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. 1 [X]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
(Check appropriate box or boxes.)
CONSECO VARIABLE ANNUITY ACCOUNT H
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(Exact Name of Registrant)
CONSECO VARIABLE INSURANCE COMPANY
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(Name of Depositor)
11825 N. Pennsylvania Street
Carmel, Indiana 46032-4572
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (317) 817-3700
Name and Address of Agent for Service
Michael A. Colliflower
Conseco Variable Insurance Company
11825 N. Pennsylvania Street
Carmel, Indiana 46032-4572
(317) 817-3700
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Title of Securities Registered:
Individual Variable Annuity Contracts
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE SHEET
(required by Rule 495)
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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
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
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CROSS REFERENCE SHEET
(required by Rule 495)
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ITEM NO. LOCATION
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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
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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
(FORMERLY GREAT AMERICAN RESERVE INSURANCE COMPANY)
This prospectus describes the individual fixed and variable annuity contracts
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 41 investment options - a fixed account of ours and 40
investment portfolios listed below. You can put your money in the fixed account
and/or the investment portfolios. 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.
CONSECO SERIES TRUST
Managed by Conseco Capital Management, Inc.
Balanced Portfolio
Equity 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 Associates, Inc.
Berger IPT Growth Fund
Berger IPT--Growth and Income Fund
Berger IPT--Small Company Growth Fund
Managed by BBOI Worldwide, LLC
Berger/BIAM IPT--International Fund
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
Managed by The Dreyfus Corporation
DREYFUS STOCK INDEX FUND
Managed by The Dreyfus Corporation
DREYFUS VARIABLE INVESTMENT FUND
Managed by The Dreyfus Corporation
Disciplined Stock Portfolio
International Value Portfolio
FEDERATED INSURANCE SERIES
Managed by Federated Investment Management Co.
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.
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 and 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
STRONG OPPORTUNITY FUND II, INC.
Managed by Strong Capital Management, Inc.
Opportunity Fund II
STRONG VARIABLE INSURANCE FUNDS, INC.
Managed by Strong Capital Management, Inc.
Strong MidCap 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
The expenses for the a with the purchase payment credit are higher than a
contract without the purchase payment credit 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 contracts.
To learn more about the contract, you can obtain a copy of our Statement of
Additional Information (SAI) dated February ___, 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.
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
The SEC 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.
February ___, 2000
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TABLE OF CONTENTS
INDEX OF SPECIAL TERMS............................................................................................i
FEE TABLE..........................................................................................................
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THE CONSECO ADVANTAGE PLUS ANNUITY CONTRACT......................................................................21
ANNUITY PAYMENTS (THE ANNUITY PERIOD)............................................................................22
PURCHASE.........................................................................................................24
INVESTMENT OPTIONS...............................................................................................26
EXPENSES.........................................................................................................34
TAXES............................................................................................................38
ACCESS TO YOUR MONEY.............................................................................................40
PERFORMANCE......................................................................................................42
DEATH BENEFIT....................................................................................................42
OTHER INFORMATION................................................................................................43
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.....................................................48
</TABLE>
INDEX OF SPECIAL TERMS
We have written this prospectus in plain English. By the very nature of the
contract, however, certain technical words or terms are unavoidable. We have
identified some of these words or terms below. The page reference
indicated here is where you will find the best explanation for the word or
term. These words and terms are in italics on the indicated page.
Accumulation Period........................
Accumulation Unit..........................
Annuitant..................................
Annuity Date...............................
Annuity Options............................
Annuity Payments...........................
Annuity Period.............................
Annuity Unit...............................
Beneficiary................................
Contract...................................
Fixed Account..............................
Investment Portfolios......................
Joint Owner................................
Non-Qualified..............................
Owner......................................
Purchase Payment...........................
Qualified..................................
Tax-Deferral...............................
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 means for
investing on a tax-deferred basis in our fixed account (where available) and 40
investment portfolios. The contract is intended for retirement savings 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) you make. We
call this the credit 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,
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
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)
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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%
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: (See Note 3) $30 per contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES: (See Note 4)
(as a percentage of average account value)
Insurance Charges
(comprised of the
mortality and expense
risk charge and Total Separate Account
administrative charge) Annual Expenses
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Standard contract...................................... 1.40% 1.40%
Contract with guaranteed minimum death benefit ........ 1.70% 1.70%
Contract with guaranteed minimum death benefit
and guaranteed minimum income benefit................... 2.00% 2.00%
</TABLE>
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INVESTMENT PORTFOLIO EXPENSES:
(as a percentage of the average daily net assets of an investment portfolio)
OTHER EXPENSES
(AFTER
EXPENSE TOTAL ANNUAL
REIMBURSEMENT PORTFOLIO EXPENSES
FOR CERTAIN (AFTER EXPENSE
PORTFOLIOS) REIMBURSEMENT FOR
MANAGEMENT 12b-1 CERTAIN
FEES FEES PORTFOLIOS)
- ------------------------------------------------------ --------------- -------- --------------------- ---------------------
CONSECO SERIES TRUST (5)
<S> <C> <C> <C> <C>
Balanced Portfolio (6)................................ 0.75% -- 0.00% 0.75%
Equity Portfolio (6).................................. 0.80% -- 0.00% 0.80%
Fixed Income Portfolio................................ 0.70% - - 0.00% 0.70%
Government Securities Portfolio....................... 0.70% -- 0.00% 0.70%
Money Market Portfolio (6)............................ 0.45% -- 0.00% 0.45%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio....................... 0.75% -- 0.04% 0.79%
Alger American Leveraged AllCap Portfolio (7)......... 0.85% -- 0.11% 0.96%
Alger American Mid Cap Growth Portfolio............... 0.80% -- 0.04% 0.84%
Alger American Small Capitalization Portfolio......... 0.85% -- 0.04% 0.89%
AMERICAN CENTURY VARIABLE PORTFOLIOS,
INC.
VP Income & Growth.................................... 0.70% -- 0.00% 0.70%
VP International...................................... 1.50% -- 0.00% 1.50%
VP Value.............................................. 1.00% -- 0.00% 1.00%
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT Growth Fund (8)............................ 0.00% -- 1.00% 1.00%
Berger IPT--Growth and Income Fund (8)................ 0.00% -- 1.00% 1.00%
Berger IPT--Small Company Growth Fund (8)............. 0.00% -- 1.15% 1.15%
Berger/BIAM IPT--International Fund (8)............... 0.00% -- 1.20% 1.20%
THE DREYFUS SOCIALLY RESPONSIBLE 0.75% -- 0.05% 0.80%
GROWTH FUND, INC
DREYFUS STOCK INDEX FUND 0.25% -- 0.01% 0.26%
DREYFUS VARIABLE INVESTMENT FUND
Disciplined Stock Portfolio........................... 0.75% -- 0.13% 0.88%
International Value Portfolio......................... 1.00% -- 0.29% 1.29%
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II.................... 0.60% -- 0.18% 0.78%
Federated International Equity Fund II (9)............ 0.53% -- 0.72% 1.25%
Federated Utility Fund II (9)......................... 0.68% -- 0.25% 0.93%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - High Yield Fund (10).................... 0.60% -- 0.47% 1.07%
INVESCO VIF - Equity Income Fund (10) (11)............ 0.75% -- 0.18% 0.93%
JANUS ASPEN SERIES
Aggressive Growth Portfolio.......................... 0.72% -- 0.03% 0.75%
Growth Portfolio (12)................................. 0.65% -- 0.03% 0.68%
Worldwide Growth Portfolio (12)....................... 0.65% -- 0.07% 0.72%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio (13)............... 0.75% 0.25% 0.25% 1.25%
Lazard Retirement Small Cap Portfolio (13)............ 0.75% 0.25% 0.25% 1.25%
LORD ABBETT SERIES FUND, INC.
Growth and Income Portfolio........................... 0.50% -- 0.26% 0.76%
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio........................... 0.70% -- 0.34% 1.04%
NEUBERGER BERMAN ADVISERS MANAGEMENT
TRUST (14)
Limited Maturity Bond Portfolio....................... 0.65% -- 0.11% 0.76%
Partners Portfolio.................................... 0.78% -- 0.06% 0.84%
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 (15).................... 1.00% -- 0.20% 1.20%
VAN ECK WORLDWIDE INSURANCE TRUST (16)
Worldwide Bond Fund................................... 1.00% -- 0.15% 1.15%
Worldwide Emerging Markets Fund....................... 1.00% -- 0.61% 1.61%
Worldwide Hard Assets Fund............................ 1.00% -- 0.20% 1.20%
Worldwide Real Estate Fund............................ 1.00% - 4.32% 5.32%
</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.
5. The expense information in the table has been restated to reflect current
fees. Pursuant to a contractual arrangement with Conseco Series Trust,
Conseco Capital Management, Inc., the Trust's adviser, has agreed to waive
fees and/or reimburse portfolio expenses through 4/30/00, so that the
annual operating expenses of each portfolio are limited to the Total Annual
Expenses for each respective portfolio, as set forth above. This
arrangement does not cover interest, taxes, brokerage commissions, and
extraordinary expenses. The total percentages in the above table are after
reimbursement. In the absence of expense reimbursement, the total estimated
fees and expenses for 1999 would total: 0.83% for the Money Market
Portfolio; 0.97% for the Government Securities Portfolio; 0.89% for the
Fixed Income Portfolio; 1.01% for the Balanced Portfolio and 0.95% for the
Equity Portfolio.
6. Conseco Capital Management, Inc., since January 1, 1993, has waived its
management fees in excess of the annual rates set forth above. Absent such
fee waivers, the management fees would be: .85% for the Balanced Portfolio;
.85% for the Equity Portfolio; and .70% for the Money Market Portfolio.
7. The Alger American Leveraged AllCap Portfolio's "Other Expenses" includes
.03% of interest expense.
8. 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 the Berger IPT Small Company Growth 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, the Management Fee for the Berger IPT Growth Fund,
Berger IPT Growth and Income Fund, the Berger IPT Small Company Growth Fund
and the Berger/BIAM IPT International Fund would have been .75%, .75%,
.90%, and .90% respectively, and their Total Annual Portfolio Expenses
would have been 2.88%, 1.99%, 2.19% and 2.85%, respectively.
9. In the absence of a voluntary waiver by Federated Investment Management
Company, the Funds' investment adviser, the Management Fee and Total Annual
Portfolio Expenses would have been 0.75% and 1.00%, respectively, for
Utility Fund II. Absent a voluntary waiver of the management fee and the
voluntary reimbursement of certain other operating expenses by Federated
Investment Management Company, the Management Fee and Total Annual
Portfolio Expenses for International Equity Fund II would have been 1.00%
and 1.72%, respectively.
10. The Fund's actual Total Annual Fund Operating Expenses were lower than the
figures shown because its transfer agent and/or custodian fees were reduced
under expense offset arrangements. Because of an SEC requirement, the
figures shown do not reflect these reductions.
11. Certain expenses of the Fund are being absorbed voluntarily by INVESCO
Funds Group, Inc. pursuant to a commitment to the Fund. In the absence of
such absorption, Other Expenses and Total Annual Fund Operating Expenses
for the year ended December 31, 1998 were 0.42% and 1.17%, respectively.
This commitment may be changed at any time following consultation with the
board of directors.
12. The expense figures shown are net of certain fee waivers or reductions from
Janus Capital Corporation, the investment adviser of the Janus Aspen
Series. Without such waivers or reductions, the total fees and expenses in
1998 would have totaled: 0.75% for Growth and 0.74% for Worldwide Growth.
13. Lazard Asset Management, the Fund's investment adviser, has voluntarily
agreed to reimburse all expenses through December 31, 1999 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, 1998 would have been 21.32% for the Lazard Retirement Equity Portfolio
and 16.20% for the Lazard Retirement Small Cap Portfolio.
14. Neuberger Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust. The figures
reported under "Management Fees" include the aggregate of the
administration fees paid by the Portfolio and the management fees paid by
its corresponding Series. Similarly, "Other Expenses" includes all other
expenses of the Portfolio and its corresponding Series.
15. Strong Capital Management, Inc., the investment adviser of the Strong Mid
Cap Growth Fund II, has voluntarily agreed to cap the Fund's total
operating expenses at 1.20%. In the absence of the expense cap, total
annual portfolio expenses for the year ended December 31, 1998 were 1.60%.
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.
16. Van Eck Associates Corporation (the "Adviser") agreed to assume expenses
exceeding 1.50% of the Worldwide Emerging Markets Fund's average daily net
assets. The Worldwide Hard Assets Fund's Other Expenses was 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. This arrangement is not reflected in the table above. With these
arrangements, the Other Expenses were 0.16% and total portfolio expenses
were 1.16%. For the Worldwide Real Estate Fund, the Adviser agreed to waive
its management fees and assume certain expenses for the period January 1,
1998 to February 28, 1998. The Adviser also agreed to assume expenses
exceeding 1.00% of the Worldwide Real Estate Fund's average daily net
assets for the period March 1, 1998 to December 31, 1998. 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. With these
arrangements, the Management Fee was 0%, the Other Expenses were 0.89% and
Total Portfolio Expenses were 0.89% for the Worldwide Real Estate Fund.
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 below assume that you do not elect the guaranteed minimum death
benefit or the guaranteed minimum income benefit. The expenses for your
contract would be higher if you elect these benefits.
Premium taxes are not reflected. Premium taxes may apply depending on the state
where you live.
<TABLE>
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You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) If you surrender your contract at the end of each time period
or if you annuitize your contract (except if your annuity
date is on or after the 5th contract anniversary and you choose
an annuity option that has a life contingency for a minimum of
5 years);
(b) If you do not surrender your contract.
TIME PERIODS
1 Year 3 Years
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<S> <C> <C>
CONSECO SERIES TRUST
Balanced (a) $ 94 (a) $141
(b) $ 23 (b) $ 69
Equity (a) $ 95 (a) $142
(b) $ 23 (b) $ 71
Fixed Income (a) $ 94 (a) $139
(b) $ 22 (b) $ 68
Government Securities (a) $ 94 (a) $139
(b) $ 22 (b) $ 68
Money Market (a) $ 91 (a) $132
(b) $ 20 (b) $ 60
THE ALGER AMERICAN FUND
Alger American Growth (a) $ 95 (a) $142
(b) $ 23 (b) $ 71
Alger American Leveraged AllCap (a) $ 96 (a) $147
(b) $ 25 (b) $ 76
Alger American MidCap Growth (a) $ 95 (a) $143
(b) $ 23 (b) $ 72
Alger American Small Capitalization (a) $ 96 (a) $145
(b) $ 24 (b) $ 74
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth (a) $ 94 (a) $139
(b) $ 22 (b) $ 68
VP International (a) $102 (a) $163
(b) $ 30 (b) $ 92
VP Value (a) $ 97 (a) $148
(b) $ 25 (b) $ 77
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT Growth (a) $ 97 (a) $148
(b) $ 25 (b) $ 77
Berger IPT Growth and Income (a) $ 97 (a) $148
(b) $ 25 (b) $ 77
Berger IPT Small Company Growth (a) $ 98 (a) $153
(b) $ 27 (b) $ 81
Berger/BIAM IPT International (a) $ 99 (a) $154
(b) $ 27 (b) $ 83
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
(a) $ 95 (a) $142
(b) $ 23 (b) $ 71
DREYFUS STOCK INDEX FUND
(a) $ 89 (a) $126
(b) $ 18 (b) $ 55
DREYFUS VARIABLE INVESTMENT FUND
Disciplined Stock (a) $ 96 (a) $145
(b) $ 24 (b) $ 73
International Value (a) $100 (a) $157
(b) $ 28 (b) $ 86
FEDERATED INSURANCE SERIES
Federated High Income Bond II (a) $ 95 (a) $142
(b) $ 23 (b) $ 70
Federated International Equity II (a) $ 99 (a) $156
(b) $ 28 (b) $ 84
Federated Utility II (a) $ 96 (a) $146
(b) $ 24 (b) $ 75
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - High Yield (a) $ 98 (a) $150
(b) $ 26 (b) $ 79
INVESCO VIF - Equity Income (a) $ 96 (a) $146
(b) $ 24 (b) $ 75
JANUS ASPEN SERIES
Aggressive Growth (a) $ 94 (a) $141
(b) $ 23 (b) $ 69
Growth (a) $ 94 (a) $139
(b) $ 22 (b) $ 67
Worldwide Growth (a) $ 94 (a) $140
(b) $ 22 (b) $ 68
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity (a) $ 99 (a) $156
(b) $ 28 (b) $ 84
Lazard Retirement Small Cap (a) $ 99 (a) $156
(b) $ 28 (b) $ 84
LORD ABBETT SERIES FUND, INC.
Growth and Income (a) $ 94 (a) $141
(b) $ 23 (b) $ 70
MITCHELL HUTCHINS SERIES TRUST
Growth and Income (a) $ 97 (a) $149
(b) $ 25 (b) $ 78
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond (a) $ 94 (a) $141
(b) $ 23 (b) $ 70
Partners (a) $ 95 (a) $143
(b) $ 23 (b) $ 72
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II (a) $ 98 (a) $153
(b) $ 26 (b) $ 81
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong MidCap Growth II (a) $ 99 (a) $154
(b) $ 27 (b) $ 83
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (a) $ 98 (a) $153
(b) $ 27 (b) $ 81
Worldwide Emerging Markets (a) $103 (a) $167
(b) $ 31 (b) $ 95
Worldwide Hard Assets (a) $ 98 (a) $153
(b) $ 27 (b) $ 82
Worldwide Real Estate (a) $140 (a) $273
(b) $ 68 (b) $201
</TABLE>
THE COMPANY
Conseco Variable Insurance Company 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 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 each
purchase payment. We refer to these amounts as purchase payment credits.
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 deduced 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 associated with the
purchase payment credit.
We reserve the right to limit the amount of purchase payment credits in the
future. The purchase payment credit feature may not be available in your state.
Conseco Variable has applied to the Securities and Exchange Commission for an
exemption from certain provisions of the Investment Company Act of 1940 so that
it can recapture any purchase payment credits applied to a contract as described
above. Until such time as it receives approval of its exemptive request, it will
not recapture any purchase payment credits.
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 plus 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 40 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 before investing. Copies of these prospectuses are
attached to this prospectus.
CONSECO SERIES TRUST
Managed by Conseco Capital Management, Inc. (Conseco Capital Management, Inc. is
an affiliate of Conseco Variable)
o Balanced Portfolio
o Equity 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 (long-term capital growth with income as a secondary
objective)
BERGER INSTITUTIONAL PRODUCTS TRUST Managed by Berger Associates, Inc.
o Berger IPT Growth Fund (long-term capital appreciation)
o Berger IPT Growth and Income Fund
o Berger IPT Small Company Growth Fund
Managed by BBOI Worldwide, LLC
o 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
o Disciplined Stock Portfolio (seeks to outperform the total return
performance of the Standard & Poor's 500 Composite Stock Price Index)
o International Value Portfolio
FEDERATED INSURANCE SERIES
Managed by Federated Investment Management Company
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.
Managed by INVESCO Funds Group, Inc.
o INVESCO VIF - High Yield Fund (seeks high level of current income)
o INVESCO VIF - Equity Income Fund (seeks high current income with
growth of capital as a secondary goal)
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 and 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 (capital growth)
STRONG OPPORTUNITY FUND II, INC.
Managed by Strong Capital Management, Inc.
o Opportunity Fund II (capital growth)
STRONG VARIABLE INSURANCE FUNDS, INC.
Managed by Strong Capital Management, Inc.
o Strong Mid Cap 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 investment objectives and policies of certain investment portfolios are
similar to the investment objectives and policies of other mutual funds that 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 other such mutual funds. The investment advisers cannot
guarantee, and make no representation, that the investment results of similar
funds will be comparable even though the funds have the same advisers.
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.
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 be required to substitute one of the investment portfolios you have
selected with another investment option. We would not do this without the prior
approval of the SEC. We may also limit further investment in an investment
portfolio. We will give you notice of our intent to take either of these
actions.
TRANSFERS
You can transfer money among the fixed account and the investment portfolios.
However, you cannot be invested in more than 15 investment portfolios, plus the
fixed account at any 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.
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 you make 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 Transfers. You can elect to make transfers by telephone. You can also
authorize someone else to make transfers for you. If you own the contract with a
joint owner, unless 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. 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.
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 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.
REBALANCING PROGRAM
Once your money has been allocated among the investment portfolios, the
performance of each portfolio may cause your allocation to shift. If the value
of your contract is at least $5,000, you can direct us to automatically
rebalance your contract to return to your original percentage allocations by
selecting our rebalancing program. You can tell us whether to rebalance
quarterly, semi-annually or annually. We will measure these periods from the
date you selected. You must use whole percentages in 1% increments for
rebalancing. There will be no rebalancing within the fixed account. You can
discontinue rebalancing at any time. You can change your rebalancing requests at
any time in writing which we must receive before the next rebalancing date. If
you participate in the rebalancing program, the transfers made under the program
are not taken into account in determining any transfer fee. Currently, there is
no charge for participating in the rebalancing program. We reserve the right, at
any time and without prior notice, to terminate, suspend or modify this program.
EXAMPLE: Assume that you want your initial purchase payment split between 2
investment portfolios. You want 40% to be in the Fixed Income Portfolio and
60% to be in the Growth Portfolio. Over the next 2 1/2 months the bond
market does very well while the stock market performs poorly. At the end of
the first quarter, the Fixed Income Portfolio now represents 50% of your
holdings because of its increase in value. If you had chosen to have your
holdings rebalanced quarterly, on the first day of the next quarter, we
would sell some of your units in the Fixed Income Portfolio to bring its
value back to 40% and use the money to buy more units in the Growth
Portfolio to increase those holdings to 60%.
ASSET ALLOCATION PROGRAM
We understand the importance to you of having advice from a financial adviser
regarding your investments in the contract (asset allocation program). Certain
investment advisers have made arrangements with us to make their services
available to you. Conseco Variable has not made any independent investigation of
these advisers and is not endorsing such programs. You may be required to enter
into an advisory agreement with your investment adviser to have the fees paid
out of your contract during the accumulation phase.
Conseco Variable will, pursuant to an agreement with you, make a partial
withdrawal from the value of your contract to pay for the services of the
investment adviser. If the contract is non-qualified, the withdrawal will be
treated like any other distribution and may be included in gross income for
federal tax purposes. Further, if you are under age 59 1/2, it may be subject to
a tax penalty. If the contract is qualified, the withdrawal for the payment of
fees may not be treated as a taxable distribution if certain conditions are met.
Additionally, any withdrawals for this purpose may be subject to a contingent
deferred sales charge. You should consult a tax adviser regarding the tax
treatment of the payment of investment adviser fees from your contract.
SWEEP PROGRAM
You can elect to transfer (sweep) your earnings from the fixed account to the
investment portfolios on a periodic and systematic basis.
EXPENSES
There are charges and other expenses associated with the contract that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day we make a deduction for our insurance charges. The insurance charges,
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. We
may increase the insurance charge for your contract up to 1.65%, or annual
basis, if you do not select either 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 2.15%, on an annual basis, if you select the
guaranteed minimum death benefit. We may increase the insurance charges for your
contract up to 2.65%, 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.
We reserve the right to change this charge but it will not be more than $60 each
year. No contract maintenance charge is deducted during the annuity period.
Currently, 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. We may discontinue this practice in the future,
meaning that we may assess the contract maintenance charge in the future even if
your contract value is $50,000 or more. 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 fee 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:
<TABLE>
<CAPTION>
No. of Contract Years from Contingent Deferred
Receipt of Purchase Payment Sales Charge
---------------------------- ------------
<S> <C> <C>
0-1 8%
2 8%
3 8%
4 8%
5 7%
6 6%
7 5%
8 3%
9 1%
10 or more 0%
</TABLE>
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 its sales expenses.
Some examples are: if there is a large group of individuals that will be
purchasing the contract or a prospective purchaser already had a relationship
with 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 it incurs because of the
contract. At the present time, we are not making any such deductions.
INVESTMENT PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the attached fund prospectuses.
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, 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 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. 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 $4,000 by $12.25 and credit your
contract on Wednesday night with 326.53 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, less (i) any applicable contingent deferred
sales charge, (ii) any contract maintenance charge; and (iii) 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 be 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. All systematic withdrawals will be withdrawn from
the fixed account and investment portfolios on a pro-rata basis. The systematic
withdrawal program will end any time you designate. If you make a partial
withdrawal outside the program and the value of your contract is less than
$5,000 the program will automatically terminate. We do not have any charge for
this program, however, the withdrawal may be subject to a contingent deferred
sales charge.
You may not participate in the systematic withdrawal program and the dollar cost
averaging program at the same time.
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.
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 options 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.
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 or joint owner's
death during the annuity period, the beneficiary becomes the owner.
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 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 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.
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 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 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 according to the terms of the contract.
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 according to the terms of the
contract.
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 according to the terms of the
contract.
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.
WITHDRAWALS-NON-QUALIFIED CONTRACTS
If you make a withdrawal from your contract, the Code generally treats such a
withdrawal as first coming from earnings and then from your purchase payments.
Such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the
Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which are allocable to purchase payments made prior to August 14,
1982.
WITHDRAWALS-QUALIFIED CONTRACTS
If you make a withdrawal from your qualified contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
pre-tax purchase payments to the after-tax purchase payments in your contract.
If all of your purchase payments were made with pre-tax money then the full
amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of qualified contracts.
The Code also provides that any amount received under a qualified contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the
Code);
(4) paid to you after leaving your employment in a series of substantially
equal periodic payments made annually (or more frequently) under a
lifetime annuity;
(5) paid to you after you have attained age 55 and you have left your
employment;
(6) paid for certain allowable medical expenses (as defined in the Code);
(7) paid pursuant to a qualified domestic relations order;
(8) paid from an IRA for medical insurance (as defined in the Code);
(9) paid from an IRA for qualified higher education expenses; or
(10) paid from an IRA for up to $10,000 for qualified first-time homebuyer
expenses (as defined in the Code).
The exceptions in (5) and (7) above do not apply to IRAs. The exception in (4)
above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of Additional
Information.
WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of amounts attributable to purchase payments made
by owners under a salary reduction agreement. Withdrawals can only be made when
a contract owner:
(1) reaches age 59 1/2;
(2) leaves his or her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code);
(5) in the case of hardship; or
(6) pursuant to a qualified domestic relations order, if otherwise
permitted.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings.
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.
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 Securities and
Exchange Commission 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.
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 as of the date of this
prospectus.
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
Part B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL VARIABLE DEFERRED ANNUITY CONTRACTS
issued by
CONSECO VARIABLE ANNUITY ACCOUNT H
and
CONSECO VARIABLE INSURANCE COMPANY
(formerly Great American Reserve Insurance Company)
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED FEBRUARY __, 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 FEBRUARY ___, 2000.
TABLE OF CONTENTS
PAGE
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....................................................
Contracts Owned by Other than Natural Persons.........................
Tax Treatment of Assignments..........................................
Death Benefits........................................................
Income Tax Withholding................................................
Tax Treatment of Withdrawals - Non-Qualified Contracts................
Individual Retirement Annuities.......................................
Roth IRAs.............................................................
Tax Treatment of Withdrawals - Individual Retirement Annuities........
ANNUITY PROVISIONS........................................................
Variable Annuity Payout...............................................
Annuity Unit..........................................................
Fixed Annuity Payout..................................................
FINANCIAL STATEMENTS .....................................................
=============================================================================
COMPANY
Information regarding Conseco Variable Insurance Company ("Company" or
"Conseco Variable") is contained in the prospectus. On October 7, 1998, the
Company changed its name from Great American Reserve Insurance Company to its
present name.
INDEPENDENT ACCOUNTANTS
The financial statements of Conseco Variable as of December 31, 1998 and
1997, and for the years ended December 31, 1998, 1997 and 1996, included in 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:
P (1 + T)^n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used (or
fractional portion thereof) of a hypothetical $1,000 payment made at the
beginning of the time periods used.
You should note that the investment results of each investment portfolio
will fluctuate over time, and any presentation of the investment portfolio's
total return for any period should not be considered as a representation of what
an investment may earn or what an your total return may be in any future period.
Performance Information
The Contracts and the Separate Account are new and therefore do not have a
meaningful investment performance history. However, the corresponding Portfolios
have been in existence for some time and consequently have investment
performance history. In order to demonstrate how the actual investment
experience of the Portfolios affects Accumulation Unit values, the Company may
develop performance information. The information will be based upon the
historical experience of the Portfolios and will be for the periods shown.
Actual performance will vary and the results which may be shown are not
necessarily representative of future results. Performance for periods ending
after those shown may vary substantially. The performance of the Accumulation
Units will be calculated for a specified period of time assuming an initial
Purchase Payment of $1,000 allocated to each Portfolio and a deduction of all
charges and deductions (see "Expenses" in the Prospectus for more information).
Performance may also be shown without certain charges being included. If
the charges were included in the calculations, the performance would be lower.
The percentage increases are determined by subtracting the initial Purchase
Payment from the ending value and dividing the remainder by the beginning value.
HISTORICAL UNIT VALUES
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment
portfolios against established market indices such as the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to the
investment portfolio being compared. The Standard & Poor's 500 Composite Stock
Price Index is an unmanaged, unweighted average of 500 stocks, the majority of
which are listed on the New York Stock Exchange. The Dow Jones Industrial
Average is an unmanaged, weighted average of thirty blue chip industrial
corporations listed on the New York Stock Exchange. Both the Standard & Poor's
500 Composite Stock Price Index and the Dow Jones Industrial Average assume
quarterly reinvestment of dividends.
REPORTING AGENCIES
The Company may also distribute sales literature which compares the
performance of the Accumulation Unit values of the Contracts with the unit
values of variable annuities issued by other insurance companies. Such
information will be derived from the Lipper Variable Insurance Products
Performance Analysis Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is
published by Lipper Analytical Services, Inc., a publisher of statistical data
which currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled
by Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger. Morningstar rates a variable annuity against its peers with
similar investment objectives. Morningstar does not rate any variable annuity
that has less than three years of performance data.
FEDERAL TAX STATUS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING
OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE
FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT
SPECIAL RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX
LAWS.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended ("Code")
governs taxation of annuities in general. An Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the annuity option selected. For a lump
sum payment received as a total withdrawal (total surrender), the recipient is
taxed on the portion of the payment that exceeds the cost basis of the Contract.
For non-qualified Contracts, this cost basis is generally the purchase payments,
while for qualified Contracts there may be no cost basis. The taxable portion of
the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments based
on a fixed annuity option is determined by multiplying the payment by the ratio
that the cost basis of the Contract (adjusted for any period or refund feature)
bears to the expected return under the Contract. The exclusion amount for
payments based on a variable annuity option is determined by dividing the cost
basis of the Contract (adjusted for any period certain or refund guarantee) by
the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludable amount equals the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income tax rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Owners, annuitants and beneficiaries under
the Contracts should seek competent financial advice about the tax consequences
of any distributions.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
Regulations issued by the Treasury Department ("the Regulations") amplify
the diversification requirements for variable contracts set forth in the Code
and provide an alternative to the safe harbor provision described above. Under
the Regulations, an investment portfolio will be deemed adequately diversified
if: (1) no more than 55% of the value of the total assets of the portfolio is
represented by any one investment; (2) no more than 70% of the value of the
total assets of the portfolio is represented by any two investments; (3) no more
than 80% of the value of the total assets of the portfolio is represented by any
three investments; and (4) no more than 90% of the value of the total assets of
the portfolio is represented by any four investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment portfolios underlying the Contracts
will be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations
do not provide guidance regarding the circumstances in which Owner control of
the investments of the Separate Account will cause the Owner to be treated as
the owner of the assets of the Separate Account, thereby resulting in the loss
of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owners
being retroactively determined to be the owners of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a Contract held by a trust or other entity as an
agent for a natural person nor to Contracts held by Qualified Plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. You should
therefore consult competent tax advisers should 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.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross
income of the Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Owner, in many cases, may
elect not to have taxes withheld or to have withholding done at a different
rate.
Certain distributions from retirement plans qualified under Section 401 or
Section 403(b) of the Code, which are not directly rolled over to another
eligible retirement plan or individual retirement account or individual
retirement annuity, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement generally does not apply to: a) a
series of substantially equal payments made at least annually for the life or
life expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary or for a specified period of 10 years
or more; or b) distributions which are required minimum distributions; or c) the
portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions); or d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after you reach age 59 1/2; (b) after your death; (c) if you
become totally disabled (for this purpose disability is as defined in Section
72(m)(7) of the Code); (d) in a series of substantially equal periodic payments
made not less frequently than annually for your life (or life expectancy) or for
the joint lives (or joint life expectancies) of you and your Beneficiary; (e)
under an immediate annuity; or (f) which are allocable to purchase payments made
prior to August 14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However,
separate tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
QUALIFIED PLANS
The Contracts are designed to be suitable for use under various types of
Qualified Plans. Taxation of participants in each Qualified Plan varies with the
type of plan and terms and conditions of each specific plan. Owners, annuitants
and beneficiaries are cautioned that benefits under a Qualified Plan may be
subject to the terms and conditions of the plan regardless of the terms and
conditions of the Contracts issued pursuant to the plan. Some retirement plans
are subject to distribution and other requirements that are not incorporated
into the Company's administrative procedures. Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Contracts comply with applicable law.
Following are general descriptions of the types of Qualified Plans with which
the Contracts may be used. Such descriptions are not exhaustive and are for
general informational purposes only. The tax rules regarding Qualified Plans are
very complex and will have differing applications depending on individual facts
and circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations" below.) Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
b. INDIVIDUAL RETIREMENT ANNUITIES
The Contracts offered by the prospectus are designed to be suitable for use as
an Individual Retirement Annuity (IRA). Generally, individuals who purchase IRAs
are not taxed on increases to the value of the contributions until distribution
occurs. Following is a general description of IRAs with which the Contract may
be used. The description is not exhaustive and is for general informational
purposes only.
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an IRA. Under applicable limitations,
certain amounts may be contributed to an IRA which will be deductible from the
individual's taxable income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.) Under certain
conditions, distributions from other IRAs and other Qualified Plans may be
rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
ROTH IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues apply to all of
a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held a Roth IRA for at
least five taxable years and, in addition, that the distribution is made: (i)
after the individual reaches age 59 1/2, (ii) on the individual's death or
disability, or (iii) as a qualified first-time home purchase (subject to a
$10,000 lifetime maximum) for the individual, a spouse, child, grandchild, or
ancestor. Any distribution which is not a qualified distribution is taxable to
the extent of earnings in the distribution. Distributions are treated as made
from contributions first and therefore no distributions are taxable until
distributions exceed the amount of contributions and conversions to the Roth
IRA. The 10% penalty tax and the regular IRA exceptions to the 10% penalty tax
apply to taxable distributions from a Roth IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, ("conversion deposits") unless the individual has adjusted gross income
over $100,000 or the individual is a married taxpayer filing a separate return.
The individual must pay tax on any portion of the IRA being rolled over that
represents income or a previously deductible IRA contribution. However, for
rollovers in 1998, the individual may pay that tax ratably over the four taxable
year period beginning with tax year 1998. In addition, distribution of amounts
attributable to conversion deposits held for less than 5 taxable years will also
be subject to the penalty tax.
Purchasers of Contracts intended to be qualified as a Roth IRA should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
c. PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employees until distributed from the
Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Special considerations apply to plans covering self-employed
individuals, including limitations on contributions and benefits for key
employees or 5 percent owners. (See "Tax Treatment of Withdrawals - Qualified
Contracts" below.) Purchasers of Contracts for use with Pension or Profit
Sharing Plans should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
d. GOVERNMENT AND TAX-EXEMPT ORGANIZATION'S DEFERRED COMPENSATION PLAN
Under Code provisions, employees and independent contractors performing services
for state and local governments and other tax-exempt organizations may
participate in Deferred Compensation Plans. While participants in such Plans may
be permitted to specify the form of investment in which their Plan accounts will
participate, all such investments are owned by the sponsoring employer and are
subject to the claims of its creditors until December 31, 1998, or such earlier
date as may be established by Plan amendment. However, amounts deferred under a
Plan created on or after August 20, 1996 and amounts deferred under any 457 Plan
after December 31, 1998 must be held in trust, custodial account or annuity
contract for the exclusive benefit of Plan participants and their beneficiaries.
The amounts deferred under a Plan which meets the requirements of Section 457 of
the Code are not taxable as income to the participant until paid or otherwise
made available to the participant or beneficiary. As a general rule, the maximum
amount which can be deferred in any one year is the lesser of $7,500 ($8,000
beginning in 1998, as indexed for inflation) or 33 1/3 percent of the
participant's includable compensation. However, in limited circumstances, up to
$15,000 may be deferred in each of the last three years before normal retirement
age. Furthermore, the Code provides additional requirements and restrictions
regarding eligibility and distributions.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been rolled over to an IRA or to another eligible Qualified Plan, no
tax penalty will be imposed. The tax penalty will not apply to the following
distributions: (a) made on or after the date on which the Owner or Annuitant (as
applicable) reaches age 59 1/2 (b) following the death or disability of the
Owner or Annuitant (as applicable) (for this purpose disability is as defined in
Section 72(m) (7) of the Code); (c) after separation from service, distributions
that are part of substantially equal periodic payments made not less frequently
than annually for the life (or life expectancy) of the Owner or Annuitant (as
applicable) or the joint lives (or joint life expectancies) of such Owner or
Annuitant (as applicable) and his or her designated Beneficiary; (d) to an Owner
or Annuitant (as applicable) who has separated from service after he has
attained age 55; (e) made to the Owner or Annuitant (as applicable) to the
extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Owner or Annuitant (as applicable) for amounts
paid during the taxable year for medical care; (f) made to an alternate payee
pursuant to a qualified domestic relations order;(g) from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for the Owner or Annuitant (as applicable) and
his or her spouse and dependents if the Owner or Annuitant (as applicable) has
received unemployment compensation for at least 12 weeks (this exception will no
longer apply after the Owner or Annuitant (as applicable) has been re-employed
for at least 60 days); (h) from an Individual Retirement Annuity made to the
Owner or Annuitant (as applicable) to the extent such distributions do not
exceed the qualified higher education expenses (as defined in Section 72(t)(7)
of the Code) of the Owner or Annuitant (as applicable) for the taxable year; and
(i) distributions up to $10,000 from an Individual Retirement Annuity made to
the Owner or Annuitant (as applicable) which are qualified first-time home buyer
distributions (as defined in Section 72(t)(8) of the Code). The exceptions
stated in (d) and (f) above do not apply in the case of an Individual Retirement
Annuity. The exception stated in (c) above applies to an Individual Retirement
Annuity without the requirement that there be a separation from service. With
respect to (c) above, if the series of substantially equal periodic payments is
modified before the later of your attaining age 59 1/2 or 5 years from the date
of the first periodic payment, then the tax for the year of the modification is
increased by an amount equal to the tax which would have been imposed (the 10%
penalty tax) but for the exception, plus interest for the tax years in which the
exception was used.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); (5) in the case of hardship; or (6) made pursuant
to a qualified domestic relations order, if otherwise permissible. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers and transfers between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
MANDATORY DISTRIBUTIONS - QUALIFIED PLANS
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. 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.
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET
September 30, 1999
(Dollars in millions)
(Unaudited)
ASSETS
<S> <C>
Investments:
Actively managed fixed maturities at fair value (amortized cost: $1,541.9)............................. $1,468.0
Equity securities at fair value (amortized cost: $44.4)............................................... 44.4
Mortgage loans......................................................................................... 111.3
Policy loans........................................................................................... 76.0
Other invested assets ................................................................................. 101.4
Assets held in separate accounts....................................................................... 1,069.6
--------
Total investments.................................................................................. 2,870.7
Cash and cash equivalents................................................................................. 1.3
Accrued investment income................................................................................. 42.0
Cost of policies purchased................................................................................ 125.1
Cost of policies produced................................................................................. 123.0
Reinsurance receivables................................................................................... 23.9
Goodwill.................................................................................................. 45.6
Other assets.............................................................................................. 6.4
--------
Total assets....................................................................................... $3,238.0
========
</TABLE>
(continued on next page)
The accompanying notes are an
integral part of the financial
statements.
F-1
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET (Continued)
September 30, 1999
(Dollars in millions, except per share amount)
(Unaudited)
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C>
Liabilities:
Insurance liabilities:
Interest sensitive products........................................................................... $1,290.4
Traditional products.................................................................................. 268.1
Claims payable and other policyholder funds........................................................... 31.7
Liabilities related to separate accounts.............................................................. 1,069.6
Income tax liabilities.................................................................................. 24.9
Investment borrowings................................................................................... 146.5
Other liabilities ...................................................................................... 14.5
--------
Total liabilities................................................................................. 2,845.7
--------
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
Accumulated other comprehensive loss (net of applicable deferred income taxes of $(12.2))............... (21.6)
Retained earnings....................................................................................... 33.1
--------
Total shareholder's equity........................................................................ 392.3
--------
Total liabilities and shareholder's equity........................................................ $3,238.0
========
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(Dollars in millions)
(Unaudited)
Nine months
ended September 30,
------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Insurance policy income................................................. $ 56.3 $ 60.4
Net investment income................................................... 143.3 152.3
Net investment gains (losses)........................................... (6.9) 8.3
------ ------
Total revenues...................................................... 192.7 221.0
------ ------
Benefits and expenses:
Insurance policy benefits............................................... 125.0 137.9
Amortization............................................................ 16.0 20.0
Other operating costs and expenses...................................... 31.9 20.6
------ ------
Total benefits and expenses......................................... 172.9 178.5
------ ------
Income before income taxes.......................................... 19.8 42.5
Income tax expense......................................................... 6.8 15.0
------ ------
Net income.......................................................... $ 13.0 $ 27.5
====== ======
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in millions)
(Unaudited)
Common stock Accumulated other
and additional comprehensive Retained
Total paid-in capital income (loss) earnings
----- --------------- ---------------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1999................................... $405.1 $380.8 $ (.8) $ 25.1
Comprehensive loss, net of tax:
Net income............................................ 13.0 - - 13.0
Change in unrealized depreciation of investments
(net of applicable income tax benefit of $11.8)..... (20.8) - (20.8) -
------
Total comprehensive loss.......................... (7.8)
Dividends on common stock............................... (5.0) - - (5.0)
------ ------ ------ ------
Balance, September 30, 1999................................ $392.3 $380.8 $(21.6) $ 33.1
====== ====== ====== ======
Balance, January 1, 1998................................... $416.9 $380.8 $ 8.7 $ 27.4
Comprehensive income, net of tax:
Net income............................................ 27.5 - - 27.5
Change in unrealized appreciation of investments
(net of applicable income taxes of $.3)............. .6 - .6 -
------
Total comprehensive income........................ 28.1
Dividends on common stock............................... (32.9) - - (32.9)
------ ------ ------ ------
Balance, September 30, 1998................................ $412.1 $380.8 $ 9.3 $ 22.0
====== ====== ====== ======
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Nine months
ended September 30,
------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................. $ 13.0 $ 27.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization........................................................ 16.0 20.0
Income taxes........................................................ (.8) 4.4
Insurance liabilities............................................... (13.4) 77.2
Interest credited to insurance liabilities.......................... 84.1 92.0
Fees charged to insurance liabilities............................... (22.3) (25.6)
Accrual and amortization of investment income....................... (14.8) (1.5)
Deferral of cost of policies produced............................... (39.4) (34.1)
Net investment (gains) losses....................................... 6.9 (8.3)
Other............................................................... (.3) (15.7)
--------- ---------
Net cash provided by operating activities....................... 29.0 135.9
--------- ---------
Cash flows from investing activities:
Sales of investments.................................................... 667.4 855.0
Maturities and redemptions.............................................. 94.4 127.9
Purchases of investments................................................ (1,125.0) (1,049.6)
--------- ---------
Net cash used by investing activities........................... (363.2) (66.7)
--------- ---------
Cash flows from financing activities:
Deposits to insurance liabilities....................................... 454.5 194.9
Investment borrowings................................................... 80.8 19.7
Withdrawals from insurance liabilities.................................. (243.2) (300.4)
Dividends paid on common stock.......................................... (5.0) (32.9)
--------- ---------
Net cash provided (used) by financing activities................ 287.1 (118.7)
--------- ---------
Net decrease in cash and cash equivalents....................... (47.1) (49.5)
Cash and cash equivalents, beginning of period............................. 48.4 49.5
--------- ---------
Cash and cash equivalents, end of period................................... $ 1.3 $ -
========= =========
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-5
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
(Unaudited)
------------------------------
The following notes should be read in conjunction with the notes to
audited financial statements included elsewhere in this Prospectus.
SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Conseco Variable Insurance Company ("we" or the "Company") markets
tax-qualified annuities and certain employee benefit-related insurance products
through professional independent agents. Prior to its name change in October
1998, the Company was named Great American Reserve Insurance Company. Since
August 1995, the Company has been a wholly owned subsidiary of Conseco, Inc.
("Conseco"), a financial services holding company operating throughout the
United States. Conseco's life insurance subsidiaries develop, market and
administer supplemental health insurance, annuity, individual life insurance,
individual and group major medical insurance and other insurance products.
Conseco's finance subsidiaries originate, purchase, sell and service consumer
and commercial finance loans.
The unaudited financial statements reflect all adjustments, consisting only
of normal recurring items, which are necessary to present fairly the Company's
financial position and results of operations on a basis consistent with that of
prior audited financial statements. We have also reclassified certain amounts
from the prior periods to conform to the 1999 presentation. Results for interim
periods are not necessarily indicative of the results that may be expected for a
full year.
In preparing financial statements in conformity with generally accepted
accounting principles, the Company is required to make estimates and assumptions
that significantly affect various reported amounts 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,
the Company uses significant estimates and assumptions in calculating values for
the cost of policies produced, the cost of policies purchased, goodwill,
insurance liabilities, guaranty fund assessment accruals and deferred income
taxes. If future experience differs from these estimates and assumptions, the
Company's financial statements could be materially affected.
ACCOUNTING FOR INVESTMENTS
The Company classifies fixed maturity securities into three categories: (i)
"actively managed" (which are carried at estimated fair value); (ii) "trading"
(which are carried at estimated fair value); and (iii) "held to maturity" (which
are carried at amortized cost). The Company held $19.7 million of trading
securities at September 30, 1999, which are included in other invested assets.
The Company did not carry any fixed maturity securities in the held to maturity
category at September 30, 1999. Unrealized losses included in shareholder's
equity as of September 30, 1999, were as follows:
<TABLE>
<S> <C>
Unrealized losses on investments....................................... $(73.9)
Less amounts attributed to:
Cost of policies purchased and produced............................. 41.1
Deferred income tax benefit......................................... 12.2
Other............................................................... (1.0)
------
Total............................................................. $(21.6)
======
</TABLE>
F-6
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
(Unaudited)
------------------------------
REINSURANCE
The cost of reinsurance ceded totaled $18.8 million and $16.1 million in
the first nine months of 1999 and 1998, respectively. We deducted this cost from
insurance policy income. The Company is contingently liable for claims reinsured
if the assuming company is unable to pay. Reinsurance recoveries netted against
insurance policy benefits totaled $13.9 million and $16.6 million in the first
nine months of 1999 and 1998, respectively.
SHAREHOLDER'S EQUITY
The Company paid shareholder dividends of $5.0 million and $32.9 million
during the nine months ended September 30, 1999 and 1998, respectively.
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
$31.3 million and $29.2 million during the nine months ended September 30, 1999
and 1998, respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, ("SFAS 133")
requires all derivative instruments to be recorded on the balance sheet at
estimated fair value. Changes in the fair value of derivative instruments are to
be recorded each period either in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, on the type of hedge transaction. We are required to
implement the provisions of SFAS 133 for the year 2001. We are currently
evaluating the impact of SFAS 133. At present, we believe it will not have a
material effect on either our consolidated financial position or our results of
operations.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Conseco Variable Insurance Company
In our opinion, the accompanying balance sheet and the related statements
of operations, shareholder's equity and cash flows present fairly, in all
material respects, the financial position of Conseco Variable Insurance Company
(the "Company") at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
-------------------------------------
PricewaterhouseCoopers LLP
March 30, 1999
F-8
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET
December 31, 1998 and 1997
(Dollars in millions)
ASSETS
1998 1997
---- ----
<S> <C> <C>
Investments:
Actively managed fixed maturities at fair value (amortized cost:
1998 - $1,520.5; 1997 - $1,705.2)............................................... $1,524.1 $1,734.0
Equity securities at fair value (cost: 1998 - $46.0 million; 1997 - $25.1 million). 45.7 25.4
Mortgage loans..................................................................... 110.2 146.1
Policy loans....................................................................... 79.6 80.6
Other invested assets ............................................................. 103.1 62.8
Short-term investments............................................................. 48.4 49.5
Assets held in separate accounts................................................... 696.4 402.1
-------- --------
Total investments............................................................ 2,607.5 2,500.5
Accrued investment income.............................................................. 30.5 30.5
Cost of policies purchased............................................................. 98.0 106.4
Cost of policies produced.............................................................. 82.5 55.9
Reinsurance receivables................................................................ 22.2 21.9
Goodwill (net of accumulated amortization: 1998 - $14.7; 1997 - $13.2)................. 46.7 48.2
Other assets........................................................................... 24.3 8.3
-------- --------
Total assets................................................................. $2,911.7 $2,771.7
======== ========
</TABLE>
(continued on next page)
The accompanying notes are an
integral part of the financial
statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET (Continued)
December 31, 1998 and 1997
(Dollars in millions, except per share amount)
LIABILITIES AND SHAREHOLDER'S EQUITY
1998 1997
---- ----
<S> <C> <C>
Liabilities:
Insurance liabilities:
Interest sensitive products..................................................... $1,365.2 $1,522.1
Traditional products............................................................ 246.2 248.3
Claims payable and other policyholder funds..................................... 62.6 62.5
Liabilities related to separate accounts........................................ 696.4 402.1
Income tax liabilities............................................................. 37.5 44.2
Investment borrowings.............................................................. 65.7 61.0
Other liabilities.................................................................. 33.0 14.6
-------- --------
Total liabilities.......................................................... 2,506.6 2,354.8
--------- ---------
Shareholder's equity:
Common stock and additional paid-in capital (par value $4.80 per share, 1,065,000
shares authorized, 1,043,565 shares issued and outstanding).................... 380.8 380.8
Accumulated other comprehensive income:
Unrealized gains of fixed maturity securities (net of applicable deferred
income taxes: 1998 - $.5; 1997 - $4.4)...................................... 1.0 8.2
Unrealized gains (losses) of other investments (net of applicable deferred
income taxes: 1998 - $(.9); 1997 - $.3)..................................... (1.8) .5
Retained earnings.................................................................. 25.1 27.4
-------- --------
Total shareholder's equity................................................. 405.1 416.9
-------- --------
Total liabilities and shareholder's equity................................. $2,911.7 $2,771.7
======== ========
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
(Dollars in millions)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Insurance policy income.......................................... $ 73.6 $ 75.7 $ 81.4
Net investment income............................................ 198.0 222.6 218.4
Net investment gains............................................. 18.5 13.3 2.7
------ ------ -------
Total revenues............................................. 290.1 311.6 302.5
------ ------ ------
Benefits and expenses:
Insurance policy benefits........................................ 170.6 191.0 180.6
Amortization..................................................... 33.6 27.1 20.3
Other operating costs and expenses............................... 38.7 32.2 60.5
------ ------ ------
Total benefits and expenses................................ 242.9 250.3 261.4
------ ------ ------
Income before income taxes................................. 47.2 61.3 41.1
Income tax expense................................................... 16.6 22.1 15.4
------ ------ ------
Net income................................................. $ 30.6 $ 39.2 $ 25.7
====== ====== ======
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
for the years ended December 31, 1998, 1997 and 1996
(Dollars in millions)
Common stock Accumulated other
and additional comprehensive Retained
Total paid-in capital income (loss) earnings
----- --------------- ------------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1995................................. $442.6 $380.8 $ 12.4 $ 49.4
Comprehensive income, net of tax:
Net income............................................ 25.7 - - 25.7
Change in unrealized appreciation (depreciation) of
securities (net of applicable income taxes of ($9.7)) (17.0) - (17.0) -
------
Total comprehensive income........................ 8.7
Dividends on common stock............................... (54.4) - - (54.4)
------ ------ ------ ------
Balance, December 31, 1996................................. 396.9 380.8 (4.6) 20.7
Comprehensive income, net of tax:
Net income............................................ 39.2 - - 39.2
Change in unrealized appreciation (depreciation) of
securities (net of applicable income taxes of $7.2). 13.3 - 13.3 -
------
Total comprehensive income........................ 52.5 - - -
Dividends on common stock............................... (32.5) - - (32.5)
------ ------ ------ ------
Balance, December 31, 1997................................. 416.9 380.8 8.7 27.4
Comprehensive income, net of tax:
Net income............................................ 30.6 - - 30.6
Change in unrealized appreciation (depreciation) of
securities (net of applicable income taxes of $(5.1)) (9.5) - (9.5) -
------
Total comprehensive income........................ 21.1
Dividends on common stock............................... (32.9) - - (32.9)
------ ------ ------ ------
Balance, December 31, 1998................................. $405.1 $380.8 $ (.8) $ 25.1
====== ====== ====== ======
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(Dollars in millions)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 30.6 $ 39.2 $ 25.7
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization................................................ 43.0 27.1 20.3
Income taxes................................................ (1.2) 6.7 (3.9)
Insurance liabilities....................................... 120.0 95.2 112.5
Accrual and amortization of investment income............... 1.6 .3 3.1
Deferral of cost of policies produced....................... (35.3) (31.8) (13.2)
Investment gains............................................ (18.5) (13.3) (2.7)
Other....................................................... (38.3) (4.6) (8.8)
--------- ------- ---------
Net cash provided by operating activities................... 101.9 118.8 133.0
--------- ------- ---------
Cash flows from investing activities:
Sales of investments.............................................. 1,185.0 755.2 988.9
Maturities and redemptions........................................ 145.5 150.4 101.7
Purchases of investments.......................................... (1,420.7) (923.5) (1,049.6)
--------- ------- ---------
Net cash provided (used) by investing activities............ (90.2) (17.9) 41.0
--------- ------- ---------
Cash flows from financing activities:
Deposits to insurance liabilities................................. 400.4 255.9 169.8
Investment borrowings............................................. 4.7 12.6 (35.8)
Withdrawals from insurance liabilities............................ (385.0) (302.2) (267.7)
Dividends paid on common stock.................................... (32.9) (32.5) (44.5)
--------- ------- ---------
Net cash used by financing activities....................... (12.8) (66.2) (178.2)
--------- ------- ---------
Net increase (decrease) in short-term
investments............................................... (1.1) 34.7 (4.2)
Short-term investments, beginning of year............................ 49.5 14.8 19.0
--------- ------- ---------
Short-term investments, end of year.................................. $ 48.4 $ 49.5 $ 14.8
========= ======= =========
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-13
<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.
The following summary explains the accounting policies we use to arrive at
the more significant numbers in our financial statements. We prepare our
financial statements in accordance with generally accepted accounting principles
("GAAP"). We follow the accounting standards established by the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants and the Securities and Exchange Commission. We reclassified certain
amounts in our 1997 and 1996 financial statements and notes to conform with the
1998 presentation.
Investments
Fixed maturities are securities that mature more than one year after
issuance and include bonds, notes receivable and redeemable preferred stock.
Fixed maturities that we may sell prior to maturity are classified as actively
managed and are carried at estimated fair value, with any unrealized gain or
loss, net of tax and related adjustments, recorded as a component of
shareholder's equity. Fixed maturity securities that we intend to sell in the
near term are classified as trading and included in other invested assets. We
include any unrealized gain or loss on trading securities in net investment
gains.
Equity securities include investments in common stocks and non-redeemable
preferred stock. We carry these investments at estimated fair value. We record
any unrealized gain or loss, net of tax and related adjustments, as a component
of shareholder's equity.
Mortgage loans held in our investment portfolio are carried at amortized
unpaid balances, net of provisions for estimated losses.
Policy loans are stated at their current unpaid principal balances.
Other invested assets include trading securities and certain
non-traditional investments. Non-traditional investments include investments in
venture capital funds, limited partnerships, mineral rights and promissory
notes; we account for them using either the cost method, or for investments in
partnerships over whose operations the Company exercises significant influence,
the equity method.
Short-term investments include commercial paper, invested cash and other
investments purchased with maturities of less than three months. We carry them
at amortized cost, which approximates their estimated fair value. We consider
all short-term investments to be cash equivalents.
We defer any fees received or costs incurred when we originate investments
(primarily mortgage loans). We amortize fees, costs, discounts and premiums as
yield adjustments over the contractual lives of the investments. We consider
anticipated prepayments on mortgage-backed securities in determining estimated
future yields on such securities.
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.
F-14
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
We regularly evaluate all of our investments based on current economic
conditions, credit loss experience and other investee- specific developments. If
there is a decline in a security's net realizable value that is other than
temporary, we treat it as a realized loss and reduce our cost basis of the
security to its estimated fair value.
Separate Accounts
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policyholders. The assets of these accounts are
legally segregated. They are not subject to the claims that may arise out of any
other business of the Company. We report separate account assets at market
value; the underlying investment risks are assumed by the contract holders. We
record the related liabilities at amounts equal to the market value of the
underlying assets.
Cost of Policies Produced
The costs that vary with, and are primarily related to, producing new
insurance business are referred to as cost of policies produced. We amortize
these costs using the interest rate credited to the underlying policy; (I) in
relation to the estimated gross profits for universal life-type and
investment-type products; or (ii) in relation to future anticipated premium
revenue for other products.
When we sell investments backing our universal life or investment-type
product business at a gain or loss, we adjust the amortization to reflect the
change in future investment yields resulting from the sale (thereby changing the
future amortization to offset the change in yield). We also adjust the cost of
policies produced for the change in amortization that would have been recorded
if actively managed fixed maturity securities had been sold at their stated
aggregate fair value and the proceeds reinvested at current yields. We include
the impact of this adjustment in net unrealized appreciation (depreciation)
within shareholder's equity.
Each year, we evaluate the recoverability of the unamortized balance of the
cost of policies produced. We consider estimated future gross profits or future
premiums, expected mortality or morbidity, interest earned and credited rates,
persistency and expenses in determining whether the balance is recoverable.
Cost of Policies Purchased
The cost assigned to the right to receive future cash flows from contracts
existing at the date of an acquisition is referred to as cost of policies
purchased. This balance is amortized, evaluated for recoverability, and adjusted
for the impact of realized and unrealized gains (losses) in the same manner as
the cost of policies produced described above.
Goodwill
Goodwill is the excess of the amount paid to acquire the Company over the
fair value of its net assets. We amortize goodwill on the straight-line basis
over a 40-year period. We continually monitor the value of our goodwill based on
our estimates of future earnings. We determine whether goodwill is fully
recoverable from projected undiscounted net cash flows over the remaining
amortization period. If we were to determine that changes in such projected cash
flows no longer support the recoverability of goodwill over the remaining
amortization period, we would reduce its carrying value with a corresponding
charge to expense or shorten the amortization period (no such changes have
occurred).
Recognition of Insurance Policy Income and Related Benefits and Expenses on
Insurance Contracts
Generally, we recognize insurance premiums for traditional life and
accident and health contracts as earned over the 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.
F-15
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Reinsurance
In the normal course of business, we seek to limit our exposure to loss on
any single insured or to certain groups of policies by ceding reinsurance to
other insurance enterprises. We currently retain no more than $.5 million of
mortality risk on any one policy. We diversify the risk of reinsurance loss by
using a number of reinsurers that have strong claims-paying ratings. If any
reinsurer could not meet its obligations, the Company would assume the
liability. The likelihood of a material loss being incurred as the result of the
failure of one of our reinsurers is considered remote. The cost of reinsurance
ceded totaled $21.0 million, $24.2 million and $24.6 million in 1998, 1997 and
1996, respectively. Reinsurance recoveries netted against insurance policy
benefits totaled $21.8 million, $14.9 million and $19.4 million in 1998, 1997
and 1996, respectively.
Income Taxes
Our income tax expense includes deferred income taxes arising from
temporary differences between the tax and financial reporting bases of assets
and liabilities. In assessing the realization of deferred income tax assets, we
consider whether it is more likely than not that the deferred income tax assets
will be realized. The ultimate realization of deferred income tax assets depends
upon generating future taxable income during the periods in which temporary
differences become deductible. If future income is not generated as expected,
deferred income tax assets may need to be written off (no such write-offs have
occurred).
Investment Borrowings
As part of our investment strategy, we may enter into reverse repurchase
agreements and dollar-roll transactions to increase our investment return or to
improve our liquidity. We account for these transactions as collateral
borrowings, where the amount borrowed is equal to the sales price of the
underlying securities. Reverse repurchase agreements involve a sale of
securities and an agreement to repurchase the same securities at a later date at
an agreed-upon price. Dollar rolls are similar to reverse repurchase agreements
except that, with dollar rolls, the repurchase involves securities that are only
substantially the same as the securities sold. We account for these transactions
as short-term collateralized borrowings. Such borrowings averaged approximately
$66.0 million during 1998 (compared with an average of $90.4 million during
1997) and were collateralized by investment securities with fair values
approximately equal to the loan value. The weighted average interest rate on
short-term collateralized borrowings was 4.4 percent in both 1998 and 1997. The
primary risk associated with short-term collateralized borrowings is that a
counterparty will be unable to perform under the terms of the contract. Our
exposure is limited to the excess of the net replacement cost of the securities
over the value of the short-term investments (such excess was not material at
December 31, 1998). We believe the counterparties to our reverse repurchase and
dollar-roll agreements are financially responsible and that the counterparty
risk is minimal.
Use of Estimates
When we prepare financial statements in conformity with GAAP, we are
required to make estimates and assumptions that significantly affect various
reported amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting periods. For example, we use significant estimates
and assumptions in calculating values for the cost of policies produced, the
cost of policies purchased, goodwill, liabilities for insurance and deposit
products, liabilities related to litigation, guaranty fund assessment accruals,
gain on sale of finance receivables and deferred income taxes. If our future
experience differs materially from these estimates and assumptions, our
financial statements could be affected.
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.
F-16
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Short-term investments. We use quoted market prices. The carrying amount
for these instruments approximates their estimated fair value.
Mortgage loans and policy loans. We discount future expected cash flows for
loans included in our investment portfolio based on interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. We aggregate loans with similar characteristics in our
calculations.
Other invested assets. We use quoted market prices, where available. When
quotes are not available, we assume a market value equal to carrying value.
Insurance liabilities for investment contracts. We discount future expected
cash flows based on interest rates currently being offered for similar
contracts with similar maturities.
Investment borrowings. Due to the short-term nature of these borrowings
(terms generally less than 30 days), estimated fair values are assumed to
approximate the carrying amount reported in the balance sheet.
Here are the estimated fair values of our financial instruments:
<TABLE>
<CAPTION>
1998 1997
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Financial assets:
Actively managed fixed maturities............................ $1,524.1 $1,524.1 $1,734.0 $1,734.0
Equity securities ........................................... 45.7 45.7 25.4 25.4
Mortgage loans............................................... 110.2 119.0 146.1 154.6
Policy loans................................................. 79.6 79.6 80.6 80.6
Other invested assets........................................ 103.1 103.1 62.8 62.8
Short-term investments....................................... 48.4 48.4 49.5 49.5
Financial liabilities:
Insurance liabilities for investment contracts (1)........... 1,036.0 1,036.0 1,177.5 1,177.5
Investment borrowings........................................ 65.7 65.7 61.0 61.0
<FN>
(1) The estimated fair value of the liabilities for investment contracts
was approximately equal to its carrying value at December 31, 1998 and
1997. This was because interest rates credited on the vast majority of
account balances approximate current rates paid on similar investments
contracts and because these rates are not generally guaranteed beyond
one year. We are not required to disclose fair values for insurance
liabilities, other than those for investment contracts. However, we
take into consideration the estimated fair values of all insurance
liabilities in our overall management of interest rate risk. We attempt
to minimize exposure to changing interest rates by matching investment
maturities with amounts due under insurance contracts.
</FN>
</TABLE>
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") was issued in June
1998. SFAS 133 requires all derivative instruments to be recorded on the balance
sheet at estimated fair value. Changes in the fair value of derivative
instruments are to be recorded each period either in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, on the type of hedge transaction. SFAS 133 is
effective for year 2000. We are currently evaluating the impact of SFAS 133; at
present, we do not believe it will have a material effect on our financial
position or results of operations.
F-17
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
2. INVESTMENTS:
At December 31, 1998, the amortized cost and estimated fair value of
actively managed fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Investment grade:
Corporate securities................................................ $ 860.4 $20.7 $15.0 $ 866.1
United States Treasury securities and obligations of
United States government corporations and agencies................ 26.9 .8 .2 27.5
States and political subdivisions................................... 17.3 .3 - 17.6
Debt securities issued by foreign governments....................... 11.7 - .8 10.9
Mortgage-backed securities ......................................... 487.4 8.0 1.2 494.2
Below-investment grade (primarily corporate securities)................ 116.8 1.2 10.2 107.8
-------- ----- ----- --------
Total actively managed fixed maturities........................... $1,520.5 $31.0 $27.4 $1,524.1
======== ===== ===== ========
Equity securities...................................................... $ 46.0 $ .8 $ 1.1 $ 45.7
======== ===== ===== ========
</TABLE>
At December 31, 1997, the amortized cost and estimated fair value of
actively managed fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ---- -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Investment grade:
Corporate securities................................................ $ 955.8 $28.3 $ 5.3 $ 978.8
United States Treasury securities and obligations of
United States government corporations and agencies................ 28.0 .7 - 28.7
States and political subdivisions................................... 20.4 1.1 .1 21.4
Debt securities issued by foreign governments....................... 13.5 .1 .7 12.9
Mortgage-backed securities ......................................... 551.6 8.6 .4 559.8
Below-investment grade (primarily corporate securities)................ 135.9 1.8 5.3 132.4
-------- ----- ----- --------
Total actively managed fixed maturities........................... $1,705.2 $40.6 $11.8 $1,734.0
======== ===== ===== ========
Equity securities...................................................... $ 25.1 $ .5 $ .2 $ 25.4
======== ===== ===== ========
</TABLE>
Net unrealized gains (losses) on actively managed fixed maturity
investments included in shareholders' equity as of December 31, 1998 and 1997,
were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Dollars in millions)
<S> <C> <C>
Net unrealized gains on actively managed fixed maturity investments.................................. $ 3.6 $ 28.8
Adjustments to cost of policies purchased and cost of policies produced.............................. (2.1) (16.2)
Deferred income tax benefit.......................................................................... (.5) (4.4)
----- ------
Net unrealized gain on actively managed fixed maturity investments............................ $ 1.0 $ 8.2
===== ======
</TABLE>
F-18
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The following table sets forth the amortized cost and estimated fair value
of actively managed fixed maturities at December 31, 1998, by contractual
maturity. Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Most of the mortgage-backed securities shown below
provide for periodic payments throughout their lives.
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
---- -----
(Dollars in millions)
<S> <C> <C>
Due in one year or less........................................................................ $ 14.5 $ 14.5
Due after one year through five years.......................................................... 132.1 133.4
Due after five years through ten years......................................................... 249.3 245.6
Due after ten years............................................................................ 637.2 636.4
-------- --------
Subtotal.................................................................................. 1,033.1 1,029.9
Mortgage-backed securities..................................................................... 487.4 494.2
-------- --------
Total actively managed fixed maturities ............................................... $1,520.5 $1,524.1
======== ========
</TABLE>
Net investment income consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturity securities........................................... $118.4 $133.6 $146.4
Equity securities.................................................................... 3.2 1.7 1.6
Mortgage loans....................................................................... 12.1 16.4 19.0
Policy loans......................................................................... 5.1 5.4 5.0
Other invested assets................................................................ 13.3 7.7 9.8
Short-term investments............................................................... 2.9 3.4 2.3
Separate accounts.................................................................... 44.1 55.7 35.6
------ ------ ------
Gross investment income.......................................................... 199.1 223.9 219.7
Investment expenses.................................................................. 1.1 1.3 1.3
------ ------ ------
Net investment income......................................................... $198.0 $222.6 $218.4
====== ====== ======
</TABLE>
The Company had no significant fixed maturity investments and mortgage
loans that were not accruing investment income in 1998, 1997 and 1996.
F-19
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Investment gains (losses), net of investment expenses, were included in
revenue as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Fixed maturities:
Gross gains........................................................................ $ 34.0 $20.6 $16.6
Gross losses....................................................................... (12.4) (5.1) (9.2)
Other than temporary decline in fair value......................................... - (.3) (.2)
------- ----- -----
Net investment gains from fixed maturities before expenses.................... 21.6 15.2 7.2
Other.................................................................................. .1 2.2 (.6)
------ ----- -----
Net investment gains before expenses.......................................... 21.7 17.4 6.6
Investment expenses.................................................................... 3.2 4.1 3.9
------ ----- -----
Net investment gains.......................................................... $ 18.5 $13.3 $ 2.7
====== ===== =====
</TABLE>
At December 31, 1998, the mortgage loan balance was primarily comprised of
commercial loans. Approximately 15 percent, 12 percent, 12 percent, 11 percent
and 8 percent of the mortgage loan balance were on properties located in
California, Michigan, Florida, Texas and Georgia, respectively. No other state
comprised greater than 8 percent of the mortgage loan balance. Noncurrent
mortgage loans were insignificant at December 31, 1998. At December 31, 1998,
our allowance for loss on mortgage loans was $.8 million.
Life insurance companies are required to maintain certain investments on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $16.1 million at December 31, 1998.
The Company had no investments in any single entity in excess of 10 percent
of shareholder's equity at December 31, 1998, other than investments issued or
guaranteed by the United States government or a United States government agency.
3. INSURANCE LIABILITIES:
These liabilities consisted of the following:
<TABLE>
<CAPTION>
Interest
Withdrawal Mortality rate
assumption assumption assumption 1998 1997
---------- ---------- ---------- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Interest-sensitive products:
Investment contracts............................ N/A N/A (c) $1,036.0 $1,177.5
Universal life-type contracts................... N/A N/A 4.8% 329.2 344.6
-------- --------
Total interest-sensitive products............. 1,365.2 1,522.1
-------- --------
Traditional products:
Traditional life insurance contracts............ Company (a) 7.6% 139.9 142.8
experience
Limited-payment contracts....................... None (b) 7.6% 106.3 105.5
-------- --------
Total traditional products.................... 246.2 248.3
-------- --------
Claims payable and other policyholder funds ........ N/A N/A N/A 62.6 62.5
Liabilities related to separate accounts............ N/A N/A N/A 696.4 402.1
-------- --------
Total........................................... $2,370.4 $2,235.0
======== ========
F-20
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
<FN>
- -------------
(a) Principally modifications of the 1975 - 80 Basic, Select and Ultimate
Tables.
(b) Principally the 1984 United States Population Table and the NAIC 1983
Individual Annuitant Mortality Table.
(c) At December 31, 1998 and 1997, approximately 95 percent and 97 percent,
respectively, of this liability represented account balances where
future benefits are not guaranteed. The weighted average interest rate
on the remainder of the liabilities representing the present value of
guaranteed future benefits was approximately 6 percent at December 31,
1998.
</FN>
</TABLE>
4. INCOME TAXES:
Income tax liabilities were comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Dollars in millions)
<S> <C> <C>
Deferred income tax liabilities (assets):
Investments (primarily actively managed fixed maturities).................................. $ 5.4 $ 9.8
Cost of policies purchased and cost of policies produced................................... 56.7 52.2
Insurance liabilities...................................................................... (28.2) (19.5)
Unrealized appreciation (depreciation)..................................................... (.4) 4.7
Other...................................................................................... (2.2) (4.0)
------ ------
Deferred income tax liabilities....................................................... 31.3 43.2
Current income tax liabilities (assets)........................................................ 6.2 1.0
------ ------
Income tax liabilities................................................................ $ 37.5 $ 44.2
====== ======
</TABLE>
Income tax expense was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Current tax provision..................................................................... $20.8 $16.3 $10.5
Deferred tax provision (benefit).......................................................... (4.2) 5.8 4.9
----- ----- -----
Income tax expense............................................................... $16.6 $22.1 $15.4
===== ===== =====
</TABLE>
A reconciliation of the income tax provisions based on the U.S. statutory
corporate tax rate to the provisions reflected in the statement of operations is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Tax on income before income taxes at statutory rate....................................... 35.0% 35.0% 35.0%
State taxes............................................................................... 1.0 .7 1.5
Other..................................................................................... (.8) .3 1.0
---- ---- ----
Income tax expense............................................................... 35.2% 36.0% 37.5%
==== ==== ====
</TABLE>
5. OTHER DISCLOSURES:
Litigation
The Company is involved on an ongoing basis in lawsuits related to its
operations. Although the ultimate outcome of certain of such matters cannot be
predicted, none of such lawsuits currently pending against the Company is
expected, individually or in the aggregate, to have a material adverse effect on
the Company's financial condition, cash flows or results of operations.
F-21
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Guaranty Fund Assessments
The balance sheet at December 31, 1998, includes: (i) accruals of $2.4
million, representing our estimate of all known assessments that will be levied
against the Company by various state guaranty associations based on premiums
written through December 31, 1998; and (ii) receivables of $1.9 million that we
estimate will be recovered through a reduction in future premium taxes as a
result of such assessments. These estimates are subject to change when the
associations determine more precisely the losses that have occurred and how such
losses will be allocated among the insurance companies. We recognized expense
for such assessments of $1.1 million in 1998, $1.2 million in 1997 and $1.4
million in 1996.
Related Party Transactions
The Company operates without direct employees through management and
service agreements with subsidiaries of Conseco. Fees for such services
(including data processing, executive management and investment management
services) are based on Conseco's direct and directly allocable costs plus a 10
percent margin. Total fees incurred by the Company under such agreements were
$37.8 million in 1998, $36.7 million in 1997 and $44.1 million in 1996.
During 1998 and 1997, the Company purchased $13.0 million and $11.2 million
par value, respectively, of senior subordinated notes issued by subsidiaries of
Conseco. The total carrying value of such notes purchased during 1998, 1997 and
prior years was $45.5 million and $29.8 million at December 31, 1998 and 1997,
respectively. Such notes are classified as "other invested assets" in the
accompanying balance sheet. In addition, during 1997, a subsidiary of Conseco
redeemed $16.5 million par value of such notes which were purchased in 1996.
6. OTHER OPERATING STATEMENT DATA:
Insurance policy income consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Traditional products:
Direct premiums collected......................................................... $445.8 $309.6 $241.3
Reinsurance assumed............................................................... 15.6 14.9 1.7
Reinsurance ceded................................................................. (21.0) (24.2) (24.6)
------ ------ ------
Premiums collected, net of reinsurance...................................... 440.4 300.3 218.4
Less premiums on universal life and products
without mortality and morbidity risk which are
recorded as additions to insurance liabilities ................................ 400.4 255.9 169.8
------ ------ ------
Premiums on traditional products with mortality or morbidity risk,
recorded as insurance policy income...................................... 40.0 44.4 48.6
Fees and surrender charges on interest sensitive products............................. 33.6 31.3 32.8
------ ------ ------
Insurance policy income..................................................... $ 73.6 $ 75.7 $ 81.4
====== ====== ======
</TABLE>
The five states with the largest shares of 1998 collected premiums were
Texas (17 percent), Florida (16 percent), California (13 percent), Michigan (7.1
percent) and Indiana (6.2 percent). No other state accounted for more than 5.0
percent of total collected premiums.
F-22
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Changes in the cost of policies purchased were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Balance, beginning of year............................................................ $106.4 $143.0 $120.0
Amortization...................................................................... (21.1) (15.4) (15.3)
Amounts related to fair value adjustment of actively managed fixed maturities 11.8 (21.2) 36.6
Other ............................................................................ .9 - 1.7
------ ------ ------
Balance, end of year.................................................................. $ 98.0 $106.4 $143.0
====== ====== ======
</TABLE>
Based on current conditions and assumptions as to future events on all
policies in force, the Company expects to amortize approximately 10 percent of
the December 31, 1998, balance of cost of policies purchased in 1999, 9 percent
in 2000, 9 percent in 2001, 8 percent in 2002 and 8 percent in 2003. The
discount rates used to determine the amortization of the cost of policies
purchased ranged from 3.6 percent to 8.0 percent and averaged 5.8 percent.
Changes in the cost of policies produced were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Balance, beginning of year............................................................ $ 55.9 $ 38.2 $24.0
Additions......................................................................... 35.3 31.8 13.2
Amortization...................................................................... (11.0) (10.2) (3.5)
Amounts related to fair value adjustment of actively managed fixed maturities 2.3 (3.9) 4.5
-------- ------- -----
Balance, end of year.................................................................. $ 82.5 $ 55.9 $38.2
====== ====== =====
</TABLE>
7. STATEMENT OF CASH FLOWS:
Income taxes paid during 1998, 1997, and 1996, were $17.1 million, $14.8
million and $18.1 million, respectively.
Short-term investments having original maturities of three months or less
are considered to be cash equivalents. All cash is invested in short-term
investments.
8. STATUTORY INFORMATION:
Statutory accounting practices prescribed or permitted for insurance
companies by regulatory authorities differ from generally accepted accounting
principles. The Company reported the following amounts to regulatory agencies:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Dollars in millions)
<S> <C> <C>
Statutory capital and surplus.................................................. $134.0 $140.7
Asset valuation reserve........................................................ 30.9 29.2
Interest maintenance reserve................................................... 73.1 68.8
------ ------
Total..................................................................... . $238.0 $238.7
====== ======
</TABLE>
F-23
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The Company's statutory net income was $32.7 million, $32.7 million and
$32.6 million in 1998, 1997 and 1996, respectively.
State insurance laws generally restrict the ability of insurance companies
to pay dividends or make other distributions. Approximately $32.9 million of the
Company's net assets at December 31, 1998, are available for distribution in
1999 without permission of state regulatory authorities.
F-24
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) Bylaws of the Company.*
7. Not Applicable.
8. (i) Form of Fund Participation Agreement by and among The Alger American
Fund, Great American Reserve Insurance Company and Fred Alger and
Company, Incorporated.**
(ii) Form of Fund Participation Agreement by and among Great American
Reserve Insurance Company, Berger Institutional Products Trust and
BBOI Worldwide LLC.**
(iii)Form of Fund Participation by and between Great American Reserve
Insurance Company, Insurance Management Series and Federated
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.***
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.
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 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 was filed as Exhibit 15 in Form N-4
(Conseco Variable Annuity Account F, File Nos. 333-40309 and 811-08483) and is
incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not Applicable
ITEM 28. INDEMNIFICATION
The Bylaws (Article VI) of the Company provide, in part, that:
The Corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative,
by reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (collectively, "Agent") against expenses
(including attorneys' fees), judgments, fines, penalties, court costs and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement (whether with or
without court approval), conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the Agent did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. If several claims, issues or matters are involved, an
Agent may be entitled to indemnification as to some matters even though he is
not entitled as to other matters. Any director or officer of the Corporation
serving in any capacity of another corporation, of which a majority of the
shares entitled to vote in the election of its directors is held, directly or
indirectly, by the Corporation, shall be deemed to be doing so at the request of
the Corporation.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Conseco Equity Sales, Inc. is the principal underwriter for the following
investment companies (other than the Registrant):
Conseco Variable Annuity Account C
Conseco Variable Annuity Account E
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, Senior Counsel,
Secretary and Director
James S. Adams Senior Vice President, Treasurer
and Director
William T. Devanney, Jr. Senior Vice President, Corporate
Taxes
Christene H. Darnell Vice President, Management
Reporting
Donald B. Johnston Vice President, National Sales Director
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
K. Lowell Short, whose address is 11825 N. Pennsylvania Street, Carmel, IN
46032, maintains physical possession of the accounts, books or documents of the
Separate Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. 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 has caused this Registration Statement to
be signed on its behalf, in the City of Carmel, and State of Indiana on this 3rd
day of February, 2000.
CONSECO VARIABLE ANNUITY
ACCOUNT H
Registrant
By: CONSECO VARIABLE INSURANCE COMPANY
By: /S/ ROLLIN M. DICK
------------------------------
By: CONSECO VARIABLE INSURANCE COMPANY
Depositor
By: /S/ ROLLIN M. DICK
-------------------------------
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------ -------------------------- ---------------
/S/ NGAIRE E. CUNEO Director 2/3/00
- ------------------------ -----------------
Ngaire E. Cuneo
/S/ THOMAS J. KILIAN Director 2/3/00
- ------------------------ -----------------
Thomas J. Kilian
Director and Chairman of
/S/ STEPHEN C. HILBERT of the Board (Principal 2/3/00
- ------------------------ Executive Officer) -----------------
Stephen C. Hilbert
/S/ ROLLIN M. DICK Director, Executive Vice 2/3/00
- ------------------------ President and Chief -----------------
Rollin M. Dick Financial Officer
(Principal Financial
Officer)
/S/ JOHN J. SABL Director 2/3/00
- ----------------------- ----------------
John J. Sabl
/S/ JAMES S. ADAMS Senior Vice President and 2/3/00
- ----------------------- Treasurer (Chief Accounting ----------------
James S. Adams Officer)
EXHIBITS TO
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM N-4
INDEX TO EXHIBITS
EX-99.B3(i) Form of Principal Underwriters Agreement
EX-99.B3(ii) Form of Selling Agreement
EX-99.B5 Application Form
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Consent of Independent Accountants
PRINCIPAL UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between CONSECO VARIABLE INSURANCE COMPANY
("INSURANCE COMPANY") on behalf of CONSECO VARIABLE ANNUITY ACCOUNT H (the
"Variable Account") and CONSECO EQUITY SALES, INC. ("PRINCIPAL UNDERWRITER") as
follows:
I
INSURANCE COMPANY proposes to issue and sell Individual Fixed and Variable
Annuity Contracts (the "Contracts") of the Variable Account to the public
through PRINCIPAL UNDERWRITER. The PRINCIPAL UNDERWRITER agrees to provide sales
service subject to the terms and conditions hereof. The Contracts to be sold are
more fully described in the registration statement and prospectus hereinafter
mentioned. Such Contracts will be issued by INSURANCE COMPANY through the
Variable Account.
II
INSURANCE COMPANY grants PRINCIPAL UNDERWRITER the exclusive right, during
the term of this Agreement, subject to registration requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 and the provisions
of the Securities Exchange Act of 1934, to be the distributor of the Contracts
issued through the Variable Account. PRINCIPAL UNDERWRITER will sell the
Contracts under such terms as set by INSURANCE COMPANY and will make such sales
to purchasers permitted to buy such Contracts as specified in the prospectus.
III
PRINCIPAL UNDERWRITER shall be compensated for its distribution services in
such amount as to meet all of its obligations to selling broker dealers with
respect to all Purchase Payments accepted by INSURANCE COMPANY on the Contracts
covered hereby.
IV
On behalf of the Variable Account, INSURANCE COMPANY shall furnish
PRINCIPAL UNDERWRITER with copies of all prospectuses, financial statements and
other documents which PRINCIPAL UNDERWRITER reasonably requests for use in
connection with the distribution of the Contracts. INSURANCE COMPANY shall
provide to PRINCIPAL UNDERWRITER such number of copies of the current effective
prospectuses as PRINCIPAL UNDERWRITER shall request.
V
PRINCIPAL UNDERWRITER is not authorized to give any information, or to make
any representations concerning the Contracts or the Variable Account of
INSURANCE COMPANY other than those contained in the current registration
statements or prospectuses relating to the Variable Account filed with the
Securities and Exchange Commission or such sales literature as may be authorized
by INSURANCE COMPANY.
VI
Both parties to this Agreement agree to keep the necessary records as
indicated by applicable state and federal law and to render the necessary
assistance to one another for the accurate and timely preparation of such
records.
VII
This Agreement shall be effective upon the execution hereof and will remain
in effect unless terminated as hereinafter provided. This Agreement shall
automatically be terminated in the event of its assignment by PRINCIPAL
UNDERWRITER.
This Agreement may at any time be terminated by either party hereto upon 60
days' written notice to the other party.
VIII
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been given on the date
of service if served personally on the party to whom notice is to be given, or
on the date of mailing if sent by First Class Mail, Registered or Certified,
postage prepaid and properly addressed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their respective officers thereunto duly authorized.
EXECUTED this ____ day of ___________, 2000.
INSURANCE COMPANY
CONSECO VARIABLE INSURANCE COMPANY
BY: ____________________________________________
Michael A. Colliflower, Senior Vice President
ATTEST:
- ------------------------------
Secretary
PRINCIPAL UNDERWRITER
CONSECO EQUITY SALES, INC.
BY: ___________________________________________
L. Gregory Gloeckner, President
ATTEST:
- -----------------------------
Secretary
Conseco Equity Sales, Inc. Group Selling Agreement
CONSECO VARIABLE INSURANCE COMPANY
CONSECO EQUITY SALES, INC.
GROUP SELLING AGREEMENT
This Agreement is made between Conseco Variable Insurance Company ("Company"),
Conseco Equity Sales, Inc. ("Underwriter") with Administrative Offices in
Carmel, Indiana, and the Broker-Dealer named herein registered as a
Broker-Dealer ("Broker") and a member of the National Association of Securities
Dealers, Inc. (the "NASD"). The parties do hereby agree as follows:
1. Authorization.
Broker, either an individual, partnership, or corporation, is hereby authorized
by Company and Underwriter to solicit applications for variable annuity policies
("Policies"), as set forth in the Compensation Schedule which is made a part of
the Group Selling Agreement, to collect and remit initial required premiums to
Company, and to deliver Policies issued by Company:
a. only in jurisdictions where Broker is duly licensed and appointed by
the appropriate regulatory agencies, and;
b. only in states or territories in which Company is admitted to do
business and only for those Policies offered by Company that have been
approved by the appropriate regulatory agencies.
Broker shall supply Company with copies of all certificates of qualification or
licenses required of Broker under this Agreement.
1.1. Limitation of Authority.
Broker has no authority during the time this Agreement is in effect, or after
termination, to:
a. make or modify Policies on behalf of Company or waive any of Company's
rights or requirements;
b. collect or receive premiums or renewals other than the initial
required premium;
c. endorse, cash or deposit any checks or drafts payable to Company;
d. open any bank account or trust account on behalf of, for the benefit
of, or containing the name of, Company;
e. advertise or publish any matter or thing, including use of the names
or logos of Company or those of its subsidiaries or affiliates,
concerning Company or its Policies without prior written permission of
Company;
f. directly or indirectly cause or endeavor to cause any Broker of
Company and Underwriter or registered representatives of Underwriter
to terminate or alter its/his contract with Company, or induce or
attempt to induce any policyholder of Company to relinquish,
surrender, replace or lapse a Policy; or
g. do or perform any acts or things other than expressly authorized
herein.
This Agreement shall not create an employer-employee relationship. The
relationship of Broker to Company shall be that of independent contractor.
Broker shall indemnify and hold harmless Company, Underwriter, and their
affiliates from any and all claims, demands, penalties, suits, or actions, and
from any and all losses, costs, and expenses in connection therewith, including
attorney's fees and expenses, arising out of or resulting from sales of the
Policies by or through the Broker, or from the default in the performance of, or
in the negligent performance of, by Broker or Broker's partners, directors,
officers, employees or agents, the obligations of Broker under this Agreement.
In addition, Broker agrees to furnish and maintain a satisfactory bond of
indemnity when requested by Company, a copy of such bond to be submitted to
Company within 30 days of request. The provisions of this paragraph shall
survive the termination of this Agreement.
1.2. Representation and Service.
Broker agrees:
a. that Broker will supervise the securities activities of Broker's with
respect to the sale of the Policies and agrees to establish such rules
and procedures as are necessary to insure compliance with applicable
federal and state securities laws and to accept such supervision;
b. to observe the rules, procedures and other directives established, and
given by Underwriter relating to the sale of the Policies by Broker,
as initially set forth in the Broker-Dealer Manual which Underwriter
must provide, provided, however, that provision of the Broker-Dealer
Manual shall not be deemed to imply a duty of supervision by Company
or Underwriter over Broker, or to relieve Broker of it's duty to
supervise its personnel. Broker will also comply with the rules and
regulations of the Securities and Exchange Commission and the NASD
relating to the sale and distribution of the Policies and will observe
all applicable federal and state laws relating to the Policies;
c. that all solicitations for Policies are accompanied by the appropriate
current prospectuses for the Policies conforming to the requirements
of the Securities Act of 1933;
d. no representations concerning the Policies will be made except those
contained in the appropriate current prospectuses and in information
supplemental to the prospectuses, which may be supplied by Underwriter
and designated for use with the public. In this regard, Broker further
agrees to refrain from using advertising or sales literature
concerning the Policies unless and until it has been approved by
Underwriter;
e. to become fully informed as to the provisions and benefits of each
Policy offered by Company for which Broker solicits applications;
f. to represent such Policies adequately and fairly to prospects;
g. to provide all usual and customary service to policyholders and effort
to maintain in force any business placed with Company; and
h. to hold in a fiduciary capacity all premiums received with any
applications for Policies solicited for Company.
1.3. Broker's Agents.
Broker will recruit, train and supervise registered representatives
("Representatives") for the sale of the Policies. Appointment of each
Representative shall be subject to Company's prior approval. Company may require
termination of any Representative's authority to sell the Policies. Broker is
responsible for the Representatives' compliance with the terms and conditions of
this Agreement and for the Representatives being duly licensed pursuant to
applicable state and federal laws.
1.4. Delivery of Policy.
Broker shall promptly deliver all issued Policies in accordance with Company
rules.
1.5. Administrative Guidelines and Compliance.
Company's administrative guidelines, including bulletins, product and procedure
updates, the revisions, additions and amendments thereto, from the time made by
Company, shall be for all purposes a part of this Agreement as fully as if set
out word for word herein and shall be complied with by Broker provided, however,
that this shall not be deemed to imply a duty of supervision by Company or
Underwriter over Broker, or to relieve Broker of its duty to supervise its
personnel. Broker agrees to comply fully with all applicable regulations,
bulletins, rulings, circular letters, proclamations and statutes, now or
hereafter in force, and to promptly notify Company in writing of all contacts
and/or correspondence received from insurance regulatory or other governmental
authorities, and to cooperate fully with Company in making responses to those
authorities.
2. Compensation.
All compensation payable for sales of the Policies shall be paid by Company to
Broker through Underwriter and nothing contained herein shall create any right,
title or interest in Underwriter to such compensation nor any responsibility on
the part of Underwriter for payment of such compensation. Company agrees to pay
compensation in the form of commissions and service fees as provided in the
Compensation Schedule(s) delivered to Broker by Company and incorporated herein
by reference, upon any cash premiums received by Company for Policies issued on
applications submitted by Broker. Such compensation shall be payment in full for
all services performed and all expenses incurred by Broker. Company reserves the
right to accrue compensation under this Agreement until a minimum of $25.00 has
become due. If this Agreement is terminated for any reason, regardless of what
the Compensation Schedule(s) might provide, no compensation of any kind shall
thereafter be payable.
2.1. Compensation Schedule(s).
The Compensation Schedule(s) attached, or which may hereafter be added, is
incorporated herein and made a part of this Agreement. Company reserves the
right to change such Compensation Schedule(s) at any time upon written notice to
Broker. However, no such change shall be applicable to Policies for which
Company has accepted premiums prior to the effective date of such change.
2.2. Accounting.
Company will give to Broker a monthly statement of all compensation becoming due
and payable since the date of the previous monthly statement. Unless Company
receives written objection to such monthly statement from Broker, within 90 days
after the date it is mailed to Broker's last known address or delivered to
Broker in person, the same shall be deemed final and binding upon Broker.
2.3. Exchanges.
If in the sole discretion of Company a new Policy is issued to replace a
terminated or in force policy of Company or its affiliates or subsidiaries, the
new Policy shall be regarded as an exchanged Policy, and any compensation
payable shall be determined and adjusted by Company in accordance with Company's
then current exchange rules, independent of the Compensation Schedule(s).
2.4. Return of Premium.
If no Policy is issued on an application, the whole amount of all monies
collected by Broker will be immediately returned to the applicant. If Company
finds it necessary, for any reason, to cancel a Policy and refund premiums, any
compensation paid to Broker on the amount refunded shall be repaid to Company,
or may be deducted from any compensation payable to Broker under this Agreement.
2.5. Local Taxes.
Broker is responsible for any county or municipal occupational or privilege fee,
tax or license which may be required of Broker or Representatives as a result of
business submitted hereunder.
3. Indebtedness.
Company shall have a first lien upon any amounts due, or to become due, Broker
for indebtedness to Company or its affiliates and subsidiaries, whether due or
contingent, of Broker or Broker's assigns under this Agreement. Such
indebtedness may be deducted by Company from such amounts due or to become due.
3.1. Guarantee.
If Broker is a corporation or partnership, the principal(s) signing this
Agreement on behalf of Broker jointly and severally guarantee to repay to
Company any indebtedness Company is unable to collect from Broker. Should it
become necessary to take legal action to recover such indebtedness, the
principal(s) jointly and severally agree to be responsible for the reasonable
attorney fees and expenses of Company.
4. Termination.
Termination of this Agreement is effected as follows:
a. Cause. This Agreement may be terminated for cause by Company,
immediately upon written notice to Broker, when Broker or Broker's
partner, director, officer, employee or agent has, or is reasonably
believed to have: (i) misappropriated funds from any policyowner or
from Company; (ii) endeavored to induce Brokers of Company and
Underwriter or registered representatives of Underwriter to leave its
services or policyowners of Company to relinquish their policies;
(iii) interfered with the collection of renewal premiums; (iv) engaged
in fraudulent acts or any other act violative of federal or state law
or other applicable rules or regulations, including the Conduct Rules
of the NASD; (v) been adjudged a bankrupt or executed a general
assignment for benefit of creditors or committed an act of bankruptcy;
or (vi) otherwise acted to prejudice materially the interest of
Company in breach of this Agreement. If Company does not terminate
this Agreement for any such cause, a waiver shall not result and this
Agreement may be terminated under this subparagraph for any subsequent
cause.
b. Death or Dissolution. If Broker is not a corporation or partnership,
this Agreement will terminate on the date of Broker's death. If Broker
is a corporation or partnership, this Agreement will terminate on the
date that the corporation or partnership is dissolved or otherwise
judged by appropriate regulatory agencies to no longer be a legal
entity.
c. License Suspension or Revocation. This Agreement will terminate
immediately in the event of any order of suspension, revocation or
termination of Broker's license by any regulatory authority.
d. Default. This Agreement will terminate immediately upon notice in the
event of:
1. default under this Agreement; or
2. Broker or Broker's associated person's failure to timely and
fully comply with Company directives, rules, regulations or
manuals.
e. Ownership Change. This Agreement will terminate if Broker is not a
natural person and in the event of a significant change in Broker's
ownership or management, or in the event of the execution of an
agreement of sale, transfer or merger of Broker, without prior notice
and consent of Company.
f. Notice. This Agreement may be terminated by either party for any
reason by giving the other party at least 30 days advance written
notice delivered personally or mailed to the last known address of the
other party.
g. Indebtedness. Upon termination of this Agreement, any indebtedness to
Company becomes immediately due and payable.
5. Previous Agreement.
By execution of this Agreement, any prior agreement between the Company,
Underwriter and the Broker or between Company and the signing principal(s)
related specifically to the business transacted under this Agreement is
terminated as of the effective date of this Agreement; but while this Agreement
remains in force, any rights of Broker to receive compensation under the terms
and conditions of the prior agreement are continued hereunder, and such earned
compensation shall be payable at the rate, for the remainder of the period, and
on the basis applicable as if that agreement remained in force.
6. Entire Agreement.
This Agreement, including any supplements and the Compensation Schedule(s), is
the entire Agreement between the parties for all dealings after its effective
date. This Agreement shall not be assigned without the prior written consent of
Company. No amendment of this Agreement shall be valid unless made in writing by
Company.
7. Waiver.
No waiver by Company of rights arising from wrongdoing or failure by Broker
shall occur by Company's election not to enforce any provision of this
Agreement, nor reduce or affect Company's rights arising from subsequent
wrongdoing or failure by Broker. Broker releases Company from any liability for
providing social security numbers and tax data to authorized governmental
agencies.
8. Notice.
Any written notice given under any provision of this Agreement shall be complete
upon deposit, postage paid, in the U.S. Mail addressed to Broker at Broker's
last known address according to Company's records or to Company or Underwriter
at its Administrative Offices.
9. Arbitration.
Any dispute, claim or controversy arising out of or relating to this Agreement,
performance hereunder or the breach hereof, or otherwise arising between Broker
and Company or Underwriter, shall be subject to mandatory arbitration under the
auspices, rules and by-laws of the NASD, as may be amended from time to time,
and any arbitration award may be entered as a judgment in a court of competent
jurisdiction. Notwithstanding the foregoing arbitration requirement, at its
option, Company and/or Underwriter may seek injunctive relief either within the
arbitration process or from a court of competent jurisdiction. Venue for any
such injunctive action shall be in a court located in Noblesville, Hamilton
County, Indiana. Venue for arbitration hearing shall be in Hamilton County,
Indiana.
10. Construction
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
INDIANA EXCLUSIVE OF CHOICE OF LAWS PROVISIONS.
The effective date of this Group Selling Agreement with Conseco Variable
Insurance Company and Conseco Equity Sales, Inc., shall be:
<TABLE>
<CAPTION>
<S> <C>
______________________________ _______________, _______________.
(Month) (Day) (Year)
_____________________________________________ Check Type of Legal Entity:
Contract Account Number (Assigned by Company) [ ] Individual [ ] Partnership
[ ] Corporation (Note: If Partnership or
Corporation two different
signatures are necessary)
_____________________________________________
Type or Print Name of Broker/Dealer
_____________________________________________
Taxpayer Identification Number of Broker/Dealer
_____________________________________________ _____________________________________________
Type or Print Name of Principal Type or Print Name of Principal
______________________________________________ ______________________________________________
Signature of Principal Signature of Principal
_____________________________________________ ______________________________________________
Social Security Number of Principal Social Security Number of Principal
Conseco Variable Conseco Equity Sales, Inc.
Insurance Company
By: ________________________________________ By: ________________________________________
Authorized Signature Authorized Signature
________________________________________ ________________________________________
Type or Print Name Type or Print Name
________________________________________ ________________________________________
Title Title
________________________________________ ________________________________________
Date Date
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
CONSECO VARIABLE INSURANCE COMPANY
Attention: Variable Annuity New Business (1-800-342-6307) MAKE CHECKS PAYABLE TO
Administrative Office: 11815 N. Pennsylvania Street CONSECO VARIABLE INSURANCE COMPANY
P.O. Box 1909, Carmel, IN 46082-1909
VARIABLE ANNUITY APPLICATION
Check One:
[ ] Individual Applicant [ ] Group Applicant [ ] Check here if app was sent
electronically
- --------------------------------------------------------------------- --------------------------------------------------------------
1A. ANNUITANT 1B. JOINT ANNUITANT (Not available on all products)
- --------------------------------------------------------------------- --------------------------------------------------------------
- --------------------------------------------------------------------- --------------------------------------------------------------
Name (first, mi, last) Name (first, mi, last)
- --------------------------------------------------------------------- --------------------------------------------------------------
- --------------------------------------------------------------------- --------------------------------------------------------------
Street Address Street Address
- --------------------------------------------------------------------- --------------------------------------------------------------
- --------------------------------------------------------------------- --------------------------------------------------------------
City State Zip City State Zip
- --------------------------------------------------------------------- --------------------------------------------------------------
- -------------------------------------------------- ------------------ ----------------------------------------------- --------------
Birth Date (mo, day, yr) Male Birth Date (mo, day, yr) Male
- -------------------------------------------------- ------------------ ----------------------------------------------- --------------
- -------------------------------------------------- ------------------ ----------------------------------------------- --------------
Soc. Sec./Federal ID # Soc. Sec./Federal ID #
- -------------------------------------------------- ------------------ ----------------------------------------------- --------------
- ------------------------------------------ -------------------------- --------------------------------------- ----------------------
Home Phone # ( ) Work Phone # Home Phone # ( ) Work Phone #
E-mail: E-mail:
- ------------------------------------------ -------------------------- --------------------------------------- ----------------------
- --------------------------------------------------------------------- --------------------------------------------------------------
2A. CONTRACT/CERTIFICATE OWNER (if not Annuitant) 2B. JOINT OWNER (if applicable)
(Annuitant & Owner must be the same for 403(b) and IRA Plans)
- --------------------------------------------------------------------- --------------------------------------------------------------
- --------------------------------------------------------------------- --------------------------------------------------------------
Name (first, mi, last) Name (first, mi, last)
- --------------------------------------------------------------------- --------------------------------------------------------------
- --------------------------------------------------------------------- --------------------------------------------------------------
Street Address Street Address
- --------------------------------------------------------------------- --------------------------------------------------------------
- --------------------------------------------------------------------- --------------------------------------------------------------
City State Zip City State Zip
- --------------------------------------------------------------------- --------------------------------------------------------------
- -------------------------------------------------- ------------------ ----------------------------------------------- --------------
Birth Date (mo, day, yr) Male Birth Date (mo, day, yr) Male
- -------------------------------------------------- ------------------ ----------------------------------------------- --------------
- -------------------------------------------------- ------------------ ----------------------------------------------- --------------
Soc. Sec./Federal ID # Soc. Sec./Federal ID #
- -------------------------------------------------- ------------------ ----------------------------------------------- --------------
- ------------------------------------------ -------------------------- --------------------------------------- ----------------------
Home Phone # ( ) Work Phone # Home Phone # ( ) Work Phone #
E-mail: E-mail:
- ------------------------------------------ -------------------------- --------------------------------------- ----------------------
- --------------------------------------------------------------------- --------------------------------------------------------------
3A. PRIMARY BENEFICIARY 3B. CONTINGENT BENEFICIARY
- --------------------------------------------------------------------- --------------------------------------------------------------
- --------------------------------------------------------------------- --------------------------------------------------------------
Name (first, mi, last) Name (first, mi, last)
- --------------------------------------------------------------------- --------------------------------------------------------------
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Street Address Street Address
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City State Zip City State Zip
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Birth Date (mo, day, yr) Relationship Birth Date (mo, day, yr) Relationship
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Soc. Sec./Federal ID # Soc. Sec./Federal ID #
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Home Phone # Work Phone # Home Phone # Work Phone #
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4A. PLAN TYPE (check one) 4B. PRODUCT SELECTION (check one)
[ ] NONQUALIFIED [ ] Conseco Advantage
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[ ] QUALIFIED (check appropriate box) [ ] Conseco Advantage Plus
[ ] Individual IRA* [ ] Roth IRA* [ ] SEP/IRA* Riders: [ ] Guaranteed Minimum Death Benefit
Simple IRA (copy of plan document required with initial [ ] Guaranteed Minimum Income Benefit
application - IRS Form 5403-SIMPLE) [ ] Achievement
*Indicate Contribution Year:_______ [ ] Educator
[ ] Maxiflex
[ ] 401(k) [ ] 401(a) [ ] ORP [ ] Other________ [ ] Monument
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[ ]TSA/403(b) (MEA calculation required) [ ] Other: ___________________
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[ ]457
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5. EMPLOYMENT INFORMATION: (Complete for TSA or Monument)
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[ ] Agriculture [ ] Manufacturing, Contract Construction Industry
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[ ] Education, Government Employees, Service Industry [ ] Transportation, Communication, Public Utilities
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[ ] Finance, Insurance, Real Estate Industry [ ] Wholesale Trade Industry
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6. BILLING INFORMATION 7. PREMIUM/PURCHASE PAYMENTS
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A. Bill to: [ ] Annuitant [ ] Owner [ ] Group (Bill Employer) A. Initial Payment with Application: $___________
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B. Frequency: [ ] Annual [ ] Semi-annual [ ] Quarterly B. Periodic Payment: $_________ Beginning:_________
[ ] Monthly [ ] Semi-monthly [ ]Bi-weekly C. 1035 Exchange? [ ] Yes [ ] No
[ ] 10-Pay [ ] 20-Pay* D. Is this a Transfer? [ ] Yes* [ ] No
*Select non-paying months: Rollover? [ ] Yes* [ ] No
[ ] Jan [ ] Feb [ ] Mar [ ] Apr [ ] May [ ] Jun
[ ] Jul [ ] Aug [ ] Sep [ ] Oct [ ] Nov [ ] Dec *If yes, expected amount: $_____________
C. [ ] Draft Amount: $_________(per billing frequency) *Requires Authorization to Transfer Funds form.
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D. Billing Address (if different from above):
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8. REPLACEMENT INFORMATION
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Will this annuity replace any existing life insurance or annuity contract? [ ] Yes* [ ] No *If yes, give details below:
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Transferring Company:___________________________________ Plan:_______________ Year Issued:___________
*If yes, state replacement form(s) may be required.
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9. TELEPHONE TRANSFERS (Read Carefully)
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I hereby authorize and direct Conseco Variable Insurance Company (CVIC) to act on telephone instructions, when proper
identification is furnished, to exchange units from any Fixed, Market Value Adjustment (MVA) or Sub-account to any other Fixed,
MVA or other Sub-account and/or to change the allocation of future purchase payments. I agree that CVIC is not liable for any
loss arising from any exchange or change in allocation of future purchase payments by acting in accordance with these telephone
instructions. CVIC will employ reasonable procedures to confirm that telephone instructions are genuine. If we do not, we may be
liable for any losses due to unauthorized or fraudulent transfers. Please refer to Prospectus for restrictions regarding MVA
accounts.
[ ] Check here to decline
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10. FRAUD WARNING
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FL RESIDENTS: Any person who knowingly, and with intent to injure, defraud, or deceive any insurer, files a
statement of claim or an application containing any false, incomplete, or misleading information is guilty of a
felony of the third degree.
AR, KY, OH, NM AND PA RESIDENTS: Any person who knowingly, and with intent to defraud any insurance company or
other person, files an application for insurance or statement of claim containing any materially false
information or conceals for the purpose of misleading, information concerning any fact material thereto commits a
fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties.
CO RESIDENTS: It is unlawful to knowingly provide false, incomplete, or misleading facts or information to an
insurance company for the purpose of defrauding or attempting to defraud the company. Penalties may include
imprisonment, fines, and denial of insurance and civil damages. Any insurance company or agent of an insurance
company who knowingly provides false, incomplete, or misleading facts or information to a contractholder or
claimant for the purpose of defrauding or attempting to defraud the contractholder or claimant with regard to a
settlement or award payable from insurance proceeds shall be reported to the Colorado division of insurance
within the department of regulatory agencies.
DC RESIDENTS: Warning: It is a crime to provide false or misleading information to an insurer for the purpose
of defrauding the insurer or any other person. Penalties include imprisonment and/or fines. In addition, an
insurer may deny insurance benefits if false information materially related to a claim was provided by the
applicant.
ME AND VA RESIDENTS. It is a crime to knowingly provide false, incomplete or misleading information to an
insurance company for the purpose of defrauding the company. Penalties may include imprisonment, fines or a
denial for insurance benefits.
NJ RESIDENTS: Any person who includes any false or misleading information on an application for an insurance
policy is subject to criminal and civil penalties.
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11. REMARKS
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Up to 15 different subaccounts may be selected. Use whole percentages to indicate the investment allocation desired. The
percentages allocated for all portfolios must equal 100%.
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12. INVESTMENT SELECTIONS
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CONSECO SERIES TRUST FEDERATED INSURANCE SERIES VAN ECK WORLDWIDE INSURANCE
TRUST
% Balanced Portfolio % Federated High Income Bond Fund II % Worldwide Bond Fund
% Equity Portfolio % Federated International Equity Fund II % Worldwide Emerging Markets
Fund
% Fixed Income Portfolio % Federated Utility Fund II
% Worldwide Hard Assets Fund
% Government Securities Portfolio
% Worldwide Real Estate Fund
% Money Market Portfolio
INVESCO VARIABLE INVESTMENT FUNDS, INC.
% INVESCO VIF - Equity Income Fund
THE ALGER AMERICAN FUND
% INVESCO VIF - High Yield Fund The following accounts are not
% Alger American Growth Portfolio available on all products:
% Alger American Leveraged AllCap
Portfolio JANUS ASPEN SERIES MARKET VALUE ADJUSTMENT
ACCOUNTS (Indicate percentage and
% Alger American MidCap Growth % Aggressive Growth Portfolio period for each selection.)
Portfolio
% Growth Portfolio % 1 Year
% Alger American Portfolio Small
Capitalization Portfolio % Worldwide Growth Portfolio % 3 Years
LAZARD RETIREMENT SERIES, INC. % 5 Years
AMERICAN CENTURY VARIABLE % Lazard Retirement Equity Portfolio
PORTFOLIOS, INC. GENERAL ACCOUNT
% Lazard Retirement Small Cap
% VP Income & Growth Fund Portfolio % Fixed Interest Account
% VP International Fund
% VP Value Fund LORD ABBETT SERIES FUND, INC.
% Growth & Income Portfolio
BERGER INSTITUTIONAL PRODUCTS
TRUST MITCHELL HUTCHINS SERIES TRUST
% Berger IPT-100 Fund % Growth & Income Portfolio
% Berger IPT-Growth and Income NEUBERGER & BERMAN ADVISORS
Fund MANAGEMENT TRUST
% Berger IPT-Small Company % Limited Maturity Bond Portfolio
Growth Fund
% Partners Portfolio
% Berger/BIAM IPT-International
Fund
STRONG OPPORTUNITY FUND II, INC.
DREYFUS FUNDS % Opportunity Fund II
% Disciplined Stock Portfolio STRONG VARIABLE INSURANCE FUNDS
% International Value Portfolio % Strong MidCap Growth Fund II
% Dreyfus Stock Index Fund
% Dreyfus Socially Responsible
Growth Fund, Inc.
13. ANNUITANT AND OWNER STATEMENT
If this annuity is purchased through a financial institution, I understand that I am purchasing a variable annuity product and
that: (a) past performance is not a guarantee of future results; (b) variable annuity products are not insured by the Federal
Deposit Insurance Corporation; (c) they are not guaranteed by the bank; d) they are subject to investment rules, including
possible loss of principal investment; and (e) early withdrawals from an annuity may be subject to surrender charges, taxation as
ordinary income, and an additional non-deductible excise tax.
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All statements made in this application (including all pages) are true and I agree to all terms and conditions as
stated herein. I also agree that this application may become a part of my annuity contract. I further verify my
understanding that all payments and values provided by the contract, when based on investment experience of the
variable account, are variable and not guaranteed as to dollar amount. I acknowledge receipt of a current
prospectus. The variable annuity applied for is not unsuitable for my investment objective, financial situation
and needs. Under penalty of perjury, I certify that the social security or taxpayer identification number is
correct as it appears in this application.
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Signed at______________________________ this _______ day of ________________ in the year of
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(City and State)
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X ___________________________________________ X __________________________________________
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Signature of Annuitant Signature of Joint Annuitant
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X ___________________________________________ X __________________________________________
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Signature of Owner Signature of Joint Owner
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[ ] Check here if You would prefer to receive Your annual prospectus electronically.
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14. REGISTERED REPRESENTATIVE CERTIFICATION
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Will the proposed contract replace any existing annuity or insurance contract? [ ] Yes [ ] No
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If yes, replacement requirements must be followed.
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I certify that I have asked all the questions in the application and correctly recorded the answers of the
proposed Owner/Annuitant. I have presented to the Company all the pertinent facts, and I know nothing
unfavorable about the proposed Owner/Annuitant that is not stated in this application.
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Signed at______________________________ this _______ day of ________________ in the year of ___________.
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(City and State)
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X X
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Signature of Registered Representative Signature of Registered Representative
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Printed Name Printed Name
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Conseco Variable Representative's #: Conseco Variable Representative's #:
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Phone #: Phone #:
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Trail Option (circle one): 1 2 3 4 5
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</TABLE>
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
February 4, 2000
Board of Directors
Conseco Variable Insurance Company
11825 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 Pre-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 Pre-Effective Amendment No. 1 to the Registration
Statement of Conseco Variable Annuity Account H on Form N-4 (File Nos. 333-90737
and 811-09693) of our report dated March 30, 1999, on our audits of the
financial statements of Conseco Variable Insurance Company. We also consent to
the reference to our Firm under the caption "Independent Accountants."
/s/ PricewaterhouseCoopers LLP
-------------------------------
PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 4, 2000
