity contracts restrict
distributions to plan participants in accordance with the requirements of
Section 403(b)(11), provided certain conditions and requirements were met. Among
these conditions and requirements, any registered separate account relying on
the no-action position of the SEC must:
(1) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in each registration statement,
including the prospectus, used in connection with the offer of the
contract;
(2) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403 (b)(11) in any sales literature used in
connection with the offer in the contract;
(3) Instruct sales representatives who solicit participants to
purchase the contract specifically to bring the redemption restrictions
imposed by Section 403(b)(11) to the attention of the potential
participants; and
(4) Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (i) the
restrictions on redemption imposed by Section 403(b)(11), and (ii) the
investment alternatives available under the employer's Section 403(b)
arrangement, to which the participant may elect to transfer his contract
value.
The Registrant is relying on the no-action letter. Accordingly, the
provisions of paragraphs (1) - (4) above have been complied with.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf, in the City of Carmel, and
State of Indiana on this 20th day of April, 2000.
CONSECO VARIABLE ANNUITY
ACCOUNT H
Registrant
By: CONSECO VARIABLE INSURANCE COMPANY
By: /s/THOMAS J. KILIAN
------------------------------
By: CONSECO VARIABLE INSURANCE COMPANY
Depositor
By: /s/THOMAS J. KILIAN
-------------------------------
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------ -------------------------- ---------------
/s/NGAIRE E. CUNEO Director 4/20/00
- ------------------------ -----------------
Ngaire E. Cuneo
/s/THOMAS J. KILIAN Director 4/20/00
- ------------------------ -----------------
Thomas J. Kilian
Director and Chairman of
/s/STEPHEN C. HILBERT of the Board (Principal 4/20/00
- ------------------------ Executive Officer) -----------------
Stephen C. Hilbert
/s/ROLLIN M. DICK Director, Executive Vice 4/20/00
- ------------------------ President and Chief -----------------
Rollin M. Dick Financial Officer
(Principal Financial
Officer)
/s/JOHN J. SABL Director 4/20/00
- ----------------------- ----------------
John J. Sabl
/s/JAMES S. ADAMS Senior Vice President and 4/20/00
- ----------------------- Treasurer (Chief Accounting ----------------
James S. Adams Officer)
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM N-4
INDEX TO EXHIBITS
EX-99.B6(ii) Articles of Amendment to the Articles of Incorporation of
the Company
EX-99.B6(iii) Amended and Restated By-Laws of the Company
EX-99.B8(viii) Form of Fund Participation Agreement between Rydex Variable Trust
and the Company
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Consent of Independent Accountants
EX-99.B15 Company Organizational Chart
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
GREAT AMERICAN RESERVE INSURANCE COMPANY
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act and Article 3.05 of the Insurance Code of Texas, Great American
Reserve Insurance Company (herein after referred to as the "Company") adopts the
following Articles of Amendment to its Articles of Incorporation:
ARTICLE ONE
The following amendment to the Articles of Incorporation was adopted by the
sole shareholder of the Company pursuant to a Written Consent dated June 3,
1998:
RESOLVED, that Article One of the Articles of Incorporation of the Company
be amended to read as follows:
"ARTICLE ONE
The name of the corporation shall be Conseco Variable Insurance Company."
ARTICLE TWO
The total number of shares of the Company outstanding at the time of such
adoption was one million forty-three thousand five hundred sixty-five
(1,043,565) and the number of shares entitled to vote thereon was one million
forty-three thousand five hundred sixty-five (1,043,565).
ARTICLE THREE
The holder of all of the one million forty-three thousand five hundred
sixty-five (1,043,565) shares outstanding and entitled to vote on said amendment
has signed a consent in writing voting for said amendment. No votes were cast
against said amendment.
IN WITNESS WHEREOF, the undersigned officer executes these Articles of
Amendment to the Articles of Incorporation of Great American Reserve Insurance
Company, this 15th day of June 1998.
GREAT AMERICAN RESERVE INSURANCE
COMPANY
Thomas J. Kilian, President
Attest:
Michael A. Colliflower, Assistant
Secretary
STATE OF INDIANA )
)
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State personally
appeared Thomas J. Kilian, President, and Michael A. Colliflower, Assistant
Secretary, of Great American Reserve Insurance Company who acknowledge the
execution of the foregoing instrument, and who, having been duly sworn, stated
that any representations contained therein are true.
Witness my hand and Notarial Seal this 15th day of June, 1998.
_____________________, Notary Public
Residing in ___________ County, IN
Commission Expires ____________
Amended and Restated
BY-LAWS
OF
CONSECO VARIABLE INSURANCE COMPANY
December 4, 1998
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I. Indentification
<S> <C> <C>
Section 1. Name................................................................................ 1
Section 2. Registered Office and Registered Agent.............................................. 1
Section 3. Principal Office.................................................................... 1
Section 4. Other Offices....................................................................... 1
Section 5. Seal................................................................................ 1
Section 6. Fiscal Year......................................................................... 1
ARTICLE II. Shareholders.
Section 1. Place of Meeting.................................................................... 2
Section 2. Annual Meetings..................................................................... 2
Section 3. Special Meetings.................................................................... 2
Section 4. Notice of Meeting................................................................... 2
Section 5. Waiver of Notice.................................................................... 2
Section 6. Voting at Meetings.................................................................. 3
(a) Voting Rights.................................................................. 3
(b) Record Date.................................................................... 3
(c) Proxies........................................................................ 3
(d) Quorum......................................................................... 4
(e) Adjournments................................................................... 4
Section 7. List of Shareholders................................................................ 4
Section 8. Action by Written Consent........................................................... 5
Section 9. Meeting by Telephone or Similar
Communications Equipment............................................................ 5
ARTICLE III. Directors.
Section 1. Duties.............................................................................. 6
Section 2. Number of Directors................................................................. 6
Section 3. Election and Term................................................................... 6
Section 4. Resignation......................................................................... 6
Section 5. Vacancies........................................................................... 7
Section 6. Annual Meetings..................................................................... 7
Section 7. Regular Meetings.................................................................... 7
Section 8. Special Meetings.................................................................... 7
Section 9. Notice.............................................................................. 7
Section 10. Waiver of Notice.................................................................... 7
Section 11. Business to be Transacted........................................................... 8
Section 12. Quorum - Adjournment if Quorum is Not
Present............................................................................. 8
(i)
Page
Section 13. Presumption of Assent............................................................... 8
Section 14. Action by Written Consent........................................................... 9
Section 15. Committees.......................................................................... 9
Section 16. Meeting by Telephone or Similar
Communication Equipment.............................................................10
ARTICLE IV. Officers.
Section 1. Principal Officers..................................................................10
Section 2. Election and Terms..................................................................10
Section 3. Resignation and Removal.............................................................10
Section 4. Vacancies...........................................................................11
Section 5. Powers and Duties of Officers.......................................................11
Section 6. Chairman of the Board...............................................................11
Section 7. President...........................................................................11
Section 8. Vice President......................................................................12
Section 9. Secretary...........................................................................12
Section 10. Treasurer...........................................................................12
Section 11. Assistant Secretaries...............................................................13
Section 12. Assistant Treasurers................................................................13
Section 13. Delegation of Authority.............................................................13
Section 14. Securities of Other Corporation.....................................................14
ARTICLE V. Directors' Services, Limitation of
Liability and Reliance on Corporate
Records, and Interest of Directors
in Contracts.
Section 1. Services............................................................................14
Section 2. General Limitation of Liability.....................................................14
Section 3. Reliance on Corporate Records and
Other Information...................................................................15
Section 4. Interest of Directors in Contracts..................................................15
ARTICLE VI. Indemnification.
Section 1. Indemnification against Underlying
Liability...........................................................................16
Section 2. Successful Defense..................................................................17
Section 3. Determination of Conduct............................................................17
Section 4. Payment of Expenses in Advance......................................................18
Section 5. Indemnity Not Exclusive.............................................................18
Section 6. Insurance Indemnification...........................................................18
Section 7. Employee Benefit Plans..............................................................19
Section 8. Application of Indemnification and
Advancement of Expenses.............................................................19
Section 9. Indemnification Payments............................................................19
(ii)
Page
ARTICLE VII. Shares.
Section 1. Share Certificates..................................................................20
Section 2. Transfer of Shares..................................................................20
Section 3. Registered Holders..................................................................20
Section 4. Lost, Destroyed and Mutilated
Certificates........................................................................21
Section 5. Consideration for Shares............................................................21
Section 6. Payment for Shares..................................................................21
Section 7. Distributions to Shareholders.......................................................22
Section 8. Regulations.........................................................................22
ARTICLE VIII. Corporate Books and Reports.
Section 1. Place of Keeping Corporate Books
and Records.........................................................................22
Section 2. Place of Keeping Certain Corporate
Books and Records...................................................................22
Section 3. Permanent Records...................................................................23
Section 4. Shareholder Records.................................................................23
Section 5. Shareholder Rights of Inspection....................................................23
Section 6. Additional Rights of Inspection.....................................................23
ARTICLE IX. Miscellaneous.
Section 1. Notice and Waiver of Notice.........................................................24
Section 2. Depositories........................................................................24
Section 3. Signing of Checks, Notes, etc.......................................................25
Section 4. Gender and Number...................................................................25
Section 5. Laws................................................................................25
Section 6. Headings............................................................................25
ARTICLE X. Amendments..........................................................................25
- --------- ----------
ARTICLE XI. The Texas Business Corporation Act..................................................26
- ---------- ----------------------------------
</TABLE>
(iii)
<PAGE>
BY-LAWS
OF
CONSECO VARIABLE INSURANCE COMPANY
ARTICLE I
Identification
Section 1. Name. The name of the Corporation is Conseco Variable Insurance
Company (hereinafter referred to as the "Corporation").
Section 2. Registered Office and Registered Agent. The
Registered Office and Registered Agent of the Corporation is located in
Amarillo, Texas and may be changed from time to time by the Board of Directors
in the manner provided by law.
Section 3. Principal Office. The address of the Principal
Office of the Corporation is 11815 North Pennsylvania Street, Carmel, Indiana
46032. The Principal Office of the Corporation shall be the principal executive
and administrative offices of the Corporation, and such Principal Office may be
changed from time to time by the Board of Directors in the manner provided by
law and need not be the same as the Registered Office of the Corporation.
Section 4. Other Offices. The Corporation may also have
offices at such other places or locations, within or without the State of Texas,
as the Board of Directors may determine or the business of the Corporation may
require.
Section 5. Seal. The Corporation need not use a seal. If one
is used, it shall be circular in form and mounted upon a metal die suitable for
impressing the same upon paper. About the upper periphery of the seal shall
appear the words "Conseco Variable Insurance Company" and about the lower
periphery thereof the word "Texas". In the center of the seal shall appear the
word "Seal". The seal may be altered by the Board of Directors at its pleasure
and may be used by causing it or a facsimile thereof to be impressed, affixed,
printed or otherwise reproduced.
Section 6. Fiscal Year. The fiscal year of the Corporation shall begin at
the beginning of the first day of January in each year and end at the close of
the last day of December next succeeding.
[PG NUMBER]
ARTICLE II
Shareholders
Section 1. Place of Meeting. All meetings of shareholders of
the Corporation shall be held at such place, within or without the State of
Texas, as may be determined by the President or Board of Directors and specified
in the notices or waivers of notice thereof or proxies to represent shareholders
at such meetings.
Section 2. Annual Meetings. An annual meeting of shareholders
shall be held each year on such date and at such time as may be determined by
the President or Board of Directors. The failure to hold an annual meeting at
the designated time shall not affect the validity of any corporate action. Any
and all business of any nature or character may be transacted, and action may be
taken thereon, at any annual meeting, except as otherwise provided by law or by
these By-laws.
Section 3. Special Meetings. A special meeting of shareholders
shall be held: (a) on call of the Board of Directors or the President; or (b) if
the holders of at least twenty-five percent (25%) of all the votes entitled to
be cast on any issue proposed to be considered at the proposed special meeting
sign, date and deliver to the Secretary one (1) or more written demands for the
meeting describing the purpose or purposes for which it is to be held. At any
special meeting of the shareholders, only business within the purpose or
purposes described in the notice of the meeting may be conducted.
Section 4. Notice of Meeting. Written or printed notice
stating the date, time and place of a meeting and, in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be delivered or
mailed by the Secretary, or by the officers or persons calling the meeting, to
each shareholder of record of the Corporation entitled to vote at the meeting,
at such address as appears upon the records of the Corporation, no fewer than
ten (10) days nor more than sixty (60) days, before the meeting date. If mailed,
such notice shall be effective when mailed if correctly addressed to the
shareholder's address shown in the Corporation's current record of shareholders.
Section 5. Waiver of Notice. A shareholder may waive any
notice required by law, the Articles of Incorporation or these By-laws before or
after the date and time stated in the notice. The waiver by the shareholder
entitled to the notice must be in writing and be delivered to the Corporation
for inclusion in the minutes or filing with the corporate records. A
shareholder's attendance at a meeting, in person or by proxy: (a) waives
objection to lack of notice or defective notice of the meeting, unless the
shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting; and (b) waives objection to consideration
of a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects to considering
the matter when it is presented.
Section 6. Voting at Meetings.
(a) Voting Rights. At each meeting of the
shareholders, each outstanding share, regardless of class, is
entitled to one (1) vote on each matter voted on at such
meeting, except to the extent cumulative voting is allowed by
the Articles of Incorporation. Only shares are entitled to
vote.
(b) Record Date. The record date for purposes of
determining shareholders entitled to vote at any meeting shall
be ten (10) days prior to the date of such meeting or such
different date not more than seventy (70) days prior to such
meeting as may be fixed by the Board of Directors.
(c) Proxies.
(1) A shareholder may vote the shareholder's
shares in person or by proxy.
(2) A shareholder may appoint a proxy to
vote or otherwise act for the shareholder by
executing in writing an appointment form, either
personally or by the shareholder's attorney-in-fact.
For purposes of this Section, a proxy appointed by
telegram, telex, telecopy or other document
transmitted electronically for or by a shareholder
shall be deemed "executed in writing" by the
shareholder.
(3) An appointment of a proxy is effective
when received by the Secretary or other officer or
agent authorized to tabulate votes. An appointment is
valid for eleven (11) months, unless a longer period
is expressly provided in the appointment form.
(4) An appointment of a proxy is revocable
by the shareholder, unless the appointment form
conspicuously states that it is irrevocable and the
appointment is coupled with an interest.
(d) Quorum. At all meetings of shareholders, a
majority of the votes entitled to be cast on a particular
matter constitutes a quorum on that matter. If a quorum
exists, action on a matter (other than the election of
directors) is approved if the votes cast favoring the action
exceed the votes cast opposing the action, unless the Articles
of Incorporation or law require a greater number of
affirmative votes.
(e) Adjournments. Any meeting of shareholders,
including both annual and special meetings and any
adjournments thereof, may be adjourned to a different date,
time or place. Notice need not be given of the new date, time
or place if the new date, time or place is announced at the
meeting before adjournment, even though less than a quorum is
present. At any such adjourned meeting at which a quorum is
present, in person or by proxy, any business may be transacted
which might have been transacted at the meeting as originally
notified or called.
Section 7. List of Shareholders.
(a) After a record date has been fixed for a meeting
of shareholders, the Secretary shall prepare or cause to be
prepared an alphabetical list of the names of the shareholders
of the Corporation who are entitled to vote at such meeting.
The list shall show the address of and number of shares held
by each shareholder.
(b) The shareholders' list must be available for
inspection by any shareholder entitled to vote at the meeting,
beginning five (5) business days before the date of the
meeting for which the list was prepared and continuing through
the meeting, at the Corporation's principal office or at a
place identified in the meeting notice in the city where the
meeting will be held. Subject to the restrictions of
applicable law, a shareholder, or the shareholder's agent or
attorney authorized in writing, is entitled on written demand
to inspect and to copy the list, during regular business hours
and at the shareholder's expense, during the period it is
available for inspection.
(c) The Corporation shall make the shareholders' list
available at the meeting, and any shareholder, or the
shareholder's agent or attorney authorized in writing, is
entitled to inspect the list at any time during the meeting or
any adjournment.
Section 8. Action by Written Consent. Any action required or
permitted to be taken at any meeting of the shareholders may be taken without a
meeting if the action is taken by all the shareholders entitled to vote on the
action. The action must be evidenced by one or more written consents describing
the action taken, signed by all the shareholders entitled to vote on the action,
and delivered to the Corporation for inclusion in the minutes or filing with the
corporate records. Such action is effective when the last shareholder signs the
consent, unless the consent specifies a different prior or subsequent effective
date. Such consent shall have the same force and effect as a unanimous vote at a
meeting of the shareholders, and may be described as such in any document or
instrument.
Section 9. Meeting by Telephone or Similar Communications
Equipment. Any or all shareholders may participate in and hold a meeting of
shareholders by, or through the use of, any means of conference telephone or
other similar communications equipment by which all persons participating in the
meeting may simultaneously hear each other during the meeting. Participation in
a meeting pursuant to this Section shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purposes of: (a) objecting to holding the meeting or transacting business at the
meeting on the ground that the meeting is not lawfully called or convened; or
(b) objecting to the consideration of a particular matter that is not within the
purpose or purposes described in the meeting notice.
ARTICLE III
Directors
Section 1. Duties. The business, property and affairs of the
Corporation shall be managed and controlled by the Board of Directors and,
subject to such restrictions, if any, as may be imposed by law, the Articles of
Incorporation or by these By-laws, the Board of Directors may, and are fully
authorized to, do all such lawful acts and things as may be done by the
Corporation which are not directed or required to be exercised or done by the
shareholders. Directors need not be residents of the State of Texas or
shareholders of the Corporation.
Section 2. Number of Directors. The Board of Directors shall
consist of at least five (5) and not more than fifteen (15) directors. A Board
of Directors shall be chosen annually by the shareholders at their annual
meeting, except as hereinafter provided. Subject to Article VI of the Articles
of Incorporation, the number of directors may be increased or decreased from
time to time by amendment to these By-Laws, but no decrease shall have the
effect of shortening the term of any incumbent director. A person need not be a
shareholder of the Corporation to serve as a Director. The Directors' terms of
office shall be for one year, or until their successors are elected and have
qualified.
Section 3. Election and Term. Except as otherwise provided in
Section 5 of this Article, the directors shall be elected each year at the
annual meeting of the shareholders, or at any special meeting of the
shareholders. Each such director shall hold office, unless he is removed in
accordance with the provisions of these By-laws or he resigns or dies or becomes
so incapacitated he can no longer perform any of his duties as a director, for
the term for which he is elected and until his successor shall have been elected
and qualified. Each director shall qualify by accepting his election to office
either expressly or by acting as a director. The shareholders or directors may
remove any director, with or without cause, and elect a successor at a meeting
called expressly for such purpose.
Section 4. Resignation. Any director may resign at any time by
delivering written notice to the Board of Directors, the President, or the
Secretary of the Corporation. A resignation is effective when the notice is
delivered unless the notice specifies a later effective date. The acceptance of
a resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
Section 5. Vacancies. Vacancies occurring in the membership of
the Board of Directors caused by resignation, death or other incapacity, or
increase in the number of directors shall be filled by a majority vote of the
remaining members of the Board, and each director so elected shall serve until
the next meeting of the shareholders, or until a successor shall have been duly
elected and qualified.
Section 6. Annual Meetings. The Board of Directors shall meet annually,
without notice, immediately following, and at the same place as, the annual
meeting of the shareholders.
Section 7. Regular Meetings. Regular meetings shall be held at such times
and places, either within or without the State of Texas, as may be determined by
the President or the Board of Directors.
Section 8. Special Meetings. Special meetings of the Board of
Directors may be called by the President or by two (2) or more members of the
Board of Directors, at any place within or without the State of Texas, upon
twenty-four (24) hours' notice, specifying the time, place and general purposes
of the meeting, given to each director personally, by telephone, telegraph,
teletype, or other form of wire or wireless communication; or notice may be
given by mail if mailed at least three (3) days before such meeting.
Section 9. Notice. The Secretary or an Assistant Secretary
shall give notice of each special meeting, and of the date, time and place of
the particular meeting, in person or by mail, or by telephone, telegraph,
teletype, or other form of wire or wireless communication, and in the event of
the absence of the Secretary or an Assistant Secretary or the failure,
inability, refusal or omission on the part of the Secretary or an Assistant
Secretary so to do, any other officer of the Corporation may give said notice.
Section 10. Waiver of Notice. A director may waive any notice
required by law, the Articles of Incorporation, or these By-laws before or after
the date and time stated in the notice. Except as otherwise provided in this
Section, the waiver by the director must be in writing, signed by the director
entitled to the notice, and included in the minutes or filed with the corporate
records. A director's attendance at or participation in a meeting waives any
required notice to the director of the meeting unless the director at the
beginning of the meeting (or promptly upon the director's arrival) objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
Section 11. Business to be Transacted. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or any waiver of notice of
such meeting. Any and all business of any nature or character whatsoever may be
transacted and action may be taken thereon at any meeting, regular or special,
of the Board of Directors.
Section 12. Quorum - Adjournment if Quorum is Not Present. A
majority of the number of directors fixed by, or in the manner provided in, the
Articles of Incorporation or these By-laws shall constitute a quorum for the
transaction of any and all business, unless a greater number is required by law
or Articles of Incorporation or these By-laws. At any meeting, regular or
special, of the Board of Directors, if there be less than a quorum present, a
majority of those present, or if only one director be present, then such
director, may adjourn the meeting from time to time without notice until the
transaction of any and all business submitted or proposed to be submitted to
such meeting or any adjournment thereof shall have been completed. In the event
of such adjournment, written, telegraphic or telephonic announcement of the time
and place at which the meeting will reconvene must be provided to all directors.
The act of the majority of the directors present at any meeting of the Board of
Directors at which a quorum is present shall constitute the act of the Board of
Directors, unless the act of a greater number is required by law or the Articles
of Incorporation or these By-laws.
Section 13. Presumption of Assent. A director of the
Corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent or abstention shall be entered in the
minutes of the meeting or unless he shall file his written dissent or abstention
to such action with the presiding officer of the meeting before the adjournment
thereof or to the Secretary of the Corporation immediately after the adjournment
of the meeting. Such right to dissent or abstain shall not apply to a director
who voted in favor of such action.
Section 14. Action by Written Consent. Any action required or
permitted to be taken at a meeting of the Board of Directors or any committee
thereof may be taken without a meeting if the action is taken by all the members
of the Board of Directors or committee, as the case may be. The action must be
evidenced by one or more written consents describing the action taken, signed by
each director or committee member, and included in the minutes or filed with the
corporate records reflecting the action taken. Such action is effective when the
last director or committee member signs the consent, unless the consent
specifies a different prior or subsequent effective date. Such consent shall
have the same force and effect as a unanimous vote at a meeting, and may be
described as such in any document or instrument.
Section 15. Committees. The Board of Directors, by resolution
adopted by a majority of the Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution or in the Articles of Incorporation or
in these By-laws of the Corporation, shall have and may exercise such authority
of the Board of Directors as shall be expressly delegated by the Board from time
to time; except that no such committee shall have the authority of the Board of
Directors in reference to (a) amending the Articles of Incorporation; (b)
approving a plan of merger even if the plan does not require shareholder
approval; (c) authorizing dividends or distributions, except a committee may
authorize or approve a reacquisition of shares, if done according to a formula
or method prescribed by the Board of Directors; (d) approving or proposing to
shareholders action that requires shareholder approval; (e) amending, altering
or repealing the By-laws of the Corporation or adopting new By-laws for the
Corporation; (f) filling vacancies in the Board of Directors or in any of its
committees; or (g) electing or removing officers or members of any such
committee. A majority of all the members of any such committee may determine its
action and fix the time and place of its meetings, unless the Board of Directors
shall otherwise provide. The Board of Directors shall have power at any time to
change the number and members of any such committee, to fill vacancies and to
discharge any such committee. The designation of such committee and the
delegation thereto of authority shall not alone constitute compliance by the
Board of Directors, or any member thereof, with the standard of conduct imposed
upon it or him by the Texas Business Corporation Act, as the same may, from time
to time, be amended.
Section 16. Meeting by Telephone or Similar Communication
Equipment. Any or all directors may participate in and hold a regular or special
meeting of the Board of Directors or any committee thereof by, or through the
use of, any means of conference telephone or other similar communications
equipment by which all directors participating in the meeting may simultaneously
hear each other during the meeting. Participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
director participates in the meeting for the express purpose of objecting to
holding the meeting or transacting business at the meeting on the ground that
the meeting is not lawfully called or convened.
ARTICLE IV
Officers
Section 1. Principal Officers. The officers of the Corporation
shall be chosen by the Board of Directors and shall consist of a Chairman of the
Board, a President, a Treasurer and a Secretary. There may also be one or more
Vice Presidents and such other officers or assistant officers as the Board shall
from time to time create and so elect. Any two (2) or more offices may be held
by the same person.
Section 2. Election and Terms. Each officer shall be elected
by the Board of Directors at the annual meeting thereof and shall hold office
until the next annual meeting of the Board or until his or her successor shall
have been elected and qualified or until his or her death, resignation or
removal. The election of an officer shall not of itself create contract rights.
Section 3. Resignation and Removal. An officer may resign at
any time by delivering notice to the Board of Directors, its President or the
Secretary of the Corporation. A resignation is effective when the notice is
delivered unless the notice specifies a later effective date. If an officer's
resignation is made effective at a later date and the Corporation accepts the
future effective date, the Board of Directors may fill the pending vacancy
before the effective date, if the Board of Directors provides that the successor
does not take office until the effective date. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly provided in the
resignation. An officer's resignation does not affect the Corporation's contract
rights, if any, with the officer. Any officer may be removed at any time, with
or without cause, by vote of a majority of the whole Board. Such removal shall
not affect the contract rights, if any, of the officer so removed.
Section 4. Vacancies. Whenever any vacancy shall occur in any
office by death, resignation, increase in the number of officers of the
Corporation, or otherwise, the same shall be filled by the Board of Directors,
and the officer so elected shall hold office until the next annual meeting of
the Board or until his or her successor shall have been elected and qualified.
Section 5. Powers and Duties of Officers. The officers so
chosen shall perform the duties and exercise the powers expressly conferred or
provided for in these By-laws, as well as the usual duties and powers incident
to such office, respectively, and such other duties and powers as may be
assigned to them by the Board of Directors or by the President.
Section 6. Chairman of the Board. The Chairman of the Board
shall be the Chief Executive Officer of the Corporation and shall have general
charge of, and supervision and authority over, all of the affairs and business
of the Corporation. He shall have general supervision of and direct all
officers, agents and employees of the Corporation; shall see that all orders and
resolutions of the Board are carried into effect; and in general, shall exercise
all powers and perform all duties incident to his office and such other powers
and duties as may from time to time be assigned to him by the Board.
Section 7. President. The President shall have the authority
to sign, with the Secretary or an Assistant Secretary, any and all certificates
for shares of the capital stock of the Corporation, and shall have the authority
to sign singly deeds, bonds, mortgages, contracts, or other instruments to which
the Corporation is a party (except in cases where the signing and execution
thereof shall be expressly delegated by the Board or by these By-laws, or by law
to some other officer or agent of the Corporation); and, in the absence,
disability or refusal to act of the Chairman of the Board, shall preside at
meetings of the shareholders and of the Board of Directors and shall possess all
of the powers and perform all of the duties of the Chairman of the Board. He
shall also serve the Corporation in such other capacities and perform such other
duties and have such additional authority and powers as are incident to his
office or as may be defined in these By-laws or delegated to him from time to
time by the Board of Directors or by the Chairman of the Board.
Section 8. Vice Presidents. The Vice Presidents shall assist
the President and shall perform such duties as may be assigned to them by the
Board of Directors or the President. Unless otherwise provided by the Board, in
the absence or disability of the President, the Vice President (or, if there be
more than one, the Vice President first named as such by the Board of Directors
at its most recent meeting at which Vice Presidents were elected) shall execute
the powers and perform the duties of the President. Any action taken by a Vice
President in the performance of the duties of the President shall be conclusive
evidence of the absence or inability to act of the President at the time such
action was taken.
Section 9. Secretary. The Secretary (a) shall keep the minutes
of all meetings of the Board of Directors and the minutes of all meetings of the
shareholders in books provided for that purpose; (b) shall attend to the giving
and serving of all notices; (c) when required, may sign with the President or a
Vice President in the name of the Corporation, and may attest the signature of
any other officers of the Corporation to all contracts, conveyances, transfers,
assignments, encumbrances, authorizations and all other instruments, documents
and papers, of any and every description whatsoever, of or executed for or on
behalf of the Corporation and affix the seal of the Corporation thereto; (d) may
sign with the President or a Vice President all certificates for shares of the
capital stock of the Corporation and affix the corporate seal of the Corporation
thereto; (e) shall have charge of and maintain and keep or supervise and control
the maintenance and keeping of the stock certificate books, transfer books and
stock ledgers and such other books and papers as the Board of Directors may
authorize, direct or provide for, all of which shall at all reasonable times be
open to the inspection of any director, upon request, at the office of the
Corporation during business hours; (f) shall, in general, perform all the duties
incident to the office of Secretary; and (g) shall have such other powers and
duties as may be conferred upon or assigned to him by the Board of Directors.
Section 10. Treasurer. The Treasurer shall have custody of all
the funds and securities of the Corporation which come into his hands. When
necessary or proper, he may endorse on behalf of the Corporation, for
collection, checks, notes and other obligations, and shall deposit the same to
the credit of the Corporation in such banks or depositories as shall be selected
or designated by or in the manner prescribed by the Board of Directors. He may
sign all receipts and vouchers for payments made to the Corporation, either
alone or jointly with such officer as may be designated by the Board of
Directors. Whenever required by the Board of Directors, he shall render a
statement of his cash account. He shall enter or cause to be entered, punctually
and regularly, on the books of the Corporation, to be kept by him or under his
supervision or direction for that purpose, full and accurate accounts of all
moneys received and paid out by, for or on account of the Corporation. He shall
at all reasonable times exhibit his books and accounts and other financial
records to any director of the Corporation during business hours. He shall have
such other powers and duties as may be conferred upon or assigned to him by the
Board of Directors. The Treasurer shall perform all acts incident to the
position of Treasurer, subject always to the control of the Board of Directors.
He shall, if required by the Board of Directors, give such bond for the faithful
discharge of his duties in such form and amount as the Board of Directors may
require.
Section 11. Assistant Secretaries. The Assistant Secretaries
shall assist the Secretary in the performance of his or her duties. In the
absence of the Secretary, any Assistant Secretary shall exercise the powers and
perform the duties of the Secretary. The Assistant Secretaries shall exercise
such other powers and perform such other duties as may from time to time be
assigned to them by the Board, the President, or the Secretary.
Section 12. Assistant Treasurers. The Assistant Treasurers
shall assist the Treasurer in the performance of his or her duties. Any
Assistant Treasurer shall, in the absence or disability of the Treasurer,
exercise the powers and perform the duties of the Treasurer. The Assistant
Treasurers shall exercise such other duties as may from time to time be assigned
to them by the Board, the President, or the Treasurer.
Section 13. Delegation of Authority. In case of the absence of
any officer of the Corporation, or for any reason that the Board may deem
sufficient, a majority of the entire Board may transfer or delegate the powers
or duties of any officer to any other officer or officers for such length of
time as the Board may determine.
Section 14. Securities of Other Corporations. The President or
any Vice President or Secretary or Treasurer of the Corporation shall have power
and authority to transfer, endorse for transfer, vote, consent or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute and deliver any waiver, proxy or
consent with respect to any such securities.
ARTICLE V
Directors' Services, Limitation of Liability
and Reliance on Corporate Records, and
Interest of Directors in Contracts
Section 1. Services. No director of this Corporation who is
not an officer or employee of this Corporation shall be required to devote his
time or any particular portion of his time or render services or any particular
services exclusively to this Corporation. Every director of this Corporation
shall be entirely free to engage, participate and invest in any and all such
businesses, enterprises and activities, either similar or dissimilar to the
business, enterprise and activities of this Corporation, without breach of duty
to this Corporation or to its shareholders and without accountability or
liability to this Corporation or to its shareholders.
Every director of this Corporation shall be entirely free to
act for, serve and represent any other corporation, any entity or any person, in
any capacity, and be or become a director or officer, or both, of any other
corporation or any entity, irrespective of whether or not the business,
purposes, enterprises and activities, or any of them thereof, be similar or
dissimilar to the business, purposes, enterprises and activities, or any of
them, of this Corporation, without breach of duty to this Corporation or to its
shareholders and without accountability or liability of any character or
description to this Corporation or to its shareholders.
Section 2. General Limitation of Liability. A director shall,
based on facts then known to the director, discharge the duties as a director,
including the director's duties as a member of a committee, in good faith, with
the care an ordinarily prudent person in a like position would exercise under
similar circumstances, and in a manner the director reasonably believes to be in
the best interests of the Corporation. A director is not liable to the
Corporation for any action taken as a director, or any failure to take any
action, unless: (a) the director has breached or failed to perform the duties of
the director's office in accordance with the standard of care set forth above;
and (b) the breach or failure to perform constitutes willful misconduct or
recklessness.
Section 3. Reliance on Corporate Records and Other
Information. Any person acting as a director of the Corporation shall be fully
protected, and shall be deemed to have complied with the standard of care set
forth in Section 2 of this Article, in relying in good faith upon any
information, opinions, reports or statements, including financial statements and
other financial data, if prepared or presented by (a) one or more officers or
employees of the Corporation whom such person reasonably believes to be reliable
and competent in the matters presented; (b) legal counsel, public accountants,
or other persons as to matters such person reasonably believes are within the
person's professional or expert competence; or (c) a committee of the Board of
Directors of which such person is not a member, if such person reasonably
believes the committee merits confidence; provided, however, that such person
shall not be considered to be acting in good faith if such person has knowledge
concerning the matter in question that would cause such reliance to be
unwarranted.
Section 4. Interest of Directors in Contracts. Any contract or
other transaction between the Corporation and (a) any director, or (b) any
corporation, unincorporated association, business trust, estate, partnership,
trust, joint venture, individual or other legal entity (1) in which any director
has a material financial interest or is a general partner, or (2) of which any
director is a director, officer, or trustee, shall be valid for all purposes, if
the material facts of the contract or transaction and the director's interest
were disclosed or known to the Board of Directors, a committee of the Board of
Directors with authority to act thereon, or the shareholders entitled to vote
thereon, and the Board of Directors, such committee or such shareholders
authorized, approved or ratified the contract or transaction. Such a contract or
transaction is authorized, approved or ratified: (i) by the Board of Directors
or such committee, if it receives the affirmative vote of a majority of the
directors who have no interest in the contract or transaction, notwithstanding
the fact that such majority may not constitute a quorum or a majority of the
directors present at the meeting, and notwithstanding the presence or vote of
any director who does have such an interest; provided, however, that no such
contract or transaction may be authorized, approved or ratified by a single
director; and (ii) by such shareholders, if it receives the vote of a majority
of the shares entitled to be counted, in which vote shares owned by or voted
under the control of any director who, or of any corporation, unincorporated
association, business trust, estate, partnership, trust, joint venture,
individual or other legal entity that, has an interest in the contract or
transaction may be counted; provided, however, that a majority of such shares,
whether or not present, shall constitute a quorum for the purpose of
authorizing, approving or ratifying such a contract or transaction. This Section
shall not be construed to require authorization, ratification or approval by the
shareholder of any such contract or transaction, or to invalidate any such
contract or transaction that is fair to the Corporation or would otherwise be
valid under the common and statutory law applicable thereto.
ARTICLE VI
Indemnification
Section 1. Indemnification Against Underlying Liability. The
Corporation shall indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative, by reason
of the fact that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise (collectively, "Agent") against expenses (including attorneys' fees),
judgments, fines, penalties, court costs and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement (whether with or without court approval), conviction
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the Agent did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. If several claims,
issues or matters are involved, an Agent may be entitled to indemnification as
to some matters even though he is not entitled as to other matters. Any director
or officer of the Corporation serving in any capacity of another corporation, of
which a majority of the shares entitled to vote in the election of its directors
is held, directly or indirectly, by the Corporation, shall be deemed to be doing
so at the request of the Corporation.
Section 2. Successful Defense. To the extent that an Agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 1 of this Article, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 3. Determination of Conduct. Subject to any rights
under any contract between the Corporation and any Agent, any indemnification
against underlying liability provided for in Section 1 of this Article (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the Agent is proper
in the circumstances because he has met the applicable standard of conduct set
forth in said Section. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum consisting of directors not at the time
parties to the proceeding; (b) if such an independent quorum is not obtainable,
by majority vote of a committee duly designated by the full Board of Directors
(in which designation directors who are parties may participate), consisting
solely of one or more directors not at the time parties to the proceeding; (c)
by special legal counsel (1) selected by the independent quorum of the Board of
Directors (or the independent committee thereof if no such quorum can be
obtained), or (2) if no such independent quorum or committee thereof can be
obtained, selected by majority vote of the full Board of Directors (in which
selection directors who are parties may participate); or (d) by the
shareholders, but shares owned by or voted under the control of directors who
are at the time parties to the proceeding may not be voted on the determination.
Notwithstanding the foregoing, an Agent shall be able to contest any
determination that the Agent has not met the applicable standard of conduct by
petitioning a court of appropriate jurisdiction.
Section 4. Payment of Expenses in Advance. Expenses incurred
in defending or settling a civil, criminal, administrative or investigative
action, suit or proceeding by an Agent who may be entitled to indemnification
pursuant to Section 1 of this Article shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of a written affirmation by the Agent of his good faith belief that he has met
the applicable standard of conduct set forth in Section 1 of this Article and a
written undertaking by or on behalf of the Agent to repay such amount if it is
ultimately determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article. Notwithstanding the foregoing, such
expenses shall not be advanced if the Corporation conducts the determination of
conduct procedure referred to in Section 3 of this Article and it is determined
from the facts then known that the Agent will be precluded from indemnification
against underlying liability because he has failed to meet the applicable
standard of conduct set forth in Section 1 of this Article. The full Board of
Directors (including directors who are parties) may authorize the Corporation to
implement the determination of conduct procedure, but such procedure is not
required for the advancement of expenses. The full Board of Directors (including
directors who are parties) may authorize the Corporation to assume the Agent's
defense where appropriate, rather than to advance expenses for such defense.
Section 5. Indemnity Not Exclusive. The indemnification
against underlying liability, and advancement of expenses provided by, or
granted pursuant to, this Article shall not be deemed exclusive of, and shall be
subject to, any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 6. Insurance Indemnification. The Corporation shall
have the power to purchase and maintain insurance on behalf of any person who is
or was an Agent of the Corporation, or is or was serving at the request of the
Corporation as an Agent against any liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such liability
under the provisions of this Article.
Section 7. Employee Benefit Plans. For purposes of this
Article, references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries. A person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
Section 8. Application of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, be applicable to claims, actions, suits or proceedings
made or commenced after the adoption thereof, whether arising from acts or
omissions to act during, before or after the adoption hereof, and shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person. The right of any person to indemnification and advancement of expenses
shall vest at the time of occurrence or performance of any event, act or
omission giving rise to any action, suit or proceeding of the nature referred to
in Section 1 of this Article and, once vested, shall not later be impaired as a
result of any amendment, repeal, alteration or other modification of any or all
of these provisions.
Section 9. Indemnification Payments. Any payments made to any
indemnified party under this Article or under any other right to indemnification
shall be deemed to be an ordinary and necessary business expense of the
Corporation, and payment thereof shall not subject any person responsible for
the payment, or the Board of Directors, to any action for corporate waste or to
any similar action. Such payments shall be reported to the shareholders of the
Corporation before or with the notice of the next shareholders' meeting.
ARTICLE VII
Shares
Section 1. Share Certificates. The certificate for shares of
the Corporation shall be in such form as shall be approved by the Board of
Directors. Each share certificate shall state on its face the name and state of
organization of the Corporation, the name of the person to whom the certificate
is issued, and the number and class of shares the certificate represents. Share
certificates shall be consecutively numbered and shall be entered in the books
of the Corporation as they are issued. Every certificate for shares of the
Corporation shall be signed (either manually or in facsimile) by, or in the name
of, the Corporation by the Chairman of the Board, President or a Vice President
and either the Secretary or an Assistant Secretary of the Corporation, with the
seal of the Corporation, if any, or a facsimile thereof impressed or printed
thereon. If the person who signed (either manually or in facsimile) a share
certificate no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
Section 2. Transfer of Shares. Except as otherwise provided by
law, transfers of shares of the capital stock of the Corporation, whether part
paid or fully paid, shall be made only on the books of the Corporation by the
owner thereof in person or by duly authorized attorney, on payment of all taxes
thereon and surrender for cancellation of the certificate or certificates for
such shares (except as hereinafter provided in the case of loss, destruction or
mutilation of certificate) properly endorsed by the holder thereof or
accompanied by the proper evidence of succession, assignment or authority to
transfer, and delivered to the Secretary or an Assistant Secretary.
Section 3. Registered Holders. The Corporation shall be
entitled to treat the person in whose name any share of stock or any warrant,
right or option is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share, warrant, right or option on the part of any other person, whether or not
the Corporation shall have notice thereof, save as may be expressly provided
otherwise by the laws of the State of Texas, the Articles of Incorporation of
the Corporation or these By-laws. In no event shall any transferee of shares of
the Corporation become a shareholder of the Corporation until express notice of
the transfer shall have been received by the Corporation.
Section 4. Lost, Destroyed and Mutilated Certificates. The
holder of any share certificate of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate, and the
Board may, in its discretion, cause to be issued to such holder of shares a new
certificate or certificates of shares of capital stock, upon the surrender of
the mutilated certificate, or, in case of loss or destruction, upon the
furnishing of an affidavit or satisfactory proof of such loss or destruction.
The Board may, in its discretion, require the owner of the lost or destroyed
certificate or such owner's legal representative to give the Corporation a bond
in such sum and in such form, and with such surety or sureties as it may direct,
to indemnify the Corporation, its transfer agents and registrars, if any,
against any claim that may be made against them or any of them with respect to
the certificate or certificates alleged to have been lost or destroyed, but the
Board may, in its discretion, refuse to issue a new certificate or new
certificates, save upon the order of a court having jurisdiction in such
matters.
Section 5. Consideration for Shares. The Corporation may issue
shares for such consideration received or to be received as the Board of
Directors determines to be adequate. That determination by the Board of
Directors is conclusive insofar as the adequacy of consideration for the
issuance of shares relates to whether the shares are validly issued, fully paid
and nonassessable. When the Corporation receives the consideration for which the
Board of Directors authorized the issuance of shares, the shares issued therefor
are fully paid and nonassessable.
Section 6. Payment for Shares. The Board of Directors may
authorize shares to be issued for consideration consisting of any tangible or
intangible property or benefit to the Corporation, including cash, promissory
notes, services performed, contracts for services to be performed, or other
securities of the Corporation. If shares are authorized to be issued for
promissory notes or for promises to render services in the future, the
Corporation must report in writing to the shareholders the number of shares
authorized to be so issued before or with the notice of the next shareholders'
meeting.
Section 7. Distributions to Shareholders. The Board of
Directors may authorize and the Corporation may make distributions to the
shareholders subject to any restrictions set forth in the Articles of
Incorporation of the Corporation and any limitations in the Texas Business
Corporation Act, as amended.
Section 8. Regulations. The Board of Directors shall have
power and authority to make all such rules and regulations as they may deem
expedient concerning the issue, transfer and registration or the replacement of
certificates for shares of the Corporation.
ARTICLE VIII
Corporate Books and Reports
Section 1. Place of Keeping Corporate Books and Records.
Except as expressly provided otherwise in this Article, the books of account,
records, documents and papers of the Corporation shall be kept at any place or
places, within or without the State of Texas, as directed by the Board of
Directors. In the absence of a direction, the books of account, records,
documents and papers shall be kept at the principal office of the Corporation.
Section 2. Place of Keeping Certain Corporate Books and Records. The
Corporation shall keep a copy of the following records at its principal office:
(1) Its Articles or restated Articles of
Incorporation and all amendments to them currently in effect;
(2) Its By-laws or restated By-laws and all
amendments to them currently in effect;
(3) Resolutions adopted by the Board of Directors
with respect to one or more classes or series of shares and
fixing their relative rights, preferences and limitations, if
shares issued pursuant to those resolutions are outstanding;
(4) The minutes of all shareholders' meetings and
records of all action taken by shareholders without a meeting,
for the past three (3) years;
(5) All written communications to shareholders
generally within the past three (3) years, including financial
statements furnished to shareholders;
(6) A list of the names and business addresses of its
current directors and officers; and
(7) The Corporation's most recent annual report.
Section 3. Permanent Records. The Corporation shall keep as
permanent records minutes of all meetings of its shareholders and Board of
Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee of
the Board of Directors in place of the Board of Directors on behalf of the
Corporation. The Corporation shall also maintain appropriate accounting records.
Section 4. Shareholder Records. The Corporation shall maintain
a record of its shareholders, in a form that permits preparation of a list of
the names and addresses of all shareholders, in alphabetical order by class of
shares showing the number and class of shares held by each.
Section 5. Shareholder Rights of Inspection. The records
designated in Section 2 of this Article may be inspected and copied by
shareholders of record, during regular business hours at the Corporation's
principal office, provided that the shareholder gives the Corporation written
notice of the shareholder's demand at least five (5) business days before the
date on which the shareholder wishes to inspect and copy. A shareholder's agent
or attorney, if authorized in writing, has the same inspection and copying
rights as the shareholder represented. The Corporation may impose a reasonable
charge, covering the costs of labor and material, for copies of any documents
provided to the shareholder.
Section 6. Additional Rights of Inspection. Shareholder rights
enumerated in Section 5 of this Article may also apply to the following
corporate records, provided that the notice requirements of Section 5 are met,
the shareholder's demand is made in good faith and for a proper purpose, the
shareholder describes with reasonable particularity the shareholder's purpose
and the records the shareholder desires to inspect, and the records are directly
connected with the shareholder's purpose: excerpts from minutes of any meeting
of the Board of Directors, records of any action of a committee of the Board of
Directors while acting in place of the Board of Directors on behalf of the
Corporation, minutes of any meeting of the shareholders, and records of action
taken by the shareholders or Board of Directors without a meeting, to the extent
not subject to inspection under Section 5 of this Article, as well as accounting
records of the Corporation and the record of shareholders. Such inspection and
copying is to be done during regular business hours at a reasonable location
specified by the Corporation. The Corporation may impose a reasonable charge,
covering the costs of labor and material, for copies of any documents provided
to the shareholder.
ARTICLE IX
Miscellaneous
Section 1. Notice and Waiver of Notice. Subject to the
specific and express notice requirements set forth in other provisions of these
By-laws, the Articles of Incorporation, and the Texas Business Corporation Act,
as the same may, from time to time, be amended, notice may be communicated to
any shareholder or director in person, by telephone, telegraph, teletype, or
other form of wire or wireless communication, or by mail. If the foregoing forms
of personal notice are deemed to be impracticable, notice may be communicated in
a newspaper of general circulation in the area where published or by radio,
television, or other form of public broadcast communication. Subject to Section
4 of ARTICLE II of these By-laws, written notice is effective at the earliest of
the following: (a) when received; (b) if correctly addressed to the address
listed in the most current records of the Corporation, five days after its
mailing, as evidenced by the postmark or private carrier receipt; or (c) if sent
by registered or certified United States mail, return receipt requested, on the
date shown on the return receipt which is signed by or on behalf of the
addressee. Oral notice is effective when communicated. A written waiver of
notice, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be equivalent to the giving of such
notice.
Section 2. Depositories. Funds of the Corporation not otherwise employed
shall be deposited in such banks or other depositories as the Board of
Directors, the President or the Treasurer may select or approve.
Section 3. Signing of Checks, Notes, etc. In addition to and
cumulative of, but in no way limiting or restricting, any other provision of
these By-laws which confers any authority relative thereto, all checks, drafts
and other orders for the payment of money out of funds of the Corporation and
all notes and other evidence of indebtedness of the Corporation may be signed on
behalf of the Corporation, in such manner, and by such officer or person as
shall be determined or designated by the Board of Directors; provided, however,
that if, when, after and as authorized or provided for by the Board of
Directors, the signature of any such officer or person may be a facsimile or
engraved or printed, and shall have the same force and effect and bind the
Corporation as though such officer or person had signed the same personally;
and, in the event of the death, disability, removal or resignation of any such
officer or person, if the Board of Directors shall so determine or provide, as
though and with the same effect as if such death, disability, removal or
resignation had not occurred.
Section 4. Gender and Number. Wherever used or appearing in
these By-laws, pronouns of the masculine gender shall include the female gender
and the neuter gender, and the singular shall include the plural wherever
appropriate.
Section 5. Laws. Wherever used or appearing in these By-laws,
the words "law" or "laws" shall mean and refer to laws of the State of Texas, to
the extent only that such are expressly applicable, except where otherwise
expressly stated or the context requires that such words not be so limited.
Section 6. Headings. The headings of the Certificate and Sections of these
By-laws are inserted for convenience of reference only and shall not be deemed
to be a part thereof or used in the construction or interpretation thereof.
ARTICLE X
Amendments
These By-laws may, from time to time, be added to, changed,
altered, amended or repealed or new By-laws may be made or adopted by a majority
vote of the whole Board of Directors at any meeting of the Board of Directors,
if the notice or waiver of notice of such meeting shall have stated that the
By-laws are to be amended, altered or repealed at such meeting, or if all
directors at the time are present at such meeting, have waived notice of such
meeting, or have consented to such action in writing.
ARTICLE XI
The Texas Business Corporation Act
The provisions of the Texas Business Corporation Act, as the
same may, from time to time, be amended, applicable to any of the matters not
herein specifically covered by these By-laws, are hereby incorporated by
reference in and made a part of these By-laws.
PARTICIPATION AGREEMENT
AMONG
RYDEX VARIABLE TRUST,
PADCO FINANCIAL SERVICES, INC.
AND
CONSECO VARIABLE INSURANCE COMPANY
DATED AS OF
MARCH 24, 2000
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I. Purchase of Trust Shares...............................................................2
ARTICLE II. Representations and Warranties.........................................................4
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting.....................6
ARTICLE IV . Sales Material and Information.........................................................7
ARTICLE V. Fees and Expenses......................................................................9
ARTICLE VI. Diversification........................................................................9
ARTICLE VII. Potential Conflicts...................................................................10
ARTICLE VIII. Indemnification.......................................................................11
ARTICLE IX. Applicable Law........................................................................16
ARTICLE X. Termination...........................................................................16
ARTICLE XI. Notices...............................................................................17
ARTICLE XII. Miscellaneous.........................................................................18
SCHEDULE A Separate Accounts and Associated Contracts............................................21
SCHEDULE B Proxy Voting Procedures...............................................................22
</TABLE>
THIS AGREEMENT, made and entered into as of the 24th day of March, 2000
by and among CONSECO VARIABLE INSURANCE COMPANY (hereinafter the "Company"), a
Texas corporation, on its own behalf and on behalf of each separate account of
the Company set forth on Schedule A hereto as may be amended from time to time
(each such account hereinafter referred to as the "Account"), RYDEX VARIABLE
TRUST (hereinafter the "Trust"), a Delaware business trust, and PADCO FINANCIAL
SERVICES, INC. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as (i) the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and individual and group annuity contracts with variable
accumulation and/or pay-out provisions (hereinafter referred to individually
and/or collectively as "Variable Insurance Products") and (ii) the investment
vehicle for certain qualified pension and retirement plans (hereinafter
"Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Trust as an
investment vehicle under their Variable Insurance Products enter into
participation agreements with the Trust and the Underwriter (the "Participating
Insurance Companies");
WHEREAS, beneficial interests in the Trust are divided into several
series of interests or shares, each representing the interest in a particular
managed portfolio of securities and other assets, any one or more of which may
be made available under this Agreement, as may be amended from time to time by
mutual agreement of the parties hereto (each such series is hereinafter referred
to as a "Fund"); and
WHEREAS, the Trust has obtained an order from the Securities and
Exchange Commission, dated February 25, 1999 (File No. 812-11344), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of a Fund to be sold to and held by Variable
Insurance Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Trust; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforementioned
Variable Insurance Products; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Funds on behalf of
each Account to fund certain of the aforementioned Variable Insurance Products
and the Underwriter is authorized to sell such shares to each such Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust and each Underwriter agree as follows:
ARTICLE I. PURCHASE OF TRUST SHARES
1.1. The Trust agrees to make available for purchase by the Company
shares of the Trust and shall execute orders placed for each Account on a daily
basis at the net asset value next computed after receipt by the Trust or its
designee of such order. For purposes of this Section 1.1, the Company shall be
the designee of the Trust for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Trust; provided that
the Trust receives the final order by 9:00 a.m. Eastern time on the next
following business day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Trust, so long as this Agreement is in effect, agrees to make
its shares available indefinitely for purchase at the applicable net asset value
per share by the Company and its Accounts on those days on which the Trust
calculates its net asset value pursuant to rules of the Securities and Exchange
Commission and the Trust shall use reasonable efforts to calculate such net
asset value on each day which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Trust (hereinafter
the "Board") may refuse to permit the Trust to sell shares of any Fund to any
person, or suspend or terminate the offering of shares of any Fund if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Fund.
1.3. The Trust agrees that shares of the Trust will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans all in accordance with the requirement of Section 817(h)(1) of
the Internal Revenue Code of 1986, as amended ("Code") and Treasury regulation
1.817-5(f). No shares of any Fund will be sold to the general public.
1.4. The Trust will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as in Section 1.3 of Article I, Section 3.5 of Article
III, Article VI and Article VII of this Agreement is in effect to govern such
sales.
1.5. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional shares of a Trust held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption. Subject to and in
accordance with applicable laws, and subject to written consent of the Company,
the Trust may redeem shares for assets other than cash. For purposes of this
Section 1.5, the Company shall be the designee of the Trust for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives the final
request by 9:00 a.m. Eastern time on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Fund shares
offered by the then current prospectus of the Trust shall be made in accordance
with the provisions of such prospectus. The Variable Insurance Products issued
by the Company, under which amounts may be invested in the Trust (hereinafter
the "Contracts"), are listed on Schedule A attached hereto and incorporated
herein by reference, as such Schedule A may be amended from time to time by
mutual written agreement of all of the parties hereto.
1.7. The Company shall pay for Trust shares on the next Business Day
after an order to purchase Trust shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. For purposes of Section 2.9 and 2.10, upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Trust.
1.8. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Trust will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Trust shall furnish same day notice (by electronic means, wire
or telephone, followed by written confirmation) to the Company of any income,
dividends or capital gain distributions payable on Fund shares. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Fund shares in additional shares of that
Fund. The Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Trust shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Trust shall make the net asset value per share for each Fund
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. If the Trust provides the Company with materially
incorrect share net asset value information, the Company on behalf of the
Account, shall be entitled to an adjustment to the number of shares purchased or
redeemed to reflect the correct share net asset value. Any material error in the
calculation of the net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to the Company.
Furthermore, the Underwriter shall be liable for the reasonable administrative
costs incurred by the Company in relation to the correction of any material
error. Administrative costs shall include allocation of staff time, costs of
outside service providers, printing and postage.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Texas state insurance laws and has registered or, prior to any issuance or
sale of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Trust represents and warrants that Trust shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Delaware and all
applicable federal and state securities laws and that the Trust is and shall
remain registered under the 1940 Act. The Trust shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Trust
shall register and qualify the shares for sale in accordance with the laws of
the various states, to the extent required by applicable state law.
2.3. The Trust represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will notify the
Company immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.4. The Company represents and warrants that the Contracts are
currently treated as life insurance policies or annuity contracts, under
applicable provisions of the Code and that it will make every effort to maintain
such treatment and that it will notify the Trust immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.5. The Trust represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, it will have a
board of trustees, a majority of whom are not interested persons of the Trust,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Trust represents that the Trust's investment policies, fees
and expenses are and shall at all times remain in compliance with the laws of
the State of Delaware and the Trust represents that their respective operations
are and shall at all times remain in material compliance with the laws of the
State of Delaware to the extent required to perform this Agreement.
2.7. The Trust represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.8. The Underwriter represents and warrants that it is and shall
remain duly registered in all material respects to the extent under all
applicable federal and state securities laws and that it will perform its
obligations for the Trust in compliance in all material respects with the laws
of its state of domicile and any applicable state and federal securities laws.
2.9. The Trust represents and warrants that its directors, officers,
employees dealing with the money and/or securities of the Trust are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less than the minimum
coverage as required by Rule 17g-(1) under the 1940 Act or related provisions as
may be promulgated from time to time. The aforesaid blanket fidelity bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees dealing with the money and/or securities of the Trust are
and shall continue to be covered by a blanket fidelity bond or similar coverage
for the benefit of the Company and the Separate Account in an amount not less
than the minimum coverage as required by Rule 17g-1 under the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
blanket fidelity bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1. The Trust or its designee shall provide the Company with as many
printed copies of the Trust's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the Company,
in lieu of providing printed copies the Trust shall provide camera-ready film or
computer diskettes containing the Trust's prospectus and statement of additional
information, and such other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Trust is amended during the year) to
have the prospectus for the Contracts and the Trust's prospectus printed
together in one document, and to have the statement of additional information
for the Trust and the statement of additional information for the Contracts
printed together in one document. Alternatively, the Company may print the
Trust's prospectus and/or its statement of additional information in combination
with other trusts or companies' prospectuses and statements of additional
information, together with the prospectus and/or statement of additional
information for the Contracts.
3.2. Except as provided in this Section 3.2., all expenses of printing
and distributing Trust prospectuses and statements of additional information
shall be the expense of the Company. For prospectuses and statements of
additional information provided by the Company to its existing owners of
Contracts in order to update disclosure as required by the 1933 Act and/or the
1940 Act, the cost of printing shall be borne by the Trust. The Trust will
provide camera-ready film or computer diskettes in lieu of receiving printed
copies of the Trust's prospectus. The Company agrees to provide the Trust or its
designee with such information as may be reasonably requested by the Trust to
assure that the Trust's expenses do not include the cost of printing any
prospectuses or statements of additional information other than those actually
distributed to existing owners of the Contracts. In the event there is a
combined printing of prospectuses, the expenses of such printing will be
apportioned between (a) the Company and (b) the Trust in proportion to the
number of pages of the Contract prospectus, other fund prospectuses and the
Trust prospectus, taking account of other relevant factors affecting the expense
of printing, such as covers, columns, graphs, and charts; the Trust to bear the
costs of printing the Trust prospectus portion of such document for distribution
to owners of existing Contracts funded by the Trust shares and the Company to
bear the expense of printing the portion of such documents relating to the
Account; provided, however, the Company shall bear all printing expenses of such
combined documents where used for distribution to prospective purchasers or to
owners of existing Contracts not funded by Trust shares.
3.3. The Trust's statement of additional information shall be
obtainable from the Trust, the Company or such other person as the Trust may
designate, as agreed upon by the parties.
3.4. The Trust, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and statements of additional information, which are
covered in section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii)vote Fund shares for which no instructions have been
received in the same proportion as Trust shares of such Fund
for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any Account in its own right, to the extent permitted by law. The Trust
and the Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule B attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in a Fund calculates
voting privileges in a manner consistent with the standards set forth on
Schedule B, which standards will also be provided to the other Participating
Insurance Companies.
3.6. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Trust will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Trust is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Trust will act in accordance with the Securities and Exchange Commission's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of directors and with whatever rules the Commission may promulgate
with respect thereto.
3.7. The Trust shall use reasonable efforts to provide Trust
prospectuses, reports to shareholders, proxy materials and other Trust
communications (or camera-ready equivalents) to the Company sufficiently in
advance of the Company's mailing dates to enable the Company to complete, at
reasonable cost, the printing, assembling and distribution of the communications
in accordance with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Underwriter, each piece of sales literature or other promotional material in
which the Trust or the Underwriter is named, at least five Business Days prior
to its use. No such material shall be used if the Trust or its designee
reasonably objects to such use within five Business Days after receipt of such
material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust or
its designee, except with the permission of the Trust.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account(s) or
Contracts are named at least five Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within five Business Days after receipt of such material.
4.4. The Trust and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Trust will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Trust or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Trust at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
investment in the Trust under the Contracts, contemporaneously with the filing
of such document with the Securities and Exchange Commission or other regulatory
authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Trust or any affiliate of the Trust: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, except that if the Trust or any Fund adopts and implements
a plan pursuant to Rule 12b-1 to finance distribution expenses or a shareholder
servicing plan to finance investor services, then payments may be made to the
Company, or to the underwriter for the Contracts, or to other service providers
if and in amounts agreed upon by the parties.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Trust, in
accordance with applicable state laws prior to their sale. The Trust shall bear
the expenses for the cost of registration and qualification of Fund shares,
preparation and filing of the Trust's prospectus and registration statement,
proxy materials and reports, setting the prospectus in type, setting in type and
printing the proxy materials and reports to shareholders (including the costs of
printing a prospectus that constitutes an annual report), distributing the Trust
proxy materials to owners of Contracts, the preparation of all statements and
notices required by any federal or state law, and all taxes on the issuance or
transfer of Fund shares.
5.3. The Company shall bear the expenses of distributing the Trust's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company, other than the expenses of distributing prospectuses and statements of
additional information to existing contract owners.
ARTICLE VI. DIVERSIFICATION
6.1. The Trust will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Trust will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by a Fund, the Trust
will take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Trust. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by Variable Insurance Product owners; or (f) a decision by a
Participating Insurance Company to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Trust or any Fund and reinvesting such assets in a different investment
medium, including (but not limited to) another Fund of the Trust, or submitting
the question whether such segregation should be implemented to a vote of all
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance policy owners,
or variable contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected contract
owners the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account (at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the position of the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Trust shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Trust.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Trust and
each member of the Board and each officer and employee of the Trust, the
Underwriter and each director, officer and employee of the Underwriter, and each
person, if any, who controls the Trust, or the Underwriter within the meaning of
Section 15 of the 1933 Act (collectively, an "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section 8.1) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities, or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of Fund shares or
the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus or statement of additional information for the
Contracts or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or on behalf
of the Trust for use in the registration statement or prospectus or
statement of additional information for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus, statement of additional information or sales
literature of the Trust not supplied by the Company, or persons under its
control and other than statements or representations authorized by the
Trust or the Underwriter) or unlawful conduct of the Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, statement of additional information or sales literature of the
Trust or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon and in conformity with
information furnished to the Trust by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors, officers and employees and each person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, an "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Underwriter) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of shares of a Fund or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement, prospectus, statement of additional information or sales
literature of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Trust by
or on behalf of the Company for use in the registration statement,
prospectus, statement of additional information for the Trust or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus, statement of additional information or sales
literature for the Contracts not supplied by the Trust or persons under its
control and other than statements or representations authorized by the
Company) or unlawful conduct of the Trust, Underwriter(s) or Underwriter or
persons under their control, with respect to the sale or distribution of
the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, statement of additional information or sales literature
covering the Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement, or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or Underwriter in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities, or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification by the Trust
8.3(a). The Trust agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Trust) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements result from the gross negligence, bad
faith or willful misconduct of the Board or any member thereof, and are related
to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Trust;
8.3(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.3(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve the Trust from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to participate, at
its own expense, in the defense thereof. The Trust also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Trust to such party of the Trust's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Trust will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Trust.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the substantive laws of the State of
Delaware.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by one hundred and
eighty (180) days advance written notice delivered to the
other parties; or
(b) termination by the Company by written notice to the Trust and
the Underwriter with respect to any Fund based upon the
Company's determination that shares of such Fund are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the Trust and
the Underwriter with respect to any Fund in the event any of
the Fund's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Trust and
the Underwriter with respect to any Fund in the event that
such Fund ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or
similar provision, or if the Company reasonably believes that
the Trust may fail to so qualify; or
(e) termination by the Company by written notice to the Trust and
the Underwriter with respect to any Fund in the event that
such Fund falls to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by the Trust by written notice to the Company if
the Trust shall determine, in its sole judgment exercised in
good faith, that the Company and/or its affiliated companies
has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse
publicity, or
(g) termination by the Company by written notice to the Trust and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Trust or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
10.2. Notwithstanding any termination of this Agreement, the Trust
shall, at the option of the Company, continue to make available additional
shares of the Trust pursuant to the terms and conditions of this Agreement, for
all Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing, Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to direct
reallocation of investments in the Trust, redemption of investments in the Trust
and investment in the Trust upon the making of additional purchase payments
under the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.3. The Company shall not redeem Trust shares attributable to the
Contracts (as distinct from Trust shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish
to the Trust the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Trust) to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Contracts, the Company shall not
prevent Contract Owners from allocating payments to a Fund that was otherwise
available under the Contracts without first giving the Trust 90 days prior
written notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
Rydex Variable Trust
6116 Executive Boulevard, Suite 400
Rockville, MD 20852
If to Underwriter:
PADCO Financial Services, Inc.
6116 Executive Boulevard, Suite 400
Rockville, MD 20852
If to the Company:
Conseco Variable Insurance Company
11825 North Pennsylvania Street
Carmel, IN 46032
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Trust must look solely to the
property of the Trust for the enforcement of any claims against the Trust as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Trust.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that an Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of each
fiscal year;
(b) the Company's quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event
within 45 days after the end of each quarterly
period:
12.10. No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Company, Trust and Underwriter.
12.11. If this Agreement terminates, the parties agree that Article VII
and Sections 12.2 and 12.6 shall remain in effect after termination.
12.12. In the event the Trust intends to terminate the existence of a
Fund(s), the Underwriter shall be liable for the payment of all expenses
incurred in connection with any fund substitution undertaken by Company as a
result of such termination. Such expenses shall include but not be limited to
legal, accounting and brokerage costs.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
CONSECO VARIABLE INSURANCE COMPANY
By: ______________________________
RYDEX VARIABLE TRUST
By: ______________________________
PADCO FINANCIAL SERVICES, INC.
By: ______________________________
CONSECO VARIABLE INSURANCE COMPANY
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Shares of the Funds of the Trust shall be made available as investments
for the following Separate Accounts:
Conseco Variable Annuity Account C - (5/1/93) Annuity Contract Form No. 22-4025
Conseco Variable Annuity Account E - (11/12/93) Annuity Contract Form No.
22-4047, 22-4048
Conseco Variable Annuity Account F - (9/26/97) Annuity Contract Form No. 22-4061
Conseco Variable Annuity Account G - (1/18/96) Annuity Contract Form No. 22-4056
Conseco Variable Annuity Account H - (11/1/99) Annuity Contract Form No.
CVIC-2000, CVIC-2001
Conseco Variable Life Account A - (tbd) Contract Form No. CVIC-1000
SCHEDULE B
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Trust. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1 The proxy proposals are given to the Company by the Trust as early as
possible before the date set by the Trust for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Trust will inform
the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2 Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call in
the number of Customers to the Trust , as soon as possible, but no later
than two weeks after the Record Date.
3 The Trust's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Trust will provide the last Annual
Report to the Company pursuant to the terms of Section 3.3 of the Agreement
to which this Schedule relates.
4 The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Trust. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Trust or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a name (legal name as found on account registration)
b address
c Trust or account number
d coding to state number of units
e individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Trust).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5 During this time, the Trust will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a Voting Instruction Card(s)
b one proxy notice and statement (one document)
c return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent d "urge buckslip" - optional, but recommended.
(This is a small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is important. One copy
will be supplied by the Trust.)
e cover letter - optional, supplied by Company and reviewed and approved
in advance by the Trust
6 The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Trust.
7 Package mailed by the Company.
* The Trust must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
8 Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Trust in the past.
9 Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10 If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
11 There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12 The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Trust receives the tabulations
stated in terms of a percentage and the number of shares.) The Trust must
review and approve tabulation format.
13 Final tabulation in shares is verbally given by the Company to the Trust on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Trust may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14 A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Trust will provide a standard form for each Certification.
15 The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Trust will be
permitted reasonable access to such Cards.
16 All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 27, 2000
Board of Directors
Conseco Variable Insurance Company
11815 N. Pennsylvania Street
Carmel, IN 46032-4572
Re: Opinion of Counsel - Conseco
Variable Annuity Account H
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-4 for the Individual Fixed and Variable Annuity
Contracts (the "Contracts") to be issued by Conseco Variable Insurance Company
and its separate account, Conseco Variable Annuity Account H.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Conseco Variable Annuity Account H is a Unit Investment Trust as the
term is defined in Section 4(2) of the Investment Company Act of 1940 (the
"Act"), and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the "Act".
2. Upon the acceptance of purchase payments made by an Owner pursuant to a
Contract issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable law, such an Owner will have a
legally-issued, fully-paid, non-assessable contractual interest under such
Contract.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/ LYNN KORMAN STONE
__________________________
Lynn Korman Stone
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 1 to the
Registration Statement of Conseco Variable Annuity Account H (the "Account") on
Form N-4 (File Nos. 333-90737 and 811-09693) of our report dated April 13, 2000,
on our audits of the financial statements of Conseco Variable Insurance Company.
We also consent to the reference to our Firm under the caption "Independent
Accountants".
/s/ PricewaterhouseCoopers LLP
-------------------------------
PricewaterhouseCoopers LLP
Indianapolis, Indiana
April 25, 2000
CONSECO, INC. (Indiana) - (publicly traded)
CIHC, Incorporated (Delaware)
Bankers National Life Insurance Company (Texas)
National Fidelity Life Insurance Company (Missouri)
Bankers Life Insurance Company of Illinois (Illinois)
Bankers Life & Casualty Company (Illinois)
Conseco Life Insurance Company of Texas (Texas)
Conseco Variable Insurance Company (Texas)
Conseco Annuity Assurance Company (Illinois)
Vulcan Life Insurance Company (Indiana) - (98%)
Conseco Direct Life Insurance Company (Pennsylvania)
Wabash Life Insurance Company (Indiana)
Conseco Life Insurance Company (Indiana)
Washington National Insurance Company (Illinois)
Conseco Senior Health Insurance Company (Pennsylvania)
Pioneer Life Insurance Company (Illinois)
Conseco Life Insurance Company of New York (New York)
Conseco Medical Insurance Company (Illinois)
Continental Life Insurance Company (Texas)
United Presidential Life Insurance Company (Indiana)
Conseco Health Insurance Company (Arizona)
Frontier National Life Insurance Company (Ohio)
Conseco Capital Management, Inc. (Delaware)
Conseco Equity Sales, Inc. (Texas)
Conseco Securities, Inc. (Delaware)
Conseco Services, LLC (Indiana)
Marketing Distribution Systems Consulting Group, Inc. (Delaware)
Conseco Finance Corp. (Delaware)
Conseco Finance Servicing Corp. (Delaware)
Conseco Series Trust (Massachusetts)*
Conseco Fund Group (Massachusetts) (publicly held)**
* The shares of Conseco Series Trust currently are sold to Bankers National
Variable Account B, Conseco Variable Annuity Account C, Conseco Variable
Annuity Account E, Conseco Variable Annuity Account F, Conseco Variable
Account G, Conseco Variable Annuity Account H, each being segregated asset
accounts established pursuant to Texas law by Bankers National Life
Insurance Company and Conseco Variable Insurance Company, respectively.
Shares of Conseco Series Trust are also sold to BMA Variable Life Account A
of Business Men's Assurance Company of America.
** The shares of the Conseco Fund Group are sold to the public; Conseco
affiliates currently hold in excess of 95% of its shares.
