PART A
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT C
INDIVIDUAL VARIABLE DEFERRED ANNUITY CONTRACTS
OFFERED BY
GREAT AMERICAN RESERVE INSURANCE COMPANY
ADMINISTRATIVE OFFICE:
11815 N. PENNSYLVANIA STREET, CARMEL, IN 46032
(317) 817-3700
The Individual Variable Deferred Annuity Contracts (the "Contracts")
described by this Prospectus are offered by Great American Reserve Insurance
Company ("Great American Reserve"). The Contracts are designed for use in
retirement planning for individuals. Both flexible installment purchase payment
and single payment annuity Contracts are offered by this Prospectus. Purchase
Payments received with respect to the Contracts (subject to certain deductions)
are deposited by Great American Reserve in the Fixed Account and/or the separate
investment account entitled Great American Reserve Variable Annuity Account C
(the "Variable Account") for further investment.
The Variable Account is a unit investment trust separate account. The
Variable Account consists of 30 sub-accounts ("Sub-accounts"), each of which
invests in shares of the eligible open-end management investment companies
("Funds"). The Sub-accounts invest in shares of the following Funds: the Conseco
Series Trust Asset Allocation, Common Stock, Corporate Bond, Government
Securities, and Money Market Portfolios; the Alger American Fund Growth,
Leveraged AllCap, MidCap Growth, and Small Capitalization Portfolios; the
American Century Variable Portfolios, Inc. International and Value Funds; the
Berger IPT - 100, Berger IPT - Growth and Income, Berger IPT - Small Company
Growth, and Berger/BIAM IPT - International Funds; the Dreyfus Socially
Responsible Growth Fund, Inc.; the Dreyfus Stock Index Fund; the Federated
Insurance Series High Income Bond II, International Equity II, and Utility II
Funds; the Janus Aspen Series Aggressive Growth, Growth, and Worldwide Growth
Portfolios; the Neuberger & Berman Advisers Management Trust Limited Maturity
Bond and Partners Portfolios; the Strong Variable Insurance Funds, Inc. Growth
Fund II; the Strong Special Fund II; and the Van Eck Worldwide Insurance Trust
Worldwide Hard Assets (formerly, Gold and Natural Resources), Worldwide Bond,
and Worldwide Emerging Markets Funds.
Thirteen of these Funds, including the Alger American Fund Growth and MidCap
Growth Portfolios; the American Century Variable Portfolios, Inc. International
and Value Funds; the Berger Institutional Products Trust Berger IPT - 100,
Berger IPT - Growth and Income, Berger IPT - Small Company Growth, and
Berger/BIAM IPT - International Funds; the Neuberger & Berman Advisers
Management Trust Limited Maturity Bond and Partners Portfolios; the Strong
Special Fund II; the Strong Variable Insurance Funds, Inc. Growth Fund II; and
the Van Eck Worldwide Insurance Trust Worldwide Emerging Markets Fund will be
available on May 1, 1997. The availability of such Funds may be delayed beyond
May 1, 1997, pending receipt of state approvals. Before investing in any of the
Sub-accounts, carefully review the prospectuses of the eligible Funds.
This Prospectus contains information regarding the Contracts which investors
should know before investing. It should be read and retained for future
reference. A Statement of Additional Information about the Variable Account has
been filed with the Securities and Exchange Commission ("SEC") and is available
without charge upon request. To obtain a free copy, contact Great American
Reserve at the address or telephone number given above. The Table of Contents of
the Statement of Additional Information appears in this Prospectus on page 45.
The Statement of Additional Information is incorporated herein by reference and
dated May 1, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Investors should read and retain this Prospectus for future
reference.
The date of this Prospectus is May 1, 1997.
1
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
Definitions..............................................4
Summary..................................................5
Condensed Financial Information.........................12
Great American Reserve, Variable Account,
and the Investment Options
A. Great American Reserve..........................17
B. Variable Account ...............................17
C. Investment Options .............................18
The Contracts
A. Accumulation Provisions
PURCHASE PAYMENTS...............................20
ACCUMULATION UNITS..............................21
ALLOCATION OF PURCHASE
PAYMENTS AND TRANSFERS.......................21
DOLLAR COST AVERAGING...........................22
REBALANCING.....................................22
SWEEPS..........................................22
VALUE OF AN INDIVIDUAL ACCOUNT..................22
NET INVESTMENT FACTOR FOR EACH
VALUATION PERIOD.............................22
INFORMATION ON THE FIXED ACCOUNT................23
WITHDRAWALS.....................................23
SYSTEMATIC WITHDRAWAL PLAN......................24
CHECK WRITING...................................24
LOANS...........................................25
Contract Charges
PREMIUM TAXES................................25
ADMINISTRATIVE CHARGE........................25
MORTALITY AND EXPENSE RISK CHARGE............25
WITHDRAWAL CHARGE............................26
EXPENSE GUARANTEE AGREEMENT..................27
OTHER CHARGES................................27
DEATH BENEFITS..................................28
RESTRICTIONS UNDER OPTIONAL
RETIREMENT PROGRAMS..........................28
RESTRICTIONS UNDER SECTION 403(B)
PLANS........................................28
B. Annuity Provisions
ELECTING THE ANNUITY PERIOD
AND FORM OF ANNUITY.......................28
ANNUITY OPTIONS................................29
DETERMINATION OF AMOUNT OF THE
FIRST MONTHLY VARIABLE ANNUITY
PAYMENT...................................30
VALUE OF AN ANNUITY UNIT.......................31
AMOUNTS OF SUBSEQUENT
MONTHLY VARIABLE ANNUITY
PAYMENTS..................................31
TRANSFERS DURING THE ANNUITY PERIOD............32
DEATH BENEFIT DURING THE ANNUITY
PERIOD....................................32
C. Other Contract Provisions
TYPE OF CONTRACT...............................32
COMPANY APPROVAL...............................32
TEN-DAY RIGHT TO REVIEW........................32
ASSIGNMENT.....................................32
Federal Tax Matters
A. General........................................33
B. Status of Annuity Contracts....................33
NON-QUALIFIED CONTRACTS...................33
QUALIFIED CONTRACTS.......................35
C. Taxation of Distributions......................36
D. Other Considerations...........................37
Voting Rights...........................................38
General Matters
PERFORMANCE INFORMATION............................38
DISTRIBUTION OF CONTRACTS..........................38
CONTRACT OWNER INQUIRIES...........................39
LEGAL PROCEEDINGS..................................39
OTHER INFORMATION..................................39
Table of Contents of the Statement of
Additional Information.............................39
2
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
DEFINITIONS
ACCUMULATION PERIOD: The period before the commencement of annuity payments,
during which purchase payments are accumulated for payment of future annuity
benefits.
ACCUMULATION UNIT: An accounting unit of measure used to calculate the
values during the accumulation period.
AMOUNT REDEEMED: The total value of the accumulation units canceled upon
partial or full withdrawal during the accumulation period.
ANNUITANT: The named individual who receives annuity payments.
ANNUITY: A series of payments for life; or for life with a minimum number of
payments certain; or for the joint lifetime of the annuitant and a second person
and thereafter during the remaining lifetime of the survivor; or for a certain
period; or for a certain payment amount.
ANNUITY PERIOD: The period following the commen- cement of annuity payments.
ANNUITY UNIT: An accounting unit of measure used to calculate the amount of
annuity payments.
CONTRACT OWNER: The individual, corporation, trust, association, partnership
or other entity entitled to all of the ownership rights under the contract. Also
referred to as "you" or "your."
CONTRACT VALUE: The total of your individual account values held under the
contract in each investment option of the variable account plus the fixed
account.
FIXED ACCOUNT: The general account of Great American Reserve in which you
may choose to allocate purchase payments and contract values. It provides
guaranteed values and periodically adjusted interest rates.
GREAT AMERICAN RESERVE: Great American Reserve Insurance Company. Also
referred to as "we" or "us".
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT C (VARIABLE ACCOUNT):
Pursuant to the insurance laws of Texas, assets attributable to the variable
portions of contracts are segregated from other assets of Great American Reserve
and are held in the Great American Reserve Variable Annuity Account C.
INDIVIDUAL ACCOUNT: The record established by Great American Reserve which
represents a contract owner's interest in an investment option during the
accumulation period.
INVESTMENT OPTIONS: The investment choices avail- able to contract owners.
PARTICIPANT: Any eligible person participating in a plan and for whom an
individual account is established under a contract.
PLAN: A voluntary program of an employer which qualifies for special tax
treatment.
PURCHASE PAYMENTS: Premium payments made to Great American Reserve under the
terms of the contract.
REDEMPTION PAYMENT: The amount paid upon a withdrawal request, equal to the
amount redeemed less any applicable withdrawal charge and any administrative
fee.
VALUATION PERIOD: The period of time from the end of one business day of the
New York Stock Exchange to the end of the next such day or to the same time on
any day in which there are sufficient purchases or redemptions in accumulation
units that the current net asset value of those units might be materially
affected by changes in the value of the portfolio securities.
VARIABLE ANNUITY: An annuity which provides retirement payments which vary
in dollar amount with investment results.
3
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
SUMMARY
THE CONTRACTS. The Contracts offered by this Prospectus are tax-deferred
flexible purchase payment variable annuity contracts. The Contracts provide for
the accumulation of contract values and the payment of annuity benefits on a
variable and/or fixed basis. Except as specifically noted herein and set forth
under the caption "Information on the Fixed Account," this Prospectus describes
only the variable portion of the Contracts. The Contracts may be available in
several states only through certain group retirement plans in those states.
RETIREMENT PLANS. The Contracts may be issued pursuant to plans qualifying
for special income tax treatment under the Internal Revenue Code (the "Code"),
such as pension and profit sharing plans, tax-sheltered annuities ("TSAs"),
individual retirement annuities ("IRAs"), and state and local government
deferred compensation plans (see "Qualified Contracts").
PURCHASE PAYMENTS. The Contracts permit Purchase Payments to be made on a
flexible purchase payment basis. The minimum initial payment for single-premium
contracts is $10,000 and for flexible-premium contracts is $10, and for each
subsequent payment is $10 per month. Purchase Payments may be made at any time,
except that if a Purchase Payment exceeds $500,000, it will be accepted only
with the prior approval of Great American Reserve (see "Purchase Payments").
INVESTMENT OPTIONS. Purchase Payments may be allocated among the 31
investment options available under the Contracts: 30 variable investment options
and one fixed option. The 30 variable investment options consist of Sub-
accounts which invest in shares of the following Funds: the Conseco Series Trust
Asset Allocation, Common Stock, Corporate Bond, Government Securities, and Money
Market Portfolios; the Alger American Fund Growth, Leveraged AllCap, MidCap
Growth, and Small Capitalization Portfolios; the American Century Variable
Portfolios, Inc. International and Value Funds; the Berger IPT - 100, Berger IPT
- - Growth and Income, Berger IPT Small Company Growth, and Berger/BIAM IPT
International Funds; the Dreyfus Socially Responsible Growth Fund, Inc.; the
Dreyfus Stock Index Fund; the Federated Insurance Series High Income Bond II,
International Equity II, and Utility II Funds; the Janus Aspen Series Aggressive
Growth, Growth, and Worldwide Growth Portfolios; the Neuberger & Berman Advisers
Management Trust Limited Maturity Bond and Partners Portfolios; the Strong
Variable Insurance Funds, Inc. Growth Fund II; the Strong Special Fund II; and
the Van Eck Worldwide Insurance Trust Worldwide Hard Assets (formerly, Gold and
Natural Resources), Worldwide Bond, and Worldwide Emerging Markets Funds (see
the accompanying prospectuses of the eligible Funds). The portion of the
Contract Value in the Variable Account will reflect the investment performance
of the investment options selected (see "Variable Account"). Purchase Payments
may also be allocated to the Fixed Account (see "Information on the Fixed
Account"). Subject to certain regulatory limitations, Great American Reserve may
elect to add, subtract or substitute investment options.
TRANSFERS. During the Accumulation Period, amounts may be transferred among
the Variable Account investment options and from the Variable Account investment
options to the Fixed Account investment option without charge. In addition,
amounts may be transferred from the Fixed Account investment option to the
Variable Account investment options, subject to a limit of 20 percent of the
Fixed Account value per any six-month period (see "Information on the Fixed
Account"). During the Annuity Period, transfers are not permitted from variable
annuity options to fixed annuity options or from fixed annuity options to
variable annuity options. Great American Reserve may impose certain additional
limitations on transfers (see "Allocation of Purchase Payments and Transfers"
and "Transfers During the Annuity Period"). Transfer privileges may also be used
under special services offered by Great American Reserve to dollar cost average
an investment in the contract (see "Dollar Cost Averaging"), transfer savings
from the Fixed Account to another investment option (see "Sweeps"), or rebalance
investments on a periodic basis (see "Rebalancing").
WITHDRAWALS. The participant may withdraw all or a portion of the Contract
Value. A withdrawal charge and an administrative fee may be imposed (see
"Withdrawal Charge"). A withdrawal may also be subject to a penalty tax (see
"Federal Tax Matters"). Withdrawal privileges may also be exercised pursuant to
Great American Reserve's systematic withdrawal plan (see "Systematic Withdrawal
Plan") and check writing privilege (see "Check Writing").
4
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
LOANS. The contract may contain a loan provision in connection with certain
qualified plans. Owners of such contracts may be eligible to obtain loans using
the contract as the only security for the loan (see "Loans").
DEATH BENEFIT. Generally, if the Annuitant dies during the Accumulation
Period, Great American Reserve will pay to the beneficiary the death benefit
less any outstanding loans (see "Death Benefit").
ANNUITY PAYMENTS. Great American Reserve offers a variety of fixed and
variable annuity options. Periodic annuity payments will begin during the
Annuity Period. The Contract Owner selects the date when annuity payments begin,
frequency of payment and annuity option (see "Annuity Provisions").
TEN-DAY REVIEW. Within 10 days of receipt of a Contract, a Contract Owner
may cancel the Contract by returning it to Great American Reserve (see "Ten-Day
Right to Review").
CHARGES AND DEDUCTIONS. The following table and examples are designed to
assist Contract Owners in understanding the various expenses that Contract
Owners bear directly and indirectly. The table reflects expenses of the Variable
Account and the underlying Portfolios. The items listed under "Contract Owner
Transaction Expenses" and "Annual Expenses of Variable Account" are completely
described in this Prospectus (see "Contract Charges"). The items listed under
"Annual Fund Expenses After Reimbursement" are described in detail in the
prospectuses of the eligible Funds to which reference should be made.
5
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLE-PREMIUM SINGLE-PREMIUM
PAYMENT CONTRACT PAYMENT CONTRACT
================================================================================================================================
<S> <C> <C> <C>
Contract Owner Transaction Expenses (1)
Sales Load Imposed on Purchases.........................................................None None
Deferred Sales Load (as a percentage of amount redeemed) (2)
CONTRACT YEAR
1...................................................................................8.00% 7.00%
2...................................................................................7.00% 6.00%
3...................................................................................6.00% 5.00%
4...................................................................................5.00% 4.00%
5...................................................................................4.00% 3.00%
6...................................................................................3.00% 0.00%
7...................................................................................2.00% 0.00%
8...................................................................................1.00% 0.00%
Thereafter..........................................................................0.00% 0.00%
Surrender Fees..........................................................................None None
Exchange Fee............................................................................None None
Annual Contract Fee ....................................................................$ 20 $ 25
Annual Expenses of Variable Account (as a percentage of average net assets)
Mortality and Expense Risk Fees .......................................................1.00% 1.00%
Other Expenses .........................................................................None None
Total Annual Expenses of Variable Account (3) ..............................................1.00% 1.00%
================================================================================================================================
</TABLE>
(1) Premium taxes are not shown. Any premium tax due will be deducted from
Purchase Payments or from Individual Account values at the annuity
commencement date or at such other time as the tax becomes due, unless
assessed by the applicable jurisdiction when Purchase Payments are
received; in such event, the taxes will be deducted from Purchase Payments.
The current range of premium taxes in jurisdictions in which the Contracts
are made available is from 0 percent to 3.5 percent.
(2) Ten percent of the total accumulation of a flexible installment purchase
payment contract may be redeemed without payment of a deferred sales load
but no more than one redemption (withdrawal) may be made in any calendar
year. Ten percent of the stipulated payment of a single payment contract
may be withdrawn without payment of a deferred sales load each year
beginning with the second contract year (see "Withdrawal Charges").
(3) Great American Reserve has guaranteed the total of the investment
management fees charged against Conseco Series Trust's Common Stock,
Corporate Bond and Money Market Portfolios whose shares are purchased by
the Variable Account, plus the mortality and expense risk imposed upon the
assets of the corresponding Sub-accounts of the Variable Account will not
exceed an amount that is equal to the total amount of the same charges that
would have been imposed under the Contracts had the Combination not
occurred (see "Expense Guarantee Agreement").
6
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
ANNUAL FUND EXPENSES AFTER REIMBURSEMENT (1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
====================================================================================================================================
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Asset Allocation Portfolio (2)..................................... .55% .20% .75%(3)
Common Stock Portfolio (2)......................................... .60% .20% .80%(3)
Corporate Bond Portfolio........................................... .50% .20% .70%(3)
Government Securities Portfolio.................................... .50% .20% .70%(3)
Money Market Portfolio (2)......................................... .25% .20% .45%(3)
THE ALGER AMERICAN FUND
Alger American Growth Portfolio.................................... .75% .04% .79%
Alger American Leveraged AllCap Portfolio.......................... .85% .24%(4) 1.09%
Alger American MidCap Growth Portfolio............................. .80% .04% .84%
Alger American Small Capitalization Portfolio...................... .85% .03% .88%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
International Fund................................................. 1.50% 0.0% 1.50%
Value Fund......................................................... 1.00% 0.0% 1.00%
Berger Institutional Products Trust
Berger IPT -100 Fund (5)........................................... .00% 1.00% 1.00%
Berger IPT - Growth and Income Fund (5)............................ .00% 1.00% 1.00%
Berger IPT - Small Company Growth Fund (5)......................... .00% 1.15% 1.15%
Berger/BIAM IPT - International Fund (6)........................... .00% 1.20% 1.20%
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC...................... .75% .24% .99%(7)
DREYFUS STOCK INDEX FUND............................................... .245% .055% .30%(8)
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II................................. .01% .79% .80%(9)
Federated International Equity Fund II............................. .00% 1.25% 1.25%(9)
Federated Utility Fund II.......................................... .24% .61% .85%(9)
JANUS ASPEN SERIES
Aggressive Growth Portfolio........................................ .72% .04% .76%(10)
Growth Portfolio................................................... .65% .04% .69%(10)
Worldwide Growth Portfolio......................................... .66% .14% .80%(10)
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST (11)
Limited Maturity Bond Portfolio.................................... .65% .13% .78%
Partners Portfolio................................................. .84% .11% .95%
STRONG SPECIAL FUND II................................................. 1.00% .17% 1.17%
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth Fund II..................................................... 1.00% 1.00% 2.00%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets
Fund (formerly, Gold and Natural Resources Fund).................. 1.00% .23% 1.23%
Worldwide Bond Fund................................................ 1.00% .16% 1.16%
Worldwide Emerging Markets Fund.................................... 1.00% .50% 1.50%(12)
===================================================================================================================================
</TABLE>
(1) The Fund expenses shown above are assessed at the underlying Fund level and
are not direct charges against separate account assets or reductions from
Contract Values. These Fund expenses are taken into consideration in
computing each Fund's net asset value, which is the share price used to
calculate the Variable Account's unit value.
(2) Conseco Capital Management, Inc., since January 1, 1993, has voluntarily
waived its Management Fees in excess of the annual rates set forth above.
Absent such Fee waivers, the Management Fees would have totaled: 0.65
percent for Asset Allocation; 0.65 percent for Common Stock; and 0.50
percent for Money Market.
(3) Conseco Capital Management, Inc., the investment adviser of the Conseco
Series Trust, has voluntarily agreed to reimburse all expenses, including
management fees, in excess of the following percentage of the average
annual net assets of each listed Portfolio, so long as such reimbursement
would not result in a Portfolio's inability to qualify as a regulated
investment company under the Code: 0.75 percent for Asset Allocation; 0.80
percent for Common Stock; 0.70 percent for Corporate Bond and Government
Securities; and 0.45 percent for Money Market. The total percentage in the
above table is after reimbursement. In the absence of expense
reimbursement, the total fees and expenses in 1996 would have totaled: 0.95
percent for Asset Allocation; 0.81 percent for Common Stock; 0.77 percent
for Corporate Bond; 0.91 percent for Government Securities; 0.58 percent
for Money Market.
7
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GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
(4) The Alger American Leveraged AllCap Portfolio "Other Expenses" includes
0.3 percent of interest expense.
(5) Berger Associates, the Fund's investment adviser, has voluntarily agreed to
waive its advisory fee and has voluntarily reimbursed the Fund for
additional expenses to the extent that normal operating expenses in any
fiscal year, including the investment advisory fee but excluding brokerage
commissions, interest, taxes and extraordinary expenses, of each of the
Berger IPT - 100 Fund and the Berger IPT - Growth and Income Fund exceed
1.00%, and the normal operating expenses in any fiscal year of the Berger
IPT - Small Company Growth Fund exceed 1.15%, of the respective Fund's
average daily net assets. Absent the voluntary waiver and reimbursement,
the Management Fee for the Berger IPT - 100 Fund, Berger IPT - Growth and
Income Fund and the Berger IPT - Small Company Growth Fund would have been
0.75%, 0.75% and 0.90%, respectively, and their Total Expenses would have
been 7.69%, 7.70% and 8.57%, respectively.
(6) Based on estimated expenses for the first year of operations of the
Berger/BIAM IPT - International Fund, after fee waivers and expense
reimbursements. Berger Associates, the Fund's investment adviser, has
voluntarily agreed to waive its advisory fee and expects to voluntarily
reimburse the Fund for additional expenses to the extent that normal
operating expenses in any fiscal year, including the investment advisory
fee but excluding brokerage commissions, interest, taxes and extraordinary
expenses, of the Berger/BIAM IPT - International Fund exceed 1.20%, of the
Fund's average daily net assets. Absent the voluntary waiver and
reimbursement, the Management Fee for the Berger/BIAM IPT - International
Fund would be 0.90%, and its Total Expenses would be estimated to be 8.96%.
(7) In 1996, The Dreyfus Corporation waived .03% of its management fee. The
Dreyfus Corporation does not intend to waive a portion of its management
fee for fiscal year 1997.
(8) Dreyfus Corporation, the Fund's investment adviser, has voluntarily agreed
until such time as it gives investors 180 days notice to the contrary, to
reimburse all or a portion of its advisory fee to the extent that the total
expenses of the fund (excluding brokerage commissions, transaction fees and
extraordinary expenses) are in excess of .40 of 1% of the value of the
Fund's average daily net assets.
(9) In the absence of a voluntary waiver by Federated Advisers, the Funds'
investment adviser, the Management Fee and Total Expenses would have been
0.60% and 1.39%, respectively, for High Income Bond and 0.75% and 1.36%,
respectively, for Utility. Absent a voluntary waiver of the management fee
and the voluntary reimbursement of certain other operating expenses by
Federated Advisers, the Management Fee and Total Expenses for International
Equity would have been 1.00% and 4.30%, respectively.
(10) The expense figures shown are net of certain fee waivers or reductions from
Janus Capital Corporation, the investment adviser of the Janus Aspen
Series. Without such waivers or reductions, the total fees and expenses in
1996 would have totaled: 0.83% for Aggressive Growth; 0.83% for Growth; and
0.91% for Worldwide Growth.
(11) Neubeger & Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series of Advisers Managers Trust. The figures reported under
"Management Fees" include the 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.
(12) Expenses for Worldwide Emerging Markets Fund are being voluntarily capped
by the Fund's investment adviser at 1.50% of average net assets. In the
absence of the investment adviser's absorption of these expenses, Other
Expenses and Total Expenses would be 1.64% and 2.64%, respectively.
Great American Reserve has guaranteed certain expenses not
to exceed a total of 1.44 percent on an annual basis of the average annual
net assets of the Conseco Series Trust Common Stock, Corporate Bond and
Money Market Portfolios that is equal to the same charges that would have
been imposed under the Contracts had the Combination not occurred (see
"Expense Guarantee Agreement").
8
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM PAYMENT CONTRACT
EXAMPLE 1-Assuming surrender at the end of the periods shown(1): You would pay
the following expenses on a $1,000 investment, assuming 5 percent annual return
on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
====================================================================================================================================
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Asset Allocation Portfolio............................................. $98 $116 $136 $208
Common Stock Portfolio................................................. 99 117 139 214
Corporate Bond Portfolio............................................... 98 114 133 203
Government Securities Portfolio........................................ 98 114 133 203
Money Market Portfolio................................................. 95 107 120 176
THE ALGER AMERICAN FUND
Alger American Growth Portfolio........................................ 98 117 138 212
Alger American Leveraged AllCap Portfolio.............................. 101 126 153 244
Alger American MidCap Growth Portfolio................................. 99 118 141 218
Alger American Small Capitalization Portfolio.......................... 99 120 143 222
American Century Variable Portfolios, Inc.
International Fund..................................................... 106 138 174 285
Value Fund............................................................. 101 123 149 234
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT - 100 Fund.................................................. 101 123 149 234
Berger IPT - Growth and Income Fund.................................... 101 123 149 234
Berger IPT - Small Company Growth Fund................................. 102 128 156 250
Berger/BIAM IPT - International Fund................................... 103 129 159 255
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ........................ 100 123 148 233
DREYFUS STOCK INDEX FUND................................................... 94 102 113 159
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II..................................... 99 117 139 214
Federated International Equity Fund II................................. 103 131 161 260
Federated Utility Fund II.............................................. 99 119 141 219
JANUS ASPEN SERIES
Aggressive Growth Portfolio............................................ 98 116 136 209
Growth Portfolio....................................................... 97 114 133 202
Worldwide Growth Portfolio............................................. 99 117 139 214
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio........................................ 98 117 137 211
Partners Portfolio..................................................... 100 122 146 229
STRONG SPECIAL FUND II..................................................... 102 128 157 252
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth Fund II......................................................... 111 153 199 333
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and Natural Resources Fund). 103 130 160 258
Worldwide Bond Fund.................................................... 102 128 157 251
Worldwide Emerging Markets Fund........................................ 106 138 174 285
====================================================================================================================================
</TABLE>
9
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM PAYMENT CONTRACT - CONT.
EXAMPLE 2 - Assuming annuitization at the end of the periods shown(1): You would
pay the following expenses on a $1,000 investment, assuming 5 percent annual
return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
====================================================================================================================================
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Asset Allocation Portfolio............................................. $ 98 $116 $ 96 $208
Common Stock Portfolio................................................. 99 117 99 214
Corporate Bond Portfolio............................................... 98 114 93 203
Government Securities Portfolio........................................ 98 114 93 203
Money Market Portfolio................................................. 95 107 80 176
THE ALGER AMERICAN FUND
Alger American Growth Portfolio........................................ 98 117 98 212
Alger American Leveraged AllCap Portfolio.............................. 101 126 113 244
Alger American MidCap Growth Portfolio................................. 99 118 101 218
Alger American Small Capitalization Portfolio.......................... 99 120 103 222
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
International Fund..................................................... 106 138 134 285
Value Fund............................................................. 101 123 109 234
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT - 100 Fund.................................................. 101 123 109 234
Berger IPT - Growth and Income Fund.................................... 101 123 109 234
Berger IPT - Small Company Growth Fund................................. 102 128 116 250
Berger/BIAM IPT - International Fund................................... 103 129 119 255
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ........................ 100 123 108 233
DREYFUS STOCK INDEX FUND................................................... 94 102 73 159
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II..................................... 99 117 99 214
Federated International Equity Fund II................................. 103 131 121 260
Federated Utility Fund II.............................................. 99 119 101 219
JANUS ASPEN SERIES
Aggressive Growth Portfolio............................................ 98 116 96 209
Growth Portfolio....................................................... 97 114 93 202
Worldwide Growth Portfolio............................................. 99 117 99 214
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio........................................ 98 117 97 211
Partners Portfolio..................................................... 100 122 106 229
STRONG SPECIAL FUND II..................................................... 102 128 117 252
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth Fund II......................................................... 111 153 159 333
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and Natural Resources Fund). 103 130 120 258
Worldwide Bond Fund.................................................... 102 128 117 251
Worldwide Emerging Markets Fund........................................ 106 138 134 285
====================================================================================================================================
</TABLE>
10
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM PAYMENT CONTRACT - CONT.
EXAMPLE 3 - Assuming the Contract stays in force through the periods shown(1):
You would pay the following expenses on a $1,000 investment, assuming 5 percent
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
====================================================================================================================================
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Asset Allocation Portfolio............................................. $18 $56 $ 96 $208
Common Stock Portfolio................................................. 19 57 99 214
Corporate Bond Portfolio............................................... 18 54 93 203
Government Securities Portfolio........................................ 18 54 93 203
Money Market Portfolio................................................. 15 47 80 176
THE ALGER AMERICAN FUND
Alger American Growth Portfolio........................................ 18 57 98 212
Alger American Leveraged AllCap Portfolio.............................. 21 66 113 244
Alger American MidCap Growth Portfolio................................. 19 58 101 218
Alger American Small Capitalization Portfolio.......................... 19 60 103 222
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
International Fund..................................................... 26 78 134 285
Value Fund............................................................. 21 63 109 234
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT - 100 Fund.................................................. 21 63 109 234
Berger IPT - Growth and Income Fund.................................... 21 63 109 234
Berger IPT - Small Company Growth Fund................................. 22 68 116 250
Berger/BIAM IPT - International Fund................................... 23 69 119 255
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ........................ 20 63 108 233
DREYFUS STOCK INDEX FUND................................................... 14 42 73 159
FEDERATED INSURANCE SERIES
High Yield Bond Fund II................................................ 19 57 99 214
Federated International Equity Fund II................................. 23 71 121 260
Federated Utility Fund II.............................................. 19 59 101 219
JANUS ASPEN SERIES
Aggressive Growth Portfolio............................................ 18 56 96 209
Growth Portfolio....................................................... 17 54 93 202
Worldwide Growth Portfolio............................................. 19 57 99 214
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio........................................ 18 57 97 211
Partners Portfolio..................................................... 20 62 106 229
STRONG SPECIAL FUND II..................................................... 22 68 117 252
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth Fund II......................................................... 31 93 159 333
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and Natural Resources Fund). 23 70 120 258
Worldwide Bond Fund.................................................... 22 68 117 251
Worldwide Emerging Markets Fund........................................ 26 78 134 285
====================================================================================================================================
</TABLE>
PLEASE REMEMBER THAT THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES AND THAT ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. SIMILARLY, THE 5 PERCENT ANNUAL RATE OF RETURN IS NOT AN ESTIMATE
OR GUARANTEE OF FUTURE INVESTMENT PERFORMANCE.
(1) This Contract is designed for retirement planning. Surrenders prior to the
Annuity Period are not consistent with the long-term purposes of the
Contract and the applicable tax laws.
The above table reflects estimates of expenses of the Variable Account and
the Funds. The standard table and examples assume the highest deductions
possible under a contract, whether or not such deductions actually would be
made under a contract. Annual maintenance charges have been approximated as
a 5 basis point annual asset charge based on the experience of the flexible
premium payment contracts.
11
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
SINGLE PREMIUM PAYMENT CONTRACT
Example 1 - Assuming surrender at the end of the periods shown(1): You would pay
the following expenses on a $1,000 investment, assuming 5 percent annual return
on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
====================================================================================================================================
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Asset Allocation Portfolio............................................. $88 $106 $127 $210
Common Stock Portfolio................................................. 89 108 130 216
Corporate Bond Portfolio............................................... 88 105 124 205
Government Securities Portfolio........................................ 88 105 124 205
Money Market Portfolio................................................. 85 97 111 178
THE ALGER AMERICAN FUND
Alger American Growth Portfolio........................................ 89 108 129 215
Alger American Leveraged AllCap Portfolio.............................. 92 117 144 246
Alger American MidCap Growth Portfolio................................. 89 109 132 220
Alger American Small Capitalization Portfolio.......................... 90 110 134 224
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
International Fund..................................................... 96 129 165 287
Value Fund............................................................. 91 114 140 237
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT - 100 Fund.................................................. 91 114 140 237
Berger IPT - Growth and Income Fund.................................... 91 114 140 237
Berger IPT - Small Company Growth Fund................................. 92 118 147 252
Berger/BIAM IPT - International Fund................................... 93 120 150 257
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ........................ 91 114 139 236
DREYFUS STOCK INDEX FUND................................................... 84 93 104 162
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II..................................... 89 108 130 216
Federated International Equity Fund II................................. 93 121 152 262
Federated Utility Fund II.............................................. 89 109 132 221
JANUS ASPEN SERIES
Aggressive Growth Portfolio............................................ 88 107 127 211
Growth Portfolio....................................................... 88 105 124 204
Worldwide Growth Portfolio............................................. 89 108 130 216
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio........................................ 89 107 129 214
Partners Portfolio..................................................... 90 112 137 231
STRONG SPECIAL FUND II..................................................... 92 119 148 254
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth Fund II......................................................... 101 144 190 335
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and Natural Resources Fund). 93 121 151 260
Worldwide Bond Fund.................................................... 92 119 148 253
Worldwide Emerging Markets Fund........................................ 96 129 165 287
====================================================================================================================================
</TABLE>
12
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
SINGLE PREMIUM PAYMENT CONTRACT - CONT.
EXAMPLE 2 - Assuming annuitization at the end of the periods shown(1): You would
pay the following expenses on a $1,000 investment, assuming 5 percent annual
return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
====================================================================================================================================
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Asset Allocation Portfolio............................................. $ 88 $106 $ 97 $210
Common Stock Portfolio................................................. 89 108 100 216
Corporate Bond Portfolio............................................... 88 105 94 205
Government Securities Portfolio........................................ 88 105 94 205
Money Market Portfolio................................................. 85 97 81 178
THE ALGER AMERICAN FUND
Alger American Growth Portfolio........................................ 89 108 99 215
Alger American Leveraged AllCap Portfolio.............................. 92 117 114 246
Alger American MidCap Growth Portfolio................................. 89 109 102 220
Alger American Small Capitalization Portfolio.......................... 90 110 104 224
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
International Fund..................................................... 96 129 135 287
Value Fund............................................................. 91 114 110 237
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT - 100 Fund.................................................. 91 114 110 237
Berger IPT - Growth and Income Fund.................................... 91 114 110 237
Berger IPT - Small Company Growth Fund................................. 92 118 117 252
Berger/BIAM IPT - International Fund................................... 93 120 120 257
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ........................ 91 114 109 236
DREYFUS STOCK INDEX FUND................................................... 84 93 74 162
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II..................................... 89 108 100 216
Federated International Equity Fund II................................. 93 121 122 262
Federated Utility Fund II.............................................. 89 109 102 221
JANUS ASPEN SERIES 88 107 97 211
Aggressive Growth Portfolio............................................
Growth Portfolio....................................................... 88 105 94 204
Worldwide Growth Portfolio............................................. 89 108 100 216
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio........................................ 89 107 99 214
Partners Portfolio..................................................... 90 112 107 231
STRONG SPECIAL FUND II..................................................... 92 119 118 254
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth Fund II......................................................... 101 144 160 335
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and Natural Resources Fund). 93 121 121 260
Worldwide Bond Fund.................................................... 92 119 118 253
Worldwide Emerging Markets Fund........................................ 96 129 135 287
====================================================================================================================================
</TABLE>
13
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
SINGLE PREMIUM PAYMENT CONTRACT - CONT.
EXAMPLE 3 - Assuming the Contract stays in force through the periods shown(1):
You would pay the following expenses on a $1,000 investment, assuming 5 percent
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
====================================================================================================================================
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Asset Allocation Portfolio............................................. $18 $56 $ 97 $210
Common Stock Portfolio................................................. 19 58 100 216
Corporate Bond Portfolio............................................... 18 55 94 205
Government Securities Portfolio........................................ 18 55 94 205
Money Market Portfolio................................................. 15 47 81 178
THE ALGER AMERICAN FUND
Alger American Growth Portfolio........................................ 19 58 99 215
Alger American Leveraged AllCap Portfolio.............................. 22 67 114 246
Alger American MidCap Growth Portfolio................................. 19 59 102 220
Alger American Small Capitalization Portfolio.......................... 20 60 104 224
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
International Fund..................................................... 26 79 135 287
Value Fund............................................................. 21 64 110 237
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT - 100 Fund.................................................. 21 64 110 237
Berger IPT - Growth and Income Fund.................................... 21 64 110 237
Berger IPT - Small Company Growth Fund................................. 22 68 117 252
Berger/BIAM IPT - International Fund................................... 23 70 120 257
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ........................ 21 64 109 236
DREYFUS STOCK INDEX FUND................................................... 14 43 74 162
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II..................................... 19 58 100 216
Federated International Equity Fund II................................. 23 71 122 262
Federated Utility Fund II.............................................. 19 59 102 221
JANUS ASPEN SERIES
Aggressive Growth Portfolio............................................ 18 57 97 211
Growth Portfolio....................................................... 18 55 94 204
Worldwide Growth Portfolio............................................. 19 58 100 216
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio........................................ 19 57 99 214
Partners Portfolio..................................................... 20 62 107 231
STRONG SPECIAL FUND II..................................................... 22 69 118 254
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth Fund II......................................................... 31 94 160 335
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and Natural Resources Fund). 23 71 121 260
Worldwide Bond Fund.................................................... 22 69 118 253
Worldwide Emerging Markets Fund........................................ 26 79 135 287
====================================================================================================================================
</TABLE>
PLEASE REMEMBER THAT THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES AND THAT ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. SIMILARLY, THE 5 PERCENT ANNUAL RATE OF RETURN IS NOT AN ESTIMATE
OR GUARANTEE OF FUTURE INVESTMENT PERFORMANCE.
(1) This Contract is designed for retirement planning. Surrenders prior to the
Annuity Period are not consistent with the long-term purposes of the
Contract and the applicable tax laws.
The above table reflects estimates of expenses of the Variable Account and
the Funds. The standard table and examples assume the highest deductions
possible under a contract, whether or not such deductions actually would be
made under a contract. Annual maintenance charges have been approximated as
a 5 basis point annual asset charge based on the experience of the flexible
premium payment contracts.
14
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
The tables below provide per unit information about the financial history
of each Sub-account. No per-unit information is provided with respect to the
Sub-accounts investing in the Alger American Fund Growth and MidCap Growth
Portfolios; the American Century Variable Portfolios, Inc. International and
Value Funds; the Berger Institutional Products Trust Berger IPT - 100, Berger
IPT - Growth and Income, Berger IPT - Small Company Growth, and Berger/BIAM IPT
- - International Funds; the Neuberger & Berman Advisers Management Trust Limited
Maturity Bond and Partners Portfolios; the Strong Special Fund II; the Strong
Variable Insurance Funds, Inc. Growth Fund II; and the Van Eck Worldwide
Insurance Trust Worldwide Emerging Markets Fund because these Funds were not
available as of December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSECO SERIES TRUST
ASSET ALLOCATION (C)
Accumulation unit value at
beginning of period ....$1.370 1.052 1.068 $1.000 N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.740 $1.370 $1.052 $1.068 N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value.....27.01% 30.19% (1.51)% 6.84% N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period........5,801,102 5,007,682 3,888,125 2,257,426 N/A N/A N/A N/A N/A N/A
COMMON STOCK - QUALIFIED (a)
Accumulation unit value at
beginning of period....$12.448 $9.191 $9.069 $8.492 $8.292 $5.827 $6.313 $4.804 $4.491 $4.420
Accumulation unit value at
end of period..........$17.933 $12.448 $9.191 $9.069 $8.492 $8.292 $5.827 $6.313 $4.804 $4.491
Percentage change in accu-
mulation unit value.....44.06% 35.44% 1.35% 6.79% 2.41% 42.30% (7.70)% 31.41% 6.97% 1.61%
Number of accumulation
units outstanding at
end of period........8,464,009 7,950,068 7,356,167 6,310,119 5,499,342 4,667,263 4,275,235 4,188,009 4,384,189 4,753,634
COMMON STOCK - NON-QUALIFIED (a)
Accumulation unit value at
beginning of period......$9.854 $7.275 $7.179 $6.722 $6.564 $4.612 $4.997 $3.803 $3.555 $3.567
Accumulation unit value at
end of period...........$14.195 $9.854 $7.275 $7.179 $6.722 $6.564 $4.612 $4.997 $3.803 $3.555
Percentage change in accu-
mulation unit value......44.06% 35.44% 1.35% 6.79% 2.41% 42.30% (7.70)% 31.41% 6.97% (0.34)%
Number of accumulation
units outstanding at
end of period...........283,828 286,775 271,457 252,573 191,299 152,332 125,393 105,484 128,262 228,537
====================================================================================================================================
</TABLE>
15
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION--CONT.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSECO SERIES TRUST - CONT.
CORPORATE BOND - QUALIFIED (b)
Accumulation unit value at
beginning of period......$4.790 $4.080 $4.224 $3.768 $3.466 $2.899 $2.743 $2.405 $2.245 $2.213
Accumulation unit value at
end of period............$4.990 $4.790 $4.080 $4.224 $3.768 $3.466 $2.899 $2.743 $2.405 $2.245
Percentage change in accu-
mulation unit value.......4.19% 17.38% (3.41)% 12.12% 8.70% 19.57% 5.66% 14.09% 7.11% 1.43%
Number of accumulation
units outstanding at
end of period.........2,973,412 3,072,607 2,961,739 3,003,770 2,490,084 2,145,672 1,998,622 2,083,583 2,092,143 2,321,770
CORPORATE BOND - NON-QUALIFIED (b)
Accumulation unit value at
beginning of period.....$4.602 $3.921 $4.059 $3.620 $3.330 $2.785 $2.636 $2.310 $2.157 $2.134
Accumulation unit value at
end of period...........$4.795 $4.602 $3.921 $4.059 $3.620 $3.330 $2.785 $2.636 $2.310 $2.157
Percentage change in accu-
mulation unit value......4.19% 17.38% (3.41)% 12.12% 8.70% 19.57% 5.66% 14.09% 7.11% 1.10%
Number of accumulation
units outstanding at
end of period..........136,642 179,684 197,847 185,569 123,618 98,273 118,597 140,928 99,057 101,084
GOVERNMENT SECURITIES (c)
Accumulation unit value at
beginning of period.....$1.156 $0.995 $1.034 $1.000 N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.176 $1.156 $0.995 $1.034 N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value......1.72% 16.18% (3.79)% 3.42% N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period..........365,164 422,359 335,451 535,607 N/A N/A N/A N/A N/A N/A
MONEY MARKET (b)
Accumulation unit value at
beginning of period.....$2.496 $2.387 $2.321 $2.280 $2.224 $2.120 $1.978 $1.830 $1.726 $1.636
Accumulation unit value at
end of period...........$2.598 $2.496 $2.387 $2.321 $2.280 $2.224 $2.120 $1.978 $1.830 $1.726
Percentage change in accu-
mulation unit value......4.10% 4.57% 2.85% 1.79% 2.52% 4.89% 7.22% 8.08% 6.01% 5.50%
Number of accumulation
units outstanding at
end of period........1,849,618 1,538,629 1,619,841 1,465,429 1,790,486 1,762,019 1,798,156 1,869,049 1,705,508 2,039,312
====================================================================================================================================
</TABLE>
(Continued)
16
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION--CONT.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THE ALGER AMERICAN FUND:
ALGER AMERICAN LEVERAGED ALLCAP (d)
Accumulation unit value at
beginning of period.....$1.411 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.565 $1.411 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value.....10.92% 41.12% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period..........332,180 48,284 N/A N/A N/A N/A N/A N/A N/A N/A
ALGER AMERICAN SMALL CAPITALIZATION (d)
Accumulation unit value at
beginning of period.....$1.222 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.260 $1.222 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value......3.14% 22.18% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period........1,294,236 421,326 N/A N/A N/A N/A N/A N/A N/A N/A
====================================================================================================================================
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. (d)
Accumulation unit value at
beginning of period.....$1.178 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.413 $1.178 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value.....20.01% 17.76% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period..........114,173 27,728 N/A N/A N/A N/A N/A N/A N/A N/A
====================================================================================================================================
DREYFUS STOCK INDEX FUND (d)
Accumulation unit value at
beginning of period.....$1.160 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.402 $1.160 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value.....20.79% 16.03% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period........1,395,520 561,967 N/A N/A N/A N/A N/A N/A N/A N/A
====================================================================================================================================
</TABLE>
(Continued)
17
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION--CONT.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERATED INSURANCE SERIES
FEDERATED HIGH INCOME BOND II (D)
Accumulation unit value at
beginning of period.....$1.070 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.210 $1.070 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value.....13.17% 6.96% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period...........44,124 1,178 N/A N/A N/A N/A N/A N/A N/A N/A
FEDERATED INTERNATIONAL EQUITY II (d)
Accumulation unit value at
beginning of period.....$1.028 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.102 $1.028 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value......7.23% 2.80% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period...........70,090 9,399 N/A N/A N/A N/A N/A N/A N/A N/A
FEDERATED UTILITY II (d)
Accumulation unit value at
beginning of period.....$1.125 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.243 $1.125 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value.....10.45% 12.53% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period..........111,929 53,189 N/A N/A N/A N/A N/A N/A N/A N/A
====================================================================================================================================
JANUS ASPEN SERIES
AGGRESSIVE GROWTH (d)
Accumulation unit value at
beginning of period.....$1.269 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.357 $1.269 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value......6.87% 26.93% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period..........881,491 398,348 N/A N/A N/A N/A N/A N/A N/A N/A
====================================================================================================================================
</TABLE>
(Continued)
18
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION--CONT.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES - CONT.
GROWTH (d)
Accumulation unit value at
beginning of period.....$1.170 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.372 $1.170 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value.....17.27% 17.02% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period..........570,927 144,293 N/A N/A N/A N/A N/A N/A N/A N/A
WORLDWIDE GROWTH (d)
Accumulation unit value at
beginning of period.....$1.214 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.551 $1.214 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value....$27.74% 21.40% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period........1,845,276 230,889 N/A N/A N/A N/A N/A N/A N/A N/A
====================================================================================================================================
THE VAN ECK WORLDWIDE INSURANCE TRUST
WORLDWIDE HARD ASSETS (FORMERLY, GOLD AND NATURAL RESOURCES) (d)
Accumulation unit value at
beginning of period.....$1.080 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.262 $1.080 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value.....16.88% 7.97% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period...........49,773 27,240 N/A N/A N/A N/A N/A N/A N/A N/A
WORLDWIDE BOND (d)
Accumulation unit value at
beginning of period.....$1.021 $1.000 N/A N/A N/A N/A N/A N/A N/A N/A
Accumulation unit value at
end of period...........$1.036 $1.021 N/A N/A N/A N/A N/A N/A N/A N/A
Percentage change in accu-
mulation unit value.....$1.50% 2.05% N/A N/A N/A N/A N/A N/A N/A N/A
Number of accumulation
units outstanding at
end of period...........23,735 6,030 N/A N/A N/A N/A N/A N/A N/A N/A
====================================================================================================================================
</TABLE>
(a) The unit value was $1.000 on the inception date of December 3, 1965.
(b) The unit value was $1.000 on the inception date of May 19, 1981.
(c) The unit value was $1.000 on the inception date of May 1, 1993.
(d) The unit value was $1.000 on the inception date of June 1, 1995.
19
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
GREAT AMERICAN RESERVE, VARIABLE
ACCOUNT, AND THE INVESTMENT OPTIONS
A. GREAT AMERICAN RESERVE
Great American Reserve, originally organized in 1937, is principally engaged
in the life insurance business in 47 states and the District of Columbia. Great
American Reserve is a stock company organized under the laws of the state of
Texas and an indirect wholly owned subsidiary of Conseco, Inc. ("Conseco"). The
operations of Great American Reserve are handled by Conseco. Conseco is a
publicly owned financial services holding company, the principal operations of
which are the development, marketing and administration of specialized annuity
and life insurance products. Conseco is located at 11825 N. Pennsylvania Street,
Carmel, Indiana 46032.
All inquiries regarding Individual Accounts, the Contracts, or any related
matter should be directed to Great American Reserves Variable Annuity Department
at the address and telephone number shown on page 1 of this Prospectus. The
financial statements of Great American Reserve included in the Statement of
Additional Information should be considered only as bearing upon the ability of
Great American Reserve to meet the obligations under the Contracts. Furthermore,
neither the assets of Conseco nor those of any company in the Conseco group of
companies other than Great American Reserve support these obligations. As of
December 31, 1996, Great American Reserve had total assets of $2.7 billion and
total shareholder's equity of $396.9 million. Great American Reserve does not
guarantee the investment performance of the Variable Account investment options.
B. VARIABLE ACCOUNT
Variable Account, originally established in 1980 by Voyager Life Insurance
Company, is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"). At a combined Special Meeting
held on December 14, 1992, the Contract Owners and Participants in Variable
Account, Great American Reserve Variable Annuity Account Fund ("Annuity Fund")
and Great American Reserve Variable Annuity Account D ("Account D") approved an
Agreement and Plan of Reorganization and the reorganization (the "Combination")
of Variable Account, Annuity Fund, and Account D, contemplated thereby. On May
1, 1993, the effective date of the Combination, Variable Account, Annuity Fund
and Account D were combined and restructured into a single continuing unit
investment trust separate account investing exclusively in shares of the Conseco
Series Trust, and Variable Account became the continuing separate account. Also
on May 1, 1993, all of the Sub-account assets of Variable Account, including
those of Annuity Fund and Account D, were sold, assigned and transferred to the
Common Stock, Corporate Bond and Money Market Portfolios of the Conseco Series
Trust. In exchange for such assets, shares of the Common Stock, Corporate Bond
and Money Market Portfolios were issued to the Common Stock Sub-account,
Corporate Bond Sub- account and Money Market Sub-account of restructured
Variable Account, respectively. The respective interests of Contract Owners and
Participants immediately after the Combination were equal to their former
interests in Variable Account, Annuity Fund or Account D, as the case may be,
immediately before the Combination.
Prior to the Combination, Variable Account, Annuity Fund and Account D had
been operated by Great American Reserve as managed separate accounts investing
directly in securities. Variable Account invested primarily in debt securities,
Annuity Fund invested primarily in equity securities, and Account D invested
only in money market instruments. As a result of the Combination, Variable
Account invests in shares of the Conseco Series Trust, which, in turn, invest
directly in diversified portfolios of securities, as described in the Conseco
Series Trusts prospectus and statement of additional information. The Variable
Account also invests in shares of Funds described herein.
The Variable Account is segmented into Sub-accounts. Each Sub-account
invests in shares of one of the eligible Funds and such shares are purchased at
net asset value. The Sub-accounts and Funds may be added or withdrawn as
permitted by applicable law. The Variable Account consists of 30 Sub-accounts,
each of which invests in shares of one of the eligible Funds of the Conseco
Series Trust Asset Allocation, Common Stock, Corporate Bond, Government
Securities, and Money Market Portfolios; the Alger American Fund Growth,
Leveraged AllCap, MidCap
20
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
Growth, and Small Capitalization Portfolios; the American Century Variable
Portfolios, Inc. International and Value Funds; the Berger IPT - 100, Berger IPT
- - Growth and Income, Berger IPT - Small Company Growth, and Berger/BIAM IPT -
International Funds; the Dreyfus Socially Responsible Growth Fund, Inc.; the
Dreyfus Stock Index Fund; the Federated Insurance Series High Income Bond II,
International Equity II, and Utility II Funds; the Janus Aspen Series Aggressive
Growth, Growth, and Worldwide Growth Portfolios; the Neuberger & Berman Advisers
Management Trust Limited Maturity Bond and Partners Portfolios; the Strong
Variable Insurance Funds, Inc. Growth Fund II; Strong Special Fund II; and the
Van Eck Worldwide Insurance Trust Worldwide Hard Assets (formerly, Gold and
Natural Resources), Worldwide Bond, and Worldwide Emerging Markets Funds. Great
American Reserve reserves the right to add other Sub-accounts, eliminate
existing Sub-accounts, combine Sub-accounts or transfer assets in one
Sub-account to another Sub-account established by Great American Reserve or an
affiliate company. Great American Reserve will not eliminate existing
Sub-accounts or combine Sub- accounts without any required prior approval of the
appropriate state or federal regulatory authorities.
The assets of Variable Account are not chargeable with liabilities arising
out of any other business Great American Reserve may conduct. In addition, any
income, gains or losses realized or unrealized on assets of Variable Account are
credited to or charged against Variable Account without regard to other income,
gains or losses of Great American Reserve. Nevertheless, obligations arising
under the Contracts are obligations of Great American Reserve.
In addition to the net assets and other liabilities for variable annuity
contracts, Variable Accounts assets will include assets derived from charges
made by Great American Reserve. Great American Reserve may transfer out to its
general account any of Variable Accounts assets that are in excess of the
reserves and other liabilities relating to the Contracts.
Variable Account is regulated by the Insurance Department of Texas.
Regulation by the state, however, does not involve any supervision of Variable
Account, except to determine compliance with broad statutory criteria.
C. INVESTMENT OPTIONS
The investment objectives of the Sub-accounts available through the Variable
Account are briefly described below. More detailed information is contained in
the current prospectuses of the Funds.
CONSECO SERIES TRUST
ASSET ALLOCATION PORTFOLIO seeks a high total investment return, consistent
with the preservation of capital and prudent investment risk. The Portfolio
seeks to achieve this objective by pursuing an active asset allocation strategy
whereby investments are allocated, based upon thorough investment research,
valuation and analysis of market trends and the anticipated relative total
return available, among various asset classes including debt securities, equity
securities, and money market instruments.
COMMON STOCK PORTFOLIO seeks to provide a high total return consistent with
preservation of capital and a prudent level of risk primarily by investing in
selected equity securities and other securities having the investment
characteristics of common stocks.
CORPORATE BOND PORTFOLIO seeks to provide as high a level of income as is
consistent with preservation of capital by investing primarily in debt
securities.
GOVERNMENT SECURITIES PORTFOLIO seeks safety of capital, liquidity and
current income by investing primarily in securities issued by the U.S.
government or an agency or instrumentality of the U.S. government, including
mortgage-related securities.
MONEY MARKET PORTFOLIO seeks current income consistent with stability of
capital and liquidity. An investment in this Portfolio is neither insured nor
guaranteed by the U.S. government and there can be no assurance that the
Portfolio will be able to maintain a stable net asset value of $1.00 per share.
21
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
THE ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO seeks long-term capital appreciation by
investing in a diversified, actively managed portfolio of equity securities,
primarily of companies with total market capitalization of $1 billion or
greater.
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of equity
securities. The Portfolio may engage in leveraging (up to 33 1/3 percent of its
assets) and options and futures transactions, which are deemed to be speculative
and which may cause the Portfolios value to fluctuate.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO seeks long-term capital
appreciation. Except during temporary defensive periods, the Portfolio invests
at least 65% of its total assets in equity securities of companies that, at the
time of purchase of the securities, have total market capitalization within the
range of companies included in the S&P MidCap 400 Index. This Index is designed
to track the performance of medium capitalization companies. As of March 31,
1997, the range of market capitalization of these companies was $120 million to
$7.193 billion. The Portfolio may invest up to 35% of its total assets in equity
securities of larger or smaller issuers and in excess of that amount (up to 100%
of its assets) during temporary defensive periods.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks long-term capital
appreciation. Except during temporary defensive periods, the Portfolio invests
at least 65% of its total assets in equity securities of companies that, at the
time of purchase of the securities, have total market capitalization within the
range of companies included in the Russell 2000 Growth Index. This Index is
designed to track the performance of small capitalization companies. As of March
31, 1997, the range of market capitalization of these companies was $10 million
to $1.94 billion. The Portfolio may invest up to 35% of its total assets in
equity securities of larger or smaller issuers and in excess of that amount (up
to 100% of its assets) during temporary defensive periods.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INTERNATIONAL FUND seeks capital growth by investing primarily in
securities of foreign companies that meet certain fundamental and technical
standards of selection and have, in the opinion of the fund's investment
manager, potential for appreciation. The fund will invest primarily in common
stocks and other equity equivalents. The fund tries to stay fully invested in
such securities, regardless of the movement of stock prices generally. Under
normal conditions, the fund will invest at least 65% of its assets in common
stocks or other equity equivalents of issuers from at least three countries
outside of the United States.
VALUE FUND seeks long-term capital growth by investing primarily in equity
securities of well-established companies with intermediate to large market
capitalizations that are believed by the fund's management to be undervalued at
the time of purchase. Income is a secondary objective. Under normal market
conditions, the fund expects to invest at least 80% of the value of its total
assets in equity securities, which includes equity equivalents.
BERGER INSTITUTIONAL PRODUCTS TRUST
BERGER IPT - 100 FUND seeks long-term capital appreciation by investing
primarily in common stocks of established companies which the fund's adviser
believes offer favorable growth prospects. Current income is not an investment
objective.
BERGER IPT - GROWTH AND INCOME FUND seeks capital appreciation and
secondarily a moderate level of current income by investing primarily in common
stocks and other securities, such as convertible securities or preferred stocks,
which the fund's adviser believes offer favorable growth prospects and are
expected to also provide current income.
BERGER IPT - SMALL COMPANY GROWTH FUND seeks capital appreciation by
investing primarily in equity securities (including common and preferred stocks,
convertible debt securities and other securities having equity features) of
small growth companies with market capitalization of less than $1 billion at the
time of initial purchase.
22
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
BERGER/BIAM IPT - International Fund seeks long-term capital appreciation
by investing primarily in common stocks of well established companies located
outside the United States. The fund intends to diversify its holdings among
several countries and to have, under normal market conditions, at least 65% of
the fund's total assets invested in the securities of companies located in at
least five countries, not including the United States.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. seeks to provide capital
growth through equity investment in companies that, in the opinion of the Funds
management, not only meet traditional investment standards but also show
evidence that they conduct business in a manner that contributes to the
enhancement of the quality of life in America. Current income is secondary to
the primary goal.
DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund seeks to provide investment results that correspond
to the price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poors 500 Composite Price Index. The
Fund is neither sponsored by nor affiliated with
the Standard & Poors Corporation.
FEDERATED INSURANCE SERIES
FEDERATED HIGH INCOME BOND FUND II seeks to provide high current income by
investing at least 65 percent of its assets in lower rated fixed income
corporate debt obligations. Capital growth will be considered, but only when
consistent with the investment objective of high current income. The fixed
income securities in which the Fund will primarily invest are commonly referred
to as "junk bonds".
FEDERATED INTERNATIONAL EQUITY FUND II seeks to obtain a total return on its
assets by investing at least 65 percent of its assets (and under normal market
conditions substantially all of its assets) in equity securities of issuers
located in at least three different countries outside of the United States.
FEDERATED UTILITY FUND II seeks to provide high current income and moderate
capital appreciation by investing at least 65 percent of its assets (under
normal conditions) in equity and debt securities of utility companies.
JANUS ASPEN SERIES
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. The
Portfolio is a nondiversified fund that pursues its objective by normally
investing at least 50% of its equity assets in securities issued by medium-sized
companies. Medium-sized companies are those whose market capitalizations fall
within the range of companies in the S&P MidCap 400 Index (the MidCap Index).
Companies whose capitalization falls outside this range after the Portfolios
initial purchase continue to be considered medium-sized companies of the purpose
of this policy. As of March 31, 1997, the MidCap Index included companies with
capitalizations between approximately $120 million and $7.193 billion.
GROWTH PORTFOLIO seeks long-term growth of capital in a manner consistent
with the preservation of capital. It pursues this objective by investing
primarily in common stocks of a large number of issuers of any size. Generally,
this Portfolio emphasizes issuers with larger market capitalizations.
WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital in a manner
consistent with the preservation of capital. It pursues this objective by
investing primarily in common stocks of foreign and domestic issuers of any
size. The Portfolio normally invests in issuers from at least five different
countries including the United States.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
LIMITED MATURITY BOND PORTFOLIO seeks the highest current income consistent
with low risk to principal and liquidity, and, secondarily, total return by
investing all of its net investable assets in another fund, AMT Limited Maturity
Bond Investments, which has investment objectives, policies, and limitations
that are identical to those of the Limited Maturity Bond Portfolio. AMT Limited
Maturity Bond Investments seeks to achieve its investment objective by investing
in short- to intermediate- term debt securities, primarily of investment grade.
23
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
PARTNERS PORTFOLIO seeks capital growth by investing all of its investable
assets in another fund, AMT Partners Investments, which has investment
objectives, policies, and limitations that are identical to those of the
Partners Portfolio. AMT Partners Investments seeks to achieve its investment
objective by investing in common stocks and other equity securities of medium-
to large-capitalization established companies.
STRONG SPECIAL FUND II seeks capital growth by investing primarily in equity
securities and currently emphasizes investments in medium-sized companies which
the fund's investment adviser believes are under-researched and attractively
valued. The fund will invest at least 80% of its net assets in equity
securities, including common stocks (which must constitute at least 65% of its
total assets), preferred stocks, and securities that are convertible into common
or preferred stocks, such as warrants and convertible bonds.
STRONG VARIABLE INSURANCE FUNDS, INC.
GROWTH FUND II seeks capital growth by investing primarily in equity
securities that the fund's investment adviser believes have above-average growth
prospects. Under normal market conditions, the fund will invest at least 65% of
its total assets in equity securities, including common stocks, preferred
stocks, and securities that are convertible into common or preferred stocks,
such as warrants and convertible bonds.
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and Natural Resources Fund)
seeks long-term capital appreciation by investing globally, primarily in equity
securities and indexed securities of hard asset companies which are directly or
indirectly engaged to a significant extent in the exploration, development,
production and distribution of precious metals, ferrous and non-ferrous metals,
gas, petroleum, petrochemicals, forest products, real estate and other basic
non-agricultural commodities which, historically, have been produced and
marketed profitably during periods of significant inflation.
WORLDWIDE BOND FUND seeks high total return through a flexible policy of
investing globally, primarily in debt securities.
WORLDWIDE EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities in emerging markets around the world.
The fund emphasizes countries that, compared to the world's major economies,
exhibit relatively low gross national per capita as well as the potential for
rapid economic growth.
There is no assurance that the Funds will achieve their stated objectives.
The Funds' shares are also available to certain separate accounts funding
variable life insurance policies and variable annuity contracts offered by other
insurance company separate accounts. This is called "mixed and shared funding."
Although we do not anticipate any inherent difficulties arising from mixed and
shared funding, it is theoretically possible that, due to differences in tax
treatment or other considerations, the interests of owners of various contracts
participating in the Funds might at some time be in conflict. The Board of
Directors or Trustees of each Fund, each Fund's investment adviser, and Great
American Reserve are required to monitor events to identify any material
conflicts that arise from the use of the Funds for mixed and shared funding. For
more information about the risks of mixed funding, please refer to the relevant
Fund prospectus.
If the shares of any of the Funds should no longer be available for
investment by the Variable Account or, if in the judgment of Great American
Reserve's management, further investment of such Fund shares shall become
inappropriate in view of the purpose of the Contract, Great
24
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
American Reserve may add or substitute shares of another eligible Sub-account or
of another Fund for eligible Portfolio shares already purchased under the
Contract. No substitution of Sub-account shares may take place without prior
approval of the SEC and notice to Contract Owners or Participants, to the extent
required by the 1940 Act.
Great American Reserve has also reserved the right, subject to compliance
with the law as currently applicable or subsequently changed, (a) to operate the
Variable Account in any form permitted under the 1940 Act or in any other form
permitted by law; (b) to take any action necessary to comply with or obtain and
continue any exemptions from the 1940 Act or to comply with any other applicable
law; (c) to transfer any assets in any Sub- account to another Sub-account, or
to one or more separate investment accounts, or to Great American Reserves Fixed
Account of the General Account; or to add, combine or remove Sub-accounts in the
Variable Account; and (d) to change the way Great American Reserve assesses
charges, so long as the aggregate amount is not increased beyond that currently
charged to the Variable Account and the eligible Portfolios in connection with
the Contract.
THE CONTRACTS
A. ACCUMULATION PROVISIONS
PURCHASE PAYMENTS. The single premium payment Contracts have a minimum
purchase payment of $10,000 with additional Contracts in amounts of not less
than $5,000; the usual maximum is $500,000. The flexible premium payment
contracts have a minimum initial and subsequent Purchase Payment of $10 per
month; the usual Purchase Payment maximum is $500,000. Purchase Payments in
excess thereof may be made only upon approval by Great American Reserve and will
be subject to such terms and conditions as may be required by Great American
Reserve. The amount of a Purchase Payment may be increased or decreased at any
time, and submission of a Purchase Payment different from the previous one will
automatically effect such a change.
The value of an Individual Account can be determined at any time during the
Accumulation Period by multiplying the total number of Accumulation Units in a
Sub-account attributable to such Individual Account by the then-current value of
an Accumulation Unit in such Sub-account. Because the value of the Accumulation
Units fluctuates, there is no assurance that the value of the Accumulation Units
in an Individual Account will equal or exceed the amount of Purchase Payments
made.
The initial value of an Accumulation Unit for each of the other
Sub-accounts of Variable Account on the first day that Purchase Payments are
allocated, or transfers are made, to each of such Sub-accounts will be equal to
the Accumulation Unit value of $1.00 multiplied by the "net investment factor"
for each such Sub-account. After the initial Accumulation Unit values are
established, the value of an Accumulation Unit for each of the Sub-accounts of
Variable Account for any subsequent Valuation Period will be determined by
multiplying the Accumulation Unit value for the immediately preceding Valuation
Period by the net investment factor for the current period for the Sub- account.
(see "Net Investment Factor for each Valuation Period").
A Valuation Period is the period of time from the end of one business day to
the end of the next. Accumulation Units of the Sub-accounts are valued as of the
time of closing of each business day of the New York Stock Exchange on any
business day in which an order for sale or redemption of Accumulation Units is
received and in which there is a sufficient degree of trading in the portfolio
securities to materially affect the current asset values of the Accumulation
Units.
ACCUMULATION UNITS. Each Purchase Payment is credited to the Participant's
Individual Account in the form of Accumulation Units at the close of the
Valuation Period in which the Purchase Payment is received at the Administrative
Office of Great American Reserve. The number of Accumulation Units credited is
determined by dividing the amount credited by the value of an Accumulation Unit
at the close of that Valuation Period. Accumulation Units are valued separately
for each investment option, so a Contract Owner who has elected to have amounts
in an Individual Account accumulated in more than one investment option will
have several types of Accumulation Units credited to the Individual Account.
ALLOCATION OF PURCHASE PAYMENTS AND TRANSFERS. The Contract Owner may elect
to have Purchase Payments accumulated (a) on a fully variable basis invested in
one or
25
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
more of the Sub-accounts of Variable Account; (b) on a fully fixed basis which
reflects a compound interest rate promised by Great American Reserve; or (c) in
a combination of any of the investment options.
An election to change the allocation of future Purchase Payments may be made
by the Contract Owner 30 days (a) subsequent to the date of establishment of the
Individual Account or (b) subsequent to a prior change in allocation. In
addition, the Contract Owner may elect, during the Accumulation Period, to
transfer amounts in an Individual Account being accumulated in any investment
option to any other investment option without deduction of any charges, subject
to certain conditions.
Subject to the conditions noted below, during the Accumulation Period the
Contract Owner may transfer amounts in an Individual Account being accumulated
in any investment option--a Sub-account of Variable Account or the Fixed
Account--to any other investment option available under the Contracts, without
charge. Except with Great American Reserves permission, a transfer can be made
no more frequently than once in any 30-day period, and only one transfer from
the Fixed Account is permitted in any six-month period with no more than 20
percent of the Fixed Account value transferred at one time. Transfers between
Sub-accounts and changes in allocations may be made either in writing or by
telephone (if a telephone authorization request has been completed).
Transfers must be made by written authorization from the Contract Owner or
from the person acting for the Contract Owner as an attorney-in-fact under a
power-of- attorney if permitted by state law. The Contract Owner must request
telephone transfers on forms provided by Great American Reserve. By authorizing
Great American Reserve to accept telephone transfer instructions, a Contract
Owner agrees to accept and be bound by the conditions and procedures established
by Great American Reserve from time to time. We have instituted reasonable
procedures to confirm that any instructions communicated by telephone are
genuine. All telephone calls will be recorded, and the caller will be asked to
produce your personalized data prior to our initiating any transfer requests by
telephone. Additionally, as with other transactions, you will receive a written
confirmation of your transfer. If reasonable procedures are employed, neither
Great American Reserve nor Conseco Equity Sales, Inc. ("Conseco Equity Sales")
will be liable for following telephone instructions which it reasonably believes
to be genuine. Written transfer requests may be made by a person acting for the
Contract Owner as an attorney-in-fact under a power-of-attorney.
Transfer requests received by Great American Reserve before the close of
trading on the New York Stock Exchange (currently 4:00 p.m. eastern time) will
be initiated at the close of business that day. Any request received later will
be initiated at the close of the next business day.
DOLLAR COST AVERAGING. Great American Reserve administers a Dollar Cost
Averaging ("DCA") program which enables a Contract Owner to transfer the value
from the Fixed Account or Money Market Sub-account to another investment option
on a predetermined and systematic basis. The DCA program is generally suitable
for Contract Owners making a substantial deposit to the Contract and who desire
to control the risk of investing at the top of a market cycle. The DCA program
allows such investments to be made in equal installments over time in an effort
to reduce such risk.
REBALANCING. Rebalancing is a program, which if elected, provides for
periodic pre-authorized automatic transfers during the Accumulation Period among
the Sub- Accounts pursuant to written instructions from the Contract Owner. Such
transfers are made to maintain a particular percentage allocation among the
Portfolios as selected by the Contract Owner. Amounts in the Fixed Account will
not be transferred pursuant to the Rebalancing Program. The Contract Value must
be at least $5,000 to have transfers made pursuant to the Program. Any transfer
made pursuant to the Program must be in whole percentages in one (1%) percent
allocation increments. The maximum number of Sub-Accounts which can be used for
rebalancing is fifteen (15). A Contract Owner may select quarterly, semi-annual
or annual Rebalancing, on the date requested by the Contract Owner. Transfers
made pursuant to the Rebalancing Program are not taken into account in
determining any Transfer Fee. There is no fee for participating in the Program.
The Company reserves the
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right to terminate, modify or suspend the Rebalancing Program at any time.
SWEEPS. Sweeps are the transfer of the earnings from
the Fixed Account investment option into another
investment option on a periodic and systematic basis.
VALUE OF AN INDIVIDUAL ACCOUNT. The number of Accumulation Units credited to
an Individual Account will not be changed by any subsequent change in the value
of an Accumulation Unit, but the dollar value of an Accumulation Unit may vary
from Valuation Period to Valuation Period to reflect the investment experience
of the appropriate investment option. The value of an Individual Account at any
time prior to the commencement of the Annuity Period can be determined by (a)
multiplying the total number of Accumulation Units credited to the Individual
Account for each investment option, respectively, by the appropriate current
Accumulation Unit value; and (b) totaling the resulting values for each portion
of the Individual Account. There is no assurance that the value of the
Individual Account will equal or exceed the Purchase Payments made. The Contract
Owner will be advised at least annually as to the number of Accumulation Units
which are credited to the Individual Accounts, the current Accumulation Unit
values, and the values of the Individual Accounts.
NET INVESTMENT FACTOR FOR EACH VALUATION PERIOD. The Variable Account value
will fluctuate in accordance with the investment results of the underlying
eligible Funds. In order to determine how these fluctuations affect Contract
value, an Accumulation Unit value is utilized. Each Sub-account has its own
Accumulation Units and value per Unit. The Unit value applicable during any
Valuation Period is determined at the end of that period.
When eligible Fund shares were first purchased on behalf of the Variable
Account, Accumulation Units were valued at $1.00 each. The value of an
Accumulation Unit for each Sub-account at any Valuation Period thereafter is
determined by multiplying the value for the prior period by a net investment
factor. This factor may be greater or less than 1.0; therefore, the Accumulation
Unit may increase or decrease from Valuation Period to Valuation Period. A net
investment factor for each Sub-account is calculated by dividing (a) by (b) and
then subtracting (c) (i.e., (a/b) - c), where:
(a) is equal to:
(i) the net asset value per share of the eligible
Portfolio at the end of the Valuation Period; plus
(ii) the per-share amount of any distribution made by the eligible
Portfolio if the "ex-dividend" date occurs during that same Valuation
Period.
(b) is the net asset value per share of the eligible Portfolio
at the end of the prior Valuation Period.
(c) is equal to the Valuation Period equivalent of the per- year mortality
and expense risk charge as indicated in the "Summary - Charges
and Deductions" table.
INFORMATION ON THE FIXED ACCOUNT. Because of exemptive and exclusionary
provisions, interests in the Fixed Account of the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the Fixed
Account of the general account registered as an investment company under the
1940 Act. Accordingly, neither the Fixed Account of the general account of Great
American Reserve nor any interest therein is generally subject to the provisions
of the 1933 or 1940 Acts, and we have been advised that the staff of the SEC has
not reviewed the disclosures in this Prospectus that relate to the fixed
portion. Disclosures regarding the Fixed Account of the Contracts and the
general account of Great American Reserve, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
In addition to the 30 variable investment options described in this
Prospectus, the Contracts have a Fixed Account available for allocation of
Purchase Payments. Generally, the information in the Section called Contracts
applies in a like manner to the Fixed Account. However, there are some
differences.
The Fixed Account operates like a traditional annuity. Fixed Annuity Cash
Values increase based on interest rates
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that may change from time to time but are guaranteed by Great American Reserve.
Interest is credited daily and compounded annually. Purchase Payments and
transfers to the Fixed Account become part of the general account of Great
American Reserve. In contrast, Purchase Payments and transfers for the Variable
Account are applied to segregated asset accounts; they are not commingled with
Great American Reserves main portfolio of investments that support fixed annuity
obligations. The gains achieved or losses suffered by the segregated asset
accounts have no effect on the Fixed Account.
The Contracts allow you to transfer Contract Values between the Fixed and
Variable Accounts, but such transfers are restricted as follows:
1. You may transfer Contract Values from the Variable Account to the Fixed
Account once in any 30-day period.
2. You may transfer Contract Values from the Fixed Account to the Variable
Account once in any six- month period subject to a limit of 20 percent of
the Fixed Account value.
3. No transfers may be made from the Fixed Account once annuity payments
begin.
The administrative charge and the mortality and expense risk charge based on
the value of each Sub-account do not apply to values allocated to the Fixed
Account.
If you buy the annuity as a TSA or certain other qualified plans, the
Contract will contain a provision that allows a loan to be taken against the
Contract Values allocated to the Fixed Account. Loan provisions are described in
detail in the Contract.
WITHDRAWALS. The Contract permits the Contract Owner to withdraw all or a
portion of the Contract at any time. The value of the Contract will be
determined as of the date a written request for withdrawal is received by Great
American Reserve at its Administrative Office or a later date specified by the
Contract Owner in the request. The Redemption Payment shall be the value of
Accumulation Units then credited to Individual Accounts under the Contract, less
applicable withdrawal charges, any outstanding loans, and applicable
administrative fees. With respect to any Individual Account value or portion
thereof which has been applied to provide annuity payments, Great American
Reserve will continue to make annuity payments under the option selected until
its obligation to make such payments terminates (see Annuity Provisions).
An Individual Account may be fully or partially withdrawn by the Contract
Owner at any time prior to the commencement of annuity payments subject to any
restrictions of the Code. For certain qualified contracts, exercise of the
withdrawal right may be restricted and may require the consent of the
participants spouse as required under the Code and regulations thereunder. Where
amounts in an Individual Account are being accumulated in more than one
investment option, a request for partial withdrawal must specify the manner in
which the Amount Redeemed is to be allocated between the investment options.
Redemption Payments will normally be made within seven days after a written
request is received at the Administrative Office of Great American Reserve, or
within seven days after such later date specified by the Contract Owner in the
request. Payment may be subject to
postponement as described below.
With respect to the portion accumulated on a variable basis, payment may be
postponed (1) for any period during which the New York Stock Exchange is closed
(other than customary weekend and holiday closings) or during which trading on
the New York Stock Exchange is restricted; (2) for any period during which an
emergency exists as a result of which disposal of securities held in one or more
of the Funds is not reasonably practicable or it is not reasonably practicable
for the assets of a Fund to be fairly determined; or (3) for such other periods
as the SEC may by order permit for the protection of security holders. The
conditions under which trading shall be deemed to be restricted or an emergency
deemed to exist shall be determined by the rules and regulations of the SEC.
Withdrawals from the Contract may be subject to a penalty tax and
withdrawals are permitted from Contracts issued in connection with certain
qualified plans only under limited circumstances (see Federal Tax Matters)
SYSTEMATIC WITHDRAWAL PLAN. Great American Reserve administers a Systematic
Withdrawal Plan (SWP) which enables a Participant to pre-authorize a periodic
exercise of
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the contractual withdrawal rights described above. Participants entering into a
SWP agreement instruct Great American Reserve to withdraw a level dollar amount
from specified investment options on a periodic basis. The total of SWP
withdrawals in a Contract Year is limited to free withdrawal amounts to ensure
that no withdrawal charge will ever apply to a SWP withdrawal (see "Withdrawal
Charge"). If an additional withdrawal is made from a Contract participating in
SWP, the SWP will terminate automatically and may be reinstated only on or after
a written request to Great American Reserve. SWP is not available to Contracts
participating in the dollar cost averaging program or for which Purchase
Payments are automatically deducted from a bank account on a periodic basis. SWP
is only available for withdrawals free of withdrawal charges. SWP withdrawals
may, however, be subject to the 10 percent federal tax penalty on early
withdrawals and to income tax (see "Federal Tax Matters"). Participants
interested in SWP may elect to participate in this program by written request to
Great American Reserves Administrative Office.
CHECK WRITING. A Contract Owner over age 59 1/2 and invested in the Money
Market Sub-account may authorize Great American Reserve to withdraw amounts from
the Money Market Sub-account by check by completing the required forms requested
from Great American Reserve. Once the forms are properly completed, signed and
returned to Great American Reserve, a supply of checks will be sent to the
Contract Owner. These checks may be made payable by the Contract Owner to the
order of any person in any amount of $250 or more. When a check is presented for
payment, full and fractional Accumulation Units required to cover the amount of
the check and any applicable contract charges are withdrawn from the Contract
Owner's Individual Account by Great American Reserve at the next Valuation
Period. Checks will not be honored for withdrawal of Accumulation Units held
less than 15 calendar days, unless such Accumulation Units have been paid for by
bank wire. If the amount of the check is greater than the proceeds of the Money
Market Sub- account held in the Individual Account, the check is returned and
the Contract Owner may be subject to additional charges. The check writing
privilege may be terminated or suspended at any time by Great American Reserve.
There is an additional charge for this service to the Contract Owner by Great
American Reserve. A "stop payment" system is not available on these checks.
LOANS. Your contract may contain a loan provision issued in connection with
certain qualified plans. Owners of such Contracts may obtain loans using the
Contract as the only security for the loan. Loans are subject to provisions of
the Code and to applicable retirement program rules. Tax advisers and retirement
plan fiduciaries should be consulted prior to exercising loan privileges. Loan
provisions are described in detail in the Contract.
The amount of any loans will be deducted from the death benefit (see Death
Benefits). In addition, a loan, whether or not repaid, will have a permanent
effect on the Contract Value because the investment results of the investment
accounts will apply only to the unborrowed portion of the Contract Value. The
longer the loan is outstanding, the greater the effect is likely to be. The
effect could be favorable or unfavorable. If the investment results are greater
than the rate being credited on amounts held in the loan account while the loan
is outstanding, the Contract Value will not increase as rapidly as it would have
if no loan was outstanding. If investment results are below that rate, the
Contract Value will be higher than it would have been if no loan had been
outstanding.
CONTRACT CHARGES
PREMIUM TAXES. Any premium tax due will be deducted from Purchase Payments
or from Individual Account values at the annuity commencement date or at such
other time as determined by Great American Reserve. The current range of premium
taxes in jurisdictions in which the Contracts are made available is from 0
percent to 3.5 percent.
ADMINISTRATIVE CHARGE. During the Accumulation Period, an annual
administrative fee is deducted on each July 2 from the Individual Account value.
If an Individual Account is fully surrendered prior to the commencement of
annuity payments, the annual administrative fee will be deducted from proceeds
paid; provided, however, that in no event will the amount of such administrative
fee deduction exceed 2 percent of the surrender value of the Individual Account
when it is fully surrendered. This administrative fee is also assessed at the
time the Accumulation Value is applied to provide an annuity. The administrative
fee deduction is made first from amounts accumulated in the Fixed Account; if no
or an insufficient value exists in the
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Fixed Account, any balance will then be deducted from the Sub-accounts of
Variable Account. The fee is $20 for flexible premium payment Contracts and $25
for single premium payment Contracts. These administrative fees have been set at
a level that will recover no more than the actual costs associated with
administering the Contracts.
MORTALITY AND EXPENSE RISK CHARGE. Great American Reserve makes daily
deductions from the variable portion of a Contract at an effective annual rate
equal to 1.00 percent of the value of the assets of Variable Account for the
mortality and expense risks assumed by Great American Reserve. Great American
Reserve performs all administrative functions and pays all administrative
expenses with respect to the Contracts. These expenses include but are not
limited to salaries, rents, postage, telephone, travel, legal, actuarial and
accounting fees, office equipment and stationery. Great American Reserve also
provides the death benefits under the Contracts. The amounts are deducted from
the assets of Variable Account in accordance with the Contracts.
Variable Annuity payments made under the Contracts vary with the investment
performance of the Sub-accounts of Variable Account, but are not affected by
Great American Reserve's actual mortality experience among Annuitants. The life
span of the Annuitant, or changes in life expectancy in general, do not affect
the monthly annuity payments payable under the Contracts.
If Annuitants live longer than the life expectancy determined by Great
American Reserve, Great American Reserve provides funds from its general funds
to make annuity payments. Conversely, if longevity among Annuitants is lower
than Great American Reserve determined, Great American Reserve realizes a gain.
This is the mortality expense risk.
Great American Reserve also assumes the risk, the expense risk, that
deductions provided for in the Contracts for sales and administrative expenses
may not be enough to cover actual costs. Where the deductions are not adequate,
Great American Reserve will pay the amount of any shortfall from its general
funds. Any amounts paid by Great American Reserve may consist of, among other
things, proceeds derived from mortality and expense risk charges.
WITHDRAWAL CHARGE. Ten percent of the single premium payment Contract may be
withdrawn without payment of a withdrawal charge each year beginning with the
second Contract year. Ten percent of the total accumulation of a flexible
premium payment Contract may be withdrawn without payment of a withdrawal
charge, but not more than one withdrawal may be made in any calendar year.
Termination of either Contract or a partial withdrawal in excess of these
limitations may subject the value of the amount surrendered ("Amount Redeemed")
to a withdrawal charge. The deduction for withdrawal charges will be calculated
on the amount withdrawn in excess of 10 percent to determine the amount to be
paid ("Redemption Payment"). For flexible premium payment contracts, the
deduction for the first withdrawal in a contract year will be calculated on the
amount withdrawn in excess of 10 percent of the total current accumulation. For
the second or subsequent withdrawals in a Contract year, the withdrawal charge
will be calculated on the total amount of each withdrawal. No withdrawal charge
is made from annuity payments under an option involving lifetime payments or
from amounts paid due to the death of a Participant. Any applicable withdrawal
charge will be made if the number of years selected is less than five.
The withdrawal charge will be a percentage of the Amount Redeemed, ranging
from 8 percent to 0 percent depending on the type of Contract and the length of
time the Contract has been outstanding. In no event, however, will the
cumulative deductions exceed 8.5 percent of the cumulative Purchase Payments
made. Until such percentage reaches zero, it is possible that the actual dollar
amount of the withdrawal charge will increase, even though the percentage will
decline, because of the increased Accumulation Value of the Contract. If the
cost of selling the Contracts is greater than the withdrawal charge collected,
the deficiency will be made up out of Great American Reserve's general account
assets which may include profits derived from the mortality and expense risk
fees.
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<TABLE>
<CAPTION>
WITHDRAWAL CHARGE
SINGLE PREMIUM FLEXIBLE PREMIUM
CONTRACT YEAR PAYMENT CONTRACT PAYMENT CONTRACT
====================================================================================================================================
<S> <C> <C>
1.........................................................................................7% 8%
2.........................................................................................6% 7%
3.........................................................................................5% 6%
4.........................................................................................4% 5%
5.........................................................................................3% 4%
6.........................................................................................0% 3%
7.........................................................................................0% 2%
8.........................................................................................0% 1%
Thereafter................................................................................0% 0%
====================================================================================================================================
</TABLE>
No withdrawal charge is applicable to Individual Accounts surrendered upon the
death of the Participant. Redemptions are made on a last-in, first-out basis.
EXAMPLES:
(1) Complete withdrawal of an Individual Account under a single premium payment
Contract during the third Contract year:
<TABLE>
<CAPTION>
VALUE OF CONTRACT SINGLE
OR INDIVIDUAL ACCOUNT PREMIUM WITHDRAWAL ADMINISTRATIVE REDEMPTION
(AMOUNT REDEEMED) PAYMENT CHARGE FEE DEDUCTION* PAYMENT
----------------- ------- ------ -------------- -------
<S> <C> <C> <C> <C> <C>
$11,800 $10,000 $540 (5% x $10,800) $25 $11,235
</TABLE>
*Applicable to full withdrawals only.
(2) Partial withdrawal of Individual Account under a single premium payment
Contract during the third Contract year, assuming $1,000 Redemption Payment
requested in excess of the 10 percent no penalty withdrawal:
<TABLE>
<CAPTION>
AMOUNT AMOUNT WITHDRAWAL REDEMPTION
REQUESTED REDEEMED CHARGE PAYMENT
--------- -------- ------ -------
<S> <C> <C> <C> <C>
$1,000.00 $1,052.63 $52.63 (5%) $1,000.00
</TABLE>
In order to make a Redemption Payment of $1,000 in excess of the 10 percent
no penalty withdrawal, the Amount Redeemed must be greater than the Amount
Requested by the amount of the withdrawal charge. The Amount Redeemed is
calculated by dividing (a) the Amount Requested ($1,000) by (b) 1.00 minus the
deduction rate of 5 percent (or .95), which produces $1,052.63. The value of the
Individual Account will be reduced by this amount.
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EXPENSE GUARANTEE AGREEMENT. Pursuant to the Combination, Great American
Reserve issued an endorsement with respect to each existing Contract outstanding
immediately prior to the effective time of the Combination guaranteeing that the
total of the investment management fees charged against the Common Stock,
Corporate Bond, and Money Market Portfolios of the Conseco Series Trust whose
shares are purchased by Variable Account, plus the mortality and expense risk,
administrative and any other charges imposed upon the assets of the
corresponding Sub-accounts of Variable Account, will not exceed an amount that
is equal to the total amount of the same charges that would have been imposed
under the Contracts had the Combination not occurred (the "Expense Guarantee
Agreement"). Accordingly, Great American Reserve will reimburse to the
appropriate Sub-account of Variable Account an amount that represents the
difference between the investment management fees charged Variable Account,
Annuity Fund or Account D, as applicable, prior to the Combination and the
amount of such fees charged to the Conseco Series Trust, plus any other charges
in excess of those that would have been incurred if the Combination had not
taken place. The mortality and expense risk and administrative charges will not
change, and any other charges imposed on the assets of Variable Account are not
expected to be more than before the Combination. Great American Reserve will
not, however, assume extraordinary or non-recurring expenses of the Conseco
Series Trust, such as legal claims and liabilities, litigation costs and
indemnification payments in connection with litigation. Also, the Expense
Guarantee Agreement will not apply to any federal income tax if the Conseco
Series Trust fails to qualify as a "regulated investment company" under
applicable provisions of the Code. The Expense Guarantee Agreement, described
above, also applies to Contracts issued after the Combination. Great American
Reserve, however, may eliminate the Expense Guarantee Agreement with respect to
Contracts issued in the future.
OTHER CHARGES. Currently, no charge is made against Variable Account for
Great American Reserve's federal income taxes, or provisions for such taxes,
that may be attributable to Variable Account. Great American Reserve may charge
each Sub-account of Variable Account for its portion of any income tax charged
to the Sub-account or its assets. Under present laws, Great American Reserve may
incur state and local taxes (in addition to premium taxes) in several states. At
present, these taxes are not significant. If they increase, however, Great
American Reserve may decide to make charges for such taxes or provisions for
such taxes against Variable Account. Any such charges against Variable Account
or its Sub-accounts could have an adverse effect on the investment experience of
such Sub- accounts.
DEATH BENEFITS. In the event the Annuitant dies before annuity payments
commence, Great American Reserve will pay the Contract Value less any
outstanding loans to the beneficiary named in the Contract determined as of the
Valuation Period in which proof of death acceptable to us is received at our
Administrative Office.
Generally, the distribution of the Contract Owner's interest in the
Contract must be made within five years after the Contract Owner's death. If the
beneficiary is an individual, in lieu of distribution within five years of the
Contract Owner's death, distribution may generally be made as an annuity which
begins within one year of the Contract Owner's death and is payable over the
life of the beneficiary or over a period not in excess of the life expectancy of
the beneficiary. If the Contract Owner's spouse is the beneficiary, that spouse
may elect to continue the Contract as the new Contract Owner in lieu of
receiving the distribution. In such a case, the distribution rules applicable
when a Contract Owner dies will apply when that spouse, as the Contract Owner,
dies. In the case of a qualified contract, except for IRAs and the five-percent
owners of an employer, the date on which distributions are required to begin
must be no later than April l of the first calendar year following the later of
(a) the calendar year in which the Annuitant attains age 70 1/2 or (b) the
calendar year in which the Annuitant retires. Distributions from IRAs and for
five-percent owners must begin no later than April 1 of the calendar year
following the calendar year in which the IRA holder or five-percent owner
attains age 70 1/2. In the case of a Contract involving more than one Contract
Owner, the death of any Contract Owner shall cause this section to apply.
In lieu of a lump-sum payment, the death proceeds may be applied under any
of the annuity options available in the Contract.
RESTRICTIONS UNDER OPTIONAL RETIREMENT PROGRAMS. PARTICIPANTS IN OPTIONAL
RETIREMENT PROGRAMS can redeem their interest in a Variable Annuity Contract
only upon (1) termination of employment in all public institutions of higher
education as defined by applicable law, (2) retirement, or (3) death.
Accordingly, a Participant may be required to obtain a certificate of
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termination from his employer before he can redeem his interest. Currently,
these restrictions apply to the participants of the Florida and Texas Optional
Retirement Program.
RESTRICTIONS UNDER SECTION 403(b) PLANS. Section 403(b) of the Code
provides that distributions (including surrenders, partial withdrawals and
contract proceeds) under an annuity policy attributable to contributions made
pursuant to a salary reduction agreement shall not begin prior to the time the
employee
(a) attains age 59 1/2, separates from the service of his or her employer,
dies, or becomes disabled; or
(b) suffers a financial hardship, as defined in then-current Code and
regulations; or
(c) is a party to a divorce settlement pursuant to a qualified domestic
relations order.
Such Section only applies to distributions attributable to amounts accrued
under any such policy after December 31, 1988.
Such Section further provides that, in the event of a financial hardship,
any distribution made from any such policy shall consist only of contributions
made pursuant to a salary reduction agreement and shall not include any income
attributable to such contributions.
B. ANNUITY PROVISIONS
ELECTING THE ANNUITY PERIOD AND FORM OF ANNUITY. For deferred annuity
Contracts, the date annuity payments are to commence and the annuity option are
elected by the Contract Owner. Changes in such elections may be made at any time
up to 30 days prior to the date annuity payments are to commence by notice to
Great American Reserve. If no such elections are made, payments will
automatically begin on the first day of the month or coinciding with the
annuitant's attainment of age 65 under a lifetime annuity with 120 monthly
payments certain, and the value of the Contract Owner's Individual Account will
be based upon the value in the Sub-accounts of Variable Account applied,
separately, to provide variable annuity payments.
By giving written notice to Great American Reserve at least 30 days prior
to the commencement of annuity payments, the Contract Owner may elect to change
(a) the annuity option to any of the optional annuity forms described below, and
(b) the manner in which the value of a Contract Owner's Individual Account is to
be applied to provide annuity payments (for example, an election that a portion
or all of the amounts accumulated on a variable basis be applied to provide
fixed annuity payments or vice versa). Once annuity payments commence, no
changes may be elected by the Contract Owner.
No election may be made that would result in a first monthly annuity
payment of less than $25 if payments are to be on a fully fixed or variable
basis, or less than $25 on each basis if a combination of variable and fixed
annuity payments is elected. If at any time payments are or become less than $25
per monthly payment, Great American Reserve has the right to change the
frequency of payment to such interval as will result in annuity payments of at
least $25 each, except that payments shall not be made less frequently than
annually.
See "Federal Tax Matters" for information on the federal tax status of
annuity payments or other settlements in lieu thereof.
ANNUITY OPTIONS
FIRST OPTION-LIFE ANNUITY. An Annuity payable monthly during the lifetime
of the Annuitant and ceasing with the last monthly payment due prior to the
death of the Annuitant. Of the first three options, this option offers the
maximum level of monthly payments since there is no minimum number of payments
guaranteed (nor a provision for a death benefit payable to a beneficiary). It
would be possible under this option to receive only one annuity payment if the
Annuitant died prior to the due date of the second annuity payment.
SECOND OPTION-LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS
GUARANTEED. An Annuity payable monthly during the lifetime of the Annuitant with
the guarantee that if, at the death of the Annuitant, payments have been made
for less than 120, 180 or 240 months, as elected, annuity payments will be
continued during the remainder of such period to the beneficiary designated by
the Contract Owner. If no beneficiary is designated, Great American Reserve
will, in accordance with the Contract provisions, pay in a lump sum to the
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Annuitant's estate the present value, as of the date of death, of the number of
guaranteed annuity payments remaining after that date, computed on the basis of
the assumed net investment rate used in determining the first monthly payment
(See "Determination of Amount of the First Monthly Variable Annuity Payment").
Because it provides a specified minimum number of annuity payments, this
option results in somewhat lower payments per month than the First Option.
THIRD OPTION-DEFERRED INCOME (FLEXIBLE PREMIUM CONTRACT ONLY). An annuity
payable monthly, quarterly, semiannually, or annually with a lump sum paid to
the designated beneficiary at the Annuitant's death. Under this option the total
accumulation value of the contract will be deposited in the Fixed Account on the
Annuity Date and payments will be equal to the net Fixed Account rate of return
for the period multiplied by the amount remaining on deposit.
FOURTH OPTION-JOINT AND LAST SURVIVOR LIFE ANNUITY. An Annuity payable
monthly during the joint lifetime of the Annuitant and a designated second
person, and thereafter during the remaining lifetime of the survivor. Payments
to the survivor will be at the rate of 100 percent, 75 percent, 66 2/3 percent
or 50 percent of the amount which would have been payable to the Annuitant, the
applicable rate being elected at the time this option is elected. This option is
designed primarily for couples who require the maximum possible payments during
their joint lives and are not concerned with providing for beneficiaries at the
death of the last to survive. Under current law, this option is automatically
provided for a participant in a pension plan who is married and for married
participants in most other qualified plans; however, a married participant may
waive the joint and last survivor annuity during the appropriate election period
if such participant's spouse consents in writing (acknowledging the effect of
such consent) to such waiver.
FIFTH OPTION-PAYMENTS FOR A DESIGNATED PERIOD. Payments are made for the
number of years selected, which may be from one through 30. However, any
applicable withdrawal charges will be made if the number of years selected is
less than five. If elected on a variable basis, payments under this option will
vary monthly in accordance with the net investment rate of the Sub- Accounts of
Variable Account. Should the Annuitant die before the specified number of
monthly payments is made, the remaining payments will be commuted and paid to
the designated beneficiary in one sum, or (provided the commuted amount is at
least $5,000 and distribution of the value of the total accumulation is not less
rapid than the rate of payment for the designated period) said amount at the
beneficiary's election will be payable under either of the first two options.
To the extent that this option is effected on a variable basis, at any time
during the payment period the Contract Owner may elect that the remaining value
(1) be paid in one sum, or (2) provided that the value is at least $5,000, be
applied to effect a lifetime annuity under one of the first three options
described above. Since the Contract Owner may elect a lifetime annuity at any
time, the annuity rate and expense risks continue during the payment period.
Accordingly, deductions for these risks will continue to be made from the
Individual Account values.
SIXTH OPTION-PAYMENTS OF A DESIGNATED DOLLAR AMOUNT. Monthly, quarterly,
semiannual, or annual payments of a designated dollar amount are made until the
Individual Account value applied under this option, adjusted each Valuation
Period to reflect investment experience, is exhausted within a minimum of three
years and a maximum of 20 years. The designated amount of each installment may
not be less than $75 per year per $1,000 of Individual Account value applied.
Should the Annuitant die before the value is exhausted, the remaining value will
be paid to the beneficiary in one sum.
To the extent that this option is effected on a variable basis, at any time
during the payment period the Contract Owner may elect that the remaining value
be applied to effect a lifetime annuity under one of the first two options
described above. The Contract Owner, or in the case the Contract Owner shall not
have done so, the beneficiary shall elect an annuity option for distribution of
any amount on deposit at the date of an Annuitant's death, and the distribution
will be made at least as rapidly as during the life of the Annuitant. Since the
Contract Owner may elect a lifetime annuity at any time, the annuity rate and
expense risks continue during the payment period. Accordingly, deductions for
these risks will continue to be made from the Individual Account values.
Additional options may be available in the case of certain contracts
purchased prior to 1983, which contracts are no longer offered for sale.
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DETERMINATION OF AMOUNT OF THE FIRST MONTHLY VARIABLE ANNUITY PAYMENT. When
annuity payments commence, the value of the Individual Account is determined as
the total of the product(s) of (a) the value of an Accumulation Unit for each
investment medium at the end of the second Valuation Period immediately
preceding the Valuation Period in which the first annuity payment is due and (b)
the number of Accumulation Units credited to the Individual Account with respect
to each investment medium as of the date the Annuity is to commence. Premium
tax, if assessed at such time by the applicable jurisdiction, will be deducted
from the Individual Account value. Any portion of the Individual Account value
for which a fixed annuity election has been made is applied to provide
fixed-dollar payments under the option elected.
The amount of the first monthly variable annuity payment is then calculated
by multiplying the Individual Account value which is to be applied to provide
variable payments by the amount of first monthly payment per $1,000 of value, in
accordance with annuity tables contained in the Contract. The annuity tables are
based on the Progressive Annuity Table, assuming births in the year 1900. For
Annuitants whose year of birth is after 1915, an "adjusted age" is used, which
is one year less than actual age. The amount of first monthly payment per $1,000
of value varies according to the form of annuity selected (see "Annuity
Options"), the age of the Annuitant (for certain options) and the assumed net
investment rate selected by the Contract Owner. The standard assumed net
investment rate is 3 1/2 percent per annum; however, an alternative 5 percent
per annum, or such other rate as Great American Reserve may offer, may be
selected prior to the commencement of annuity payments.
The assumed net investment rates built into the annuity tables affect both
the amount of the first monthly variable annuity payment and the amount by which
subsequent payments may increase or decrease. Selection of a 5 percent rate,
rather than the standard 3 1/2 percent rate, would produce a higher first
payment but subsequent payments would increase more slowly in periods when
Annuity Unit values are rising and decrease more rapidly in periods when Annuity
Unit values are declining. With either assumed rate, if the actual net
investment rate during any two or more successive months were equal to the
assumed rate, the annuity payments would be level during that period.
If a greater first monthly payment would result, Great American Reserve
will compute the first monthly payment on the same mortality basis as used in
determining the first payment under immediate annuity contracts being issued for
a similar class of Annuitants at the date the first monthly payment is due under
the Contract.
VALUE OF AN ANNUITY UNIT. At the commencement of the Annuity Period, a
number of Annuity Units is established for the Contract Owner for each
investment option on which variable annuity payments are to be based. For each
Sub-account of Variable Account, the number of Annuity Units established is
calculated by dividing (i) the amount of the first monthly variable annuity
payment on that basis by (ii) the annuity unit value for that basis for the
current Valuation Period. That number of Annuity Units remains constant
throughout the Annuity Period and is the basis for calculating the amount of the
second and subsequent annuity payments.
The Annuity Unit value is determined for each Valuation Period, for each
investment option, and is equal to the Annuity Unit value for the preceding
Valuation Period multiplied by the product of (i) the net investment factor for
the appropriate Sub-account (see "Net Investment Factor for Each Valuation
Period") for the second preceding Valuation Period and (ii) a factor to
neutralize the assumed net investment rate built into the annuity tables
(discussed under the preceding caption), for it is replaced by the actual net
investment rate in step (i). The daily factor for a 3 1/2 percent assumed net
investment rate is .99990576; for a 5 percent rate, the daily factor is
.99986634.
AMOUNTS OF SUBSEQUENT MONTHLY VARIABLE ANNUITY PAYMENTS. The amounts of
second and subsequent monthly variable annuity payments are determined by
multiplying (i) the number of Annuity Units established for the Annuitant for
the applicable Sub-account by (ii) the Annuity Unit value for the Sub-account.
If Annuity Units are established for more than one Sub-account, the calculation
is made separately and the results combined to determine the total monthly
variable annuity payment.
1. EXAMPLE OF CALCULATION OF MONTHLY VARIABLE ANNUITY PAYMENTS. The
determination of the amount of the variable annuity payments can be
illustrated by the following hypothetical example. The example assumes that
the monthly payments are based on the investment experience of only one
Sub-account. If payments were based on the investment experience of more
than one Sub-account, the same procedure would be followed to determine the
portion of the monthly payment attributed to each Sub-account.
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2. FIRST MONTHLY PAYMENT. Assume that at the date of retirement there are
40,000 Accumulation Units credited under a particular Individual Account
and that the value of an Accumulation Unit for the second Valuation Period
prior to retirement was $1.40000000; this produces a total value for the
Individual Account of $56,000. Assume also that no premium tax is payable
and that the annuity tables in the Contract provide, for the option
elected, a first monthly variable annuity payment of $6.57 per $1,000 of
value applied; the first monthly payment to the Annuitant would thus be 56
multiplied by $6.57, or $367.92.
Assume that the Annuity Unit value for the Valuation Period in which the
first monthly payment was due was $1.30000000. This is divided into the
amount of the first monthly payment to establish the number of Annuity
Units for the Participant: $367.92 /$1.30000000 produces 283.015 Annuity
Units. The value of this number of Annuity Units will be paid in each
subsequent month.
3. SECOND MONTHLY PAYMENT. The current Annuity Unit value is first calculated.
Assume a net investment factor of 1.01000000 for the second Valuation
Period preceding the due date of the second monthly payment. This is
multiplied by .99713732 to neutralize the assumed net investment rate of 3
1/2 percent per annum built into the number of Annuity Units determined
above (if an assumed net investment rate of 5 percent had been elected, the
neutralization factor would be .99594241), producing a result of
1.00710869. This is then multiplied by the Annuity Unit value for the
Valuation Period preceding the due date of the second monthly payment
(assume this value to be $1.30000000) to produce the current Annuity Unit
value, $1.30924130.
The second monthly payment is then calculated by multiplying the constant
number of Annuity Units by the current Annuity Unit value: 283.015 times
$1.30924130 produces a payment of $370.53.
TRANSFERS DURING THE ANNUITY PERIOD. Transfers during the Annuity Period
may be made upon written notice to Great American Reserve at least 30 days
before the due date of the first annuity payment for which the change will
apply. Transfers will be made by converting the number of Annuity Units being
transferred to the number of Annuity Units of the Sub-account to which the
transfer is made, so that the next annuity payment if it were made at that time
would be the same amount that it would have been without the transfer.
Thereafter, annuity payments will reflect changes in the value of the new
Annuity Units. Great American Reserve reserves the right to limit, upon notice,
the maximum number of transfers a Contract Owner may make to one in any
six-month period once annuity payments have commenced. In addition, no transfers
may be made from a fixed annuity option. Great American Reserve reserves the
right to defer the transfer privilege at any time that Great American Reserve is
unable to purchase or redeem shares of the Funds. Great American Reserve also
reserves the right to modify or terminate the transfer privilege at any time in
accordance with applicable law.
DEATH BENEFIT DURING THE ANNUITY PERIOD. If annuity payments have been
selected based on an annuity option providing for payments for a guaranteed
period, and the Annuitant dies during the Annuity Period, Great American Reserve
will make the remaining guaranteed payments to the beneficiary. Such payments
will be made at least as rapidly as under the method of distribution being used
as of the date of the Annuitant's death. If no beneficiary is living, Great
American Reserve will commute any unpaid guaranteed payments to a single sum (on
the basis of the interest rate used in determining the payments) and pay that
single sum to the Annuitant's estate.
OTHER CONTRACT PROVISIONS
TYPE OF CONTRACT. There are two types of Contracts: (1) flexible
installment purchase payment deferred annuity contracts under which Purchase
Payments may be made at such intervals as desired, but are usually made on an
annual, semi-annual, quarterly or monthly basis, under which annuity payments to
the Annuitant begin at a point of time in the future, and (2) single payment
deferred annuity contracts under which a single payment is made, under which
annuity payments to the Annuitant begin at a point of time in the future.
COMPANY APPROVAL. Each application for a contract is subject to acceptance
by Great American Reserve. Upon
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acceptance, a Contract is issued to the Contract Owner and the Purchase Payment
is credited to the Contract Owner's account. If an application is complete upon
receipt, the Purchase Payment will be credited to the Contract Owner's account
within two business days. If it is not complete, Great American Reserve will
request additional information to complete the processing of the application. If
this is not accomplished within five business days, Great American Reserve will
return the Purchase Payment to the applicant unless otherwise instructed.
Subsequent Purchase Payments will be credited to the Contact Owner's account at
the price next computed after the Purchase Payment is received by Great American
Reserve at its Administrative Office.
TEN-DAY RIGHT TO REVIEW. Contracts allow a "10-day free look" wherein the
Contract Owner or Participant may revoke the Contract by returning it to either
a Great American Reserve representative or to Great American Reserve's Variable
Annuity Department within 10 days of delivery of the Contract. Great American
Reserve deems this period as ending 15 days after a Contract is mailed from its
Variable Annuity Department. If the Contract is returned under the terms of the
10-day free look, Great American Reserve will refund to the Contract Owner or
Participant an amount equal to all payments received with respect to the
Contract, unless a larger refund is required by state law.
ASSIGNMENT. A Contract may not be assigned by the Contract Owner, although
permitted, except when issued on a non-tax-qualified basis. An assignment of a
non-tax- qualified Contract would have tax consequences to the Contract Owner
(see "Federal Tax Matters").
FEDERAL TAX MATTERS
A. GENERAL
The operations of Variable Account form a part of and are taxed with the
operations of Great American Reserve as a separate account under the Code.
Accordingly, Variable Account (or any Account thereof) is not separately taxed
as a trust or corporation and has not elected to be treated as a "regulated
investment company" under Subchapter M of the Code. Investment income and
realized capital gains on the assets of Variable Account are reinvested and
taken into account in determining the Accumulation and Annuity Unit values, and
are automatically applied to increase reserves under the Contracts. Under
existing federal income tax law, separate account investment income and capital
gains are not taxed. Therefore, Variable Account does not make provisions for
any such taxes. If changes in the federal tax laws or interpretations thereof
were to result in Great American Reserve being taxed on income or gains
attributable to any of Variable Account or any Sub-account thereof or certain
types of Contracts, then Great American Reserve has reserved the right to impose
a charge against Variable Account and its constituent Sub-accounts (with respect
to some or all Contracts) in order to reimburse itself for payment of such
taxes.
B. STATUS OF ANNUITY CONTRACTS
Section 72 of the Code governs taxation of annuities in general. However,
Section 817(h) of the Code provides that variable annuity contracts such as the
Contracts will not be treated as annuities unless the underlying investments are
"adequately diversified" in accordance with regulations prescribed by the
Secretary of the Treasury. Under the final regulations adopted by the Treasury
with respect to the diversification requirements of Section 817(h), there are
specific requirements as to the percentage of assets in the account which may be
made up of one or more investments. Generally, an account will be considered
adequately diversified if (1) no more than 55 percent of the value of the total
assets of the account is represented by any one investment; (2) no more than 70
percent of the value of the total assets of the account is represented by any
two investments; (3) no more than 80 percent of the value of the total assets of
the account is represented by any three investments; and (4) no more than 90
percent of the value of the total assets of the account is represented by any
four investments. For purposes of this test, all securities of the same issuer
are counted as one investment. Great American Reserve believes that the
investment policies of Variable Account and each Sub-account are more stringent
than the diversification rules and therefore that Variable Account and each
Sub-account do and will continue to satisfy the diversification requirement of
Section 817(h).
In addition, pursuant to Section 72(s) of the Code, a Contract will not be
treated as an annuity contract for purposes of Section 72 unless the Contract
provides that (1) if the Contract Owner dies on or after the annuity
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starting date but prior to the time the entire interest in the Contract has been
distributed, the remaining portion of such interest must be distributed at least
as rapidly as under the method of distribution in effect at the time of the
Contract Owner's death; and (2) if the Contract Owner dies prior to the annuity
starting date, the entire interest generally must be (A) distributed within five
years after the death of the Contract Owner or (B) distributed as annuity
payments over the life of a designated beneficiary (or over a period that does
not extend beyond the life expectancy of a designated beneficiary) and that such
distributions begin within one year of the Contract Owner's death. Section 72(s)
also provides, however, that if the Contract Owner's "designated beneficiary" is
the surviving spouse of the Contract Owner, the Contract may be continued with
the surviving spouse as the new Owner. Comparable rules concerning required
distributions plus additional rules also apply to qualified Plans and to IRAs.
Great American Reserve believes that the Contracts described in this Prospectus
meet these requirements.
NON-QUALIFIED CONTRACTS. Non-qualified Contracts are those Contracts which are
held by individual purchasers and which are not held as part of the assets of a
qualified pension, profit sharing, annuity purchase or other qualified Plan as
described below. Under present law, so long as the Contract meets the
requirements of the Code for treatment as an annuity, a Contract Owner is not
taxed on increases in the value of a Contract until distributions occur. For
this purpose, distributions include not only a partial withdrawal, a complete
surrender of the Contract or annuity payments under an annuity option elected,
but also the receipt of proceeds from loans and the absolute assignment or
pledge of any portion of the value of a Contract. The income portion of a
distribution is taxed as ordinary income. With respect to contributions to
annuity contracts after February 28, 1986, Section 72(u) provides that an
annuity contract owned by other than a natural person will generally be treated
as not being an annuity contract and, as a result, the income from the Contract
will be currently taxable to the owner of the Contract. The general rule,
however, is subject to several exceptions which apply to all deferred annuity
contracts that are either (1) acquired by an estate of a decedent by reason of
the death of the decedent; or (2) held under certain qualified Plans; and to
all immediate annuities. In Revenue Ruling 92-95, the Internal Revenue Service
indicated that where an annuity contract was acquired before February 28, 1986,
the exchange of that annuity contract for a new annuity contract in a
non-taxable exchange under Section 1035 did not cause the new annuity contract
to be treated as acquired after February 28, 1986.
Generally, amounts received in the case of a partial withdrawal under a
Contract are treated as taxable income to the extent of the excess of the cash
value of the Contract immediately before the withdrawal over the "investment in
the Contract" at that time. Any additional amount withdrawn is not taxable. This
general rule does not apply, however, in the case of a partial withdrawal under
a Contract issued before August 14, 1982, where the partial withdrawal is
allocable first to the "investment in the Contract" made before that date. Any
amounts received are treated as taxable income only to the extent that such
amounts exceed the "investment in the Contract." In the case of a complete
surrender of any Contract (whether issued before or after August 14, 1982), the
amounts received are treated as taxable income only to the extent such amounts
exceed the "investment in the Contract". With respect to a Contract, the
"investment in the Contract" generally equals the portion of any premium paid by
or on behalf of an individual which was not excluded from the individual's gross
income, reduced by the amount of prior distributions that were not included in
the individual's gross income. For purposes of determining the amount of taxable
income that must be reported by a Contract Owner who has received a partial
distribution, all Contracts issued to the Contract Owner during the same
calendar year must be treated as one Contract.
If distributions are made in the form of annuity payments, the Contract
Owner's gross income generally does not include that part of any amount received
as an annuity that bears the same ratio to such amounts as the "investment in
the Contract" bears to the expected return as of the annuity starting date. In
this respect, prior to the recovery of the investment in the Contract, there is
generally no tax on the amount of each payment which represents this return in
investment; however, the remainder of each payment is taxable as ordinary
income. After the "investment in the Contract" is recovered, the full amount of
any additional annuity payments is taxable, unless an individual's annuity
starting date is prior to January 1, 1987, in which case the exclusion ratio
applies for the entire term of the annuity.
Section 72(q) also imposes a penalty tax on partial withdrawals and complete
surrenders equal to 10 percent of the amount received that is treated as taxable
income. In general, the penalty tax does not apply to withdrawals or surrenders
(1)
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that are made on or after age 59 1/2, (2) that are made as a result of death or
disability, (3) that are received in substantially equal installments as a life
annuity, (4) that are allocable to the "investment in the Contract" before
August 14, 1982, or (5) that are received under an immediate annuity.
Revenue Ruling 92-95 indicates that eligibility for the August 14, 1982,
exception referred to in Item (4) above, will not be lost if a pre-existing
contract is exchanged for a new annuity contract on or after that date in an
exchange which is nontaxable under Section 1035 of the Code. In addition, Great
American Reserve does not believe that an exchange or new issuance occurs by
reason of (a) any action permitted by the terms of a pre-existing Contract, such
as a transfer between investment media or elections of annuity options, or (b)
the assumption by Great American Reserve in May 1986 of the Contracts originally
issued when Voyager was sponsor of Variable Account. Such actions would not be
taxable even if they were exchanges, by reason of Section 1035 of the Code.
Annuity distributions are generally subject to withholding for the
recipient's income tax liability. The withholding rates vary according to the
type of distribution. Recipients, however, are generally provided the
opportunity to elect not to have tax withheld from distributions.
QUALIFIED CONTRACTS. Qualified Contracts are those contracts which are held
as part of the assets of qualified pension, profit sharing, annuity purchase or
other qualified Plan as described below. Generally, increases in the value of an
individual's account under a Contract purchased in connection with a qualified
Plan are not taxable until benefits are received. The rules governing the tax
treatment of contributions and distributions under such Plans, as set forth in
the Code and applicable rulings and regulations, are complex and subject to
change. These rules also vary according to the type of Plan and the terms and
conditions of the Plan itself. Therefore, no attempt is made herein to provide
more than general information about the use of Contracts with the various types
of Plans, based on Great American Reserve's understanding of the current federal
tax laws as interpreted by the Internal Revenue Service. Purchasers of Contracts
for use with such a Plan and Plan Participants and their beneficiaries should
consult legal counsel and other competent advisers as to the suitability of the
Plan and the Contract to their specific needs, and as to applicable Code
limitations and tax consequences. Participants under such Plans, as well as
Contract Owners, Annuitants and beneficiaries, should also be aware that the
rights of any person with any benefits under such Plans may be subject to the
terms and conditions of the Plans themselves regardless of the terms and
conditions of the Contract. The Code imposes a number of rules for all qualified
Plans, including among other things, nondiscrimination rules, maximum and
minimum contributions, distribution dates, nonforfeitability of interests, and
penalties for noncompliance. There are additional restrictions for so-called
"top-heavy plans". Competent advisers should be consulted with respect to the
impact of the Code on the qualification of the Plan and the taxation of the
employee participating therein.
Following are brief descriptions of the various types of Plans and of the
use of Contracts in connection therewith.
1. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS. Payments made
to purchase annuity contracts by public school systems or certain
tax-exempt organizations for their employees are excludable from the gross
income of the employee to the extent that aggregate payments for the
employee do not exceed the "exclusion allowance" provided by Section 403(b)
of the Code, the limits on salary deferrals under Section 402 (g), or the
overall limits for excludable contributions of Section 415 of the Code.
Furthermore, the investment results credited to the Account are not taxable
until benefits are received either in the form of annuity payments or in a
single sum.
If an employee's Individual Account is surrendered, usually the full
amount received would be includable in income for that year and taxed at
ordinary rates.
2. QUALIFIED EMPLOYEES' PENSION AND PROFIT-SHARING TRUST AND QUALIFIED ANNUITY
PLANS. Contributions made to purchase Contracts by an employer and the
earnings on such contributions for Plans that are qualified under Sections
401(a) or 403(a) of the Code are not taxable as income to the employee
until distributed to him or her. However, the employee may
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be required to include these amounts in gross income prior to distribution
if the qualified Plan loses its qualification. Plans qualified under
Section 401(a) or 403(a) of the Code are subject to extensive rules,
including limitations on maximum contributions or benefits.
Distributions of amounts not attributable to nondeductible employee
contributions are generally taxable as ordinary income unless the distribution
qualifies for "lump-sum" treatment.
Under the Code, special considerations apply to Plans covering self-employed
individuals. Such Plans are subject to extensive rules, including limitations on
maximum contributions or benefits involving "key employees" or 5-percent owners,
as well as to special rules pertaining to "top heavy" Plans. Purchasers of the
Contracts for use with these Plans should seek competent advice as to the
suitability of certain types of Plans and the funding contracts to be purchased.
3. INDIVIDUAL RETIREMENT ANNUITIES. Under Section 408 of the Code, an
individual who receives compensation for personal services and who either
(A) does not participate in an employer-sponsored pension plan and, if
married, whose spouse does not participate in an employer-sponsored pension
plan or (B) does participate in such a plan, or whose spouse does, but does
not have adjusted gross income in excess of $40,000 for married individuals
or $25,000 for a single taxpayer, may make deductible contributions in a
retirement program known as an Individual Retirement Annuity or an
Individual Retirement Account (each of which is an "IRA"). An individual is
entitled to an income tax deduction for a contribution to an IRA of up to
the lesser of $2,000 (or $4,000, effective for tax years after December 31,
1996, if the IRA is maintained for both the individual and his or her
non-working spouse) or 100 percent of compensation. In addition,
distributions from certain other IRA Plans, qualified Plans or Section
403(b) annuities may, in whole or in part, qualify to be treated as a
"rollover" on a tax-deferred basis into an IRA rollover. Distributions from
IRAs are subject to certain restrictions. Distributions will be taxed to
the individual as ordinary income at the time of distribution. Any
distribution to the individual before the individual attains age 59 1/2
(except in the event of death or disability) or the failure to satisfy
certain other Code requirements may result in adverse tax consequences to
the individual.
Individuals who do participate in an employer-sponsored pension
plan or whose spouse participates in an employer-sponsored pension plan and
who have adjusted gross income in excess of the above-mentioned amounts may
generally participate in an IRA program; however, such contributions may
not be eligible for an income tax deduction.
4. GOVERNMENT AND TAX-EXEMPT ORGANIZATIONS' DEFERRED COMPENSATION PLANS. 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,
l998, 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 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.
5. SIMPLIFIED EMPLOYEE PENSION PLANS. An employer may make contributions on
behalf of employees to a simplified employee pension Plan as provided by
Section 408(k) of the Code. The amount of contributions and distribution
dates are limited by the Code provisions. All distributions from the Plan
will be taxed as ordinary income. Any distribution before the employee
attains age 59 1/2 (except in the event of death or disability) or the
failure to satisfy certain other Code requirements may result in adverse
tax consequences.
6. SIMPLE IRAs. Subject to certain limitations, an employer may adopt the
Savings Incentive Match Plan for Employees (SIMPLE Plan). The simplest
version of a SIMPLE Plan is the SIMPLE IRA. Generally, contributions to a
SIMPLE IRA are excludable from the employee's income and distributions made
from a SIMPLE IRA are taxed as ordinary income. The SIMPLE IRA requires
either a specified employer matching contribution or a qualified
non-elective employer contribution. Special rules apply to SIMPLE IRAs,
including early withdrawal penalty taxes, that may not apply to IRAs. A
competent tax advisor should be consulted for additional information before
an investment is made in a SIMPLE IRA.
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C. TAXATION OF DISTRIBUTIONS
The following rules generally apply to distributions from Contracts
purchased in connection with the Plans discussed above, other than IRA or
governmental and tax-exempt organizations' deferred compensation plans.
The portion, if any, of any contribution under a Contract made by or on
behalf of an individual which is not excluded from the employee's gross income
(generally, the employee's own non-deductible contributions) constitutes his or
her "investment in the Contract." If a distribution is made under certain
qualified contracts in the form of annuity payments, the portion of each payment
that is excluded from gross income and not subject to tax will generally be
equal to the total amount of any investment in the Contract as of the annuity
starting date, divided by the number of anticipated payments, which are
determined by reference to the age of the Annuitant; however, the remainder of
each payment is taxable as ordinary income. Generally, after the "investment in
the Contract" is recovered, the full amount of any additional annuity payments
is taxable. The dollar amount of annuity payments received in any year in excess
of such return is taxable as ordinary income. In certain circumstances, tax may
be deferred by rolling over the proceeds to an IRA or another qualified Plan. If
a surrender of or withdrawal from the Contract is effected and a distribution is
made in a single payment, the proceeds may qualify for special "lump sum
distribution" treatment under certain qualified Plans as discussed below.
If an employee or beneficiary receives in a single tax year the total
amounts payable with respect to that employee from a Plan and all similar plans
and the benefits are paid as a result of the employee's death, disability or
separation from service or after the employee attains age 59 1/2, the
distribution may be eligible for the special "five-year averaging" for tax years
beginning before December 31, 1999. A "10-year averaging" procedure may also be
available to individuals who attained 50 before January 1, 1986. For further
information regarding these rules, a competent tax advisor should be consulted.
The taxation of benefits payable upon an employee's death to his
beneficiary generally follows these same principles, subject to a variety of
special rules.
IRA distributions generally are subject to withholding for the recipient's
federal income tax liability at rates that vary according to the type of
distribution and the recipient's tax status. Generally, amounts are withheld
from periodic payments at the same rate as wages and at the rate of 10% from
non-periodic payments. Recipients, however, generally are provided the
opportunity to elect not to have tax withheld from distributions.
As of January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or 403(b) of the Code, that are not directly rolled over to
another eligible retirement plan or an IRA, are subject to a mandatory 20%
withholding for federal income tax.
Distributions to a Participant from a Section 457 plan retain their
character as wages and federal income taxes must be withheld under the wage
withholding rules. Federal income tax on payment to beneficiaries will be
withheld from annuity (periodic) payments at the rates applicable to wage
withholding, and from other distributions at a flat 10% rate, unless the
beneficiary elects not to have federal income tax withheld. For complete
information on withholding, a qualified tax advisor should be consulted.
There also may be imposed a penalty tax on partial withdrawals and complete
surrenders equal to 10 percent of the amount treated as taxable income. In
general, there is no penalty tax on the following withdrawals or surrenders: (1)
a distribution that is part of a scheduled series of substantially equal
periodic payments for the life (or life expectancy) of the participant, or the
joint lives (or joint expectancies) of the participant and beneficiary; (2) made
on or after age 59 1/2; (3) a distribution to a terminated employee, age 55 or
older, with the exception of distributions from an IRA; (4) a hardship
distribution used to pay certain medical expenses; (5) a distribution made to,
or on behalf of, an alternate payee pursuant to a qualified domestic relations
order with the exception of distributions from an IRA; and (6) a distribution
after death or disability of the employee.
41
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
D. OTHER CONSIDERATIONS
The previous discussion is general in nature and is not intended as tax
advice. It should be understood that the foregoing comments about the federal
tax consequences under these Contracts are not exhaustive and that special rules
exist with respect to other tax situations not discussed herein. Further, the
federal income tax consequences discussed herein reflect current law which is
subject to change at any time. The foregoing discussion also does not address
any applicable state, local or foreign tax laws. Before an investment is made,
a competent tax adviser should be consulted.
VOTING RIGHTS
Contract Owners may instruct Great American Reserve as to the voting of
Fund shares attributable to their respective interests under the Contracts at
meetings of shareholders of the Funds. Contract Owners entitled to vote will
receive proxy material and a form on which voting instructions may be given.
Great American Reserve will vote the shares of each Sub-account held by Variable
Account attributable to the Contracts in accordance with instructions received
from Contract Owners. Shares held in each Sub-account for which timely
instructions have not been received from Contract Owners will be voted by Great
American Reserve for or against any proposition, or Great American Reserve will
abstain, in the same proportion as shares in that Sub-account for which
instructions are received. Great American Reserve will vote, or abstain from
voting, any shares that are not attributable to Contract Owners in the same
proportion as all Contract Owners in Variable Account vote or abstain. However,
if Great American Reserve determines that it is permitted to vote such shares of
the Funds in its own right, it may elect to do so, subject to the then-current
interpretation of the 1940 Act and the rules thereunder.
Under certain Variable Annuity Contracts, Participants and Annuitants have
the right to instruct the Contract Owner with respect to the number of votes
attributable to their Individual Accounts or valuation reserve. Votes
attributable to Participants and Annuitants who do not instruct the Contract
Owner will be cast by the Contract Owner for or against each proposal to be
voted upon, in the same proportion as votes for which instructions have been
received. Participants and Annuitants entitled to instruct the casting of votes
will receive a notice of each meeting of Contract Owners, and proxy solicitation
materials, and a statement of the number of votes attributable to their
participation under the Contract.
The number of shares held in a Sub-account deemed attributable to a
Contract Owner's interest under a Contract will be determined on the basis of
the value of the Accumulation Units credited to the Contract Owner's account as
of the record date. On or after the commencement of Annuity payments, the number
of attributable shares will be based on the amount of assets held to meet
annuity obligations to the payee under the Contract as of the record date.
During the annuity period, the number of votes attributable to a Contract will
generally decrease since funds set aside for Annuitants will decrease as
payments are made.
GENERAL MATTERS
PERFORMANCE INFORMATION. Performance information for the Variable Account
investment options may appear from time to time in advertisements or sales
literature. Performance information reflects only the performance of a
hypothetical investment in the Variable Account investment options during the
particular time period on which the calculations are based. Performance
information may consist of yield, effective yield, and average annual total
return quotations reflecting the deduction of all applicable charges for recent
one-year and, when applicable, five- and 10-year periods and, where less than
ten years, for the period subsequent to the date each Sub- account first became
available for investment. Additional total return quotations may be made that do
not reflect a surrender charge deduction (assuming no surrender at the end of
the illustrated period). Performance information may be shown by means of
schedules, charts or graphs. See the Statement of Additional Information for a
description of the methods used to determine yield and total return information
for the Sub-accounts.
DISTRIBUTION OF CONTRACTS. Conseco Equity Sales, Inc. ("Conseco Equity
Sales"), 11815 N. Pennsylvania Street, Carmel, IN 46032, an affiliate of Great
American Reserve, is the principal underwriter of the Contracts. Conseco Equity
Sales is a broker-dealer registered under the Securities and Exchange Act of
1934 and a member of the
42
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
National Association of Securities Dealers, Inc. Sales of the Contracts will be
made by registered representatives of Conseco Equity Sales and broker-dealers
authorized to sell the Contracts. Such registered representatives will also be
licensed insurance representatives of Great American Reserve. See the Statement
of Additional Information for more information.
CONTRACT OWNER INQUIRIES. All Contract Owner inquiries should be directed
to Great American Reserve's Administrative office address or telephone number
appearing on page 1 of this Prospectus.
LEGAL PROCEEDINGS. There are no legal proceedings to which Variable Account
is a party or to which the assets of Variable Account are subject. Neither Great
American Reserve nor Conseco Equity Sales are involved in any litigation that is
of material importance in relation to their total assets or that relates to
Variable Account.
OTHER INFORMATION. This Prospectus contains information concerning Variable
Account, Great American Reserve, and the Contracts, but does not contain all of
the information set forth in the Registration Statement and all exhibits and
schedules relating thereto, which Great American Reserve has filed with the
Securities and Exchange Commission, Washington, D.C.
Additional information may be obtained from Great American Reserve by
requesting from Great American Reserve's Variable Annuity Department, 11815 N.
Pennsylvania Street, Carmel, Indiana 46032, a Statement of Additional
Information. For convenience, the Table of Contents of the Statement of
Additional Information is provided below:
TABLE OF CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION
PAGE
General Information and History.......................B-1
Independent Accountants...............................B-1
Distribution..........................................B-1
Calculation of Yield Quotations.......................B-1
Calculation of Total Return
Quotations............................................B-2
Other Performance Data................................B-5
Financial Statements..................................F-1
43
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
If you would like a free copy of the Statement of Additional Information
for this Prospectus, please complete this form, detach, and mail to:
Great American Reserve Insurance Company
Attn.: Variable Annuity Department
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Gentlemen:
Please send me a free copy of the Statement of Additional Information for
Great American Reserve Variable Annuity Account C-Individual Variable Annuity at
the following address:
Name: --------------------------------------------------------------------------
Mailing Address: ---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Sincerely,
-----------------------------------------------
(Signature)
44
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
APPENDIX A
CONSECO SERIES TRUST
Conseco Series Trust is an open-end management investment company organized
as a business trust under the laws of the Commonwealth of Massachusetts on
November 15, 1982. Trust shares are offered only to separate accounts of various
insurance companies to fund benefits of variable life and variable annuity
contracts. Conseco Capital Management serves as the investment adviser.
THE ALGER AMERICAN FUND
The Alger American Fund is an open-end management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 6, 1988. Trust shares are offered only to separate
accounts of various insurance companies to fund benefits of variable life and
variable annuity contracts. Fred Alger Management, Inc. serves as the investment
adviser.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century Variable Portfolios, Inc. is an open-end management
investment company organized as a Maryland corporation on June 4, 1987, and is a
part of American Century Investments, a family of funds that includes nearly 70
no-load mutual funds covering a variety of investment opportunities. The Fund
offers its shares only to insurance companies to fund the benefits of variable
annuity or variable life insurance contracts.
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger Institutional Products Trust is an open-end management investment
company organized as a business trust under the laws of the State of Delaware on
October 17, 1995. Trust shares are offered only to separate accounts of various
insurance companies in connection with investment in and payments under variable
annuity contracts and variable life insurance contracts, as well as to certain
qualified retirement plans. The investment adviser is Berger Associates, Inc.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end
diversified, management investment company. It was incorporated under Maryland
law on July 20, 1992, and commenced operations on October 7, 1993. The Dreyfus
Corporation serves as the Fund's investment adviser. NCM Capital Management
Group, Inc. serves as the Fund's sub-investment adviser and provides day-to-day
management of the Fund's portfolio.
DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund is an open-end, non-diversified, management
investment company. It was incorporated in the name Dreyfus Life and Annuity
Index Fund, Inc. under Maryland law on January 24, 1989, and commenced
operations on September 29, 1989. On May 1, 1994, the Fund began operating under
the name Dreyfus Stock Index Fund. The Dreyfus Corporation serves as the Funds
manager and Mellon Equity Associates serves as the Funds index manager.
FEDERATED INSURANCE SERIES
Federated Insurance Series is an open-end management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on September 15, 1993. Trust shares are offered only to separate
accounts of various insurance companies to serve as the investment medium of
variable life insurance policies and variable annuity contracts issued by the
insurance companies. Federated Advisers serves as the investment adviser.
JANUS ASPEN SERIES
Janus Aspen Series is an open-end management investment company organized as
a business trust under the laws of the State of Delaware on May 20, 1993. Trust
shares are offered only to separate accounts of various
45
<PAGE>
GREAT AMERICAN
RESERVE
1997 ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY
- --------------------------------------------------------------------------------
insurance companies to fund the benefits of variable life and variable annuity
contracts, and to qualified retirement plans. The investment adviser and manager
is Janus Capital Corporation.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust is a Delaware business trust
organized pursuant to a Trust Instrument dated May 23, 1994. The Trust is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company and consists of seven separate portfolios. Shares
of the Trust are offered to life insurance companies for allocation to certain
of their separate accounts established for the purpose of funding variable
annuity contracts and variable life insurance policies. Each portfolio of the
Trust invests all of its net investable assets in a corresponding series of
Neuberger & Berman Advisers Managers Trust, whose investment adviser is
Neuberger & Berman Management Incorporated.
STRONG SPECIAL FUND II
Strong Special Fund II is a diversified open-end management investment
company established as a corporation under Wisconsin law on December 28, 1990.
Shares of the Fund are only offered and sold to the separate accounts of certain
insurance companies for the purpose of funding variable annuity and variable
life insurance contracts. Strong Capital Management, Inc. is the investment
adviser for the Fund.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Variable Insurance Funds, Inc. is an open-end management investment
company and was organized as a corporation under Wisconsin law on December 28,
1990. Shares of the Fund are only offered and sold to the separate accounts of
certain insurance companies for the purpose of funding variable annuity and
variable life insurance contracts. Strong Capital Management, Inc. is the
investment adviser for the Fund.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is an open-end management investment
company organized as a business trust under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Trust shares are offered only to separate
accounts of various insurance companies to fund the benefits of variable life
and variable annuity contracts. The investment adviser and manager is Van Eck
Associates Corporation.
A full description of Conseco Series Trust, the Alger American Fund, the
American Century Variable Portfolios, Inc., the Berger Institutional Products
Trust, the Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Stock
Index Fund, the Federated Insurance Series, the Janus Aspen Series, the
Neuberger & Berman Advisers Management Trust, the Strong Variable Insurance
Funds, Inc. Growth Fund II, the Strong Special Fund II, and the Van Eck
Worldwide Insurance Trust, including the investment objectives, policies and
restrictions of each of the eligible Funds, is contained in the prospectuses of
the Funds which accompany this Prospectus and should be read carefully by a
prospective purchaser before investing.
46
<PAGE>
PART B
47
<PAGE>
GREAT AMERICAN RESERVE
INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
INDIVIDUAL & GROUP VARIABLE DEFERRED ANNUITY
CONTRACTS
STATEMENT OF ADDITIONAL
INFORMATION
DATED MAY 1, 1997
OFFERED BY
GREAT AMERICAN RESERVE INSURANCE COMPANY
11815 N. PENNSYLVANIA ST., CARMEL, IN 46032
(317) 817-3700
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with a Prospectus for Great American Reserve Variable
Annuity Account C ("Variable Account") - Individual Variable Deferred Annuity
Contracts or Group Variable Deferred Annuity Contracts, each dated May 1, 1997.
You can obtain a copy of a Prospectus by contacting Great American Reserve
Insurance Company ("Great American Reserve") at the address or telephone number
given above.
TABLE OF CONTENTS
Page
General Information and History.............................................B-2
Independent Accountants.....................................................B-2
Distribution................................................................B-2
Calculation of Yield Quotations.............................................B-2
Calculation of Total Return Quotations......................................B-3
Other Performance Data......................................................B-6
Financial Statements........................................................F-1
B-1
<PAGE>
Great American
Reserve
1997 Account C
- --------------------------------------------------------------------------------
GENERAL INFORMATION AND HISTORY
Great American Reserve is an indirect wholly owned subsidiary of Conseco,
Inc. (Conseco). The operations of Great American Reserve are handled by Conseco.
Conseco is a publicly owned financial services holding company, the principal
operations of which are in the development, marketing and administration of
specialized annuity and life insurance products. Conseco has its principal
offices at 11825 N. Pennsylvania Street, Carmel, Indiana 46032.
The Variable Account was established by Great American Reserve.
INDEPENDENT ACCOUNTANTS
The financial statements of Great American Reserve Variable Annuity Account
C and Great American Reserve have been examined by Coopers & Lybrand L.L.P.,
Indianapolis, Indiana, independent accountants, for the periods indicated in
their reports as stated in their opinion and have been so included in reliance
upon such opinion given upon the authority of that firm as experts in accounting
and auditing.
DISTRIBUTION
Great American Reserve continuously offers the Contracts through associated
persons of the principal underwriter for Variable Account, Conseco Equity Sales,
Inc. ("Conseco Equity Sales"), a registered broker-dealer and member of the
National Association of Securities Dealers, Inc. Conseco Equity Sales is located
at 11815 N. Pennsylvania Street, Carmel, Indiana 46032, and is an affiliate of
Great American Reserve. For the years ending December 31, 1996, December 31,
1995, and December 31, 1994, Great American Reserve paid Conseco Equity Sales
total underwriting commissions of $1,930,300, $2,258,273, and $3,025,419,
respectively. In addition, certain Contracts may be sold by life
insurance/registered representatives of other registered broker-dealers.
Conseco Equity Sales performs the sales functions relating to the Contracts
and Great American Reserve provides all administrative services. To cover the
sales expenses and administrative expenses (including such items as salaries,
rent, postage, telephone, travel, legal, actuarial, audit, office equipment and
printing), Great American Reserve makes sales and administrative deductions,
varying by type of Contract. See Contract Charges in the Prospectus.
CALCULATION OF YIELD QUOTATIONS
The Money Market Sub-accounts standard yield quotations may appear in sales
material and advertising as calculated by the standard method prescribed by
rules of the Securities and Exchange Commission. Under this method, the yield
quotation is based on a seven-day period and computed as follows: The Money
Market Sub-accounts daily net investment factor minus one (1.00) is multiplied
by 365 to produce an annualized yield. The annualized yields of the seven-day
period are then averaged and carried to the nearest one-hundredth of one
percent. This yield reflects investment results less deductions for investment
advisory fees and mortality and expense risk fees but does not include
deductions for any applicable annual administrative fees. Because of these
deductions, the yield for the Money Market Sub-account will be lower than the
yield for the corresponding Fund of the Conseco Series Trust.
The Money Market Sub-accounts effective yield may appear in sales material
and advertising for the same seven-day period, determined on a compound basis.
The effective yield is calculated by compounding the unannualized base period
return by adding one to the base period return, raising the sum to a power equal
to 365 divided by 7, and subtracting one from the result.
The yield on the Money Market Sub-account will generally fluctuate on a
daily basis. Therefore, the yield for any given past period is not an indication
or representation of future yields or rates of return. The actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity, the types and quality of portfolio securities held by the
corresponding Fund of the Conseco Series Trust and its operating expenses.
The Conseco Series Trust Asset Allocation, Common Stock, Corporate Bond,
and Government Securities Portfolios; the Alger American Fund Growth, Leveraged
AllCap, MidCap Growth, and Small Capitalization Portfolios; the American Century
Variable Portfolios, Inc. International and Value Funds; the Berger IPT - 100,
B-2
<PAGE>
- --------------------------------------------------------------------------------
Berger IPT - Growth and Income, Berger IPT - Small Company Growth, and
Berger/BIAM IPT - International Funds; the Dreyfus Socially Responsible Growth
Fund, Inc.; the Dreyfus Stock Index Fund; the Federated Insurance Series High
Income Bond II, International Equity II, and Utility II Funds; the Janus Aspen
Series Aggressive Growth, Growth, and Worldwide Growth Portfolios; the Neuberger
& Berman Advisers Management Trust Limited Maturity Bond and Partners
Portfolios; the Strong Variable Insurance Funds, Inc. Growth Fund II; Strong
Special Fund II; and the Van Eck Worldwide Insurance Trust Worldwide Hard Assets
(formerly, Gold and Natural Resources), Worldwide Bond, and Worldwide Emerging
Markets Funds may advertise investment performance figures, including yield.
Each Sub- account's yield will be based upon a stated 30-day period and will be
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
YIELD = 2 ((A-B/CD) + 1)6 -1
Where:
A = the dividends and interest earned during the period.
B = the expenses accrued for the period (net of reimbursements,
if any).
C = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
D = the maximum offering (which is the net
asset value) per share on the last day of the
period.
CALCULATION OF TOTAL RETURN
QUOTATIONS
Great American Reserve may include certain total return quotations for the
Conseco Series Trust Asset Allocation, Common Stock, Corporate Bond, and
Government Securities Portfolios; the Alger American Fund Growth, Leveraged
AllCap, MidCap Growth, and Small Capitalization Portfolios; the American Century
Variable Portfolios, Inc. International and Value Funds; the Berger IPT - 100,
Berger IPT - Growth and Income, Berger IPT - Small Company Growth, and
Berger/BIAM IPT International Funds; the Dreyfus Socially Responsible Growth
Fund, Inc.; the Dreyfus Stock Index Fund; the Federated Insurance Series High
Income Bond II, International Equity II, and Utility II Funds; the Janus Aspen
Series Aggressive Growth, Growth, and Worldwide Growth Portfolios; the Neuberger
& Berman Advisers Management Trust Limited Maturity Bond and Partners
Portfolios; the Strong Variable Insurance Funds, Inc. Growth Fund II; Strong
Special Fund II; and the Van Eck Worldwide Insurance Trust Worldwide Hard Assets
(formerly, Gold and Natural Resources), Worldwide Bond, and Worldwide Emerging
Markets Funds in advertising, sales literature or reports to Contract Owners or
prospective purchasers. Such total return quotations will be expressed as the
average annual rate of total return over one-, five- and 10-year periods ended
as of the end of the immediately preceding calendar quarter, and as the dollar
amount of annual total return on a year-to-year, rolling 12-month basis ended as
of the end of the immediately preceding calendar quarter.
Average annual total return quotations are computed according to the
following formula:
P (1+T)n = ERV
Where:
P = beginning purchase payment of $1,000.
T = average annual total return.
n = number of years in period.
ERV = ending redeemable value of a hypothetical $1,000 purchase
payment made at the beginning of the one-, five- or 10-year period
at the end of the one-, five- or 10-year period (or fractional
portion thereof).
B-3
<PAGE>
Great American
Reserve
1997 Account C
- --------------------------------------------------------------------------------
GROUP VARIABLE DEFERRED ANNUITY
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR 5 YEARS 10 YEARS
Variable Account Sub-accounts (1/1/96-12/31/96) (1/1/92-12/31/96) (1/1/87-12/31/96)
====================================================================================================================================
CONSECO SERIES TRUST
Asset Allocation Portfolio............................................21.14% 14.77%(1) N/A
Common Stock Portfolio................................................37.41% 15.96% 14.92%
Corporate Bond Portfolio.............................................. (.63)% 6.90% 8.21%
Government Securities Portfolio.......................................(2.99)% 3.22%(1) N/A
THE ALGER AMERICAN FUND
Alger American Leveraged AllCap Portfolio .............................5.78% 28.85%(2) N/A
Alger American Small Capitalization Portfolio.........................(1.64)% 12.38%(2) N/A
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.......................14.55% 20.81%(2) N/A
DREYFUS STOCK INDEX FUND................................................15.29% 20.18%(2) N/A
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II.....................................7.93% 9.57%(2) N/A
Federated International Equity Fund II.................................2.27% 3.29%(2) N/A
Federated Utility Fund II..............................................5.41% 11.41%(2) N/A
JANUS ASPEN SERIES
Aggressive Growth Portfolio............................................1.99% 17.73%(2) N/A
Growth Portfolio......................................................11.84% 18.59%(2) N/A
Worldwide Growth Portfolio............................................21.84% 28.10%(2) N/A
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and Natural
Resources Fund) ......................................................11.48% 12.48%(2) N/A
Worldwide Bond Fund...................................................(3.20)% (.68)%(2) N/A
====================================================================================================================================
</TABLE>
(1) Since inception (May 1, 1993).
(2) Since inception (June 1, 1995).
B-4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL FLEXIBLE PREMIUM PAYMENT ANNUITY
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR 5 YEARS 10 YEARS
VARIABLE ACCOUNT SUB-ACCOUNTS (1/1/96-12/31/96) (1/1/92-12/31/96) (1/1/87-12/31/96)
====================================================================================================================================
CONSECO SERIES TRUST
Asset Allocation Portfolio..........................................17.64% 14.73%(1) N/A
Common Stock Portfolio..............................................33.44% 15.70% 15.11%
Corporate Bond Portfolio............................................(3.51)% 6.67% 8.38%
Government Securities Portfolio.....................................(5.80)% 3.22%(1) N/A
THE ALGER AMERICAN FUND
Alger American Leveraged AllCap Portfolio............................2.71% 27.31%(2) N/A
Alger American Small Capitalization Portfolio.......................(4.39)% 11.04%(2) N/A
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.......................11.28% 19.37%(2)
DREYFUS STOCK INDEX FUND................................................11.88% 18.75%(2) N/A
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II...................................4.81% 8.26%(2) N/A
Federated International Stock Fund II................................(.68)% 2.06%(2) N/A
Federated Utility Fund II............................................2.28% 10.08%(2) N/A
JANUS ASPEN SERIES
Aggressive Growth Portfolio.........................................(1.04)% 16.33%(2) N/A
Growth Portfolio.....................................................8.61% 17.17%(2) N/A
Worldwide Growth Portfolio..........................................18.32% 26.57%(2) N/A
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and
Natural Resources Fund) ........................................... 8.26% 11.14%(2) N/A
Worldwide Bond Fund.................................................(6.00)% (1.87)%(2) N/A
====================================================================================================================================
</TABLE>
(1) Since inception (May 1, 1993).
(2) Since inception (June 1, 1995).
B-5
<PAGE>
Great American
Reserve
1997 Account C
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL SINGLE PREMIUM PAYMENT ANNUITY
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR 5 YEARS 10 YEARS
VARIABLE ACCOUNT SUB-ACCOUNTS (1/1/96-2/31/96) (1/1/92-2/31/96) (1/1/87-2/31/96)
====================================================================================================================================
CONSECO SERIES TRUST
Asset Allocation Portfolio............................................18.01% 15.09%(1) N/A
Common Stock Portfolio................................................33.85% 15.98% 15.15%
Corporate Bond Portfolio..............................................(3.20)% 6.92% 8.43%
Government Securities Portfolio.......................................(5.50)% 3.48%(1) N/A
THE ALGER AMERICAN FUND
Alger American Leveraged AllCap Portfolio..............................3.04% 27.57%(2) N/A
Alger American Small Capitalization Portfolio.........................(4.18)% 10.52%(2) N/A
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.........................11.51% 19.61%(2) N/A
DREYFUS STOCK INDEX FUND..................................................12.23% 18.99%(2) N/A
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II.....................................5.14% 8.48%(2) N/A
Federated International Equity Fund II.................................(.37)% 2.27%(2) N/A
Federated Utility Fund II..............................................2.61% 10.30%(2) N/A
JANUS ASPEN SERIES
Aggressive Growth Portfolio............................................(.72)% 16.56%(2) N/A
Growth Portfolio.......................................................8.95% 17.41%(2) N/A
Worldwide Growth Portfolio............................................18.69% 26.83%(2) N/A
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and
Natural Resources Fund) ............................................. 8.60% 11.37%(2) N/A
Worldwide Bond Fund...................................................(5.70)% (1.67)%(2) N/A
====================================================================================================================================
</TABLE>
(1) Since inception (May 1, 1993).
(2) Since inception (June 1, 1995).
OTHER PERFORMANCE DATA
Great American Reserve may from time to time also illustrate average annual
total returns in a non-standard format, as appears in the following "Gross
Average Annual Total Returns" tables, in conjunction with the standard format
described above. The non-standard format will be identical to the standard
format except that the withdrawal charge percentage will be assumed to be zero.
B-6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GROUP VARIABLE DEFERRED ANNUITY
GROSS AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR 5 YEARS 10 YEARS
VARIABLE ACCOUNT SUB-ACCOUNTS (1/1/96-12/31/96) (1/1/92-12/31/96) (1/1/87-12/31/96)
====================================================================================================================================
CONSECO SERIES TRUST
Asset Allocation Portfolio................................... 27.01% 16.29%(1) N/A
Common Stock Portfolio....................................... 44.06% 16.68% 15.19%
Corporate Bond Portfolio..................................... 4.19% 7.56% 8.47%
Government Securities Portfolio.............................. 1.72% 4.52%(1) N/A
THE ALGER AMERICAN FUND
Alger American Leveraged AllCap Portfolio.................... 10.92% 32.64%(2) N/A
Alger American Small Capitalization Portfolio................ 3.14% 15.69%(2) N/A
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ............. 20.02% 24.37%(2) N/A
DREYFUS STOCK INDEX FUND........................................ 20.79% 23.72%(2) N/A
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II........................... 13.17% 12.80%(2) N/A
Federated International Equity Fund II....................... 7.24% 6.34%(2) N/A
Federated Utility Fund II.................................... 10.45% 14.69%(2) N/A
JANUS ASPEN SERIES
Aggressive Growth Portfolio.................................. 6.87% 21.20%(2) N/A
Growth Portfolio............................................. 17.27% 22.08%(2) N/A
Worldwide Growth Portfolio................................... 27.75% 31.87%(2) N/A
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and
Natural Resources Fund) ................................... 16.88% 15.80%(2) N/A
Worldwide Bond Fund.......................................... 1.50% 2.24%(2) N/A
====================================================================================================================================
</TABLE>
(1) Since inception (May 1, 1993).
(2) Since inception (June 1, 1995).
B-7
<PAGE>
Great American
Reserve
1997 Account C
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL FLEXIBLE PREMIUM PAYMENT ANNUITY
GROSS AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR 5 YEARS 10 YEARS
VARIABLE ACCOUNT SUB-ACCOUNTS (1/1/96-12/31/96) (1/1/92-12/31/96) (1/1/87-12/31/96)
====================================================================================================================================
CONSECO SERIES TRUST
Asset Allocation Portfolio................................... 27.01% 16.29%(1) N/A
Common Stock Portfolio....................................... 44.06% 16.68% 15.19%
Corporate Bond Portfolio..................................... 4.19% 7.56% 8.47%
Government Securities Portfolio.............................. 1.72% 4.52%(1) N/A
THE ALGER AMERICAN FUND
Alger American Leveraged AllCap Portfolio.................... 10.92% 32.64%(2) N/A
Alger American Small Capitalization Portfolio................ 3.14% 15.69%(2) N/A
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ............. 20.02% 24.37%(2) N/A
DREYFUS STOCK INDEX FUND........................................ 20.79% 23.72%(2) N/A
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II........................... 13.17% 12.80%(2) N/A
Federated International Equity Fund II....................... 7.24% 6.34%(2) N/A
Federated Utility Fund II.................................... 10.45% 14.69%(2) N/A
Janus Aspen Series
Aggressive Growth Portfolio.................................. 6.87% 21.20%(2) N/A
Growth Portfolio............................................. 17.27% 22.08%(2) N/A
Worldwide Growth Portfolio................................... 27.75% 31.87%(2) N/A
Van Eck Worldwide Insurance Trust
Worldwide Hard Assets Fund (fomerly, Gold and
Natural Resources Fund) ................................... 16.88% 15.80%(2) N/A
Worldwide Bond Fund.......................................... 1.50% 2.24%(2) N/A
====================================================================================================================================
</TABLE>
(1) Since inception (May 1, 1993).
(2) Since inception (June 1, 1995).
B-8
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL SINGLE PREMIUM PAYMENT ANNUITY
GROSS AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR 5 YEARS 10 YEARS
VARIABLE ACCOUNT SUB-ACCOUNTS (1/1/96-12/31/96) (1/1/92-12/31/96) (1/1/87-12/31/96)
====================================================================================================================================
CONSECO SERIES TRUST
Asset Allocation Portfolio...................................27.01% 16.29%(1) N/A
Common Stock Portfolio.......................................44.06% 16.68% 15.19%
Corporate Bond Portfolio......................................4.19% 7.56% 8.47%
Government Securities Portfolio...............................1.72% 4.52%(1) N/A
THE ALGER AMERICAN FUND
Alger American Leveraged AllCap Portfolio....................10.92% 32.64%(2) N/A
Alger American Small Capitalization Portfolio.................3.14% 15.69%(2) N/A
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. .............20.02% 24.37%(2) N/A
DREYFUS STOCK INDEX FUND........................................20.79% 23.72%(2) N/A
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II...........................13.17% 12.80%(2) N/A
Federated International Equity Fund II........................7.24% 6.34%(2) N/A
Federated Utility Fund II....................................10.45% 14.69%(2) N/A
JANUS ASPEN SERIES
Aggressive Growth Portfolio...................................6.87% 21.20%(2) N/A
Growth Portfolio.............................................17.27% 22.08%(2) N/A
Worldwide Growth Portfolio...................................27.75% 31.87%(2) N/A
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly, Gold and Natural
Resources Fund) ............................................16.88% 15.80%(2) N/A
Worldwide Bond Fund...........................................1.50% 2.24%(2) N/A
====================================================================================================================================
</TABLE>
(1) Since inception (May 1, 1993).
(2) Since inception (June 1, 1995).
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required periods, is
also illustrated.
Performance data for the Variable Account investment options may be
compared in advertisements, sales literature and reports to Contract Owners,
with the investment returns on various mutual funds, stocks, bonds, certificates
of deposit, tax free bonds, or common stock and bond indices, and other groups
of variable annuity separate accounts or other investment products tracked by
Morningstar, Inc., a widely used independent research firm which ranks mutual
funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons who rank such investment companies on overall performance or other
criteria.
Reports and promotional literature may also contain other information,
including the effect of tax-deferred compounding on an investment options
performance returns, or returns in general, which may be illustrated by graphs,
charts or otherwise, and which may include a comparison, at various points in
time, of the return from an investment in a Contract (or returns in general) on
a tax-deferred basis (assuming one or more tax rates) with the return on a
taxable basis.
Reports and promotional literature may also contain the ratings Great
American Reserve has received from independent rating agencies. However, Great
American Reserve does not guarantee the investment performance of the Variable
Account investment options.
B-9
<PAGE>
FINANCIAL STATEMENTS
Audited Financial Statements of Great American
Reserve Variable Annuity Account C and Great American
Reserve Insurance Company as of December 31, 1996, are
included herein.
INDEX TO FINANCIAL STATEMENTS
Page
GREAT AMERICAN RESERVE VARIABLE ANNUITY
ACCOUNT C
Report of Independent Accountants ....................F-2
Statement of Assets and Liabilities
as of December 31, 1996...........................F-3
Statements of Operations for the Years Ended
December 31, 1996 and 1995.........................F-5
Statements of Changes in Net Assets for
the Years Ended December 31, 1996
and 1995...........................................F-5
Notes to Financial Statements.........................F-6
GREAT AMERICAN RESERVE INSURANCE COMPANY
Report of Independent Accountants ....................F-10
Balance Sheet-Statutory Basis
as of December 31, 1996 and 1995 ..................F-11
Statement of Operations-Statutory Basis
for the Years Ended December 31, 1996
and 1995...........................................F-13
Statement of Shareholders' Equity-Statutory
Basis for the Years Ended December 31,
1996 and 1995......................................F-14
Statement of Cash Flows-Statutory Basis
for the Years Ended December 31, 1996
and 1995...........................................F-15
Notes to Statutory Basis Financial Statements ........F-16
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF GREAT
AMERICAN RESERVE INSURANCE COMPANY
AND CONTRACT OWNERS OF GREAT AMERICAN
RESERVE VARIABLE ANNUITY ACCOUNT C
We have audited the accompanying statement of assets and liabilities of
Great American Reserve Variable Annuity Account C (the "Account") as of December
31, 1996, and the related statements of operations and changes in net assets for
each of the two years in the period then ended. These financial statements are
the responsibility of the Account's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of portfolio shares owned at December 31, 1996 by correspondence
with custodians. An audit also includes assessing the accounting principals used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Great American
Reserve Variable Annuity Account C as of December 31, 1996, and the results of
its operations and changes in its net assets for each of the two years in the
period then ended, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 21, 1997
F-2
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
====================================================================================================================================
REPORTED
SHARES COST VALUE
----------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in portfolio shares, at net asset value (Note 2):
The Alger American Fund:
Leveraged AllCap Portfolio .................... 26,879.1 $ 502,374 $ 520,380
Small Capitalization Portfolio ................ 39,899.0 1,632,132 1,632,268
Conseco Series Trust:
Asset Allocation Portfolio .................... 750,142.1 9,244,540 10,103,394
Common Stock Portfolio ........................ 7,215,439.7 131,809,494 157,642,272
Corporate Bond Portfolio ...................... 1,564,728.0 15,586,483 15,599,830
Government Securities Portfolio ............... 35,992.6 424,301 429,854
Money Market Portfolio ........................ 4,834,872.5 4,834,872 4,834,872
The Dreyfus Socially Responsible Growth Fund, Inc, 8,038.7 150,364 161,497
Dreyfus Stock Index Fund .......................... 96,525.0 1,756,560 1,957,527
Federated Insurance Series:
Federated High Income Bond Fund II ............ 5,219.4 52,382 53,447
Federated International Equity Fund II ........ 6,929.2 74,026 77,329
Federated Utility Fund II ..................... 11,789.0 130,079 139,228
The Janus Aspen Series:
Aggressive Growth Portfolio ................... 65,615.0 1,170,617 1,196,818
Growth Portfolio .............................. 50,555.8 743,393 784,120
Worldwide Growth Portfolio .................... 148,894.9 2,673,682 2,894,517
The Van Eck Worldwide Insurance Trust:
Gold and Natural Resources Fund ............... 3,759.6 60,462 62,861
Worldwide Bond Fund ........................... 2,216.2 24,522 24,600
Worldwide Hard Assets Fund .................... 17,066.6 201,501 252,757
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets .................................. 198,367,571
Liabilities:
Amounts due to Great American Reserve Insurance Company. 177,774
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (Note 6) ........................... $198,189,797
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-3
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
====================================================================================================================================
UNIT REPORTED
UNITS VALUE VALUE
-------------------------------------------------------
<S> <C> <C> <C>
Net assets attributable to:
Contract owners' deferred annuity reserves:
The Alger American Fund:
Leveraged AllCap Portfolio............................ 332,179.9 $ 1.565215 $ 519,933
Small Capitalization Portfolio........................ 1,294,236.4 1.260092 1,630,857
Conseco Series Trust:
Asset Allocation Portfolio............................ 5,801,101.7 1.740091 10,094,443
Common Stock Portfolio
Qualified......................................... 8,464,008.5 17.932908 151,784,283
Nonqualified...................................... 283,827.9 14.195419 4,029,055
Corporate Bond Portfolio
Qualified......................................... 2,973,412.1 4.990233 14,838,020
Nonqualified..................................... 136,641.6 4.794729 655,159
Government Securities Portfolio....................... 365,163.5 1.176168 429,494
Money Market Portfolio
Qualified........................................ 1,583,355.5 2.598401 4,114,193
Nonqualified..................................... 266,262.2 2.598400 691,856
The Dreyfus Socially Responsible Growth Fund, Inc. 114,172.5 1.413293 161,359
Dreyfus Stock Index Fund.................................. 1,395,519.7 1.401553 1,955,894
Federated Insurance Series:
Federated High Income Bond Fund II.................... 44,123.6 1.210427 53,408
Federated International Equity Fund II................ 70,089.7 1.102350 77,263
Federated Utility Fund II............................. 111,928.9 1.242795 139,105
The Janus Aspen Series:
Aggressive Growth Portfolio........................... 881,491.1 1.356519 1,195,759
Growth Portfolio...................................... 570,926.9 1.372222 783,438
Worldwide Growth Portfolio............................ 1,845,276.1 1.550846 2,861,739
The Van Eck Worldwide Insurance Trust:
Gold and Natural Resources Fund....................... 49,773.1 1.261915 62,809
Worldwide Bond Fund................................... 23,734.7 1.035786 24,584
Worldwide Hard Assets Fund............................ 163,726.6 1.542455 252,541
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to contract owners' deferred annuity reserves ....... 196,355,192
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' annuity payment reserves:
Conseco Series Trust:
Common Stock Portfolio
Qualified.......................................................................... 1,660,667
Nonqualified....................................................................... 20,036
Corporate Bond Portfolio
Qualified.......................................................................... 94,182
Money Market Portfolio
Qualified.......................................................................... 29,359
Janus Aspen Worldwide Growth Portfolio...................................................... 30,361
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to contract owners' annuity payment reserves............... 1,834,605
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets......................................................................... $ 198,189,797
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-4
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT C
STATEMENT OF OPERATIONS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
===================================================================================================================
1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividends from investments in portfolio shares.............................. $ 33,529,312 $ 19,391,277
Expenses:
Mortality and expense risk fees............................................. 1,133,054 764,864
- -------------------------------------------------------------------------------------------------------------------
Net investment income....................................................... 32,396,258 18,626,413
- -------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) and unrealized appreciation (depreciation)
of investments in portfolio shares:
Net realized gains on sales of investments in portfolio shares ............. 1,468,389 266,507
Net change in unrealized appreciation of investments in portfolio shares ... 17,278,325 10,798,864
- -------------------------------------------------------------------------------------------------------------------
Net gain on investments in portfolio shares............................ 18,746,714 11,065,371
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations.......................... $ 51,142,972 $ 29,691,784
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
=======================================================================================================================
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Changes from operations:
Net investment income ....................................................... $ 32,396,258 $ 18,626,413
Net realized gains on sales of investments in portfolio shares .............. 1,468,389 266,507
Net change in unrealized appreciation of investments in portfolio shares .... 17,278,325 10,798,864
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations ............................. 51,142,972 29,691,784
- -----------------------------------------------------------------------------------------------------------------------
Changes from principal transactions:
Net contract purchase payments .............................................. 20,830,794 16,741,302
Contract redemptions ........................................................ (10,807,460) (5,842,499)
Net transfers (to) from fixed account ....................................... 4,929,986 (206,225)
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal transactions ................. 14,953,320 10,692,578
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets ........................................... 66,096,292 40,384,362
- -----------------------------------------------------------------------------------------------------------------------
Net assets, beginning of year ........................................................ 132,093,505 91,709,143
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of year (Note 6)..................................... $ 198,189,797 $ 132,093,505
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-5
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------
(1) GENERAL
Great American Reserve Variable Annuity Account C ("Account C") was
established in 1980 as a segregated investment account for individual and group
variable annuity contracts which are registered under the Securities Act of
1933. Account C is registered under the Investment Company Act of 1940, as
amended (the "Act"), as a unit investment trust. Account C was originally
registered with the U.S. Securities and Exchange Commission as a diversified
open-end management investment company under the Act. Effective, May 1, 1993,
Account C was restructured into a single unit investment trust which invested
solely in shares of the portfolios of the Conseco Series Trust, a diversified
open-end management investment company.
The operations of Account C are included in the operations of Great
American Reserve Insurance Company (the "Company") pursuant to the provisions of
the Texas Insurance Code. The Company is an indirect wholly owned subsidiary of
Conseco, Inc., a publicly-held specialized financial services holding company
listed on the New York Stock Exchange.
Effective June 1, 1995, the following investment options were
available:
THE ALGER AMERICAN FUND
Alger American Leveraged AllCap Portfolio
Alger American Small Capitalization Portfolio
THE CONSECO SERIES TRUST
Asset Allocation Portfolio
Common Stock Portfolio
Corporate Bond Portfolio
Government Securities Portfolio
Money Market Portfolio
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
DREYFUS STOCK INDEX FUND
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II
Federated International Equity Fund II
Federated Utility Fund II
THE JANUS ASPEN SERIES
Aggressive Growth Portfolio
Growth Portfolio
Worldwide Growth Portfolio
THE VAN ECK WORLDWIDE INSURANCE TRUST
Gold and Natural Resources Fund
Worldwide Bond Fund
Worldwide Hard Assets Fund
F-6
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Valuation, Transactions and Income
---------------------------------------------
Investments in portfolio shares are valued using the net asset value of
the respective portfolios at the end of each New York Stock Exchange business
day, with the exception of regional business holidays. Investment share
transactions are accounted for on a trade date basis (the date the order to
purchase or redeem shares is executed) and dividend income is recorded on the
ex-dividend date. The cost of investments in portfolio shares sold is determined
on a first-in first-out basis. Account C does not hold any investments which are
restricted as to resale.
Net investment income and net realized gains (losses) and unrealized
appreciation (depreciation) on investments are allocated to the contracts on
each valuation date based on each contract's pro rata share of the assets of
Account C as of the beginning of the valuation date.
Federal Income Taxes
--------------------
No provision for federal income taxes has been made in the accompanying
financial statements because the operations of Account C are included in the
operations of the Company, which is treated as a life insurance company for
federal income tax purposes under the Internal Revenue Code. Net investment
income and net realized gains (losses) are retained in Account C and are not
taxable until received by the contract owner or beneficiary in the form of
annuity payments or other distributions.
Annuity Reserves
----------------
Deferred annuity contract reserves are comprised of net contract
purchase payments less redemptions and benefits. These reserves are adjusted
daily for the net investment income and net realized gains (losses) and
unrealized appreciation (depreciation) on investments.
Annuity payment reserves for contracts under which contract owners are
receiving periodic retirement payments are computed according to the Progressive
Annuity Mortality Table. The assumed net investment rate is equal to the assumed
rate of accumulation. The annuity unit values for periodic retirement payments
were as shown below.
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Conseco Series Trust:
Common Stock
Qualified.................................... $ 5.793 $ 4.163
Nonqualified................................. 5.363 3.854
Corporate Bond
Qualified.................................... 4.630 4.580
Money Market
Qualified.................................... 1.003 --
Janus Aspen Worldwide Growth............................... 1.139 --
</TABLE>
F-7
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------
(3) PURCHASES AND SALES OF INVESTMENTS IN PORTFOLIO SHARES
The aggregate costs of purchases of investments in portfolio
shares for the years ended December 31, 1996 and 1995 were $59,138,584 and
$35,364,218, respectively. The aggregate proceeds from sales of investments in
portfolio shares for the years ended December 31, 1996 and 1995 were $11,667,690
and $5,577,299, respectively.
(4) DEDUCTIONS AND EXPENSES
Although periodic retirement payments to contract owners vary
according to the investment performance of the portfolios, such payments are not
affected by mortality or expense experience because the Company assumes the
mortality and expense risks under the contracts.
The mortality risk assumed by the Company results from the life
annuity payment option in the contracts in which the Company agrees to make
annuity payments regardless of how long a particular annuitant or other payee
lives. The annuity payments are determined in accordance with annuity purchase
rate provisions established at the time the contracts are issued. Based on the
actuarial determination of expected mortality, the Company is required to fund
any deficiency in the annuity payment reserves from its general account assets.
The expense risk assumed by the Company is the risk that the
deductions for sales and administrative expenses may prove insufficient to cover
the actual sales and administrative expenses.
The Company deducts daily from Account C a fee, which is equal on
an annual basis to 1.00% of the daily value of the total investments of Account
C, for assuming the mortality and expense risks except for the Conseco Series
Trust Common Stock, Corporate Bond and Money Market portfolios which are 0.64%,
0.74% and 0.99%, respectively. These fees were $1,133,054 and $764,864 for the
years ended December 31, 1996 and 1995, respectively.
Pursuant to an agreement between Account C and the Company (which
may be terminated by the Company), the Company provides sales and administrative
services to Account C as well as a minimum death benefit prior to retirement for
certain contracts. Under individual contracts and group deferred compensation
contracts, the Company may deduct a percentage of amounts surrendered to cover
sales expenses. The percentage varies up to 8.00% based on the type of contract
and the number of years the contract has been held. In addition, the Company
deducts units from certain contracts annually and upon full surrender to cover
an administrative fee of $15, $20 or $25.
Under group contracts no longer sold, the Company deducts a
percentage of the renewal contract purchase payments to cover sales and
administrative expenses and the minimum death benefit prior to retirement of the
contract owners.
These sales and administrative charges were $146,545 and $75,162
for the years ended December 31, 1996 and 1995, respectively.
(5) OTHER TRANSACTIONS WITH AFFILIATES
Conseco Equity Sales, Inc., an affiliate of the Company, is the
principal underwriter and performs all variable annuity sales functions on
behalf of the Company.
F-8
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------
(6) NET ASSETS
Net assets consisted of the following at December 31, 1996:
Proceeds from the sales of units since organization,
less cost of units redeemed $ 63,392,558
Undistributed net investment income 73,802,818
Undistributed net realized gains on sales of investments 33,698,634
Net unrealized appreciation of investments 27,295,787
-----------------
Total net assets $ 198,189,797
=================
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Great American Reserve Insurance Company
We have audited the accompanying balance sheet of Great American
Reserve Insurance Company (the "Company") as of December 31, 1996 and 1995, and
the related statements of operations, shareholder's equity and cash flows for
the year ended December 31, 1996 and the four months ended December 31, 1995. We
have also audited the accompanying statements of operations, shareholder's
equity and cash flows of the Company for the eight months ended August 31, 1995,
and the year ended December 31, 1994, based on the basis of accounting
applicable to periods prior to the adoption of push down accounting upon
Conseco, Inc.'s purchase of all common shares of the Company it did not
previously own (see note 1 of the notes to financial statements regarding the
adoption of push down accounting). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Great American
Reserve Insurance Company as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the year ended December 31, 1996, the four
months ended December 31, 1995, the eight months ended August 31, 1995 and the
year ended December 31, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
March 14, 1997
F-10
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
BALANCE SHEET
December 31, 1996 and 1995
(Dollars in millions)
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Investments:
Actively managed fixed maturities at fair value (amortized cost:
1996 - $1,810.8; 1995 - $1,980.1)............................................... $1,795.1 $2,030.9
Mortgage loans..................................................................... 77.3 95.5
Credit-tenant loans................................................................ 93.4 79.4
Policy loans....................................................................... 80.8 84.7
Other invested assets ............................................................. 89.0 37.8
Short-term investments............................................................. 14.8 19.0
Assets held in separate accounts................................................... 232.4 137.5
---------- ----------
Total investments............................................................ 2,382.8 2,484.8
Accrued investment income.............................................................. 32.9 34.0
Cost of policies purchased............................................................. 143.0 120.0
Cost of policies produced.............................................................. 38.2 24.0
Reinsurance receivables................................................................ 25.7 27.0
Goodwill (net of accumulated amortization: 1996 - $11.7; 1995 - $10.2) 49.7 53.0
---------- ----------
Total assets................................................................. $2,680.5 $2,756.8
========== ==========
</TABLE>
(continued on next page)
The accompanying notes are an integral part
of the financial statements.
F-11
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
BALANCE SHEET (Continued)
December 31, 1996 and 1995
(Dollars in millions, except per share amount)
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
Liabilities:
<S> <C> <C>
Insurance liabilities.............................................................. $1,957.5 $2,039.1
Income tax liabilities............................................................. 29.8 39.0
Investment borrowings.............................................................. 48.4 84.2
Other liabilities.................................................................. 15.5 14.4
Liabilities related to separate accounts .......................................... 232.4 137.5
-------- --------
Total liabilities.......................................................... 2,283.6 2,314.2
-------- --------
Shareholder's equity:
Common stock and additional paid-in capital (par value $4.80 per share, 1,065,000
shares authorized, 1,043,565 shares issued and outstanding) 380.8 380.8
Unrealized appreciation (depreciation) of securities:
Fixed maturity securities (net of applicable deferred income taxes:
1996 - $(2.4); 1995 - $6.8).................................................. (4.4) 11.8
Other investments (net of applicable deferred income taxes:
1996 - $(.1); 1995 - $.4).................................................... (.2) .6
Retained earnings.................................................................. 20.7 49.4
-------- --------
Total shareholder's equity................................................. 396.9 442.6
-------- --------
Total liabilities and shareholder's equity................................. $2,680.5 $2,756.8
======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-12
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(Dollars in millions)
<TABLE>
<CAPTION>
PRIOR BASIS
---------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Insurance policy income............................... $ 81.4 $ 31.8 $ 60.5 $ 98.6
Net investment income................................. 218.4 74.2 136.4 187.9
Net investment gains.................................. 2.7 12.5 7.3 .2
--------- ------- -------- ---------
Total revenues................................ 302.5 118.5 204.2 286.7
------- ------ ------ ------
Benefits and expenses:
Insurance policy benefits............................. 54.9 18.9 45.9 66.2
Change in future policy benefits...................... (3.7) .2 (4.3) (1.3)
Interest expense on annuities and financial products 129.4 44.2 74.6 101.4
Interest expense on investment borrowings 6.2 1.0 3.6 2.9
Amortization related to operations.................... 17.8 5.3 11.7 16.0
Amortization related to investment gains 2.5 10.0 4.3 2.7
Other operating costs and expenses.................... 54.3 13.1 23.7 37.3
-------- ------- ------ -------
Total benefits and expenses................... 261.4 92.7 159.5 225.2
------- ------- ------ ------
Income before income taxes.................... 41.1 25.8 44.7 61.5
Income tax expense........................................ 15.4 9.7 16.5 22.7
-------- -------- ------- -------
Net income.................................... $ 25.7 $ 16.1 $ 28.2 $ 38.8
======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-13
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in millions)
<TABLE>
<CAPTION>
PRIOR BASIS
----------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
Common stock and additional paid-in capital:
<S> <C> <C> <C> <C>
Balance, beginning of period.......................... $ 380.8 $ 380.8 $339.7 $339.7
Adjustment of balance due to new accounting basis - - 41.1 -
-------- ------- ------ ------
Balance, end of period................................. $ 380.8 $ 380.8 $380.8 $339.7
======== ======= ====== ======
Unrealized appreciation (depreciation) of securities:
Fixed maturity securities:
Balance, beginning of period........................ $ 11.8 $ 1.3 $(53.0) $ 33.3
Change in unrealized appreciation (depreciation) (16.2) 10.5 55.7 (86.3)
Adjustment of balance due to new
accounting basis................................ - - (1.4) -
Balance, end of period.............................. $ (4.4) $ 11.8 $ 1.3 $(53.0)
Other investments:
Balance, beginning of period........................ $ .6 $ .6 $ (2.1) $ (.1)
Change in unrealized appreciation (depreciation (.8) - 3.3 (2.0)
Adjustment of balance due to new
accounting basis................................ - - (.6) -
-------- ------- ------- ------
Balance, end of period.............................. $ (.2) $ .6 $ .6 $ (2.1)
======== ======= ======= ======
Retained earnings:
Balance, beginning of year............................. $ 49.4 $ 33.3 $ 80.3 $ 75.6
Net income ......................................... 25.7 16.1 28.2 38.8
Dividends on common stock........................... (54.4) - (41.2) (34.1)
Adjustment of balance due to new
accounting basis.................................. - - (34.0) -
-------- ------- ------- ------
Balance, end of year................................... $ 20.7 $ 49.4 $ 33.3 $ 80.3
======== ======= ======= ======
Total shareholder's equity........................ $ 396.9 $ 442.6 $ 416.0 $364.9
======== ======= ======= ======
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-14
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
PRIOR BASIS
----------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income............................................. $ 25.7 $ 16.1 $ 28.2 $ 38.8
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization................................... 20.4 15.3 16.0 18.7
Income taxes................................... (3.9) 2.3 2.9 1.3
Insurance liabilities.......................... (40.5) (25.8) (14.0) (10.5)
Interest credited to insurance liabilities 129.4 44.2 74.6 101.4
Fees charged to insurance liabilities (32.8) (10.3) (22.2) (36.5)
Accrual and amortization of investment income 3.1 3.2 (1.8) (1.2)
Deferral of cost of policies produced (13.2) (3.0) (6.6) (9.4)
Investment gains............................... (2.7) (12.5) (7.3) (.2)
Other.......................................... (8.9) (8.9) (3.2) 5.0
-------- --------- -------- --------
Net cash provided by operating activities 76.6 20.6 66.6 107.4
-------- --------- -------- --------
Cash flows from investing activities:
Sales of investments................................... 988.9 513.2 406.5 586.0
Maturities and redemptions............................. 101.7 60.4 57.5 118.4
Purchases of investments............................... (954.2) (532.2) (476.2) (786.9)
-------- --------- -------- --------
Net cash provided (used) by investing
activities................................. 136.4 41.4 (12.2) (82.5)
-------- --------- -------- --------
Cash flows from financing activities:
Deposits to insurance liabilities...................... 169.8 50.8 104.4 146.0
Cash paid in reinsurance recapture .................... - (71.1) - -
Investment borrowings.................................. (35.8) (36.8) 121.0 (58.3)
Withdrawals from insurance liabilities................. (306.7) (71.9) (166.3) (171.4)
Dividends paid on common stock......................... (44.5) - (41.2) (34.1)
-------- --------- -------- --------
Net cash provided (used) by
financing activities....................... (217.2) (129.0) 17.9 (117.8)
-------- --------- -------- --------
Net increase (decrease) in short-term
investments................................ (4.2) (67.0) 72.3 (92.9)
Short-term investments, beginning of period................ 19.0 86.0 13.7 106.6
-------- --------- -------- --------
Short-term investments, end of period...................... $ 14.8 $ 19.0 $ 86.0 $ 13.7
======== ========= ======== ========
</TABLE>
The accompanying notes are an
integral part of the financial statements.
F-15
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Great American Reserve Insurance Company (the "Company") markets
tax-qualified annuities and certain employee benefit- related insurance products
through professional independent agents. Since August 1995, the Company has been
a wholly owned subsidiary of Conseco, Inc. ("Conseco"), a financial services
holding company engaged in the development, marketing and administration of
annuity, individual health insurance and individual life insurance products.
During 1994, Conseco effectively owned 36 percent of the Company, through its
ownership interest in CCP Insurance, Inc. ("CCP"), a holding company organized
for companies previously acquired by Conseco Capital Partners, L.P. (the
"Partnership"), a limited partnership organized by Conseco. The Company was
acquired by the Partnership in 1990 (the "Partnership Acquisition"). During
1995, Conseco's ownership in CCP (and in the Company) increased to 49 percent as
a result of purchases of CCP common stock by CCP and Conseco. In August 1995,
Conseco completed the purchase of the remaining shares of CCP common stock it
did not already own in a transaction pursuant to which CCP was merged with
Conseco, with Conseco being the surviving corporation (the "Conseco
Acquisition").
The accompanying financial statements give effect to "push down" purchase
accounting to reflect the Partnership Acquisition and the Conseco Acquisition.
As a result of applying "push down" purchase accounting: (i) the Company's
financial position and results of operations for periods subsequent to the
Partnership Acquisition and before the Conseco Acquisition (the "prior basis")
reflect the Partnership's cost to acquire the Company's asset and liability
accounts based upon their estimated fair values at the purchase date; and (ii)
the Company's financial position and results of operations for periods
subsequent to the Conseco Acquisition reflect Conseco's cost to acquire the
Company's asset and liability accounts based upon their estimated fair values at
the purchase date.
The effect of the adoption of the new basis of accounting on the Company's
balance sheet accounts on August 31, 1995, was as follows (dollars in millions):
<TABLE>
<CAPTION>
Debit
(Credit)
--------
<S> <C>
Cost of policies purchased ...................................... $ 59.0
Cost of policies produced ....................................... (27.0)
Goodwill ........................................................ (15.1)
Insurance liabilities ........................................... (1.2)
Income tax liabilities .......................................... (11.9)
Other ........................................................... 1.3
Common stock and additional paid-in capital ..................... (41.1)
Net unrealized appreciation of fixed maturity securities ........ 1.4
Net unrealized appreciation of other investments ................ .6
Retained earnings ............................................... 34.0
</TABLE>
The accompanying financial statements also include the effect of the
December 31, 1994, merger of Jefferson National Life Insurance Company
("Jefferson National", which was acquired by the Partnership in 1990) into the
Company. This merger has been accounted for as a pooling of interests;
therefore, the assets and liabilities of each company have been combined at
their book values and the statements of operations, shareholder's equity and
cash flows have been reported as if the merger had occurred on January 1, 1994.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"), which differ in some respects
from statutory accounting practices followed in the preparation of financial
statements
F-16
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
submitted to state insurance departments. The financial statements prepared in
conformity with GAAP include amounts based on informed estimates and judgment of
management, with consideration given to materiality. Significant estimates and
assumptions are utilized in the calculation of cost of policies produced, cost
of policies purchased, insurance liabilities, guaranty fund assessment accruals
and deferred income taxes. Actual experience may differ from those estimates.
Certain amounts from the 1995 and 1994 financial statements and notes have been
reclassified to conform with the 1996 presentation.
INVESTMENTS
Fixed maturity investments are securities that mature more than one year
after issuance. They include bonds, notes receivable and preferred stocks with
mandatory redemption features and are classified as follows:
ACTIVELY MANAGED - fixed maturity securities that may be sold prior to
maturity due to changes that might occur in market interest rates,
issuer credit quality or the Company's liquidity requirements. Actively
managed fixed maturity securities are carried at estimated fair value
and the unrealized gain or loss is recorded net of tax and related
adjustments described below as a component of shareholder's equity.
TRADING ACCOUNT - fixed maturity securities are bought and held
principally for the purpose of selling them in the near term. Trading
account securities are carried at estimated fair value. Unrealized
gains or losses are included in net investment gains (losses). The
Company did not hold any trading account securities during 1996, 1995
or 1994.
HELD TO MATURITY - (all other fixed maturity securities) are those
securities which the Company has the ability and positive intent to
hold to maturity, and are carried at amortized cost. The Company may
dispose of these securities if the credit quality of the issuer
deteriorates, if regulatory requirements change or under other
unforeseen circumstances. The Company has not held any securities in
this classification during 1996, 1995 or 1994.
Anticipated returns, including investment gains and losses, from the
investment of policyholder balances are considered in determining the
amortization of the cost of policies purchased and the cost of policies
produced. When actively managed fixed maturity securities are stated at
estimated fair value, an adjustment to the cost of policies purchased and the
cost of policies produced may be necessary if a change in amortization would
have been recorded if such securities had been sold at their fair value and the
proceeds reinvested at current yields. Furthermore, if future yields expected to
be earned on such securities decline, it may be necessary to increase certain
insurance liabilities. Adjustments to such liabilities are required when their
balances, in addition to future net cash flows (including investment income),
are insufficient to cover future benefits and expenses.
Unrealized gains and losses and the related adjustments described in the
preceding paragraph have no effect on earnings, but are recorded, net of tax, as
a component of shareholder's equity. The following table summarizes the effect
of these adjustments as of December 31, 1996:
<TABLE>
<CAPTION>
Effect of fair
Balance value adjustment on
before actively managed Reported
adjustment fixed maturities amount
---------- ---------------- ------
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturity securities.................... $1,810.8 $(15.7) $1,795.1
Cost of policies purchased.................................... 135.2 7.8 143.0
Cost of policies produced..................................... 37.1 1.1 38.2
Income tax liabilities........................................ 32.2 2.4 29.8
Net unrealized depreciation of fixed maturities............... - (4.4) (4.4)
</TABLE>
F-17
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
When changes in conditions cause a fixed maturity investment to be
transferred to a different category (e.g. actively managed, held to maturity or
trading), the security is transferred to the new category at its fair value at
the date of the transfer. There were no such transfers in 1996, 1995 or 1994. At
the transfer date, the security's unrealized gain or loss is recorded as
follows:
o For transfers to the trading category, the unrealized gain or loss is
recognized in earnings;
o For transfers from the trading category, the unrealized gain or loss
already recognized in earnings is not reversed;
o For transfers to actively managed from held to maturity, the
unrealized gain or loss is recognized in shareholder's equity; and
o For transfers to held to maturity from actively managed, the
unrealized gain or loss at the date of transfer continues to be
recognized in shareholder's equity, but is amortized as a yield
adjustment until ultimately sold.
Credit-tenant loans are loans for commercial properties which require: (i)
the lease of the principal tenant to be assigned to the Company; (ii) the lease
to produce adequate cash flow to fund substantially all the cash requirements of
the loan; and (iii) the principal tenant, or the guarantor of such tenant's
obligations, to have an investment-grade credit rating when the loan is made.
These loans also must be collateralized by the value of the related property.
Underwriting guidelines take into account such factors as: (i) the lease term of
the property; (ii) the borrower's management ability, including business
experience, property management capabilities and financial soundness; and (iii)
such economic, demographic or other factors that may affect the income generated
by the property or its value. The underwriting guidelines generally require a
loan-to-value ratio of 75 percent or less. Credit-tenant loans and traditional
mortgage loans are carried at amortized cost.
Policy loans are stated at their current unpaid principal balance.
Short-term investments include commercial paper, invested cash and other
investments purchased with maturities of less than three months and are carried
at amortized cost, which approximates fair value. The Company considers all
short-term investments to be cash equivalents.
Fees received and costs incurred in connection with origination of
investments, principally mortgage loans, are deferred. Fees, costs, discounts
and premiums are amortized as yield adjustments over the contractual life of the
investments. Anticipated prepayments on mortgage-backed securities are taken
into consideration in determining estimated future yields on such securities.
The specific identification method is used to account for the disposition
of investments. The differences between sale proceeds and carrying values are
reported as investment gains and losses, or as adjustments to investment income
if the proceeds are prepayments by issuers prior to maturity.
The Company regularly evaluates investment securities, credit-tenant loans
and mortgage loans based on current economic conditions, past credit loss
experience and other circumstances of the investee. A decline in a security's
net realizable value that is other than temporary is treated as an investment
loss and the cost basis of the security is reduced to its estimated fair value.
Impaired loans are revalued at the present value of expected cash flows
discounted at the loan's effective interest rate when it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the agreement. The Company accrues interest on the net carrying amount
of impaired loans.
As part of the Company's investment strategy, the Company may enter into
reverse repurchase agreements and dollar-roll transactions to increase its
investment return or to improve liquidity. These transactions are accounted for
as collateral borrowings, where the amount borrowed is equal to the sales price
of the underlying securities.
F-18
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
SEPARATE ACCOUNTS
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policyholders. The assets of these accounts are
legally segregated. They are not subject to the claims which may arise out of
any other business of the Company. The Company reports separate account assets
at market value; the underlying investment risks are assumed by the contract
holders. The Company records the related liabilities at amounts equal to the
underlying assets; the fair value of these liabilities equals their carrying
amount.
COST OF POLICIES PURCHASED
The cost of policies purchased represents the portion of the acquisition
cost that was allocated to the value of the right to receive future cash flows
from insurance contracts existing at the date such insurance contracts were
acquired. The value of cost of policies purchased is the actuarially determined
present value of the projected future cash flows from the insurance contracts
existing at the acquisition date. The method used to value the cost of policies
purchased is consistent with the valuation methods used most commonly to value
blocks of insurance business, which is also consistent with the basic
methodology generally used to value assets. The method used is summarized as
follows:
o Identify the expected future cash flows from the blocks of business.
o Identify the risks inherent in realizing those cash flows (i.e., what
is the probability that the cash flows will be realized).
o Identify the rate of return necessary considering the risks inherent
in realizing the cash flows.
o Determine the value of the policies by discounting the expected
future cash flows by the discount rate required.
The expected future cash flows used in determining such value are
based on actuarially determined projections of future premium
collections, mortality, surrenders, operating expenses, changes in
insurance liabilities, investment yields on the assets held to back
the policy liabilities and other factors. These projections take into
account all factors known or expected at the valuation date, based on
the collective judgment of the Company's management. Actual experience
on purchased business may vary from projections due to differences in
renewal premiums collected, investment spread, investment gains or
losses, mortality and morbidity costs and other factors.
The discount rate used to determine the value of the cost of policies
purchased is the rate of return required in order to invest in the business
being acquired. In determining this required rate of return, the following
factors are considered:
o The magnitude of the risks associated with each of the actuarial
assumptions used in determining expected future cash flows.
o The cost of capital required to fund the acquisition.
o The likelihood of changes in projected future cash flows that might
occur if there are changes in insurance regulations and tax laws.
o The acquired business compatibility with other activities of the
Company that may favorably affect future cash flows.
o The complexity of the acquired business.
o Recent prices (i.e., discount rates used in determining valuations)
paid by others to acquire similar blocks of business.
F-19
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
After the cost of policies purchased is determined, it is amortized based
on the incidence of the expected cash flows. This asset is amortized using the
interest rate credited to the underlying policies.
If renewal premiums collected, investment spread, investment gains or
losses, mortality and morbidity costs or other factors differ from expectations,
amortization of the cost of policies purchased is adjusted. For example, the
sale of a fixed maturity investment may result in a gain (or loss). If the sale
proceeds are reinvested at a lower (or higher) earnings rate, there may also be
a reduction (or increase) in future investment spread. Amortization must be
increased (decreased) to reflect the change in the incidence of expected cash
flows consistent with the methods used with the cost of policies produced
(described below).
Each year, the recoverability of the cost of policies purchased is
evaluated by line of business within each block of purchased insurance business.
If current estimates indicate that the existing insurance liabilities, together
with the present value of future net cash flows from the blocks of business
purchased, will be insufficient to recover the cost of policies purchased, the
difference is charged to expense. Amortization is adjusted consistent with the
methods used with the cost of policies produced (as described below).
The cost of policies purchased related to the original acquisition of the
Company by the Partnership in 1990 is amortized under a slightly different
method than that described above. However, the effect of the different method on
1996 net income was insignificant.
COST OF POLICIES PRODUCED
Costs which vary with and are primarily related to the acquisition of new
business are deferred to the extent that such costs are deemed recoverable.
These costs include commissions, certain costs of policy issuance and
underwriting and certain agency expenses. For traditional life and health
contracts, deferred costs are amortized with interest in relation to future
anticipated premium revenue using the same assumptions that are used in
calculating the insurance liabilities. For immediate annuities with mortality
risks, deferred costs are amortized in relation to the present value of benefits
to be paid. For universal life-type, interest-sensitive and investment-type
contracts, deferred costs are amortized in relation to the present value of
expected gross profits from these contracts, discounted using the interest rate
credited to the policy (currently, 5 percent to 8 percent).
Recoverability of the unamortized balance of cost of policies produced is
evaluated regularly and considers anticipated investment income. For universal
life-type contracts and investment-type contracts, the accumulated amortization
is adjusted (whether an increase or a decrease) whenever there is a change in
the estimated gross profits expected over the life of a block of business in
order to maintain a constant relationship between amortization and the present
value (discounted at the rate of interest that accrues to the policies) of
expected gross profits. For traditional and most other contracts, the
unamortized asset balance is reduced by a charge to income only when the sum of
the present value of discounted future cash flows and the policy liabilities is
not sufficient to cover such asset balance.
GOODWILL
The excess of the cost of acquiring the Company's net assets over its
estimated fair values is recorded as goodwill and is being amortized on the
straight-line basis over a 40-year period. The Company periodically assesses the
recoverability of goodwill through projections of future earnings of the
acquired business. Such assessment is made based on whether goodwill is fully
recoverable from projected undiscounted net cash flows from earnings of the
acquired business over the remaining amortization period. If future evaluations
of goodwill indicate a material change in the factors supporting recoverability
over the remaining amortization period, all or a portion of goodwill may need to
be written off or the amortization period shortened (no such changes have
occurred).
F-20
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
INSURANCE LIABILITIES, RECOGNITION OF INSURANCE POLICY INCOME AND RELATED
BENEFITS AND EXPENSES
Reserves for traditional and limited-payment life insurance contracts are
generally calculated using the net level premium method based on assumptions as
to investment yields, mortality, morbidity, withdrawals and dividends. The
assumptions are based on projections using past and expected experience and
include provisions for possible adverse deviation. These assumptions are made at
the time the contract is issued or, in the case of contracts acquired by
purchase, at the purchase date.
Reserves for universal life-type and investment-type contracts are based on
the contract account balance, if future benefit payments in excess of the
account balance are not guaranteed, or on the present value of future benefit
payments when such payments are guaranteed. Additional increases to insurance
liabilities are made if future cash flows including investment income are
insufficient to cover future benefits and expenses.
For investment-type contracts without mortality risk (such as deferred
annuities and immediate annuities with benefits paid for a period certain) and
for contracts that permit the Company or the insured to make changes in the
contract terms (such as single-premium whole life and universal life), premium
deposits and benefit payments are recorded as increases or decreases in a
liability account rather than as revenue and expense. Amounts charged against
the liability account for the cost of insurance, policy administration and
surrender penalties are recorded as revenues. Interest credited to the liability
account and benefit payments made in excess of the contract liability account
balance are charged to expense.
For traditional life insurance contracts, premiums are recognized as income
when due. Benefits and expenses are associated with earned premiums resulting in
their level recognition over the premium paying period of the contracts. Such
recognition is accomplished through the provision for future policy benefits and
the amortization of deferred policy acquisition costs.
For contracts with mortality risk, but with premiums paid for only a
limited period (such as single-premium immediate annuities with benefits paid
for the life of the annuitant), the accounting treatment is similar to
traditional contracts. However, the excess of the gross premium over the net
premium is deferred and recognized in relation to the present value of expected
future benefit payments.
Liabilities for incurred claims are determined using historical experience
and represent an estimate of the present value of the ultimate net cost of all
reported and unreported claims. Management believes these estimates are
adequate. Such estimates are periodically reviewed and any adjustments are
reflected in current operations.
For participating policies, the amount of dividends to be paid (which are
not significant) is determined annually by the Company. The portion of the
earnings allocated to participating policyholders is recorded as an insurance
liability.
REINSURANCE
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid over
such limit by ceding reinsurance to other insurance enterprises or reinsurers
under excess coverage and coinsurance contracts. The Company has set its
retention limit for acceptance of risk on life insurance policies at various
levels up to $.5 million.
Assets and liabilities related to insurance contracts are reported before
the effects of reinsurance. Reinsurance receivables and prepaid reinsurance
premiums (including amounts related to insurance liabilities) are reported as
assets. Estimated reinsurance receivables are recognized in a manner consistent
with the liabilities relating to the underlying reinsured insurance contracts.
R F-21
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
INCOME TAXES
Income tax expense includes deferred taxes arising from temporary
differences between the tax and financial reporting basis of assets and
liabilities. The effects of a tax rate change on current and accumulated
deferred income taxes are reflected in the period in which the change was
enacted.
In assessing the realization of deferred tax assets, the Company considers
whether it is more likely than not that the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences become deductible. If future income does not occur as expected,
deferred income taxes may need to be written off.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
determining estimated fair values of financial instruments:
INVESTMENT SECURITIES: The estimated fair values of fixed maturity
securities (including redeemable preferred stocks) are based on quotes from
independent pricing services, where available. For investment securities
for which such quotes are not available, the estimated fair values are
determined using values obtained from broker-dealer market makers or by
discounting expected future cash flows using current market interest rates
applicable to the yield, credit quality of the investments and maturity of
the investments.
MORTGAGE LOANS, CREDIT-TENANT LOANS AND POLICY LOANS: The estimated fair
values of mortgage loans, credit-tenant loans and policy loans are
determined by discounting future expected cash flows using interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for purposes of
the calculations.
OTHER INVESTED ASSETS: The estimated fair values of these assets have been
assumed to be equal to their carrying value. Such value is believed to be a
reasonable approximation of the fair value of these investments.
SHORT-TERM INVESTMENTS: The estimated fair values of short-term investments
are based on quoted market prices, where available. The carrying amount
reported in the balance sheet for these assets approximates their estimated
fair value.
INSURANCE LIABILITIES FOR INVESTMENT CONTRACTS: The estimated fair values
of liabilities under investment-type insurance contracts are determined
using discounted cash flow calculations based on interest rates currently
being offered for similar contracts with maturities consistent with those
remaining for the contracts being valued.
INVESTMENT BORROWINGS: Due to the short-term nature of these borrowings
(terms generally less than 30 days), estimated fair values are assumed to
approximate the carrying amount reported in the balance sheet.
F-22
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The estimated fair values of financial instruments are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Financial assets issued for purposes other than trading:
Actively managed fixed maturity securities........... $1,795.1 $1,795.1 $2,030.9 $2,030.9
Mortgage loans....................................... 77.3 77.0 95.5 108.9
Credit-tenant loans.................................. 93.4 92.5 79.4 79.7
Policy loans......................................... 80.8 80.8 84.7 84.7
Other invested assets................................ 89.0 89.0 37.8 37.8
Short-term investments............................... 14.8 14.8 19.0 19.0
Financial liabilities issued for purposes other than trading:
Insurance liabilities for investment contracts (1)... $1,282.1 $1,282.1 $1,346.5 $1,346.5
Investment borrowings................................ 48.4 48.4 84.2 84.2
</TABLE>
----------------------
(1) The estimated fair value of the liabilities for investment contracts
was approximately equal to its carrying value at December 31, 1996
and 1995, because interest rates credited on the vast majority of
account balances approximate current rates paid on similar
investments and because these rates are not generally guaranteed
beyond one year. The Company is not required to disclose fair values
for insurance liabilities, other than those for investment contracts.
However, the Company takes into consideration the estimated fair
values of all insurance liabilities in its overall management of
interest rate risk. The Company attempts to minimize exposure to
changing interest rates by matching investment maturities with
amounts due under insurance contracts.
2. JEFFERSON NATIONAL MERGER
On December 31, 1994, Jefferson National was merged with the Company, with
the Company being the surviving corporation. The merger has been accounted for
as a pooling of interests and, accordingly, the financial statements for 1994
have been restated to include the accounts of Jefferson National. Certain 1994
balances for the separate companies are as follows:
<TABLE>
<CAPTION>
AMOUNT PRIOR TO JEFFERSON
EFFECT OF MERGER NATIONAL COMBINED
---------------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Insurance policy income................................................... $ 53.2 $ 45.4 $ 98.6
Net investment income..................................................... 101.9 86.0 187.9
Total revenues............................................................ 154.1 132.6 286.7
Income before income taxes................................................ 25.9 35.6 61.5
Net income................................................................ 16.7 22.1 38.8
</TABLE>
F-23
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
3. INVESTMENTS
At December 31, 1996, the amortized cost and estimated fair value of
actively managed fixed maturity securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
United States Treasury securities and obligations
of United States government corporations and
agencies............................................ $ 29.9 $ .3 $ .3 $ 29.9
Obligations of state and political subdivisions........ 6.1 .1 .1 6.1
Debt securities issued by foreign governments.......... 11.6 - .5 11.1
Public utility securities.............................. 234.8 2.4 7.0 230.2
Other corporate securities............................. 950.1 10.9 17.6 943.4
Mortgage-backed securities............................. 578.3 2.3 6.2 574.4
---------- ------- ------- ----------
Total............................................... $1,810.8 $16.0 $31.7 $1,795.1
======== ===== ===== ========
</TABLE>
At December 31, 1995, the amortized cost and estimated fair value of
actively managed fixed maturity securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
United States Treasury securities and obligations
of United States government corporations and
agencies............................................ $ 59.2 $ 2.1 $ - $ 61.3
Obligations of state and political subdivisions........ 9.3 .2 .1 9.4
Debt securities issued by foreign governments.......... 8.3 .3 - 8.6
Public utility securities.............................. 351.6 11.4 2.0 361.0
Other corporate securities............................. 888.0 34.0 6.4 915.6
Mortgage-backed securities............................. 663.7 12.2 .9 675.0
---------- ------ ------ ----------
Total........................................... $1,980.1 $60.2 $9.4 $2,030.9
======== ===== ==== ========
</TABLE>
Actively managed fixed maturity securities, summarized by the source of
their estimated fair value, were as follows at December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---- -----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Nationally recognized pricing services.......................................... $1,516.7 $1,500.4
Broker-dealer market makers..................................................... 242.9 243.6
Internally developed methods (calculated based
on a weighted-average current market yield of 10.2 percent).................. 51.2 51.1
----------- -----------
Total ................................................................. $1,810.8 $1,795.1
======== ========
</TABLE>
F-24
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The following table sets forth actively managed fixed maturity securities
at December 31, 1996, classified by rating categories. The category assigned is
the highest rating by a nationally recognized statistical rating organization
or, as to $23.5 million fair value of fixed maturity securities not rated by
such firms, the rating assigned by the National Association of Insurance
Commissioners ("NAIC"). For the purposes of this table, NAIC Class 1 is included
in the "A" rating; Class 2, "BBB-"; Class 3, "BB-"; and Classes 4-6, "B+ and
below":
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
INVESTMENT FIXED TOTAL
RATING MATURITIES INVESTMENTS
------ ---------- -----------
<S> <C> <C>
AAA................................................................................... 37% 28%
AA ................................................................................. 6 5
A ................................................................................. 21 15
BBB+.................................................................................. 9 6
BBB................................................................................... 13 10
BBB-.................................................................................. 7 5
---- ----
Investment-grade................................................................. 93 69
---- ----
BB+................................................................................... 1 1
BB ................................................................................. 1 1
BB-................................................................................... 2 2
B+ and below ......................................................................... 3 2
---- ----
Below investment-grade........................................................... 7 6
---- ----
Total actively managed fixed maturities...................................... 100% 75%
==== ====
</TABLE>
Below investment-grade actively managed fixed maturity securities,
summarized by the amount their amortized cost exceeds fair value, were as
follows at December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---- -----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Amortized cost exceeds fair value by more than 15%.................................. $ 3.1 $ 1.7
Amortized cost exceeds fair value by more than 5% but not more than 15%............. 18.4 16.8
All others.......................................................................... 111.1 113.3
------- -------
Total...................................................................... $ 132.6 $ 131.8
======= =======
</TABLE>
The Company had no fixed maturity investments in technical or substantive
default as of December 31, 1996. The Company recorded writedowns of fixed
maturity investments and other invested assets totaling $.8 million in 1996,
$1.6 million in 1995 and $1.0 million in 1994, as a result of changes in
conditions which caused it to conclude the decline in the fair value of the
investment was other than temporary. As of December 31, 1996, there were no
fixed maturity investments about which the Company had serious doubts as to the
ability of the issuer to comply with the contractual terms of their obligations
on a timely basis. Investment income foregone due to defaulted securities was
$.2 million in 1996, $.1 million in the four months ended December 31, 1995 and
$1.3 million in 1994. There was no investment income foregone due to defaulted
securities during the eight months ended August 31, 1995.
F-25
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
------------------------------
Actively managed fixed maturity securities at December 31, 1996, summarized
by contractual maturity date, are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties and because most
mortgage-backed securities provide for periodic payments throughout their lives.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---- -----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Due in one year or less......................................................... $ 10.7 $ 10.6
Due after one year through five years........................................... 102.3 103.1
Due after five years through ten years.......................................... 314.7 313.5
Due after ten years............................................................. 804.8 793.5
---------- ----------
Subtotal................................................................. 1,232.5 1,220.7
Mortgage-backed securities...................................................... 578.3 574.4
---------- ----------
Total ................................................................... $1,810.8 $1,795.1
========== ==========
</TABLE>
Net investment income consisted of the following:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Actively managed fixed maturity securities....... $146.4 $53.9 $110.2 $157.9
Mortgage loans................................... 11.8 4.8 8.0 13.0
Credit-tenant loans ............................. 7.2 1.7 4.1 3.8
Policy loans..................................... 5.0 1.9 3.5 5.2
Short-term investments........................... 2.3 .8 1.9 3.8
Other invested assets............................ 11.4 .3 1.6 3.2
Separate accounts................................ 35.6 11.3 7.9 2.3
-------- ------ --------- ---------
Gross investment income..................... 219.7 74.7 137.2 189.2
Investment expenses.............................. 1.3 .5 .8 1.3
--------- -------- ---------- ---------
Net investment income....................... $218.4 $74.2 $136.4 $187.9
====== ===== ====== ======
</TABLE>
The Company did not have any fixed maturity investments and mortgage loans
not accruing investment income in 1996, 1995 and 1994.
F-26
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The proceeds from sales of actively managed fixed maturity securities were
$938.3 million in 1996, $512.5 million in the four months ended December 31,
1995, $406.0 million in the eight months ended August 31, 1995 and $578.3
million in 1994.
Net investment gains consisted of the following:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
Fixed maturities:
<S> <C> <C> <C> <C>
Gross gains................................... $16.6 $16.5 $14.4 $17.6
Gross losses.................................. (9.2) (2.2) (2.3) (9.3)
Other than temporary decline in fair value.... (.2) (.4) (1.2) (1.0)
----- ----- ----- -----
Net investment gains from fixed maturities
before expenses........................... 7.2 13.9 10.9 7.3
Mortgage loans................................... - - (.2) -
Other .......................................... - - (1.0) (3.1)
Other than temporary decline in fair value....... (.6) - - -
----- ----- ---- -----
Net investment gains before expenses........ 6.6 13.9 9.7 4.2
Investment gain expenses......................... 3.9 1.4 2.4 4.0
----- ----- ----- -----
Net investment gains........................ $ 2.7 $12.5 $ 7.3 $ .2
===== ===== ===== =====
</TABLE>
The change in net unrealized appreciation (depreciation) on investments
consisted of the following:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Actively managed fixed maturities .......... $ (66.5) $ 45.5 $ 164.1 $ (254.9)
Other invested assets ...................... (1.3) .1 5.1 (3.2)
------- ------- -------- --------
Subtotal .......................... (67.8) 45.6 169.2 (258.1)
Less effect on other balance sheet accounts:
Cost of policies purchased .............. 36.6 (26.3) (64.1) 93.1
Cost of policies produced ............... 4.5 (2.7) (12.0) 27.6
Income taxes ............................ 9.7 (6.1) (34.1) 49.1
------- ------- -------- --------
Change in net unrealized appreciation
(depreciation) of securities ............ $ (17.0) $ 10.5 $ 59.0 $ (88.3)
======= ======= ======== ========
</TABLE>
F-27
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Investments in mortgage-backed securities at December 31, 1996, included
collateralized mortgage obligations ("CMOs") of $221.6 million and
mortgage-backed pass-through securities of $352.8 million. CMOs are securities
backed by pools of pass-through securities and/or mortgages that are segregated
into sections or "tranches." These securities provide for sequential retirement
of principal, rather than the pro rata share of principal return which occurs
through regular monthly principal payments on pass-through securities.
The following table sets forth the par value, amortized cost and estimated
fair value of investments in mortgage-backed securities including CMOs at
December 31, 1996, summarized by interest rates on the underlying collateral:
<TABLE>
<CAPTION>
PAR AMORTIZED ESTIMATED
VALUE COST FAIR VALUE
----- ---- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Below 7 percent ..................................................... $209.6 $205.1 $201.5
7 percent - 8 percent................................................ 247.4 241.5 240.6
8 percent - 9 percent................................................ 70.9 69.7 69.3
9 percent and above.................................................. 60.1 62.0 63.0
------ ------ ------
Total mortgage-backed securities................................ $588.0 $578.3 $574.4
====== ====== ======
</TABLE>
The amortized cost and estimated fair value of mortgage-backed securities
including CMOs at December 31, 1996, summarized by type of security were as
follows:
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE
---------------------
PERCENT
AMORTIZED OF FIXED
COST AMOUNT MATURITIES
---- ------ ----------
TYPE (DOLLARS IN MILLIONS)
- ---
<S> <C> <C> <C>
Pass-throughs and sequential and targeted amortization classes........... $458.7 $454.9 25%
Accrual (Z tranche) bonds................................................ 9.6 9.7 1
Planned amortization classes and accretion directed bonds................ 77.2 76.7 4
Subordinated classes .................................................... 32.8 33.1 2
-------- -------- ---
Total mortgage-backed securities................................ $578.3 $574.4 32%
====== ====== ===
</TABLE>
The following table sets forth the amortized cost and estimated fair value
of mortgage-backed securities as of December 31, 1996, based upon the pricing
source used to determine estimated fair value:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---- -----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Nationally recognized pricing services ............................................. $515.1 $511.3
Broker-dealer market makers......................................................... 52.7 52.5
Internally developed methods (calculated based on a
weighted-average current market yield of 7.4 percent)........................ 10.5 10.6
-------- --------
Total mortgage-backed securities........................................... $578.3 $574.4
====== ======
</TABLE>
F-28
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
At December 31, 1996, no mortgage loans or credit-tenant loans had
defaulted as to principal or interest for more than 60 days, were in
foreclosure, had been converted to foreclosed real estate or had been
restructured while the Company owned them. At December 31, 1996, the Company had
a loan loss reserve of $.9 million. Approximately 30 percent, 18 percent, 16
percent and 6 percent of the mortgage loan balance were on properties located in
California, Indiana, Texas and Florida, respectively.
No other state comprised greater than 5 percent of the mortgage loan balance.
As part of its investment strategy, the Company enters into reverse
repurchase agreements and dollar-roll transactions to increase its return on
investments and improve its liquidity. These transactions are accounted for as
short-term borrowings collateralized by pledged securities with book values
approximately equal to the loan value. Such borrowings averaged approximately
$115.3 million during 1996 compared to $84.4 million during 1995. The weighted
average interest rate on short-term collateralized borrowings was 5.3 percent
and 5.4 percent during 1996 and 1995, respectively. The primary risk associated
with short-term collateralized borrowings is that the counterparty will be
unable to perform under the terms of the contract. The Company's exposure is
limited to the excess of the net replacement cost of the securities over the
value of the short-term investments (which was not material at December 31,
1996). The Company believes that the counterparties to its reverse repurchase
and dollar-roll agreements are financially responsible and that the counterparty
risk is minimal.
Investments on deposit for regulatory authorities as required by law were
$17.1 million at December 31, 1996.
No investments of a single issuer were in excess of 10 percent of
shareholder's equity at December 31, 1996, other than investments issued or
guaranteed by the United States government.
4. INSURANCE LIABILITIES
Insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
INTEREST DECEMBER 31,
WITHDRAWAL MORTALITY RATE ----------------------------
ASSUMPTION ASSUMPTION ASSUMPTION 1996 1995
---------- ---------- ---------- ------------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Investment contracts................ N/A N/A (b) $1,282.1 $1,346.5
Limited-payment contracts........... None (a) 8% 105.3 96.7
Traditional life insurance Company
contracts........................ experience (a) 8% 146.2 153.5
Universal life-type contracts....... N/A N/A N/A 354.4 367.6
Claims payable and other
policyholders' funds............... N/A N/A N/A 69.5 74.8
---------- -----------
Total.......................... $1,957.5 $2,039.1
========== ===========
</TABLE>
- --------------------
(a) Principally modifications of the 1975-80 Basic Table, Select and Ultimate
Table.
(b) At December 31, 1996 and 1995, approximately 98 percent of this liability
represented account balances where future benefits were not guaranteed. The
weighted average interest rate on the remainder of the liabilities,
representing the present value of guaranteed future benefits, was
approximately 7 percent at December 31, 1996.
F-29
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Participating policies represented approximately 3.5 percent, 3.7 percent
and 3.6 percent of total life insurance in force at December 31, 1996, 1995 and
1994, respectively, and approximately 2.7 percent, 2.4 percent and 7.5 percent
of premium income for 1996, 1995 and 1994, respectively. Dividends on
participating policies amounted to $1.9 million, $1.8 million and $1.7 million
in 1996, 1995 and 1994, respectively.
5. REINSURANCE
Cost of reinsurance ceded where the reinsured policy contains mortality
risks totaled $24.6 million in 1996, $29.1 million in 1995 and $35.3 million in
1994. This cost was deducted from insurance premium revenue. The Company is
contingently liable for claims reinsured if the assuming company is unable to
pay. Reinsurance recoveries netted against insurance policy benefits totaled
$19.4 million in 1996, $19.5 million in 1995 and $27.5 million in 1994.
Effective October 1, 1995, Western National Life Insurance Company, a
former subsidiary of Conseco, recaptured certain annuity businesses ceded to the
Company through a reinsurance agreement. Reserves related to these policies
totaled $72.8 million. Recapture fees of $.7 million were recognized as income
during the four months ended December 31, 1995.
The Company's reinsurance receivable balance at December 31, 1996, relates
to many reinsurers. No balance from a single reinsurer exceeds $7.0 million.
6. INCOME TAXES
Income tax liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Deferred income tax liabilities (assets):
Cost of policies purchased and cost of policies produced.................. $ 60.3 $ 44.7
Investments............................................................... (3.3) 8.6
Insurance liabilities..................................................... (19.7) (21.7)
Unrealized appreciation (depreciation).................................... (2.5) 7.2
Other..................................................................... (5.0) (7.7)
------- ------
Deferred income tax liabilities....................................... 29.8 31.1
Current income tax liabilities............................................... - 7.9
------- ------
Income tax liabilities................................................ $ 29.8 $ 39.0
======= ======
</TABLE>
Income tax expense was as follows:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Current tax provision............................... $10.5 $ 11.9 $ 19.9 $20.0
Deferred tax provision (benefit).................... 4.9 (2.2) (3.4) 2.7
----- ------- ------- -----
Income tax expense........................... $15.4 $ 9.7 $ 16.5 $22.7
===== ======= ======= =====
</TABLE>
F-30
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Income tax expense differed from that computed at the applicable statutory
rate of 35 percent for the following reasons:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Federal tax on income before income taxes at
statutory rate.................................... $14.4 $9.0 $15.6 $21.5
State taxes and other................................ .6 .5 .4 .5
Nondeductible items.................................. .4 .2 .5 .7
-------- ------ -------- -------
Income tax expense.............................. $15.4 $9.7 $16.5 $22.7
======== ====== ======== =======
</TABLE>
The Company is currently being examined by the Internal Revenue Service for
the 1994 tax year. The Company believes that the outcome of this examination
will not have a material impact on its financial position or results of
operations.
7. RELATED PARTY TRANSACTIONS
The Company operates without direct employees through management and
service agreements with subsidiaries of Conseco. Fees for such services
(including data processing, executive management and investment management
services) were based on negotiated rates for periods prior to January 1, 1996.
Pursuant to new service agreements effective January 1, 1996, such fees are
based on Conseco's direct and directly allocable costs plus a 10 percent margin.
Total fees incurred by the Company under such agreements were $44.1 million in
1996, $26.6 million in 1995 and $25.1 million in 1994.
During 1996, the Company purchased $31.5 million par value of senior
subordinated notes issued by subsidiaries of Conseco. Such notes had a carrying
value of $34.7 million at December 31, 1996, and are classified as "other
invested assets" in the accompanying balance sheet. In addition, during 1996,
the Company forgave receivables from Conseco totaling $9.9 million. This
transaction is reflected as a dividend to Conseco in the accompanying statement
of shareholder's equity.
F-31
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
8. OTHER OPERATING INFORMATION
Insurance policy income consisted of the following:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Direct premiums collected............................ $ 241.3 $ 82.8 $ 158.6 $ 240.3
Reinsurance assumed.................................. 1.7 .7 2.0 3.1
Reinsurance ceded.................................... (24.6) (11.2) (17.9) (35.3)
--------- -------- ------- -------
Premiums collected, net of reinsurance.......... 218.4 72.3 142.7 208.1
Less premiums on universal life and products without
mortality risk which are recorded as additions to
insurance liabilities............................. (169.8) (50.8) (104.4) (146.0)
--------- -------- ------- -------
Premiums on products with mortality and morbidity
risk, recorded as insurance policy income..... 48.6 21.5 38.3 62.1
Fees and surrender charges........................... 32.8 10.3 22.2 36.5
--------- -------- ------- -------
Insurance policy income....................... $ 81.4 $ 31.8 $ 60.5 $ 98.6
========= ======== ======= =======
</TABLE>
The four states with the largest shares of the Company's premiums collected
in 1996 were Texas (29 percent), Florida (19 percent), California (9 percent)
and Michigan (7 percent). No other state's share of premiums collected exceeded
5 percent.
Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Policy maintenance expense........................... $ 37.8 $ 6.5 $ 14.0 $ 19.0
State premium taxes and guaranty assessments......... 4.4 1.6 1.1 3.0
Commission expense................................... 12.1 5.0 8.6 15.3
------ ------- ------ ------
Other operating costs and expenses............ $ 54.3 $ 13.1 $ 23.7 $ 37.3
====== ======= ====== ======
</TABLE>
Anticipated returns from the investment of policyholder balances are
considered in determining the amortization of the cost of policies purchased and
cost of policies produced. Sales of fixed maturity investments during 1996, 1995
and 1994, changed the incidence of profits on such policies because investment
gains and losses were recognized currently and the expected future yields on the
investment of policyholder balances were affected. Accordingly, amortization of
the cost of policies purchased and cost of policies produced was increased by
$2.5 million in 1996, $10.0 million in the four months ended December 31, 1995,
$4.3 million for the eight months ended August 31, 1995, and $2.7 million in
1994.
F-32
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
The changes in the cost of policies purchased were as follows:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Balance, beginning of period......................... $120.0 $159.0 $173.9 $ 93.0
Amortization related to operations:
Cash flow realized.............................. (26.2) (9.4) (19.1) (30.4)
Interest added.................................. 13.1 5.0 12.7 20.8
Amortization related to sales of fixed maturity
investments..................................... (2.2) (8.3) (3.4) (2.6)
Amounts related to fair value adjustment of actively
managed fixed maturity securities............... 36.6 (26.3) (64.1) 93.1
Adjustment of balance due to new accounting
basis and other................................. 1.7 - 59.0 -
------ ------ ------ ------
Balance, end of period............................... $143.0 $120.0 $159.0 $173.9
====== ====== ====== ======
</TABLE>
Based on current conditions and assumptions as to future events on all
policies in force, approximately 9.2 percent, 9.2 percent, 8.3 percent, 7.3
percent and 6.7 percent of the cost of policies purchased as of December 31,
1996, are expected to be amortized in each of the next five years, respectively.
The discount rates used to determine the amortization of the cost of policies
purchased ranged from 5 percent to 8 percent and averaged 5.5 percent.
The changes in the cost of policies produced were as follows:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Balance, beginning of period .......................... $ 24.0 $ 25.9 $ 63.2 $ 30.8
Additions .......................................... 13.2 3.0 6.6 9.4
Amortization related to operations ................. (3.2) (.5) (4.0) (4.5)
Amortization related to sales of fixed maturity
investments ...................................... (.3) (1.7) (.9) (.1)
Amounts related to fair value adjustment of actively
managed fixed maturity securities ................ 4.5 (2.7) (12.0) 27.6
Adjustment of balance due to new accounting basis .. - - (27.0) -
------- ------- ------- -------
Balance, end of period ................................ $ 38.2 $ 24.0 $ 25.9 $ 63.2
======= ======= ======= =======
</TABLE>
F-33
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
9. STATEMENT OF CASH FLOWS
Income taxes paid during 1996, 1995, and 1994, were $18.1 million, $19.3
million and $20.3 million, respectively.
Short-term investments having original maturities of three months or less
are considered to be cash equivalents. All cash is invested in short-term
investments.
10. STATUTORY INFORMATION
Statutory accounting practices prescribed or permitted for insurance
companies by regulatory authorities differ from generally accepted accounting
principles. The Company reported the following amounts to regulatory agencies:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Statutory capital and surplus.................................................. $140.3 $156.2
Asset valuation reserve ("AVR")................................................ 28.7 26.2
Interest maintenance reserve ("IMR")........................................... 63.1 64.7
-------- --------
Total...................................................................... $232.1 $247.1
======== ========
</TABLE>
Statutory accounting practices classify certain segregated portions of
surplus, called AVR and IMR, as liabilities. The purpose of these accounts is to
stabilize statutory net income and surplus against fluctuations in the market
value and creditworthiness of investments. The IMR captures all realized
investment gains and losses resulting from changes in interest rates and
provides for subsequent amortization of such amounts into statutory net income
on a basis reflecting the remaining life of the assets sold. The AVR captures
investment gains and losses related to changes in creditworthiness and is also
adjusted each year based on a formula related to the quality and loss experience
of the investment portfolio.
The following table compares the pre-tax income determined on a statutory
accounting basis with such income reported herein in accordance with GAAP:
F-34
<PAGE>
GREAT AMERICAN RESERVE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
<TABLE>
<CAPTION>
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Pre-tax income as reported on a statutory accounting
basis before transfers to and from and
amortization of the IMR........................... $ 40.2 $ 33.6 $ 50.2 $ 58.6
GAAP adjustments:
Investments valuation............................. 4.9 (3.3) .8 7.5
Amortization related to operations................ (17.8) (5.3) (11.7) (16.0)
Amortization related to investment gains.......... (2.5) (10.0) (4.3) (2.7)
Deferral of cost of policies produced............. 13.2 3.0 6.6 9.4
Insurance liabilities............................. 3.2 5.1 2.5 2.5
Other ............................................ (.1) 2.7 $ .6 2.2
------- ---------- --------- --------
Net effect of GAAP adjustments................ .9 (7.8) (5.5) 2.9
------- ---------- --------- --------
GAAP pre-tax income........................... $ $41.1 $ 25.8 $ 44.7 $ 61.5
======= ========== ========= ========
</TABLE>
State insurance laws generally restrict the ability of insurance companies
to pay dividends or make other distributions. Approximately $32.7 million of the
Company's net assets at December 31, 1996, are available for distribution in
1997 without permission of state regulatory authorities.
F-35
