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[Logo Omitted]SM
CONSECO(R)
STEP UP.(SM)
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ISSUED BY
Conseco Variable
Insurance Company
ACHIEVEMENT Series
and EDUCATOR Series
--------------------------
FIXED AND VARIABLE ANNUITY
MAY 1, 2000
PROSPECTUS
CONSECO VARIABLE INSURANCE COMPANY
CONSECO VARIABLE ANNUITY ACCOUNT E
This cover is not part of the prospectus.
<PAGE>
[Logo Omitted]SM
CONSECO(R)
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CONSECO VARIABLE ANNUITY ACCOUNT E
INDIVIDUAL & GROUP FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY CONTRACTS
OFFERED BY
Conseco Variable Insurance Company
Administrative Office:
11815 N. Pennsylvania Street o Carmel, IN 46032 o (317) 817-3700
This prospectus describes the individual and group flexible premium variable
deferred annuity contracts (Contracts) issued by Conseco Variable Insurance
Company (Conseco Variable). The Contracts are designed for use in retirement
planning. The Contracts provide a way for you to invest on a tax-deferred basis
in the subaccounts of the Conseco Variable Annuity Account E ("Variable
Account") and the Fixed Account.
You can invest your Premium in one of the Variable Account Investment Options
listed below. Depending on market conditions, you can make or lose money in any
of these Variable Account Investment Options. Currently, you can allocate
Premium Payments to up to 15 Variable Account Investment Options at any one
time. You can also invest in the Fixed Account of Conseco Variable. Money you
direct into the Fixed Account earns interest at a rate guaranteed by Conseco
Variable.
CONSECO SERIES TRUST
o Conseco 20 Focus Portfolio
o Equity Portfolio
o Balanced Portfolio
o High Yield Portfolio
o Fixed Income Portfolio
o Government Securities Portfolio
o Money Market Portfolio
THE ALGER AMERICAN FUND
o Alger American Growth Portfolio
o Alger American Leveraged AllCap Portfolio
o Alger American MidCap Growth Portfolio
o Alger American Small Capitalization Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
o VP Income & Growth
o VP International
o VP Value
BERGER INSTITUTIONAL PRODUCTS TRUST
o Berger IPT--Growth Fund (formerly, Berger IPT-100 Fund)
o Berger IPT--Growth and Income Fund
o Berger IPT--Small Company Growth Fund
o Berger IPT--New Generation Fund
o Berger/BIAM IPT--International Fund
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
DREYFUS STOCK INDEX FUND
DREYFUS VARIABLE INVESTMENT FUND
("DREYFUS VIF")
o Dreyfus VIF Disciplined Stock Portfolio
o Dreyfus VIF International Value Portfolio
FEDERATED INSURANCE SERIES
o Federated High Income Bond Fund II
o Federated International Equity Fund II
o Federated Utility Fund II
INVESCO VARIABLE INVESTMENT FUNDS, INC. (NOT
AVAILABLE FOR NEW SALES AS OF MAY 1, 2000)
o INVESCO VIF--High Yield Fund
o INVESCO VIF--Equity Income Fund
JANUS ASPEN SERIES
o Aggressive Growth Portfolio
o Growth Portfolio
o Worldwide Growth Portfolio
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
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LAZARD RETIREMENT SERIES, INC.
o Lazard Retirement Equity Portfolio
o Lazard Retirement Small Cap Portfolio
LORD ABBETT SERIES FUND, INC.
o Growth & Income Portfolio
MITCHELL HUTCHINS SERIES TRUST
o Growth and Income Portfolio
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
o Limited Maturity Bond Portfolio
o Partners Portfolio
RYDEX VARIABLE TRUST
o OTC Fund
o Nova Fund
SELIGMAN PORTFOLIOS, INC.
o Seligman Communications and Information Portfolio
o Seligman Global Technology Portfolio
STRONG OPPORTUNITY FUND II, INC.
o Opportunity Fund II
STRONG VARIABLE INSURANCE FUNDS, INC.
o Strong Mid Cap Growth Fund II
VAN ECK WORLDWIDE INSURANCE TRUST
o Worldwide Bond Fund
o Worldwide Emerging Markets Fund
o Worldwide Hard Assets Fund
o Worldwide Real Estate Fund
Please read this prospectus carefully before investing and keep it on file
for future reference. It contains important information about the individual and
group fixed and variable annuity contracts issued by Conseco Variable.
To learn more about the Contract, you can obtain a copy of the Statement of
Additional Information (SAI) dated May 1, 2000. The SAI has been filed with the
Securities and Exchange Commission (SEC) and is legally a part of this
Prospectus. The SEC has a Web site (http://www.sec.gov) that contains the SAI,
material incorporated by reference, and other information regarding companies
that file electronically with the SEC. The Table of Contents of the SAI is on
Page 33 of this prospectus. For a free copy of the SAI, call us or write to us
at the address or telephone number given on the first page of this prospectus.
THE CONTRACTS:
o ARE NOT BANK DEPOSITS
o ARE NOT FEDERALLY INSURED
o ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
o ARE NOT GUARANTEED AND MAY BE SUBJECT TO LOSS OF PRINCIPAL
May 1, 2000
2
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CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
TABLE OF CONTENTS
PAGE
DEFINITIONS................................................................. 5
SUMMARY..................................................................... 5
FEE TABLE................................................................... 7
CONSECO VARIABLE, THE VARIABLE ACCOUNT AND INVESTMENT OPTIONS............... 16
Conseco Variable.......................................................... 16
The Variable Account...................................................... 16
Investment Options........................................................ 16
Voting Rights............................................................. 19
Fixed Account............................................................. 19
THE CONTRACTS............................................................... 19
ACCUMULATION PROVISIONS..................................................... 20
Purchase Payments......................................................... 20
Allocation of Purchase Payments........................................... 20
Accumulation Units........................................................ 20
Transfers................................................................. 21
Dollar Cost Averaging..................................................... 21
Rebalancing............................................................... 21
Asset Allocation Program.................................................. 22
Sweeps.................................................................... 22
Withdrawals............................................................... 22
Suspension of Payments.................................................... 23
Restrictions Under Optional Retirement Programs........................... 23
Restrictions Under Section 403(b) Plans................................... 23
Systematic Withdrawal Plan................................................ 23
Loans..................................................................... 23
CHARGES AND DEDUCTIONS...................................................... 24
Withdrawal Charge......................................................... 24
Administrative Charges.................................................... 25
Mortality and Expense Risk Charge......................................... 25
Reduction or Elimination of Contract Charges.............................. 25
Premium Taxes............................................................. 26
Fund Expenses............................................................. 26
Other Charges............................................................. 26
DEATH BENEFIT BEFORE MATURITY DATE.......................................... 26
OPTIONS WHEN YOU TERMINATE YOUR PARTICIPATION IN THE PLAN
(FOR GROUP CONTRACTS ONLY).................................................. 26
THE ANNUITY PHASE--SETTLEMENT PROVISIONS.................................... 27
Annuity Options............................................................. 27
Transfers After Maturity Date............................................... 28
Death On or After Maturity Date............................................. 28
3
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TABLE OF CONTENTS CONT'D
PAGE
OTHER CONTRACT PROVISIONS................................................... 28
Ten-Day Right to Review................................................... 28
Ownership................................................................. 29
Modification.............................................................. 29
FEDERAL TAX STATUS.......................................................... 29
Annuity Contracts in General.............................................. 29
Qualified and Non-Qualified Contracts..................................... 30
Withdrawals--Non-Qualified Contracts...................................... 30
Withdrawals--Qualified Contracts.......................................... 30
Withdrawals--Tax-Sheltered Annuities...................................... 31
Diversification........................................................... 31
Investor Control.......................................................... 31
GENERAL MATTERS............................................................. 31
Performance Information................................................... 31
Distribution of Contracts................................................. 32
Legal Proceedings......................................................... 32
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 33
APPENDIX A--Condensed Financial Information................................. 34
APPENDIX B--More Information About the Funds................................ 39
4
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
DEFINITIONS
ACCUMULATION UNIT: An accounting unit of measure we use to calculate the
Variable Account value of your Contract before the Maturity Date.
ANNUITANT: The person upon whose life the Contract is issued.
ANNUITY PAYMENTS: A series of income payments under an annuity option.
CONTRACT OWNER: The person(s) (including Co-Owners) or entity entitled to
ownership rights under the Contract. The Contract Owner is also referred to as
"you" in this prospectus.
CONTRACT VALUE: The total value of your Individual Account values held under
the Contract in each Investment Option of the Variable Account plus the Fixed
Account.
CONTRACT YEAR: A period of 12 months beginning with the effective date of
your Contract.
CODE: Internal Revenue Code of 1986, as amended.
FIXED ACCOUNT: The general account of Conseco Variable. You may choose to
allocate Purchase Payments and Contract Value to the Fixed Account. It provides
guaranteed values and periodically adjusted interest rates.
FUND: The underlying mutual funds (or portfolios of a mutual fund) which the
sub-accounts of the Variable Account invest in.
INDIVIDUAL ACCOUNT: The record we establish to represent your interest in an
Investment Option before the Maturity Date.
INVESTMENT OPTIONS: The investment choices available to Contract Owners.
MATURITY DATE: The date on which annuity payments begin.
PURCHASE PAYMENTS OR PREMIUMS: The money you invest in the Contract.
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 business day.
VARIABLE ACCOUNT: The separate account we established known as Conseco
Variable Annuity Account E. Prior to May 1, 1999, it was known as Great American
Reserve Variable Annuity Account E. The Variable Account is divided into
sub-accounts.
SUMMARY
THE CONTRACTS: The Contracts described in this prospectus are individual and
group flexible premium variable deferred annuity contracts. The Contracts
provide a way for you to invest on a tax-deferred basis in the sub-accounts of
Conseco Variable Annuity Account E ("Variable Account") and the Fixed Account.
The Contracts provide for the accumulation of Contract Values and the payment of
annuity benefits on a variable and/or fixed basis. In general, this prospectus
describes only the variable portion of the Contracts.
RETIREMENT PLANS: The Contracts may be issued pursuant to either
non-qualified retirement plans or plans qualifying for special income tax
treatment under the Code. Examples of the plans qualifying for special tax
treatment are: individual retirement annuities (IRAs), pension and profit
sharing plans, tax-sheltered annuities (TSAs), and state and local government
deferred compensation plans. See "Federal Tax Status."
PURCHASE PAYMENTS: The Contracts permit you to make Purchase Payments on a
flexible basis. This means that you can make payments at any time you like
before the Maturity Date. For TSAs, the minimum initial Purchase Payment and the
amount of each subsequent Purchase Payment is $50 per month. For IRAs, the
minimum initial Purchase Payment is $2,000 and the minimum amount of each
additional Purchase Payment is $50. For non-qualified Contracts, the minimum
initial Purchase Payment is $5,000 and the minimum amount of each additional
Purchase Payment is $2,000 (or $200 each month). If your Purchase Payment is
more than $500,000, it requires our prior approval.
INVESTMENT OPTIONS: You can allocate your Purchase Payment to the Fixed
Account of Conseco Variable or the Variable Account Investment Options.
5
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The portion of your Contract Value allocated to the Variable Account
Investment Options will reflect the investment performance of the Funds you
select.
TRANSFERS: Prior to the Maturity Date, you may make transfers among the
Variable Account Investment Options and from the Variable Account Investment
Options to the Fixed Account without charge. Under certain circumstances, you
may also transfer amounts from the Fixed Account to the Variable Account
Investment Options. You may also make transfers under certain programs we offer
known as the dollar cost averaging program, sweep program, and rebalancing.
After the Maturity Date, you may not make transfers from a variable annuity to a
fixed annuity or from a fixed annuity to a variable annuity.
WITHDRAWALS: You may make withdrawals from your Contract before the earlier
of the Maturity Date or the death of the Annuitant. We may impose a withdrawal
charge and an administrative charge when you make a withdrawal. You may also
make withdrawals pursuant to the systematic withdrawal plan. A withdrawal may be
subject to income taxes and tax penalties. In addition, certain restrictions
apply to withdrawals from TSA Contracts.
LOANS: Under certain circumstances, you may make loans from your Contract.
DEATH BENEFIT: Generally, if the Annuitant or Contract Owner dies before the
Maturity Date, we will pay a death benefit to your beneficiary.
ANNUITY PAYMENTS: We offer a variety of fixed and variable annuity options
which you can select to receive your Annuity Payments. Your Annuity Payments
will begin on the Maturity Date. You can select the Maturity Date, the frequency
of the payments and the annuity option.
TEN-DAY REVIEW: If you cancel the Contract within 10 days after receiving it
(or whatever period is required in your state) we will refund your Purchase
Payment or whatever amount is required in your state.
TAXES: Your earnings are not taxed until you take them out. If you take money
out before the Maturity Date, earnings come out first and are taxed as income.
If you are younger than age 591/2 when you take money out, you may be charged a
10% federal tax penalty on the earnings. The Contract provides that if the
Annuitant dies before the Maturity Date, we will pay a death benefit to the
beneficiary. Such payments upon the death of the Annuitant who is not the
Contract Owner (as in the case of certain non-qualified Contracts), do not
qualify for the death of Contract Owner exception to the ten percent
distribution penalty unless the beneficiary is age 591/2 or one of the other
exceptions to the penalty applies.
For TSA Contracts, you can only make withdrawals of amounts attributable to
contributions you made pursuant to a salary reduction agreement (as defined in
the Code) when:
(i) you attain age 59-1/2;
(ii) you separate from service;
(iii you die;
(iv) you become disabled;
(v) made in the case of hardship; or
(vi) made pursuant to a qualified domestic
relations order, if otherwise permitted.
Withdrawals for hardship are restricted to the portion of the Contract
Owner's Contract Value which represents contributions made by the Contract Owner
and does not include any investment results.
Payments after the Maturity Date are considered partly a return of your
original investment. That part of each payment is not taxable as income. If your
Contract was purchased under a tax-qualified plan, your payments may be fully
taxable.
CHARGES AND DEDUCTIONS:
o Each year Conseco Variable deducts a $30 Annual Administrative Fee from your
Contract (this charge is waived if your Individual Account value is $25,000
or more).
o Conseco Variable deducts a Mortality and Expense Risk Fee which is equal, on
an annual basis, to 1.25% of the average daily net assets of the Variable
Account. Conseco Variable also deducts an Administrative Charge which is
equal, on an annual basis, to .15% of the average daily net assets of the
Variable Account.
o If you take money out of the Contract, Conseco Variable may assess a
withdrawal charge which ranges from 0% to 9%, depending on how long your
Contract has been outstanding and your age at issue.
o You may be assessed a premium tax charge which generally ranges from 0%-3.5%,
depending on the state.
o As with other professionally managed investments, there are also investment
charges which currently range from .26% to 3.23%, on an annual basis, of the
average daily value of the portfolio, depending upon the Variable Account
Investment Option you select.
6
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CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
CONSECO VARIABLE ANNUITY ACCOUNT E
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C> <C>
CONTRACT OWNER TRANSACTION EXPENSES (a)
Sales Charge Imposed on Purchases.................................................None
Exchange Fee .....................................................................None
Surrender Fee.....................................................................None
WITHDRAWAL CHARGE (as a percentage of purchase payments) (b)
First and Second Year.............................................. 9%
Third Year......................................................... 8%
Fourth Year........................................................ 7%
Fifth Year......................................................... 5%
Sixth Year......................................................... 3%
Seventh Year or More............................................... 0%
The above withdrawal charges are reduced by a charge factor for issue
ages above age 52. .............................................. $30
ANNUAL ADMINISTRATIVE FEE (b)....................................................... $30
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees.....................1.25%
Administrative Charge...............................0.15%
-----
TOTAL ANNUAL EXPENSES OF THE
VARIABLE ACCOUNT (b)...............................................1.40%
</TABLE>
- --------------------------------------------------------------------------------
(a) Premium taxes are not shown. We will deduct for any premium tax due when you
make a Purchase Payment or from Individual Account values at the Maturity
Date or at such other time based on our sole discretion. The current range
of premium taxes in jurisdictions in which we make the Contracts available
is from 0% to 3.5%.
(b) Conseco Variable may reduce or eliminate the sales, administrative, or other
expenses with certain Contracts in cases when it expects to incur lower
sales and administrative expenses or perform fewer services (see "Reduction
or Elimination of Contract Charges"). We will waive the Annual
Administrative Fee if your Individual Account value is $25,000 or greater.
7
<PAGE>
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ANNUAL FUND EXPENSES:
(as a percentage of the average daily net assets of a portfolio)
<TABLE>
<CAPTION>
TOTAL ANNUAL
OTHER EXPENSES PORTFOLIO
(AFTER EXPENSE EXPENSES
REIMBURSEMENT, (AFTER EXPENSE
IF ANY, REIMBURSEMENT,
MANAGEMENT 12B-1 FOR CERTAIN IF ANY, FOR
FEES FEES PORTFOLIOS) CERTAIN PORTFOLIOS)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
CONSECO SERIES TRUST (1)
- ---------------------------------------------------------------------------------------------------------------
Conseco 20 Focus Portfolio (2) .................... 0.80% -- 0.10% 0.90%
Equity Portfolio .................................. 0.75% -- 0.02% 0.77%
Balanced Portfolio ................................ 0.75% -- 0.00% 0.75%
High Yield Portfolio (2) .......................... 0.80% -- 0.10% 0.90%
Fixed Income Portfolio ............................ 0.60% -- 0.07% 0.67%
Government Securities Portfolio ................... 0.60% -- 0.06% 0.66%
Money Market Portfolio (3) ........................ 0.35% -- 0.05% 0.40%
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THE ALGER AMERICAN FUND
- ---------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio ................... 0.75% -- 0.04% 0.79%
Alger American Leveraged AllCap Portfolio (4) ..... 0.85% -- 0.08% 0.93%
Alger American Mid Cap Growth Portfolio ........... 0.80% -- 0.05% 0.85%
Alger American Small Capitalization Portfolio ..... 0.85% -- 0.05% 0.90%
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AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
- ---------------------------------------------------------------------------------------------------------------
VP Income & Growth (5) ............................ 0.70% -- 0.00% 0.70%
VP International (5) .............................. 1.34% -- 0.00% 1.34%
VP Value (5) ...................................... 1.00% -- 0.00% 1.00%
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BERGER INSTITUTIONAL PRODUCTS TRUST
- ---------------------------------------------------------------------------------------------------------------
Berger IPT--Growth Fund (6) ....................... 0.75% -- 0.25% 1.00%
Berger IPT--Growth and Income Fund (6) ............ 0.75% -- 0.25% 1.00%
Berger IPT--Small Company Growth Fund (6) ........ 0.85% -- 0.30% 1.15%
Berger IPT--New Generation Fund (6) ............... 0.85% -- 0.30% 1.15%
Berger/BIAM IPT--International Fund (6) ........... 0.90% -- 0.30% 1.20%
- ---------------------------------------------------------------------------------------------------------------
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC . 0.75% -- 0.04% 0.79%
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DREYFUS STOCK INDEX FUND .......................... 0.25% -- 0.01% 0.26%
- ---------------------------------------------------------------------------------------------------------------
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DREYFUS VARIABLE INVESTMENT FUND
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Dreyfus VIF Disciplined Stock Portfolio ........... 0.75% -- 0.06% 0.81%
Dreyfus VIF International Value Portfolio ......... 1.00% -- 0.35% 1.35%
- ---------------------------------------------------------------------------------------------------------------
FEDERATED INSURANCE SERIES
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Federated High Income Bond Fund II ................ 0.60% -- 0.19% 0.79%
Federated International Equity Fund II (7) ........ 0.54% -- 0.71% 1.25%
Federated Utility Fund II ......................... 0.75% -- 0.19% 0.94%
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INVESCO VARIABLE INVESTMENT FUNDS, INC.
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INVESCO VIF--High Yield Fund (8) .................. 0.60% -- 0.47% 1.07%
INVESCO VIF--Equity Income Fund (8) ............... 0.75% -- 0.42% 1.17%
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JANUS ASPEN SERIES, Institutional Shares
- ---------------------------------------------------------------------------------------------------------------
Aggressive Growth Portfolio (9) ................... 0.65% -- 0.02% 0.67%
Growth Portfolio (9) .............................. 0.65% -- 0.02% 0.67%
Worldwide Growth Portfolio (9) .................... 0.65% -- 0.05% 0.70%
</TABLE>
8
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CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
<TABLE>
<CAPTION>
TOTAL ANNUAL
OTHER EXPENSES PORTFOLIO
(AFTER EXPENSE EXPENSES
REIMBURSEMENT, (AFTER EXPENSE
IF ANY, REIMBURSEMENT,
MANAGEMENT 12B-1 FOR CERTAIN IF ANY, FOR
FEES FEES PORTFOLIOS) CERTAIN PORTFOLIOS)
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<S> <C> <C> <C> <C>
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LAZARD RETIREMENT SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
Lazard Retirement Equity Portfolio (10) .............. 0.75% 0.25% 0.25% 1.25%
Lazard Retirement Small Cap Portfolio (10) ........... 0.75% 0.25% 0.25% 1.25%
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LORD ABBETT SERIES FUND, INC.
- -------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio ............................ 0.50% -- 0.37% 0.87%
- -------------------------------------------------------------------------------------------------------------------
MITCHELL HUTCHINS SERIES TRUST
- -------------------------------------------------------------------------------------------------------------------
Growth and Income Portfolio .......................... 0.70% -- 0.53% 1.23%
- -------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- -------------------------------------------------------------------------------------------------------------------
Limited Maturity Bond Portfolio ...................... 0.65% -- 0.11% 0.76%
Partners Portfolio ................................... 0.80% -- 0.07% 0.87%
- -------------------------------------------------------------------------------------------------------------------
RYDEX VARIABLE TRUST
- -------------------------------------------------------------------------------------------------------------------
OTC Fund ............................................. 0.75% -- 0.80% 1.55%
Nova Fund ............................................ 0.75% -- 0.80% 1.55%
- -------------------------------------------------------------------------------------------------------------------
SELIGMAN PORTFOLIOS, INC.
- -------------------------------------------------------------------------------------------------------------------
Seligman Communications and Information Portfolio (11) 0.75% 0.25% 0.11% 1.11%
Seligman Global Technology Portfolio (11) ............ 1.00% 0.15% 0.40% 1.55%
- -------------------------------------------------------------------------------------------------------------------
STRONG OPPORTUNITY FUND II, INC.
- -------------------------------------------------------------------------------------------------------------------
Opportunity Fund II .................................. 1.00% -- 0.14% 1.14%
- -------------------------------------------------------------------------------------------------------------------
STRONG VARIABLE INSURANCE FUNDS, INC.
- -------------------------------------------------------------------------------------------------------------------
Strong Mid Cap Growth Fund II (12) ................... 1.00% -- 0.15% 1.15%
- -------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST (13)
- -------------------------------------------------------------------------------------------------------------------
Worldwide Bond Fund .................................. 1.00% -- 0.22% 1.22%
Worldwide Emerging Markets Fund ...................... 1.00% -- 0.54% 1.54%
Worldwide Hard Assets Fund ........................... 1.00% -- 0.26% 1.26%
Worldwide Real Estate Fund ........................... 1.00% -- 2.23% 3.23%
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES:
The purpose of the Fee Table is to show you the various contract expenses you
will pay directly or indirectly. The Fee Table reflects expenses of the Variable
Account as well as the Funds.
1. The Adviser, Conseco Capital Management, Inc., and the Administrator,
Conseco Services, LLC, have contractually agreed to waive a portion of their
fees and/or pay a portion of the Portfolio's expenses through 4/30/01 to ensure
that total annual operating expenses do not exceed: 0.90% for Conseco 20 Focus
Portfolio; 0.85% for Equity Portfolio; 0.85% for Balanced Portfolio; 0.90% for
High Yield Portfolio; 0.70% for Fixed Income Portfolio; 0.70% for Government
Securities Portfolio and 0.45% for Money Market Portfolio. The Adviser and
Administrator may recover any money waived under the contract provisions, to the
extent that actual fees and expenses are less than the expense limitation, for a
period of 3 years, after the date of the waiver.
2. Because these Portfolios have not completed a full fiscal year, other
expenses are estimated.
9
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3. Conseco Capital Management, Inc., since May 1, 1993, has waived its
management fees in excess of the annual rate set forth above. Absent such fee
waivers, the management fees for the Money Market Portfolio would be 0.60%.
4. The Alger American Leveraged AllCap Portfolio's "Other Expenses" includes
.01% of interest expense.
5. The Fund has a stepped fee schedule. As a result, the fund's management
fee rate generally decreases as the fund's assets increase.
6. The funds' investment advisers have agreed to waive their advisory fees
and reimburse the Funds for additional expenses to the extent that normal
operating expenses in any fiscal year, including the investment advisory fee but
excluding brokerage commissions, interest, taxes and extraordinary expenses, of
each of the Berger IPT--Growth Fund and the Berger IPT--Growth and Income Fund
exceed 1.00%, the normal operating expenses in any fiscal year of each of the
Berger IPT--Small Company Growth Fund and the Berger IPT--New Generation Fund
exceed 1.15%, and the normal operating expenses of the Berger/BIAM
IPT--International Fund exceed 1.20% of the respective Fund's average daily net
assets. Absent the waiver and reimbursement, the Other Expenses for the Berger
IPT--Growth Fund, the Berger IPT--New Generation Fund, Berger IPT--Growth and
Income Fund, the Berger IPT--Small Company Growth Fund and the Berger/BIAM
IPT--International Fund would have been 1.43%, 0.43%, 0.64%, 2.10% and 1.55%,
respectively, and their Total Annual Portfolio Expenses would have been 2.18%,
1.18%, 1.49%, 2.95% and 2.45%, respectively. These waivers/reimbursements may
not be terminated or amended except by a vote of the Fund's Board of Trustees.
Expenses shown for the Berger IPT--New Generation Fund are based on estimates
for the Fund's first full year of operations.
7. Absent a voluntary waiver of the management fee and the voluntary
reimbursement of certain other operating expenses by Federated Global Investment
Management Corp., the Management Fee and Total Annual Portfolio Expenses for
International Equity Fund II would have been 0.75% and 1.46%, respectively.
8. The Fund's actual Total Annual Fund Operating Expenses were lower than the
figures shown, because its custodian fees were reduced under an expense offset
arrangement. The expense information presented in the table has been restated
from the financials to reflect a change in the administration services fee.
Certain expenses of the Fund were absorbed voluntarily by INVESCO in order to
ensure that expenses did not exceed 1.05% of the High Yield Fund's average net
assets and 1.15% of the Equity Income Fund's average net assets pursuant to a
commitment between the Fund and INVESCO. This commitment may be changed at any
time following consultation with the board of directors. Without such
absorption, but excluding any expense offset arrangements, Other Expenses and
Total Annual Operating Expenses for the fiscal year ended December 31, 1999 were
0.48% and 1.08% respectively for the High Yield Fund's average net assets and
0.44% and 1.19% respectively of the Equity Income Fund's average net assets.
9. Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Growth,
Aggressive Growth and Worldwide Growth Portfolios. All expenses are shown
without the effect of expense offset arrangements.
10. Effective May 1, 1999, Lazard Asset Management, the Fund's investment
adviser, has voluntarily agreed to reimburse all expenses through December 31,
2000 to the extent total annual portfolio expenses exceed in any fiscal year
1.25% of the Portfolio's average daily net assets. Absent such an agreement with
the adviser, the total annual portfolio expenses for the year ended December 31,
1999 would have been 5.63% for the Lazard Retirement Equity Portfolio and 7.31%
for the Lazard Retirement Small Cap Portfolio.
11. The amount of the Management Fee and Other Expenses are actual expenses
for the fiscal year ended December 31, 1999. Seligman Communications and
Information Fund and Seligman Global Technology Fund began offering shares
charging 12b-1 fees effective May 1, 2000. J. & W. Seligman & Co. Incorporated
("Seligman") voluntarily agreed to reimburse expenses of Seligman Global
Technology Portfolio, other than the management fee, which exceed .40%. Without
reim-
10
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
bursement, other expenses and total annual portfolio expenses would have been
.41% and 1.56% respectively, for Seligman Global Technology Portfolio. There is
no assurance that Seligman will continue this policy in the future.
12. Strong Capital Management, Inc., the Fund's advisor of the Strong Mid Cap
Growth Fund II is currently absorbing expenses of 0.02%. Without these
absorptions, the expenses would have been 1.17% for the year ended December 31,
1999. The Advisor has no current intention to, but may in the future,
discontinue or modify any waiver of fees or absorption of expenses at its
discretion with appropriate notification to its shareholders.
13. Van Eck Associates Corporation (the "Adviser") agreed to assume expenses
(excluding interest, foreign taxes and brokerage commissions) exceeding 1.50% of
the Worldwide Emerging Markets Fund's average daily net assets for the period
January 1, 1999, to May 12, 1999. For the period May 13, 1999 to December 31,
1999, the Adviser agreed to assume expenses (excluding interest, foreign taxes
and brokerage commissions) exceeding 1.30% of average daily net assets. For the
Worldwide Real Estate Fund, the Adviser agreed to assume expenses (excluding
interest, foreign taxes and brokerage commissions) for the period January 2,
1999 to February 28, 1999. The Adviser also agreed to assume expenses exceeding
1.50% of the Worldwide Real Estate Fund's average daily net assets for the
period March 3, 1999 to December 31, 1999. The Worldwide Real Estate Fund
expenses were also reduced by a fee arrangement based on cash balances left on
deposit with the custodian and a directed brokerage arrangement where the Fund
directs certain portfolio trades to a broker that, in turn, pays a portion of
the Fund's expenses.
11
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLES:
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, and assuming the entire $1,000 is
invested in the sub-account listed:
EXAMPLE 1 -- If you surrender the Contract at the end of the time periods:
<TABLE>
<CAPTION>
TIME PERIODS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Conseco 20 Focus Portfolio .................................... $110 $147 $174 $276
Equity Portfolio .............................................. $108 $143 $167 $263
Balanced Portfolio ............................................ $108 $143 $166 $261
High Yield Portfolio.. ........................................ $110 $147 $174 $276
Fixed Income Portfolio ........................................ $107 $140 $162 $253
Government Securities Portfolio. .............................. $107 $140 $162 $252
Money Market Portfolio ........................................ $105 $132 $148 $225
THE ALGER AMERICAN FUND
Alger American Growth Portfolio ............................... $109 $144 $168 $265
Alger American Leveraged AllCap Portfolio ..................... $110 $148 $175 $279
Alger American MidCap Growth Portfolio ........................ $109 $146 $171 $271
Alger American Small Capitalization Portfolio ................. $110 $147 $174 $276
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income and Growth. ......................................... $108 $141 $164 $256
VP International .............................................. $114 $160 $196 $319
VP Value ...................................................... $111 $150 $179 $286
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund ....................................... $111 $150 $179 $286
Berger IPT--Growth and Income Fund ............................ $111 $150 $179 $286
Berger IPT--Small Company Growth Fund. ........................ $112 $155 $186 $301
Berger IPT--New Generation Fund ............................... $112 $155 $186 $301
Berger/BIAM IPT--International Fund ........................... $113 $156 $189 $306
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ............ $109 $144 $168 $265
DREYFUS STOCK INDEX FUND ...................................... $103 $128 $141 $210
DREYFUS VARIABLE INVESTMENT FUND, INC.
Dreyfus VIF Disciplined Stock Portfolio ....................... $109 $144 $169 $267
Dreyfus VIF International Value Portfolio ..................... $114 $161 $196 $320
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II ............................ $109 $144 $168 $265
Federated International Equity Fund II1 ....................... $113 $158 $191 $310
Federated Utility Fund II ..................................... $110 $148 $176 $280
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--High Yield Fund .................................. $111 $152 $182 $293
INVESCO VIF--Equity Income Fund ............................... $112 $155 $187 $303
JANUS ASPEN SERIES
Aggressive Growth Portfolio ................................... $107 $140 $162 $253
Growth Portfolio .............................................. $107 $140 $162 $253
Worldwide Growth Portfolio .................................... $108 $141 $164 $256
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio ............................ $113 $158 $191 $310
Lazard Retirement Small Cap Portfolio ......................... $113 $158 $191 $310
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio ..................................... $109 $146 $172 $273
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio ................................... $113 $157 $190 $308
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio. .............................. $108 $143 $167 $262
Partners Portfolio ............................................ $109 $146 $172 $273
</TABLE>
12
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
<TABLE>
<CAPTION>
TIME PERIODS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RYDEX VARIABLE TRUST
OTC Fund $116 $167 $206 $339
Nova Fund $116 $167 $206 $339
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio $112 $153 $184 $297
Seligman Global Technology Portfolio $116 $167 $206 $339
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II $112 $154 $186 $300
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II $112 $155 $186 $301
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund $113 $157 $190 $307
Worldwide Emerging Markets Fund $116 $166 $206 $338
Worldwide Hard Assets Fund $113 $158 $192 $311
Worldwide Real Estate Fund $133 $216 $285 $484
</TABLE>
EXAMPLE 2 - If you elect to annuitize your Contract:
<TABLE>
<CAPTION>
TIME PERIODS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSECO SERIES TRUST
Conseco 20 Focus Portfolio $110 $147 $129 $276
Equity Portfolio $108 $143 $123 $263
Balanced Portfolio $108 $143 $122 $261
High Yield Portfolio $110 $147 $129 $276
Fixed Income Portfolio $107 $140 $118 $253
Government Securities Portfolio $107 $140 $117 $252
Money Market Portfolio $105 $132 $104 $225
THE ALGER AMERICAN FUND
Alger American Growth Portfolio $109 $144 $124 $265
Alger American Leveraged AllCap Portfolio $110 $148 $131 $279
Alger American MidCap Growth Portfolio $109 $146 $127 $271
Alger American Small Capitalization Portfolio $110 $147 $129 $276
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income and Growth $108 $141 $119 $256
VP International $114 $160 $151 $319
VP Value $111 $150 $134 $286
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund $111 $150 $134 $286
Berger IPT--Growth and Income Fund $111 $150 $134 $286
Berger IPT--Small Company Growth Fud $112 $155 $142 $301
Berger IPT--New Generation Fund $112 $155 $142 $301
Berger/BIAM IPT--International Fund $113 $156 $144 $306
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. $109 $144 $124 $265
DREYFUS STOCK INDEX FUND $103 $128 $ 97 $210
DREYFUS VARIABLE INVESTMENT FUND, INC.
Dreyfus VIF Disciplined Stock Portfolio $109 $144 $125 $267
Dreyfus VIF International Value Portfolio $114 $161 $152 $320
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II $109 $144 $124 $265
Federated International Equity Fund II $113 $158 $147 $310
Federated Utility Fund II $110 $148 $131 $280
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--High Yield Fund $111 $152 $138 $293
INVESCO VIF--Equity Income Fund $112 $155 $143 $303
</TABLE>
13
<PAGE>
================================================================================
<TABLE>
<CAPTION>
TIME PERIODS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JANUS ASPEN SERIES
Aggressive Growth Portfolio ................................... $107 $140 $118 $253
Growth Portfolio .............................................. $107 $140 $118 $253
Worldwide Growth Portfolio .................................... $108 $141 $119 $256
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio ............................ $113 $158 $147 $310
Lazard Retirement Small Cap Portfolio. ........................ $113 $158 $147 $310
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio ..................................... $109 $146 $128 $273
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio ................................... $113 $157 $146 $308
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio ............................... $108 $143 $122 $262
Partners Portfolio ............................................ $109 $146 $128 $273
RYDEX VARIABLE TRUST
OTC Fund ...................................................... $116 $167 $161 $339
Nova Fund ..................................................... $116 $167 $161 $339
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio ............. $112 $153 $140 $297
Seligman Global Technology Portfolio .......................... $116 $167 $161 $339
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II ........................................... $112 $154 $141 $300
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II ................................. $112 $155 $142 $301
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund ........................................... $113 $157 $145 $307
Worldwide Emerging Markets Fund ............................... $116 $166 $161 $338
Worldwide Hard Assets Fund .................................... $113 $158 $147 $311
Worldwide Real Estate Fund .................................... $133 $216 $241 $484
</TABLE>
EXAMPLE 3 - If you do not surrender your Contract at the end of each time
period:
<TABLE>
<CAPTION>
TIME PERIODS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSECO SERIES TRUST
Conseco 20 Focus Portfolio .................................... $ 25 $ 76 $129 $276
Equity Portfolio .............................................. $ 23 $ 72 $123 $263
Balanced Portfolio ............................................ $ 23 $ 71 $122 $261
High Yield Portfolio .......................................... $ 25 $ 76 $129 $276
Fixed Income Portfolio ........................................ $ 22 $ 69 $118 $253
Government Securities Portfolio ............................... $ 22 $ 68 $117 $252
Money Market Portfolio ........................................ $ 20 $ 61 $104 $225
THE ALGER AMERICAN FUND
Alger American Growth Portfolio ............................... $ 24 $ 72 $124 $265
Alger American Leveraged AllCap Portfolio ..................... $ 25 $ 77 $131 $279
Alger American MidCap Growth Portfolio ........................ $ 24 $ 74 $127 $271
Alger American Small Capitalization Portfolio ................. $ 25 $ 76 $129 $276
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income and Growth .......................................... $ 23 $ 70 $119 $256
VP International .............................................. $ 29 $ 89 $151 $319
VP Value ...................................................... $ 26 $ 79 $134 $286
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund ....................................... $ 26 $ 79 $134 $286
Berger IPT--Growth and Income Fund ............................ $ 26 $ 79 $134 $286
Berger IPT--Small Company Growth Fund. ........................ $ 27 $ 83 $142 $301
Berger IPT--New Generation Fund. .............................. $ 27 $ 83 $142 $301
Berger/BIAM IPT--International Fund ........................... $ 28 $ 85 $144 $306
</TABLE>
14
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
<TABLE>
<CAPTION>
TIME PERIODS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ......... $24 $ 72 $124 $265
DREYFUS STOCK INDEX FUND ................................... $18 $ 56 $ 97 $210
DREYFUS VARIABLE INVESTMENT FUND, INC.
Dreyfus VIF Disciplined Stock Portfolio .................... $24 $ 73 $125 $267
Dreyfus VIF International Value Portfolio .................. $29 $ 89 $152 $320
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II ......................... $24 $ 72 $124 $265
Federated International Equity Fund II ..................... $28 $ 86 $147 $310
Federated Utility Fund II .................................. $25 $ 77 $131 $280
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--High Yield Fund ............................... $26 $ 81 $138 $294
INVESCO VIF--Equity Income Fund ............................ $27 $ 84 $143 $303
JANUS ASPEN SERIES
Aggressive Growth Portfolio ................................ $22 $ 69 $118 $253
Growth Portfolio ........................................... $22 $ 69 $118 $253
Worldwide Growth Portfolio ................................. $23 $ 70 $119 $256
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Equity Portfolio ......................... $28 $ 86 $147 $310
Lazard Retirement Small Cap Portfolio ...................... $28 $ 86 $147 $310
LORD ABBETT SERIES FUND, INC.
Growth & Income Portfolio .................................. $24 $ 75 $128 $273
MITCHELL HUTCHINS SERIES TRUST
Growth and Income Portfolio ................................ $28 $ 86 $146 $308
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio ............................ $23 $ 71 $122 $262
Partners Portfolio ......................................... $24 $ 75 $128 $273
RYDEX VARIABLE TRUST
OTC Fund ................................................... $31 $ 95 $161 $339
Nova Fund .................................................. $31 $ 95 $161 $339
SELIGMAN PORTFOLIOS, INC.
Seligman Communications and Information Portfolio .......... $27 $ 82 $140 $297
Seligman Global Technology Portfolio ....................... $31 $ 95 $161 $339
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II ........................................ $27 $ 83 $141 $300
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II .............................. $27 $ 83 $142 $301
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund ........................................ $28 $ 85 $145 $307
Worldwide Emerging Markets Fund ............................ $31 $ 95 $161 $338
Worldwide Hard Assets Fund ................................. $28 $ 86 $147 $311
Worldwide Real Estate Fund ................................. $48 $144 $241 $484
</TABLE>
o Please remember that the examples above should not be considered a
representation of past or future expenses. Actual expenses may be greater than
or less than those shown. Similarly, the 5% annual rate of return is not an
estimate or a guarantee of future investment performance.
o This Contract is designed for retirement planning. Surrenders prior to the
Maturity Date are not consistent with the long-term purposes of the Contract and
the applicable tax laws.
o The above table reflects estimates of expenses of the Variable Account and
the Funds. The table and examples assume the highest deductions possible under a
Contract, whether or not such deductions actually would be made under such a
Contract.
o Annual maintenance charges have been approximated as a .16% annual asset
charge.
THERE IS AN ACCUMULATION UNIT VALUE HISTORY (CONDENSED FINANCIAL INFORMATION)
CONTAINED IN APPENDIX A.
15
<PAGE>
================================================================================
CONSECO VARIABLE, THE VARIABLE
ACCOUNT AND INVESTMENT OPTIONS
CONSECO VARIABLE
Conseco Variable Insurance Company ("Conseco Variable" or the "Company") was
originally organized in 1937. Prior to October 7, 1998, the Company was known as
Great American Reserve Insurance Company. In certain states, we may continue to
use the name Great American Reserve Insurance Company until our name change is
approved in that state. The Company is principally engaged in the life insurance
business in 49 states and the District of Columbia. Conseco Variable is a stock
company organized under the laws of the state of Texas and is an indirect
wholly-owned subsidiary of Conseco, Inc. Conseco, Inc. is a publicly held
financial services holding company and one of middle America's leading sources
for insurance, investment and lending products. Through its subsidiaries,
Conseco, Inc. is one of the nation's leading providers of supplemental health
insurance, retirement annuities and universal life insurance.
CONTRACT OWNER INQUIRIES
You should direct any inquiries you have regarding your Individual Account,
the Contracts, or any related matter to the Company's Variable Annuity
Department at the address and telephone number shown under "Administrative
Office" on page 1 of this prospectus.
FINANCIAL STATEMENTS
The financial statements of Conseco Variable and the Variable Account are
contained in the Statement of Additional Information. You should consider the
financial statements of Conseco Variable only as bearing upon the ability of
Conseco Variable to meet its obligations under the Contracts. Neither the assets
of Conseco Variable nor those of any company in the Conseco group of companies
other than Conseco Variable support these obligations.
THE VARIABLE ACCOUNT
Conseco Variable has established Conseco Variable Annuity Account E (the
Variable Account) to hold the assets that underlie the Contracts. Prior to May
1, 1999, the Variable Account was known as Great American Reserve Variable
Annuity Account E. The Board of Directors of Conseco Variable adopted a
resolution to establish the Variable Account under Texas Insurance law on
November 12, 1993. The Variable Account is registered with the Securities and
Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940 (the 1940 Act). Registration under the 1940 Act does not
involve the supervision by the SEC of the management or investment policies or
practices of the Variable Account. The Variable Account is regulated by the
Insurance Department of Texas. Regulation by the state, however, does not
involve any supervision of the Variable Account, except to determine compliance
with broad statutory criteria.
The assets of the Variable Account are held in Conseco Variable's name on
behalf of the Variable Account and legally belong to Conseco Variable. However,
those assets that underlie the Contracts, are not available to be used to pay
liabilities arising out of any other business Conseco Variable may conduct. All
the income, gains and losses (realized or unrealized) resulting from these
assets are credited to or charged against the Contracts and not against any
other contracts Conseco Variable may issue.
The Variable Account is divided into sub-accounts. Each sub-account invests
in shares of one of the Funds. We reserve 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 us or by one of our
affiliates. If the shares of any Fund should become unavailable for investment
by the Variable Account or if in our judgment further investment in a portfolio
should become inappropriate in view of the purpose of the Contract, we may add
or substitute shares of another Fund. We will not eliminate any existing
sub-accounts or combine sub-accounts or substitute Funds without any required
prior approval of the SEC.
INVESTMENT OPTIONS
The Contract offers 47 Variable Account Investment Options which invest in
the Funds listed below. Currently, you can allocate Premium Payments to up to 15
Variable Account Investment Options at any one time. You bear the investment
risk for amounts you allocate to the Variable
16
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
Account Investment Options. We may make additional Investment Options available
in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY. COPIES OF THESE
PROSPECTUSES WILL BE SENT TO YOU WITH YOUR CONTRACT. IF YOU WOULD LIKE A COPY OF
THE FUND PROSPECTUSES, CALL CONSECO VARIABLE AT: (800) 557-7043. SEE APPENDIX B
WHICH CONTAINS A SUMMARY OF INVESTMENT OBJECTIVES AND STRATEGIES FOR EACH
PORTFOLIO. CERTAIN PORTFOLIOS CONTAINED IN THE FUND PROSPECTUSES MAY NOT BE
AVAILABLE WITH YOUR CONTRACT.
The investment objectives and policies of certain of the Funds are similar to
the investment objectives and policies of other mutual funds that certain of the
investment advisers manage. Although the objectives and policies may be similar,
the investment results of the Funds may be higher or lower than the results of
such other mutual funds. The investment advisers cannot guarantee, and make no
representation, that the investment results of similar funds will be comparable
even though the Funds have the same investment advisers.
A Fund's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a Fund with a small asset base. A
Fund may not experience similar performance as its assets grow.
CONSECO SERIES TRUST
Conseco Series Trust is a mutual fund with multiple portfolios. Conseco
Series Trust is managed by Conseco Capital Management, Inc., an affiliate of
Conseco Variable.The following portfolios are available under the Contract:
Conseco 20 Focus Portfolio
Equity Portfolio
Balanced Portfolio
High Yield Portfolio
Fixed Income Portfolio
Government Securities Portfolio
Money Market Portfolio
THE ALGER AMERICAN FUND
The Alger American Fund is a mutual fund with multiple portfolios. Fred Alger
Management, Inc. serves as the Fund's investment adviser. The following
portfolios are available under the Contract:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century Variable Portfolios, Inc. is a series of funds managed by
American Century Investment Management, Inc. The following portfolios are
available under the Contract:
VP Income & Growth
VP International
VP Value
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger Institutional Products Trust is a mutual fund with multiple
portfolios. Berger LLC (formerly, Berger Associates, Inc.) is the investment
adviser to all portfolios except the Berger/BIAM IPT-International Fund. BBOI
Worldwide LLC, a joint venture between Berger LLC and Bank of Ireland Asset
Management (U.S.) Limited (BIAM), is the adviser to the Berger/BIAM
IPT-International Fund. BBOI Worldwide LLC has delegated daily management of the
Fund to BIAM. Berger LLC and BIAM have entered into an agreement to dissolve
BBOI Worldwide LLC. The dissolution of BBOI Worldwide LLC will have no effect on
the investment advisory services provided to the Fund. Contingent upon
shareholder approval, when BBOI Worldwide LLC is dissolved, Berger LLC will
become the Fund's advisor and BIAM will continue to be responsible for
day-to-day management of the Fund's portfolio as sub-advisor. If approved by
shareholders, these advisory changes are expected to take place in the first
half of this year. The following portfolios are available under the Contract:
Berger IPT-Growth Fund (formerly,
Berger IPT-100 Fund)
Berger IPT-Growth and Income Fund
Berger IPT-Small Company Growth Fund
Berger IPT-New Generation Fund
Berger/BIAM IPT-International Fund
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is managed by The Dreyfus
Corporation. Dreyfus has hired NCM Capital Management Group, Inc. to serve as
sub-investment adviser and to provide day-to-day management of the Fund's
investments.
17
<PAGE>
================================================================================
DREYFUS STOCK INDEX FUND
The Dreyfus Corporation serves as the Fund's manager. Dreyfus has hired its
affiliate, Mellon Equity Associates, to serve as the Fund's index fund manager
and to provide day-to-day management of the Fund's investments. DREYFUS VARIABLE
INVESTMENT FUND The Dreyfus Variable Investment Fund is a mutual fund with
multiple portfolios. The Dreyfus Corporation serves as the investment adviser.
The following portfolios are available under the Contract:
Dreyfus VIF Disciplined Stock Portfolio
Dreyfus VIF International Value Portfolio
FEDERATED INSURANCE SERIES
Federated Insurance Series is a mutual fund with multiple portfolios.
Federated Investment Management Company is the investment adviser of the
Federated High IncomeBond Fund IIand the Federated Utility Fund II. Federated
Global Investment Management Corp. is the adviser of the Federated International
Equity Fund II. The following portfolios are available under the Contract:
Federated High Income Bond Fund II
Federated International Equity Fund II
Federated Utility Fund II
INVESCO VARIABLE INVESTMENT FUNDS, INC. (NOT
AVAILABLE FOR NEW SALES AS OF MAY 1, 2000)
INVESCO Variable Investment Funds, Inc. is a mutual fund with multiple
portfolios. INVESCO Funds Group, Inc. is the investment adviser.
The following portfolios are available under the Contract:
INVESCO VIF -- High Yield Fund
INVESCO VIF -- Equity Income Fund
JANUS ASPEN SERIES
The Janus Aspen Series is a mutual fund with multiple portfolios which are
advised by Janus Capital Corporation. The following portfolios are available
under the Contract:
Aggressive Growth Portfolio
Growth Portfolio
Worldwide Growth Portfolio
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Series, Inc. is a mutual fund with multiple portfolios.
Lazard Asset Management, a division of Lazard Freres & Co. LLC, is the
investment manager for each portfolio. The following portfolios are available
under the Contract:
Lazard Retirement Equity Portfolio
Lazard Retirement Small Cap Portfolio
LORD ABBETT SERIES FUND, INC.
Lord Abbett Series Fund, Inc. is a mutual fund with multiple portfolios
managed by Lord, Abbett & Co. The following portfolio is available under the
Contract:
Growth & Income Portfolio
MITCHELL HUTCHINS SERIES TRUST
Mitchell Hutchins Series Trust is a mutual fund with multiple portfolios.
Mitchell Hutchins Asset Management Inc. provides advisory and administrative
services to the Fund. The following portfolio is available under the Contract:
Growth and Income Portfolio
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust is a mutual fund with multiple
portfolios. Neuberger Berman Management Inc. is the investment adviser. The
following portfolios are available under the Contract:
Limited Maturity Bond Portfolio
Partners Portfolio
RYDEX VARIABLE TRUST
Rydex Variable Trust is a mutual fund with multiple portfolios which are
managed by PADCO Advisors II, Inc. The following portfolios are available under
the Contract:
OTC Fund
Nova Fund
SELIGMAN PORTFOLIOS, INC.
Seligman Portfolios, Inc. is a mutual fund with multiple portfolios which are
managed by J. & W. Seligman & Co. Incorporated. The following portfolios are
available under the Contract:
Seligman Communications and Information
Portfolio
Seligman Global Technology Portfolio
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II is a mutual fund and Strong Capital Management,
Inc. serves as the investment advisor. The following portfolio is available
under the Contract:
Opportunity Fund II
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Variable Insurance Funds, Inc. is a mutual fund with multiple series.
Strong Capital Manage-
18
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
ment, Inc. serves as the investment advisor. The following series is available
under the Contract:
Strong Mid Cap Growth Fund II
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is a mutual fund with multiple portfolios
which are managed by Van Eck Associates Corporation. The following portfolios
are available under the Contract:
Worldwide Bond Fund
Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
Worldwide Real Estate Fund
Shares of the Funds are also offered in connection with certain variable
annuity contracts and variable life insurance policies of various life insurance
companies which may or may not be affiliated with Conseco Variable. Certain
Funds are also sold directly to qualified plans. The Funds believe that offering
their shares in this manner will not be disadvantageous to you.
Conseco Variable may enter into certain arrangements under which it is
reimbursed by the Funds' advisers, distributors and/or affiliates for the
administrative services which it provides to the Funds.
VOTING RIGHTS
Conseco Variable is the legal owner of the Fund shares. However, Conseco
Variable believes that when a Fund solicits proxies in conjunction with a vote
of shareholders, it is required to obtain from you and other owners instructions
as to how to vote those shares. When we receive those instructions, we will vote
all of the shares we own in proportion to those instructions. If we determine
that we are no longer required to comply with the above, we will vote the shares
as we choose without obtaining instructions from you. We have provided a further
discussion of voting rights in the Statement of Additional Information.
FIXED ACCOUNT
The Fixed Account is not registered with the SEC because of certain exemptive
and exclusionary provisions. Conseco Variable has been advised that the staff of
the SEC has not reviewed the disclosure in this prospectus relating to the Fixed
Account. The disclosure may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
Purchase Payments and transfers to the Fixed Account become part of the
general account of Conseco Variable. You can transfer Contract Values between
the Fixed and Variable Accounts, but the transfers are subject to the following:
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% of the Fixed
Account value;
3. You may not make transfers from the Fixed Account once Annuity Payments
begin.
The Administrative Charge and the Mortality and Expense Risk Charge do not
apply to values allocated to the Fixed Account.
If you buy the Contract as a TSA or under certain other qualified plans, the
Contract may contain a provision that allows you to take a loan against the
Contract Value you have allocated to the Fixed Account. Loan provisions are
described in detail in your Contract.
THE CONTRACTS
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the annuity phase. When you are making Purchase Payments
to the Contract, it is called the accumulation phase. During the accumulation
phase, earnings accumulate on a tax deferred basis and are taxed as income when
you make a withdrawal. On the Maturity Date, you will begin receiving Annuity
Payments from your Contract. When you are receiving Annuity Payments from the
Contract, it is called the annuity phase.
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ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
You can make Purchase Payments to Conseco Variable at its Administrative
Office. You can make Purchase Payments at any time before the Maturity Date.
Conseco Variable reserves the right to refuse any Purchase Payment. The Purchase
Payment requirements are as follows:
o For TSAs, the minimum initial and subsequent Purchase Payment is $50 per
month.
o For IRAs, the minimum initial investment is $2,000 and the minimum amount
of each additional payment is $50.
o For non-qualified Contracts, the minimum initial investment is $5,000 and
the minimum amount of each additional lump sum payment is $2,000 (or $200
per month).
o If your Purchase Payment would exceed $500,000, the Purchase Payment will
only be accepted with our prior approval.
Conseco Variable must approve each application. When Conseco Variable accepts
your application, it will issue you a Contract and allocate your purchase
payment as described below.
We may, at our option and with prior notice, cancel certain Contracts in
which no Purchase Payments have been made, or if the Contract Value is less than
$500. When the Contract is canceled, we will pay you the Contract Value
determined as of the Valuation Period during which the Contract was canceled,
less any outstanding loans, any Withdrawal Charge, and the $30 Annual
Administrative Fee. If your Contract is canceled, there may be adverse tax
consequences (see "Federal Tax Status").
ALLOCATION OF PURCHASE PAYMENTS
You may elect to have Purchase Payments accumulate:
(a) on a fully variable basis, which means they are invested in the
sub-accounts of the Variable Account (Variable Account Investment
Options);
(b) on a fully fixed basis, which means they are invested in our general
account and receive a periodically adjusted interest rate guaranteed
by Conseco Variable (Fixed Account); or
(c) a combination of both.
You may request to change your allocation of future Purchase Payments 30 days
after either we establish your Individual Account, or 30 days after you have
made a prior change in allocation.
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your first Purchase Payment within 2 business
days. If you do not provide us all of the information needed, we will contact
you. If for some reason we are unable to complete this process within 5 business
days, we will either send back your money or get your permission to keep it
until we get all of the necessary information. If you add more money to your
Contract by making additional Purchase Payments, we will credit these amounts to
your Contract within one business day. Our business day closes when the New York
Stock Exchange closes, usually 4:00 P.M. Eastern time.
ACCUMULATION UNITS
We credit Purchase Payments that you allocate to the sub-accounts with
Accumulation Units. We do this at the end of the Valuation Period when we
receive your Purchase Payment at our Administrative Office. We determine the
number of Accumulation Units credited to your Contract by dividing the Purchase
Payment amount by the value of an Accumulation Unit at the end of that Valuation
Period. We value Accumulation Units for each sub-account separately.
ACCUMULATION UNIT VALUES
Every day we determine the value of an Accumulation Unit for each of the
sub-accounts by multiplying the Accumulation Unit value for the previous
Valuation Period by a factor for the current Valuation Period. The factor is
determined by:
1. dividing the value of a Fund share at the end of the current Valuation
Period (and any charges for taxes) by the value of a Fund share for the previous
Valuation Period; and
2. subtracting the daily amount of the Mortality and Expense Risk Charge and
Administrative Charges.
The value of an Accumulation Unit may go up or down from Valuation Period to
Valuation Period. THERE IS NO GUARANTEE THAT THE VALUE OF YOUR INDIVIDUAL
ACCOUNT WILL EQUAL OR EXCEED THE PURCHASE PAYMENTS YOU HAVE MADE.
We will tell you at least once each year the number of Accumulation Units
which we credited to your Individual Account, the current Accumulation
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Unit values and the value of your Individual Account.
TRANSFERS
Before the Maturity Date, you may make transfers from one sub-account to
another sub-account and/or to the Fixed Account. The Contract allows Conseco
Variable to limit the number of transfers that can be made in a specified time
period. You should be aware that transfer limitations may prevent you from
making a transfer on the date you desire, with the result that your future
Contract Value may be lower than it would have been had the transfer been made
on the desired date.
Conseco Variable's interest in applying these limitations is to protect the
interests of both Contract Owners who are not engaging in significant transfer
activity and Contract Owners who are engaging in such activity. Conseco Variable
has determined that the actions of Contract Owners engaging in significant
transfer activity among sub-accounts may cause an adverse effect on the
performance of the underlying Fund for the sub-account involved. The movement of
sub-account values from one sub-account to another may prevent an underlying
Fund from taking advantage of investment opportunities because it must maintain
a liquid position in order to handle withdrawals. Such movement may also cause a
substantial increase in Fund transaction costs which must be indirectly borne by
Contract Owners.
HOW YOU CAN MAKE TRANSFERS
Conseco Variable is not charging a transfer fee. However, we limit transfers
to one every 30 days and to a maximum of 20% of the Fixed Account value per any
six-month period from the Fixed Account. All transfers requested for a Contract
on the same day will be treated as a single transfer in that period.
You can make transfers by written authorization. Written transfer requests
may be made by a person acting for or on your behalf as an attorney-in-fact
under a power-of-attorney if permitted by state law. By authorizing Conseco
Variable to accept telephone and/or internet transfer instructions, you agree to
accept and be bound by the conditions and procedures established by Conseco
Variable from time to time. We have instituted reasonable procedures to confirm
that any instructions communicated by telephone are genuine. We will record all
telephone calls and will ask the caller to produce your personalized data prior
to our initiating any transfer requests by telephone. Personalized data will
also be required for internet transfers. Additionally, as with other
transactions, you will receive a written confirmation of your transfer.
Transfers over the internet may not be available (check with your registered
representative). If you do not want the ability to make transfers by telephone
or through the internet, you should notify us in writing. If reasonable
procedures are employed, neither Conseco Variable nor Conseco Equity Sales, Inc.
will be liable for following instructions which it reasonably believes to be
genuine.
Transfer requests received by Conseco Variable 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. If we receive a request later it will be
initiated at the close of the next business day.
DOLLAR COST AVERAGING
Conseco Variable offers a Dollar Cost Averaging (DCA) program which enables
you to transfer values from the Fixed Account or Money Market sub-account to
another Investment Option on a predetermined and systematic basis. The DCA
program allows you to make investments in equal installments over time in an
effort to potentially reduce the risk of market fluctuations. There is no
guarantee that this will happen. The transfers under this program do not count
toward the number of transfers you can make in a year. Currently, there is no
charge for participating in this program.
Dollar cost averaging does not assure a profit and does not protect against
loss in declining markets. Dollar cost averaging involves continuous investment
in the selected Investment Options regardless of fluctuating price levels of the
Investment Options. You should consider your financial ability to continue the
dollar cost averaging program through periods of fluctuating price levels.
REBALANCING
Rebalancing is a program, which if elected, permits you to pre-authorize
periodic automatic transfers prior to the Maturity Date among the sub-accounts
pursuant to your written instructions or over the internet (if available). The
rebalancing program may also be available through the internet (check with your
registered representative regarding availability). Rebalancing over the internet
is subject to our administrative rules and procedures.
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The transfers under this program are made to maintain a particular percentage
allocation among the sub-accounts you select. Any amount you have in the Fixed
Account will not be transferred pursuant to the rebalancing program. You must
have at least $5,000 to have transfers made pursuant to this program. Transfers
must be in whole percentages in one (1%) percent allocation increments. The
maximum number of sub-accounts you can use for rebalancing is 15. You can
request that rebalancing occur quarterly, semi-annually or annually on a date
you select. There is no fee for participating in the program. Conseco Variable
reserves the right to terminate, modify or suspend the rebalancing program at
any time. The transfers under this program do not count toward the number of
transfers you can make in a year.
ASSET ALLOCATION PROGRAM
Conseco Variable understands the importance to you of having advice from a
financial adviser regarding your investments in the Contract (asset allocation
program). Certain investment advisers have made arrangements with us to make
their services available to you. Conseco Variable has not made any independent
investigation of these advisers and is not endorsing such programs. You may be
required to enter into an advisory agreement with your investment adviser to
have the fees paid out of your Contract before the Maturity Date.
Conseco Variable will, pursuant to an agreement with you, make a partial
withdrawal from the value of your Contract to pay for the services of the
investment adviser. If the Contract is non-qualified, the withdrawal will be
treated like any other distribution and may be included in gross income for
federal tax purposes. Further, if you are under age 591/2, it may be subject to
a tax penalty. If the Contract is qualified, the withdrawal for the payment of
fees may not be treated as a taxable distribution if certain conditions are met.
Additionally, any withdrawals for this purpose may be subject to a withdrawal
charge. You should consult a tax adviser regarding the tax treatment of the
payment of investment adviser fees from your Contract.
SWEEPS
Sweeps is a program which provides for the automatic transfer of the earnings
from the Fixed Account into the sub-accounts on a periodic and systematic basis.
The transfers under this program do not count toward the number of transfers you
can make in a year. Currently, there is no charge for participating in this
program.
WITHDRAWALS
Prior to the earlier of the Maturity Date or the death of the Annuitant, you
may withdraw all or a portion of the Contract Value upon written request. You
must complete all the necessary information and send it to Conseco Variable's
Administrative Office. For certain qualified Contracts, your withdrawal rights
may be restricted and may require the consent of your spouse as required under
the Code.
TOTAL WITHDRAWALS
If you make a total withdrawal, we will pay the Contract Value as of the date
we receive your request at our Administrative Office, less:
o the $30 Annual Administrative Fee,
o any outstanding loans (plus the pro rata interest accrued), and
o any applicable Withdrawal Charge.
If you make a total withdrawal, we will cancel the Contract.
PARTIAL WITHDRAWALS
If you make a partial withdrawal, we will pay the amount requested and cancel
that number of Accumulation Units credited to each Investment Option of the
Individual Account necessary to equal the amount you withdraw from each
Investment Option plus any applicable Withdrawal Charge deducted from such
Investment Option. You can make certain withdrawals free of Withdrawal Charges,
see "Charges and Deductions."
When you make a partial withdrawal, you must specify the Investment Options
from which the withdrawal is to be made. You may not request an amount from an
Investment Option that exceeds the value of that Investment Option less any
applicable Withdrawal Charge. If you do not specify the Investment Options from
which a partial with drawal is to be taken, we will take the partial withdrawal
from the Fixed Account until it is exhausted and then from the sub-accounts. If
the partial withdrawal is less than the total value in the Variable Account
Investment Options, the withdrawal will be taken pro rata from all the Variable
Account Investment Options. Any partial withdrawal must be at least $250 or, if
less, the entire balance in the Investment Option. If a partial withdrawal plus
any applicable Withdrawal Charge would reduce the
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Contract Value to less than $500, we reserve the right to treat the partial
withdrawal as a total withdrawal of the Contract Value.
WITHDRAWALS MAY BE SUBJECT TO INCOME TAXES, PENALTY TAXES AND CERTAIN
RESTRICTIONS.
SUSPENSION OF PAYMENTS
We will pay the amount of any withdrawal from the Variable Account promptly,
and in any event within seven days of receipt of the request. Conseco Variable
reserves the right to defer the right of withdrawal or postpone payments for any
period when:
(1) the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
(2) trading on the New York Stock Exchange is restricted;
(3) an emergency exists as a result of which disposal of securities held in
the Variable Account is not reasonably practicable or it is not
reasonably practical to determine the value of the Variable Account's
net assets; or
(4) the SEC, by order, so permits for the protection of security holders,
provided that applicable rules and regulations of the SEC will govern as
to whether the conditions described in (2) and (3) exist.
RESTRICTIONS UNDER OPTIONAL RETIREMENT PROGRAMS
If you participate in certain Optional Retirement Programs (ORP), you can
withdraw your interest in a 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, you (as a participant in ORP) may be required to obtain a
certificate of termination from your employer before you can withdraw your
interest. Certain plans may have additional restrictions on distributions.
RESTRICTIONS UNDER SECTION 403(B) PLANS
If you own the Contract under a TSA-403(b) plan, you can only make
withdrawals of amounts attributable to contributions you made pursuant to a
salary reduction agreement (as defined in Section 403(b)(11) of the Code) under
the following circumstances:
(1) when you reach age 59-1/2;
(2) when you leave your job;
(3) when you die;
(4) if you become disabled (as that term is defined in the Code);
(5) made in the case of hardship; or
(6) made pursuant to a qualified domestic relations order, if otherwise
permitted.
Withdrawals for hardship are restricted to the portion of your Contract Value
which represents contributions you made and does not include any investment
results.
The limitations on withdrawals became effective on January 1, 1989, and apply
only to:
o salary reduction contributions made after December 31, 1988;
o income attributable to such contributions; and
o income attributable to amounts held as of December 31, 1988.
The limitations on withdrawals do not affect rollovers or transfers between
certain qualified plans. Tax penalties may also apply.
SYSTEMATIC WITHDRAWAL PLAN
Conseco Variable offers a Systematic Withdrawal Plan (SWP) which enables you
to pre-authorize periodic withdrawals. You can participate in this program by
sending a written request to our Administrative Office. You can instruct Conseco
Variable to withdraw a level dollar amount or percentage from specified
Investment Options, largest account balance or on a pro-rata basis. If you do a
reallocation and do not specify investment options, all systematic withdrawals
will then default to a pro-rata basis.
SWP WITHDRAWALS MAY BE SUBJECT TO INCOME TAXES, PENALTY TAXES AND CERTAIN
RESTRICTIONS.
LOANS
Your Contract may contain a loan provision issued in connection with certain
qualified plans. If you own a Contract which contains a loan provision, you 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.
You should consult a tax adviser and retirement plan fiduciary before exercising
loan privileges. Loan provisions are described in detail in your Contract.
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The amount of any loan will be deducted from the minimum death benefit. In
addition, a loan, whether or not repaid, will have a permanent effect on the
Contract Value because the investment performance of the Variable Account
Investment Options 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 performance
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 were outstanding. If the investment
performance results are below that rate, the Contract Value will be higher than
it would have been if no loan had been outstanding.
CHARGES AND DEDUCTIONS
WITHDRAWAL CHARGE
Conseco Variable does not make a deduction when you make a Purchase Payment
for sales expenses. However, Conseco Variable may assess a Withdrawal Charge
against the Purchase Payments when you withdraw them. The amount of the
Withdrawal Charge, if applicable, will affect the amount we will pay to you.
If you make a withdrawal from the Contract before the Maturity Date, a
Withdrawal Charge (a deferred sales charge) may be assessed against Purchase
Payments that have been in the Contract less than six complete Contract Years.
We never assess a charge for Purchase Payments that have been in the Contract
for more than six complete Contract Years. The length of time from when we
receive your Purchase Payment to the time you make a withdrawal will determine
the Withdrawal Charge. Certain other withdrawals described below under "Free
Withdrawal Amount" are not subject to a withdrawal charge.
The charge is a percentage of the amount you withdraw (not to exceed 8.5% of
the aggregate amount of the Purchase Payments made) and equals:
CHARGE
YEARS SINCE PAYMENT PERCENTAGE
- --------------------------------------------------------------------------------
1................................... 9%
2................................... 9%
3................................... 8%
4 .................................. 7%
5................................... 5%
6................................... 3%
7 and thereafter.................... 0%
In addition, the following circumstances further limit or reduce Withdrawal
Charges in some states:
o if you are age 52 or younger when we issue your Contract, we will not
assess a Withdrawal Charge for withdrawals you make after the 15th Contract
Year and later;
o if you are 53 to 56 when we issue your Contract, we will not assess a
Withdrawal Charge for withdrawals you make after you reach age 67 and
later;
o if you are age 57 or older when we issue your Contract, the Withdrawal
Charge we assess for withdrawals you make will be multiplied by a factor
ranging from .9 to 0 for Contract Years 1-10 and later, respectively.
FREE WITHDRAWAL AMOUNT: You may make a withdrawal without the Withdrawal
Charge described above (a "free withdrawal") in an amount up to the greater of:
(i) 10% of the Contract Value (as determined on the date we receive your
request to make a withdrawal), or
(ii) the Contract Value divided by the Annuitant's life expectancy based on
the Code, or
(iii) the amount of any Purchase Payments that have been in the Contract more
than six complete Contract Years.
If you make additional withdrawals in excess of the free withdrawal amount in
any Contract Year during the period when the Withdrawal Charge applies, the
withdrawals will be subject to the appropriate charge as set forth above. From
time to time, we may permit you to pre-authorize partial withdrawals subject to
certain limitations then in effect.
On or after the Maturity Date, we may assess Withdrawal Charges for
withdrawals made under the Fourth and Fifth Annuity Options. We will not assess
withdrawal charges which would otherwise apply:
(i) if the Annuitant dies,
(ii) if you die, or
(iii) if we make payments under an annuity option that begins at least four
years after the effective date of the Contract and is paid under any life
annuity option, or any option with payments for a minimum period of five years.
If you make a complete withdrawal of the entire amount in your Individual
Account with a certain
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dollar amount, we will deduct the Withdrawal Charge from the portion of your
Individual Account you withdraw and pay the balance to you.
EXAMPLE: You request a total withdrawal of $2,000 and the applicable
Withdrawal Charge is 5%. Your Individual Account will be reduced by $2,000 and
you will receive $1,880 (i.e., the $2,000 total withdrawal reduced by the 10%
free withdrawal less the 5% Withdrawal Charge and $30 Annual Administrative
Fee).
If you make a partial withdrawal in which you request to receive a specified
amount, the Withdrawal Charge will be calculated on the total amount that must
be withdrawn from your Individual Account in order to provide you with the
amount you requested.
EXAMPLE: You request to receive $1,000 with a free withdrawal amount of $200
and the applicable Withdrawal Charge is 5%. Your Individual Account will be
reduced by $1,042.11. In order to make a withdrawal of $1,000, the amount you
withdraw must be greater than the amount you request by the amount of the
Withdrawal Charge. The amount you withdraw is calculated by dividing (a) the
amount you requested ($1,000 less the free withdrawal amount of $200) by (b)
1.00, minus the applicable deduction rate of 5% (or .95), which produces
$1,042.11 ($842.11 plus the $200 free withdrawal amount). The value of the
Individual Account will be reduced by this amount.
ADMINISTRATIVE CHARGES
Prior to the Maturity Date, we deduct an Annual Administrative Fee of $30 on
each Contract anniversary from the Individual Account value. We will waive the
Annual Administrative Fee if your Individual Account value is $25,000 or
greater. If you make a complete withdrawal of your Individual Account value
prior to the Maturity Date, Conseco Variable will deduct the Annual
Administrative Fee from the proceeds it pays.
We deduct the Annual Administrative Fee first from amounts accumulated in the
Fixed Account; if no or an insufficient value exists in the Fixed Account, any
balance will then be deducted from the sub-accounts of the Variable Account.
We make a deduction for a daily charge in an amount equal to 0.15%, on an
annual basis, of the value of each sub-account of the Variable Account. This
charge reimburses Conseco Variable for administrative expenses. We will not
deduct this charge from any amount you have allocated to the Fixed Account. The
charge will be deducted pro-rata from the Contract Value of each sub-account of
the Variable Account.
Conseco Variable has set this administrative fee at a level that will recover
no more than the actual costs it incurs which are associated with administering
the Contracts. Conseco Variable does not expect to recover any amount in excess
of its accumulated administrative expenses from such fees. Even though
administrative expenses may increase, Conseco Variable will not increase the
amount of the administrative fees.
MORTALITY AND EXPENSE RISK CHARGE
Conseco Variable assumes two risks under the Contract: the mortality risk and
the expense risk. Conseco Variable makes daily deductions from the sub-accounts
of the Variable Account equal, on an annual basis, to 1.25% of the value of your
assets of the Variable Account for the mortality and expense risks it assumes.
The mortality risk is Conseco Variable's promise to continue making annuity
payments, determined in accordance with the annuity tables and other provisions
contained in the Contract, regardless of how long the Annuitant lives and
regardless of how long all Annuitants as a group live. This promise assures that
neither the longevity of an Annuitant nor an improvement in life expectancy
generally will have any adverse effect on the monthly Annuity Payments, and that
Annuitants will not outlive the amounts accumulated to provide such payment.
Conseco Variable also assumes the risk that the Withdrawal Charges and the
administrative fees may be insufficient to cover actual sales and administrative
expenses. If so, the shortfall will be made up from Conseco Variable's general
assets, which may include profits from other sub-account deductions. Conversely,
if the sales deductions and administrative fees exceed the actual sales and
administrative expenses, Conseco Variable may realize a gain. We do not assess
the Mortality and Expense Risk Charge against the Fixed Account.
REDUCTION OR ELIMINATION OF
CONTRACT CHARGES
In some cases, Conseco Variable may expect to incur lower sales and
administrative expenses or perform fewer services due to the size of the
Contract, the average Purchase Payment and the use of group enrollment
procedures. Then, Conseco Vari-
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able may be able to reduce or eliminate the Contract charges for administrative
charges and Withdrawal Charges.
PREMIUM TAXES
We may make a deduction for any premium taxes due from Purchase Payments,
other values on the Maturity Date, or at such other time as we determine. The
current range of premium taxes in jurisdictions where we make the Contracts
available is 0%-3.5%.
FUND EXPENSES
There are deductions from and expenses paid out of the assets of the Funds,
which are described in the Fund prospectuses.
OTHER CHARGES
Currently, Conseco Variable does not make a charge against the Variable
Account for its federal income taxes, or provisions for such taxes, that may be
as a result of the Variable Account. Conseco Variable may charge each
sub-account of the Variable Account for its portion of any income tax charged to
the sub-account or its assets. Under present laws, Conseco Variable 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, Conseco
Variable may decide to make charges for such taxes or provisions for such taxes
against the Variable Account. Any such charges against the Variable Account or
its sub-accounts could have an adverse effect on the investment performance of
the sub-accounts.
DEATH BENEFIT BEFORE MATURITY DATE
If a Contract Owner, Co-Owner or the Annuitant dies prior to the Maturity
Date, Conseco Variable will pay the minimum death benefit to the beneficiary.
Conseco Variable will pay the minimum death benefit either as a lump sum or
under an annuity option as explained below.
Generally, the distribution of the minimum death benefit must be made within
five years after the Contract Owner's or Co-Owner's death. If the beneficiary is
an individual, in lieu of distribution within five years of the Owner's death,
distribution may generally be made as an annuity which begins within one year of
the 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 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 which apply when a Contract Owner dies will apply when that
spouse, as the Contract Owner, dies.
In the case of a Contract involving more than one Contract Owner, the death
of any Contract Owner shall cause this section to apply and if the Contract is
owned by a non-individual the death of the Annuitant shall be treated as the
death of the Contract Owner. Additional requirements may apply to qualified
Contracts.
The minimum death benefit during the first seven Contract Years will be equal
to the greater of:
(a) the Contract Value on the date Conseco Variable receives at its
Administrative Office due proof of death, or
(b) the sum of all Purchase Payments made, less any partial withdrawals.
During any subsequent seven-Contract-Year period, the minimum death benefit
will be the greater of:
(a) the Contract Value on the date Conseco Variable receives due proof of death
at its Administrative Office; or
(b) the Contract Value on the last day of the previous seven-Contract-Year
period plus any Purchase Payments made and less any subsequent partial
withdrawals; or
(c) the sum of all Purchase Payments paid, less any partial withdrawals. If
the Annuitant or Contract Owner dies after reaching the age of 75, the
death benefit will be the Contract Value on the date Conseco Variable
receives due proof of death at its Administrative Office. The minimum death
benefit will be reduced by any outstanding loans.
Death benefits generally will be paid within seven days of the date Conseco
Variable receives due proof of death at its Administrative Office, subject to
postponement under the same circumstances that payment or withdrawals may be
postponed (see "Withdrawals").
OPTIONS WHEN YOU TERMINATE YOUR PARTICIPATION
IN THE PLAN (FOR GROUP CONTRACTS ONLY)
If you terminate your participation in a Plan before the Maturity Date, you
will have the following options:
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(a) leave the Individual Account in force under the Contract, and the
sub-account will continue to participate in the investment results of the
Investment Option(s) you select. On the Maturity Date, you will begin to receive
Annuity Payments. During the interim, you may elect any of the options described
below. This option will automatically apply, unless you file a written election
of another option.
(b) apply the Individual Account to provide Annuity Payments which begin
immediately.
(c) convert the Individual Account to an individual variable annuity contract
of the type we are then offering.
(d) terminate the Individual Account and receive the Contract Value less any
applicable charges and outstanding loans.
THE ANNUITY PHASE-SETTLEMENT PROVISIONS
You select a Maturity Date and an annuity option. You may select the Maturity
Date at any time, subject to state requirements.
The annuity option may be on a fixed basis (which means that payments come
from the Fixed Account) or a variable basis (which means that payments come from
the sub-accounts of the Variable Account), or a combination of both. If you do
not select an Annuity Option, we will make payments under a lifetime annuity
with 120 monthly payments guaranteed. Payments will be made based on the
allocations to the Fixed Account and Variable Account on the Maturity Date.
You may elect to change the annuity option or basis of payment (fixed or
variable) with written notice to Conseco Variable at least 30 days before the
Maturity Date. Once Annuity Payments begin, you may not make any changes (except
you may make transfers under certain circumstances).
You cannot elect an annuity option which would result in the first monthly
Annuity Payment of less than $50 if payments are to be on a fully fixed basis or
variable basis, or less than $50 on each basis if a combination of fixed and
variable Annuity Payments are elected. If, at any time, Annuity Payments are or
become less than $50 per month, Conseco Variable reserves the right to change
the frequency of payments to an interval which will result in Annuity Payments
of at least $50 each (except that we will make payments at least annually).
Prior to the Maturity Date, you may terminate your Individual Account and
receive its value in a lump sum. Once Annuity Payments begin, you and the
Annuitant cannot terminate the annuity benefit and receive a lump sum settlement
instead.
ANNUITY OPTIONS
You may select one of the following annuity options:
FIRST OPTION-LIFE ANNUITY. Under this option, we will make monthly payments
during the lifetime of the payee. The payments will cease with the last monthly
payment due prior to the death of the payee. Of the first two 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 payee died prior to the due date of the second Annuity Payment.
SECOND OPTION-LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS GUARANTEED.
Under this option, we will make monthly payments during the lifetime of the
payee with the guarantee that if, at the death of the payee, we have made
payments for less than 120, 180 or 240 months, as elected, we will continue to
make Annuity Payments during the remainder of such period to your beneficiary.
If no beneficiary is designated, Conseco Variable will, in accordance with the
Contract provisions, pay the payee's estate a lump sum equal to 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. Because this option provides
a specified minimum number of Annuity Payments, this option results in somewhat
lower payments per month than the First Option.
THIRD OPTION-INSTALLMENT REFUND LIFE ANNUITY. Under this option, we will make
monthly payments for the installment refund period. This is the time required
for the sum of the payments to equal the amount applied, and thereafter for the
life of the payee.
FOURTH OPTION-PAYMENTS FOR A FIXED PERIOD. Under this option, we will make
monthly payments for the number of years selected. The period may be from 3
through 20. If you elect to receive payments under this option on a variable
27
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================================================================================
basis, pay ments will vary monthly in accordance with the net investment rate
of the sub-accounts of the Variable Account. If the payee dies before we have
made the specified number of monthly payments, the present value of the
remaining payments will be paid to the designated beneficiary in a lump sum
payment.
To the extent that you select this option on a variable basis, at any time
during the payment period you may elect that the remaining value:
(1) be paid in one sum, or
(2) be applied to effect a lifetime annuity under one of the first two
options described above, as long as the distribution will be made at least as
rapidly as during the life of the payee.
Since you may elect a lifetime annuity at any time, the annuity rate and
expense risks continue after the Maturity Date. Accordingly, we will continue to
make deductions for these risks from the Individual Account values.
FIFTH OPTION-PAYMENTS OF A FIXED AMOUNT.
Under this option, we will make payments of a designated dollar amount on a
monthly, quarterly, semi-annual, or annual basis until the Individual Account
value you 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. If the payee dies before the value is exhausted, we will
pay the remaining value to the beneficiary in a lump sum payment. In lieu of a
lump sum payment, the beneficiary may elect an annuity option for distribution
of any amount on deposit at the date of the payee's death which will result in a
rate of payment at least as rapid as the rate of payment during the life of the
payee.
If you elect the this Option on a variable basis, at any time during the
payment period you may elect the remaining value be applied to provide a
lifetime annuity under one of the first two options described above, as long as
the distribution will be made at least as rapidly as during the life of the
payee. Since you may elect a lifetime annuity at any time, the annuity rate and
expense risks continue during the payment period. Accordingly, we will continue
to make deductions for these risks from the Individual Account values.
PROCEEDS APPLIED TO AN ANNUITY OPTION. You may apply all or part of the
Contract Value to an annuity option. The proceeds that will be applied to the
annuity option will be as follows:
(a) the Contract Value less any outstanding loans, if the annuity option
elected begins at least four years after the effective date of your Contract and
is paid under any life annuity option, or any option with payments for a minimum
period of five years, with no rights of early withdrawal; or
(b) the death benefit if proceeds are payable under death of Annuitant or an
Owner (as applicable); or
(c) the Contract Value less any outstanding loans, Withdrawal Charge and any
administrative fee.
The SAI contains a further discussion of Annuity Provisions, including how
annuity unit values are calculated.
TRANSFERS AFTER MATURITY DATE
On or after the Maturity Date, you may not make transfers from a fixed
annuity option to a variable annuity option or from a variable annuity option to
a fixed annuity option.
Conseco Variable reserves the right to modify, terminate or defer the
transfer privilege at any time that it is unable to purchase or redeem shares of
the Funds. Conseco Variable also reserves the right to modify or terminate the
transfer privilege at any time in accordance with applicable law.
DEATH ON OR AFTER MATURITY DATE
If you selected Annuity Payments based on an annuity option providing
payments for a guaranteed period, and the Annuitant or an Owner dies on or after
the Maturity Date, Conseco Variable 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, Conseco Variable 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
TEN-DAY RIGHT TO REVIEW. The Contract provides a "10-day free look" (in some
states, the period may be longer). This allows you to revoke the Contract by
returning it to either a Conseco Variable representative or to Conseco
Variable's Administrative Office within 10 days (or the period
28
<PAGE>
required in your state) of delivery of the Contract. Conseco Variable deems this
period as ending 15 INDIVIDUAL AND GROUP ANNUITY required in your state) of
delivery of the Contract. Conseco Variable deems this period as ending 15 days
after it mails a Contract from its Administrative Office. If you return the
Contract under the terms of the free look provision, Conseco Variable will
refund the Purchase Payments you have made.
OWNERSHIP. You, as the Contract Owner, are the person entitled to exercise
all rights under the Contract. Co-Owners may be named in non-qualified
Contracts. Prior to the Maturity Date, the Contract Owner is the person
designated in the application or as subsequently named. On and after the
Maturity Date, the Annuitant is the Contract Owner and after the death of the
Annuitant, the beneficiary is the Contract Owner.
The Contract is either a group contract or an individual contract, depending
on the state where we issued it. The individual contract is issued directly to
the Contract Owner. A group Contract is identical to the individual Contract
except that it is issued to a contract holder, for the benefit of the
participants in the group. You are a participant in the group and will receive a
certificate evidencing your ownership. You, as the owner of a certificate, are
entitled to all the rights and privileges of ownership. As used in this
prospectus, the term Contract refers to your certificate.
CHANGE OF OWNERSHIP
NON-QUALIFIED CONTRACTS:
In the case of non-qualified Contracts, you may change ownership of the
Contract or you may collaterally assign it at any time during the lifetime of
the Annuitant prior to the Maturity Date, subject to the rights of any
irrevocable beneficiary. ASSIGNING A CONTRACT, OR CHANGING THE OWNERSHIP OF A
CONTRACT MAY BE A TAXABLE EVENT. Any change of ownership or assignment must be
made in writing. Conseco Variable must approve any change of ownership or
assignment. Any assignment and any change, if approved, will be effective as of
the date on which it is written.Conseco Variable assumes no liability for any
payments made or actions it takes before a change is approved or an assignment
is accepted, or responsibility for the validity of any assignment.
QUALIFIED CONTRACTS:
In the case of qualified Contracts, you generally may not change ownership of
the Contract nor may you transfer it, except by the trustee of an exempt
employee's trust which is part of a retirement plan qualified under Section 401
of the Code. Except as noted, if you own a qualified Contract, you may not sell,
assign, transfer, discount, or pledge (as collateral for a loan or as security
for the performance of an obligation or for any other purpose) the Contract.
MODIFICATION. Conseco Variable may modify the Contract with your approval
unless provided otherwise by the Contract. After the Contract has been in force,
Conseco Variable may modify it except that the Mortality and Expense Risk
Charge, the Withdrawal Charges and the administrative fees cannot be increased.
A group Contract will be suspended automatically on the effective date of any
modification initiated by Conseco Variable if you fail to accept the
modification. Effective with suspension, no new participants may enter the plan
but further Purchase Payments may be made on your behalf and on the behalf of
other participants then covered by the Contract.
No modification may affect Annuitants in any manner unless deemed necessary
to achieve the requirements of federal or state statutes or any rule or
regulation of the United States Treasury Department.
FEDERAL TAX STATUS
NOTE: CONSECO VARIABLE HAS PREPARED THE FOLLOWING INFORMATION ON TAXES AS A
GENERAL DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE TO ANY
INDIVIDUAL. YOU SHOULD CONSULT YOUR OWN TAX ADVISER ABOUT YOUR OWN
CIRCUMSTANCES. CONSECO VARIABLE HAS INCLUDED AN ADDITIONAL DISCUSSION REGARDING
TAXES IN THE STATEMENT OF ADDITIONAL INFORMATION.
ANNUITY CONTRACTS IN GENERAL
Annuity Contracts are a means of setting aside money for future needs,
usually retirement. Congress recognized how important saving for retirement was
and provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings
on the money held in your annuity contract until you take the money out. This is
referred to as tax-deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of
Contract--Qualified or Non-Qualified (see following sections).
29
<PAGE>
================================================================================
You, as the Contract Owner, will not be taxed on increases in the value of
your Contract until a distribution occurs -- either as a withdrawal or as
annuity payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For annuity payments, different rules apply. A
portion of each annuity payment is treated as a partial return of your purchase
payments and will not be taxed. The remaining portion of the annuity payment
will be treated as ordinary income. How the annuity payment is divided between
taxable and non-taxable portions depends upon the period over which the annuity
payments are expected to be made. Annuity payments received after you have
received all of your Purchase Payments are fully includible in income.
When a non-qualified Contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the Contract as
an agent for a natural person), the Contract will generally not be treated as an
annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your Contract
is referred to as a non-qualified Contract.
If you purchase the Contract under a pension plan, specially sponsored
program or an individual retirement annuity, your Contract is referred to as a
qualified Contract.
A qualified Contract will not provide any necessary or additional tax
deferral if it is used to fund a qualified plan that is tax deferred. However,
the Contract has features and benefits other than tax deferral that may make it
an appropriate investment for a qualified plan. You should consult your tax
adviser regarding these features and benefits prior to purchasing a qualified
Contract.
WITHDRAWALS--NON-QUALIFIED CONTRACTS
If you make a withdrawal from your non-
qualified Contract, the Code generally treats such a withdrawal as first coming
from earnings and then from your Purchase Payments. Such withdrawn earnings are
includible in income.
The Code also provides that any amount received under an annuity contract
which is included in income may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59-1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the
Code);
(4) paid in a series of substantially equal payments made annually (or more
frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which are allocable to purchase payments made prior to August 14, 1982.
The Contract provides that upon the death of the Annuitant prior to the
Maturity Date, Conseco Variable will pay the death proceeds to the beneficiary.
Such payments made when the Annuitant, who is not the Contract Owner, dies do
not qualify for the death of the Contract Owner exception (described in (2)
above) and will be subject to the 10% distribution penalty unless the
beneficiary is 59-1/2 years old or one of the other exceptions to the penalty
applies.
WITHDRAWALS--QUALIFIED CONTRACTS
If you make a withdrawal from your qualified Contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
the pre-tax purchase payments to the after-tax purchase payments in your
Contract. If all of your purchase payments were made with pre-tax money then the
full amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of qualified contracts.
The Code also provides that any amount received under a qualified Contract
which is included in income may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. This penalty
will be increased to 25% for withdrawals from simple IRA's within the first two
years of your Contract. Some withdrawals will be exempt from the penalty. They
include any amounts:
(1) paid on or after you reach age 59-1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in Code);
(4) paid to you after leaving your employment in a series of substantially
equal payments made
30
<PAGE>
annually (or more frequently) under a lifetime annuity;
(5) paid to you after you have attained age 55 and left your employment;
(6) paid for certain allowable medical expenses (as defined in the Code);
(7) paid pursuant to a qualified domestic relations order;
(8) paid on account of an IRS levy upon the qualified contract;
(9) paid from an IRA for medical insurance (as defined in the Code);
(10) paid from an IRA for qualified higher education expenses; or
(11) paid from an IRA for up to $10,000 for qualified first time homebuyer
expenses (as defined in the Code).
The exceptions in (5) and (7) above do not apply to IRAs. The exception in
(4) above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of Additional
Information.
WITHDRAWALS--TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of amounts attributable to purchase payments
made by owners under a salary reduction agreement. Withdrawals can only be made
when a Contract Owner:
(1) attains age 59-1/2;
(2) separates from service;
(3) dies;
(4) becomes disabled (within the meaning of Section 72(m)(7) of the Code);
(5) qualifies in case of hardship;
(6) made pursuant to a qualified domestic relations order, if otherwise
permitted.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings. You should consult your own tax adviser about
your own circumstances.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity
must satisfy certain diversification requirements in order to be treated as an
annuity contract. Conseco Variable believes that the Funds are being managed so
as to comply with the requirements.
INVESTOR CONTROL
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Conseco
Variable would be considered the owner of the shares of the portfolios. If you
are considered the owner of the shares, it will result in the loss of the
favorable tax treatment for the Contract. It is unknown to what extent under
federal tax law owners are permitted to select portfolios, to make transfers
among the portfolios or the number and type of portfolios owners may select from
without being considered the owner of the shares. If any guidance is provided
which is considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the owner of the
Contract, could be treated as the owner of the portfolios.
Due to the uncertainty in this area, Conseco Variable reserves the right to
modify the Contract as reasonably deemed necessary to maintain favorable tax
treatment.
GENERAL MATTERS
PERFORMANCE INFORMATION. Conseco Variable may advertise performance
information for the Variable Account Investment Options (sub-accounts) 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 10 years, for the period subsequent to the date
each sub-account first became available for investment. We may show additional
total return quotations that do not reflect a Withdrawal Charge deduction. We
may show performance information by means of schedules, charts or graphs. The
Statement of Additional Information contains a description of the methods we use
to determine yield and total return information for the sub-accounts.
31
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================================================================================
DISTRIBUTION OF CONTRACTS. Conseco Equity Sales, Inc. (Conseco Equity Sales),
11815 N. Pennsylvania Street, Carmel, IN 46032, an affiliate of Conseco
Variable, 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 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. The registered representatives
will also be licensed insurance representatives of Conseco Variable. See the
Statement of Additional Information for more information.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers may be paid commissions up to 8.50% of Purchase Payments and may
include reimbursement of promotional or distribution expenses associated with
marketing the Contracts. The commission rate paid to the broker-dealer will
depend upon the nature and level of services provided by the broker-dealer.
LEGAL PROCEEDINGS. There are no legal proceedings to which the Variable
Account is a party or to which the assets of the Variable Account are subject.
Neither Conseco Variable nor Conseco Equity Sales is involved in any litigation
that is of material importance in relation to their total assets or that relates
to the Variable Account.
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CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
General Information and History
Independent Accountants
Distribution
Voting Rights
Calculation of Yield Quotations
Calculation of Total Return Quotations
Other Performance Data
Federal Tax Status
Annuity Provisions
Financial Statements
- --------------------------------------------------------------------------------
(cut along dotted line)
If you would like a free copy of the Statement of Additional Information
dated May 1, 2000 for this Prospectus, please complete this form, detach, and
mail to:
Conseco Variable Insurance Company
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Gentlemen:
Please send me a free copy of the Statement of Additional Information for the
Conseco Variable Annuity Account E at the following address:
Name: _____________________________________________________________
Mailing Address: __________________________________________________
-------------------------------------------------------------------
Sincerely,
---------------------------------------------------------
(Signature)
Conseco Variable Insurance Company
- --------------------------------------------------------------------------------
Conseco Variable Insurance Company
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
<PAGE>
================================================================================
APPENDIX A--CONDENSED FINANCIAL INFORMATION
The table below provides per unit information about the financial history of
the sub-accounts for the periods indicated.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
CONSECO SERIES TRUST
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY (A)
Accumulation unit value at beginning of period ............ $2.764 $2.424 $2.071 $1.449 $1.078 $1.000
Accumulation unit value at end of period .................. $4.068 $2.764 $2.424 $2.071 $1.449 $1.078
Percentage change in accumulation unit value .............. 47.20% 14.01% 17.04% 42.96% 34.42% 7.79%
Number of accumulation units outstanding at end of period.. 10,049,305 11,148,308 7,962,515 3,374,110 1,009,305 41,601
BALANCED (A)
Accumulation unit value at beginning of period ............ $2.148 $1.973 $1.698 $1.342 $1.035 $1.000
Accumulation unit value at end of period .................. $2.772 $2.148 $1.973 $1.698 $1.342 $1.035
Percentage change in accumulation unit value. ............. 29.04% 8.84% 16.21% 26.50% 29.67% 3.52%
Number of accumulation units outstanding at end of period . 7,850,427 10,615,723 5,740,115 2,475,992 461,876 21,037
FIXED INCOME (A)
Accumulation unit value at beginning of period ............ $1.369 $1.308 $1.207 $1.166 $1.000 $1.000
Accumulation unit value at end of period .................. $1.345 $1.369 $1.308 $1.207 1.166 $1.000
Percentage change in accumulation unit value .............. -1.77% 4.70% 8.39% 3.50% 16.61% (0.03)%
Number of accumulation units outstanding at end of period . 5,323,180 4,326,193 4,066,812 1,540,494 350,623 12,553
GOVERNMENT SECURITIES (A)
Accumulation unit value at beginning of period ............ $1.318 $1.248 $1.169 $1.154 $0.997 $1.000
Accumulation unit value at end of period .................. $1.268 $1.318 $1.248 $1.169 $1.154 $0.997
Percentage change in accumulation unit value .............. -3.82% 5.58% 6.76% 1.31% 15.72% (0.26)%
Number of accumulation units outstanding at end of period . 3,757,732 1,543,011 354,897 135,680 30,614 0
MONEY MARKET (A)
Accumulation unit value at beginning of period ............ $1.179 $1.136 $1.095 $1.056 $1.014 $1.000
Accumulation unit value at end of period .................. $1.219 $1.179 $1.136 $1.095 $1.056 $1.014
Percentage change in accumulation unit value .............. 3.43% 3.76% 3.80% 3.67% $4.14% 1.38%
Number of accumulation units outstanding at end of period . 12,049,203 5,969,565 3,116,005 1,144,951 641,747 0
- ----------------------------------------------------------------------------------------------------------------------------------
THE ALGER AMERICAN FUND
- ----------------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN GROWTH (C)
Accumulation unit value at beginning of period. ........... $1.889 $1.294 $1.044 $1.000 N/A N/A
Accumulation unit value at end of period .................. $2.492 $1.889 $1.294 $1.044 N/A N/A
Percentage change in accumulation unit value .............. 31.89% 46.02% 24.00% 4.35% N/A N/A
Number of accumulation units outstanding at end of period . 5,480,301 2,650,328 742,233 73,227 N/A N/A
ALGER AMERICAN LEVERAGED ALLCAP (B)
Accumulation unit value at beginning of period ............ $2.857 $1.836 $1.555 $1.408 $1.000 N/A
Accumulation unit value at end of period .................. $5.016 $2.857 $1.836 $1.555 $1.408 N/A
Percentage change in accumulation unit value .............. 75.59% 55.64% 18.02% 10.47% 40.79% N/A
Number of accumulation units outstanding at end of period . 3,739,665 1,757,689 1,279,296 832,794 207,147 N/A
ALGER AMERICAN MIDCAP GROWTH (C)
Accumulation unit value at beginning of period. ........... $1.438 $1.119 $0.987 $1.000 N/A N/A
Accumulation unit value at end of period .................. $1.869 $1.438 $1.119 $0.987 N/A N/A
Percentage change in accumulation unit value .............. 30.02% 28.49% 13.41% (1.33)% N/A N/A
Number of accumulation units outstanding at end of period . 1,789,442 1,718,378 679,330 42,736 N/A N/A
ALGER AMERICAN SMALL CAPITALIZATION (B)
Accumulation unit value at beginning of period. ........... $1.567 $1.375 $1.252 $1.219 $1.000 N/A
Accumulation unit value at end of period .................. $2.216 $1.567 $1.375 $1.252 $1.219 N/A
Percentage change in accumulation unit value .............. 41.43% 13.92% 9.84% 2.72% 21.89% N/A
Number of accumulation units outstanding at end of period.. 5,276,834 3,775,577 3,988,448 1,946,993 517,903 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
BERGER INSTITUTIONAL PRODUCTS TRUST
- ----------------------------------------------------------------------------------------------------------------------------------
BERGER IPT--GROWTH (C)
Accumulation unit value at beginning of period. ........... $1.324 $1.155 $1.029 $1.000 N/A N/A
Accumulation unit value at end of period .................. $1.947 $1.324 $1.155 $1.029 N/A N/A
Percentage change in accumulation unit value .............. 47.06% 14.68% 12.18% 2.93% N/A N/A
Number of accumulation units outstanding at end of period. 1,462,281 1,458,645 627,056 69,521 N/A N/A
</TABLE>
34
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CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION (CONTINUED) 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BERGER IPT--GROWTH AND INCOME (C)
Accumulation unit value at beginning of period. ............ $1.677 $1.360 $1.104 $1.000 N/A N/A
Accumulation unit value at end of period ................... $2.630 $1.677 $1.360 $1.104 N/A N/A
Percentage change in accumulation unit value ............... 56.84% 23.29% 23.26% 10.36% N/A N/A
Number of accumulation units outstanding at end of period .. 2,890,715 3,900,875 802,420 59,956 N/A N/A
BERGER IPT--SMALL COMPANY GROWTH (C)
Accumulation unit value at beginning of period. ............ $1.183 $1.178 $0.985 $1.000 N/A N/A
Accumulation unit value at end of period... ................ $2.234 $1.183 $1.178 $0.985 N/A N/A
Percentage change in accumulation unit value ............... 88.79% 0.45% 19.64% (1.53)% N/A N/A
Number of accumulation units outstanding at end of period .. 1,102,900 892,905 187,471 42,982 N/A N/A
BERGER/BIAM IPT--INTERNATIONAL (C)
Accumulation unit value at beginning of period. ............ $1.111 $0.970 $1.000 N/A N/A N/A
Accumulation unit value at end of period ................... $1.439 $1.111 $0.970 N/A N/A N/A
Percentage change in accumulation unit value ............... 29.58% 14.52% -3.01% N/A N/A N/A
Number of accumulation units outstanding at end of period .. 2,081,811 2,075,531 2,029,230 N/A N/A N/A
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THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. (B)
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period. ............ $2.268 $1.778 $1.404 $1.175 $1.000 N/A
Accumulation unit value at end of period ................... $2.910 $2.268 $1.778 $1.404 $1.175 N/A
Percentage change in accumulation unit value ............... 28.27% 27.58% 26.60% 19.53% 17.49% N/A
Number of accumulation units outstanding at end of period .. 3,333,181 2,868,834 1,195,614 221,018 21,878 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
DREYFUS STOCK INDEX FUND (B)
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period. ............ $2.318 $1.834 $1.393 $1.158 $1.000 N/A
Accumulation unit value at end of period. .................. $2.757 $2.318 $1.834 $1.393 $1.158 N/A
Percentage change in accumulation unit value ............... 18.93% 26.43% 31.67% 20.31% 15.76% N/A
Number of accumulation units outstanding at end of period ..17,965,037 13,802,783 8,884,649 1,862,980 91,752 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
FEDERATED INSURANCE SERIES
- ----------------------------------------------------------------------------------------------------------------------------------
FEDERATED HIGH INCOME BOND II (B)
Accumulation unit value at beginning of period ............. $1.367 $1.349 $1.202 $1.067 $1.000 N/A
Accumulation unit value at end of period ................... $1.379 $1.367 $1.349 $1.202 $1.067 N/A
Percentage change in accumulation unit value ............... 0.88% 1.27% 12.25% 12.71% 6.66% N/A
Number of accumulation units outstanding at end of period .. 3,165,626 4,956,911 2,184,739 508,205 26,380 N/A
FEDERATED INTERNATIONAL EQUITY II (B)
Accumulation unit value at beginning of period ............. $1.472 $1.188 $1.095 $1.025 $1.000 N/A
Accumulation unit value at end of period ................... $2.683 $1.472 $1.888 $1.095 $1.025 N/A
Percentage change in accumulation unit value ............... 82.32% 23.83% 8.55% 6.80% 2.51% N/A
Number of accumulation units outstanding at end of period .. 645,821 1,216,876 329,971 93,215 36,798 N/A
FEDERATED UTILITY II (B)
Accumulation unit value at beginning of period ............. $1.732 $1.541 $1.234 $1.122 $1.000 N/A
Accumulation unit value at end of period ................... $1.737 $1.732 $1.541 $1.234 $1.122 N/A
Percentage change in accumulation unit value ............... 0.28% 12.37% 24.88% 10.00% 12.21% N/A
Number of accumulation units outstanding at end of period .. 1,632,264 1,955,544 675,836 294,882 11,711 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ----------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH (B)
Accumulation unit value at beginning of period ............. $1.983 $1.498 $1.348 $1.266 $1.000 N/A
Accumulation unit value at end of period ................... $4.407 $1.983 $1.498 $1.348 $1.266 N/A
Percentage change in accumulation unit value ............... 122.28% 32.39% 11.10% 6.44% 26.64% N/A
Number of accumulation units outstanding at end of period .. 3,617,753 2,503,351 1,867,131 1,041,050 122,278 N/A
GROWTH (B)
Accumulation unit value at beginning of period ............. $2.208 $1.650 $1.364 $1.167 $1.000 N/A
Accumulation unit value at end of period ................... $3.135 $2.208 $1.650 $1.364 $1.167 N/A
Percentage change in accumulation unit value ............... 41.98% 33.77% 21.00% 16.79% 16.75% N/A
Number of accumulation units outstanding at end of period .. 10,090,318 5,285,448 5,160,718 1,466,042 138,532 N/A
</TABLE>
35
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<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION (CONTINUED) 1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
THE VAN ECK WORLDWIDE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------------------
WORLDWIDE GROWTH (B)
Accumulation unit value at beginning of period ............. $2.360 $1.856 $1.541 $1.211 $1.000 N/A
Accumulation unit value at end of period ................... $3.827 $2.360 $1.856 $1.541 $1.211 N/A
Percentage change in accumulation unit value ............... 62.17% 27.13% 20.46% 27.23% 21.12% N/A
Number of accumulation units outstanding at end of period .. 12,380,622 11,703,338 8,234,605 2,173,781 155,653 N/A
WORLDWIDE BOND (B)
Accumulation unit value at beginning of period ............. $1.155 $1.039 $1.029 $1.018 $1.000 N/A
Accumulation unit value at end of period ................... $1.050 $1.155 $1.039 $1.029 $1.018 N/A
Percentage change in accumulation unit value ............... -9.10% 11.19% 0.96% 1.09% 1.82% N/A
Number of accumulation units outstanding at end of period .. 2,183,729 2,826,107 3,332,067 1,790,259 130,071 N/A
WORLDWIDE EMERGING MARKETS (C)
Accumulation unit value at beginning of period ............. $0.643 $0.990 $1.136 $1.000 N/A N/A
Accumulation unit value at end of period ................... $1.270 $0.643 $0.990 $1.136 N/A N/A
Percentage change in accumulation unit value ............... 97.51% -35.06% -12.83% 13.59% N/A N/A
Number of accumulation units outstanding at end of period .. 1,845,367 1,728,988 1,935,325 132,953 N/A N/A
WORLDWIDE HARD ASSETS (B)
Accumulation unit value at beginning of period ............. $0.828 $1.216 $1.254 $1.077 $1.000 N/A
Accumulation unit value at end of period ................... $0.988 $0.828 $1.216 $1.254 $1.077 N/A
Percentage change in accumulation unit value ............... 19.32% -31.89% -3.05% 16.41% 7.72% N/A
Number of accumulation units outstanding at end of period .. 1,426,278 1,485,880 3,728,758 651,603 68,730 N/A
WORLDWIDE REAL ESTATE (E)
Accumulation unit value at beginning of period ............. $0.851 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period ................... $0.823 $0.851 N/A N/A N/A N/A
Percentage change in accumulation unit value ............... -3.38% -14.90% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period .. 80,035 41,417 N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC
- --------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL (D)
Accumulation unit value at beginning of period ............. $1.280 $1.093 $1.000 N/A N/A N/A
Accumulation unit value at end of period ................... $2.071 $1.280 $1.093 N/A N/A N/A
Percentage change in accumulation unit value ............... 61.77% 17.11% 9.30% N/A N/A N/A
Number of accumulation units outstanding at end of period .. 1,258,066 1,104,956 163,370 N/A N/A N/A
VALUE (D)
Accumulation unit value at beginning of period ............. $1.267 $1.226 $1.000 N/A N/A N/A
Accumulation unit value at end of period ................... $1.239 $1.267 $1.226 N/A N/A N/A
Percentage change in accumulation unit value ............... 2.23% 3.35% 22.60% N/A N/A N/A
Number of accumulation units outstanding at end of period .. 3,004,509 2,689,736 415,891 N/A N/A N/A
INCOME & GROWTH (E)
Accumulation unit value at beginning of period ............. $1.082 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period ................... $1.259 $1.082 N/A N/A N/A N/A
Percentage change in accumulation unit value ............... 16.38% 8.20% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period .. 746,541 214,243 N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- --------------------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY BOND (D)
Accumulation unit value at beginning of period ............. $1.074 $1.043 $1.000 N/A N/A N/A
Accumulation unit value at end of period ................... $1.075 $1.074 $1.043 N/A N/A N/A
Percentage change in accumulation unit value ............... 0.07% 2.94% 4.31% N/A N/A N/A
Number of accumulation units outstanding at end of period .. 1,194,491 1,076,377 25,089 N/A N/A N/A
PARTNERS (D)
Accumulation unit value at beginning of period ............. $1.274 $1.240 $1.000 N/A N/A N/A
Accumulation unit value at end of period ................... $1.349 $1.274 $1.240 N/A N/A N/A
Percentage change in accumulation unit value ............... 5.88% 2.76% 23.99% N/A N/A N/A
Number of accumulation units outstanding at end of period .. 3,981,862 6,369,007 1,000,600 N/A N/A N/A
</TABLE>
36
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CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION (CONTINUED) 1999 1998 1997 1996 1995 1994
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- -----------------------------------------------------------------------------------------------------------------------------------
STRONG OPPORTUNITY FUND II, INC
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPPORTUNITY FUND II (D)
Accumulation unit value at beginning of period ............... $1.377 $1.230 $1.000 N/A N/A N/A
Accumulation unit value at end of period ..................... $1.832 $1.377 $1.230 N/A N/A N/A
Percentage change in accumulation unit value ................. 33.03% 11.96% 22.99% N/A N/A N/A
Number of accumulation units outstanding at end of period .... 984,899 1,264,364 248,615 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
STRONG VARIABLE INSURANCE FUNDS, INC
- -----------------------------------------------------------------------------------------------------------------------------------
STRONG MID CAP GROWTH II (D)
Accumulation unit value at beginning of period ............... $1.612 $1.270 $1.000 N/A N/A N/A
Accumulation unit value at end of period ..................... $3.018 $1.612 $1.270 N/A N/A N/A
Percentage change in accumulation unit value ................. 87.24% 26.89% 27.01% N/A N/A N/A
Number of accumulation units outstanding at end of period ....1,457,235 559,106 79,815 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------------
DREYFUS VIF DISCIPLINED STOCK PORTFOLIO (E)
Accumulation unit value at beginning of period ............... $1.072 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period ..................... $1.252 $1.072 N/A N/A N/A N/A
Percentage change in accumulation unit value ................. 16.80% 7.19% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period .... 332,231 273,971 N/A N/A N/A N/A
DREYFUS VIF INTERNATIONAL VALUE PORTFOLIO(E)
Accumulation unit value at beginning of period ............... $0.942 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period ..................... $1.187 $0.942 N/A N/A N/A N/A
Percentage change in accumulation unit value ................. 26.04% -5.83% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period .... 85,252 47,625 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC
- -----------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF-HIGH YIELD (E)
Accumulation unit value at beginning of period ............... $0.951 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period ..................... $1.024 $0.951 N/A N/A N/A N/A
Percentage change in accumulation unit value ................. 7.68% -4.94% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period ....4,745,256 149,344 N/A N/A N/A N/A
INVESCO VIF-EQUITY INCOME (E)
Accumulation unit value at beginning of period ............... $1.029 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period ..................... $1.166 $1.029 N/A N/A N/A N/A
Percentage change in accumulation unit value ................. 13.25% 2.93% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period .... 492,760 141,540 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD RETIREMENT SERIES, INC -
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD RETIREMENT EQUITY (E)
Accumulation unit value at beginning of period ............... $1.055 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period ..................... $1.126 $1.055 N/A N/A N/A N/A
Percentage change in accumulation unit value ................. 6.66% 5.53% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period .... 899,537 1,126,898 N/A N/A N/A N/A
LAZARD RETIREMENT SMALL CAP (E)
Accumulation unit value at beginning of period ............... $0.855 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period ..................... $0.887 $0.855 N/A N/A N/A N/A
Percentage change in accumulation unit value ................. 3.67% -14.46% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period .... 215,218 174,151 N/A N/A N/A N/A
</TABLE>
37
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<TABLE>
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CONDENSED FINANCIAL INFORMATION (CONTINUED) 1999 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C> <C>
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LORD ABBETT SERIES FUND, INC
- -----------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME (E)
Accumulation unit value at beginning of period $1.005 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period $1.156 $1.005 N/A N/A N/A N/A
Percentage change in accumulation unit value 15.12% 0.46% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period 793,511 312,997 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
MITCHELL HUTCHINS SERIES TRUST -
- -----------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME (E)
Accumulation unit value at beginning of period $0.990 $1.000 N/A N/A N/A N/A
Accumulation unit value at end of period $1.077 $0.990 N/A N/A N/A N/A
Percentage change in accumulation unit value 8.80% -1.02% N/A N/A N/A N/A
Number of accumulation units outstanding at end of period 71,829 197,925 N/A N/A N/A N/A
</TABLE>
(A) Inception date was July 25, 1994.
(B) Inception date was June 1, 1995.
(C) Inception date was May 1, 1996.
(D) Inception date was May 1, 1997.
(E) Inception date was May 1, 1998.
There are no accumulation unit values shown for the following sub-accounts
because they were not available under your Contract until the date of this
prospectus:Conseco 20 Focus; Conseco High Yield; Berger IPT--New Generation;
Rydex OTC; Rydex Nova; Seligman Communications and Information; and Seligman
Global Technology.
38
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CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
APPENDIX B--MORE INFORMATION ABOUT THE FUNDS
Below are the investment objectives and strategies of each portfolio
available under the Contract. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES WILL BE ACHIEVED.
The Fund prospectuses contain more complete information including a
description of the investment objectives, policies, restrictions and risks of
each portfolio.
CONSECO SERIES TRUST
Conseco Series Trust is managed by Conseco Capital Management, Inc. (CCM)
which is an affiliate of Conseco Variable. Conseco Series Trust is a mutual fund
with multiple portfolios. The following portfolios are available under the
Contracts:
CONSECO 20 FOCUS PORTFOLIO
The Conseco 20 Focus Portfolio seeks capital appreciation. Normally, the
Portfolio will invest at least 65% of its assets in common stocks of companies
that the Adviser believes have above-average growth prospects. The Portfolio is
non-diversified and will normally concentrate its investments in a core position
of approximately 20 - 30 common stocks.
EQUITY PORTFOLIO
The Equity Portfolio seeks to provide a high total return consistent with
preservation of capital and a prudent level of risk. The portfolio will invest
primarily in selected equity securities, including common stocks and other
securities having the investment characteristics of common stocks, such as
convertible securities and warrants.
BALANCED PORTFOLIO
The Balanced Portfolio seeks a high total investment return, consistent with
the preservation of capital and prudent investment risk. Normally, the portfolio
invests approximately 50-65% of its assets in equity securities, and the
remainder in a combination of fixed income securities, or cash equivalents.
HIGH YIELD PORTFOLIO
The High Yield Portfolio seeks to provide a high level of current income with
a secondary objective of capital appreciation. Normally, the adviser invests at
least 65% of the Portfolio's assets in below investment grade securities (those
rated BB+/Ba1 or lower by independent rating agencies).
FIXED INCOME PORTFOLIO
The Fixed Income Portfolio seeks the highest level of income consistent with
preservation of capital. The portfolio invests primarily in investment grade
debt securities.
GOVERNMENT SECURITIES PORTFOLIO
The Government Securities Portfolio seeks safety of capital, liquidity and
current income. The portfolio will invest primarily in securities issued by the
U.S. government or an agency or instrumentality of the U.S. government.
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks current income consistent with stability of
capital and liquidity. The portfolio may invest in U.S. government securities,
bank obligations, commercial paper obligations, short-term corporate debt
securities, and municipal obligations.
THE ALGER AMERICAN FUND
The Alger American Fund is a mutual fund with multiple portfolios. The
manager of the fund is Fred Alger Management, Inc. The following portfolios are
available under the Contracts:
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio seeks long-term capital appreciation. It
focuses on growing companies that generally have broad product lines, markets,
financial resources and depth of management. Under normal circumstances, the
portfolio invests primarily in the equity securities of large companies.
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
The Alger American Leveraged AllCap Portfolio seeks long-term capital
appreciation. Under normal circumstances, the portfolio invests in the equity
securities of companies of any size which demonstrate promising growth
potential. The portfolio can borrow money in amounts of up to one-third of its
total assets to buy additional securities.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
The Alger American MidCap Growth Portfolio seeks long-term capital
appreciation. It focuses on midsize companies with promising growth potential.
Under normal circumstances, the portfolio
39
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invests primarily in the equity securities of companies having a market
capitalization within the range of companies in the S&P MidCap 400 Index.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
The Alger American Small Capitalization Portfolio seeks long-term capital
appreciation. It focuses on small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding marketplace. Under
normal circumstances, the portfolio invests primarily in the equity securities
of small capitalization companies.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century Variable Portfolios, Inc. is a mutual fund with multiple
portfolios. The fund's investment adviser is American Century Investment
Management, Inc. The following portfolios are available under the Contracts:
VP INCOME & GROWTH FUND
The VP Income & Growth Fund seeks dividend growth, current income and capital
appreciation by investing in common stocks. The fund's investment strategy
utilizes quantitative management techniques in a two-step process that draws
heavily on computer technology.
VP INTERNATIONAL FUND
The VP International Fund seeks capital growth. The fund managers use a
growth investment strategy developed by American Century to invest in stocks of
companies that they believe will increase in value over time. This strategy
looks for companies with earnings and revenue growth. International investment
involves special risk considerations. These include economic and political
conditions, expected inflation rates and currency fluctuations.
VP VALUE FUND
The VP Value Fund seeks long-term capital growth. Income is a secondary
objective. In selecting stocks for the VP Value Fund, the fund managers look for
stocks of medium to large companies that they believe are undervalued at the
time of purchase.
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger Institutional Products Trust is a mutual fund with multiple
portfolios. Berger LLC (formerly, Berger Associates, Inc.) is the investment
advisor for the Berger IPT-Growth Fund, the Berger IPT-Growth and Income Fund,
the Berger IPT-Small Company Growth Fund and the Berger IPT-New Generation Fund.
BBOI Worldwide LLC, a joint venture between Berger LLC and Bank of Ireland Asset
Management (U.S.) Limited (BIAM), is the investment advisor for the Berger/BIAM
IPT-International Fund. BBOI Worldwide LLC has delegated daily management of the
Fund to BIAM. Berger LLC and BIAM have entered into an agreement to dissolve
BBOI Worldwide LLC. The dissolution of BBOI Worldwide LLC will have no effect on
the investment advisory services provided to the Fund. Contingent upon
shareholder approval, when BBOI Worldwide LLC is dissolved, Berger LLC will
become the Fund's advisor and BIAM will continue to be responsible for
day-to-day management of the Fund's portfolio as sub-advisor. If approved by
shareholders, these advisory changes are expected to take place in the first
half of this year. The following portfolios are available under the Contracts:
BERGER IPT--GROWTH FUND (FORMERLY, BERGER IPT--100 FUND)
The Berger IPT--Growth Fund aims for long-term capital appreciation. In
pursuing that goal, the fund primarily invests in the common stocks of
established companies with the potential for strong earnings growth.
BERGER IPT--GROWTH AND INCOME FUND
The Berger IPT--Growth and Income Fund aims for capital appreciation and has
a secondary goal of investing in securities that produce current income for the
portfolio. In pursuing these goals, the fund primarily invests in the securities
of well-established, growing companies.
BERGER IPT--SMALL COMPANY GROWTH FUND
The Berger IPT--Small Company Growth Fund aims for capital appreciation. In
pursuing that goal, the fund primarily invests in the common stocks of small
companies with the potential for rapid earnings growth.
BERGER IPT--NEW GENERATION FUND
The Berger IPT--New Generation Fund seeks capital appreciation. In pursuing
that goal, the fund primarily invests in the common stocks of companies believed
to have the potential to change the direction or dynamics of the industries in
which
40
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CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
they operate or significantly influence the way businesses or consumers conduct
their affairs.
BERGER/BIAM IPT--INTERNATIONAL FUND
The Berger/BIAM IPT--International Fund aims for long-term capital
appreciation. In pursuing that goal, the fund primarily invests in a portfolio
consisting of common stocks of well-established foreign companies.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is a mutual fund. The
investment adviser for the fund is The Dreyfus Corporation.
The Dreyfus Socially Responsible Growth Fund, Inc. seeks to provide capital
growth, with current income as a secondary goal. To pursue these goals, the fund
invests primarily in the common stock of companies that, in the opinion of the
fund's management, meet traditional investment standards and conduct their
business in a manner that contributes to the enhancement of the quality of life
in America.
DREYFUS STOCK INDEX FUND
The Dreyfus Stock Index Fund is a mutual fund. The investment adviser for the
fund is The Dreyfus Corporation.
The Dreyfus Stock Index Fund seeks to match the total return of the Standard
& Poor's 500 Composite Stock Price Index. To pursue this goal, the fund
generally invests in all 500 stocks in the S&P 500 in proportion to their
weighting in the index.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Variable Investment Fund ("Dreyfus VIF") is a mutual fund with
multiple portfolios. The investment adviser for the portfolios is The Dreyfus
Corporation. The following portfolios are available under the Contracts:
DREYFUS VIF DISCIPLINED STOCK PORTFOLIO
The Dreyfus VIFDisciplined Stock Portfolio seeks investment returns
(consisting of capital appreciation and income) that are greater than the total
return performance of stocks represented by the Standard & Poor's 500 Composite
Stock Price Index. To pursue this goal, the portfolio invests in a blended
portfolio of growth and value stocks chosen through a disciplined investment
process.
DREYFUS VIF INTERNATIONAL VALUE PORTFOLIO
The Dreyfus VIFInternational Value Portfolio seeks long-term capital growth.
To pursue this goal, the portfolio ordinarily invests most of its assets in
equity securities of foreign issuers which Dreyfus considers to be "value"
companies.
FEDERATED INSURANCE SERIES
Federated Insurance Series is a mutual fund with multiple portfolios.
Federated Investment Management Company is the adviser to the Federated High
Income Bond Fund II and the Federated Utility Fund II. Federated Global
Investment Management Corp. is the adviser to the Federated International Equity
Fund II. The following portfolios are available under the Contracts:
FEDERATED HIGH INCOME BOND FUND II
The Federated High Income Bond Fund II's investment objective is to seek high
current income by investing primarily in a professionally managed, diversified
portfolio of fixed income securities. The fund pursues its investment objective
by investing in a diversified portfolio of high-yield, lower-rated corporate
bonds.
FEDERATED UTILITY FUND II
The Federated Utility Fund II's investment objective is to achieve high
current income and moderate capital appreciation. The fund pursues its
investment objective by investing under normal market conditions, at least 65%
of its assets in equity securities (including convertible securities) of
companies that derive at least 50% of their revenues from the provision of
electricity, gas and telecommunications related services.
FEDERATED INTERNATIONAL EQUITY FUND II
The Federated International Equity Fund II's investment objective is to
obtain a total return on its assets. The fund's total return will consist of two
components: (1) changes in the market value of its portfolio securities (both
realized and unrealized appreciation); and (2) income received from its
portfolio securities.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
(NOT AVAILABLE FOR NEW SALES AS OF MAY 1, 2000)
INVESCO Variable Investment Funds, Inc. is a mutual fund with multiple
portfolios. INVESCO Funds Group, Inc. is the investment adviser for the
41
<PAGE>
================================================================================
Fund. The following portfolios are available under the Contracts:
INVESCO VIF--EQUITY INCOME FUND
The INVESCO VIF--Equity Income Fund's primary goal is high current income,
with growth of capital as a secondary objective. The fund normally invests at
least 65% of its assets in dividend-paying common and preferred stocks, although
in recent years that percentage has been somewhat higher.
INVESCO VIF--HIGH YIELD FUND
The INVESCO VIF--High Yield Fund seeks to provide a high level of current
income, with growth of capital as a secondary objective. It invests
substantially all of its assets in lower-rated debt securities, commonly called
"junk bonds" and preferred stock, including securities issued by foreign
companies.
JANUS ASPEN SERIES
Janus Aspen Series is a mutual fund with multiple portfolios. Janus Capital
Corporation is the investment adviser to the fund. The following portfolios are
available under the Contracts:
AGGRESSIVE GROWTH PORTFOLIO
The Aggressive Growth Portfolio seeks long-term growth of capital. It pursues
its objective by investing primarily in common stocks selected for their growth
potential, and normally invests at least 50% of its equity assets in
medium-sized companies.
GROWTH PORTFOLIO
The Growth Portfolio seeks long-term growth of capital in a manner consistent
with the preservation of capital. It pursues its objective by investing
primarily in common stocks selected for their growth potential. Although the
Portfolio can invest in companies of any size, it generally invests in larger,
more established companies.
WORLDWIDE GROWTH PORTFOLIO
The Worldwide Growth Portfolio seeks long-term growth of capital in a manner
consistent with the preservation of capital. It pursues its objective by
investing primarily in common stocks of companies of any size throughout the
world. The portfolio normally invests in issuers from at least five different
countries, including the United States. The portfolio may at times invest in
fewer than five countries or even a single country.
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Series, Inc. is a mutual fund with multiple portfolios.
Lazard Asset Management serves as the investment manager of the portfolios. The
investment manager is a division of Lazard Freres, a New York limited liability
company, which is registered as an investment adviser with the SEC. The
following portfolios are available under the Contracts:
LAZARD RETIREMENT EQUITY PORTFOLIO
The Lazard Retirement Equity Portfolio seeks long-term capital appreciation.
The portfolio invests primarily in equity securities, principally common stocks,
of relatively large U.S. companies (those whose total market value is more than
$1 billion) that the investment manager believes are undervalued based on their
earnings, cash flow or asset values.
LAZARD RETIREMENT SMALL CAP PORTFOLIO
The Lazard Retirement Small Cap Portfolio seeks long-term capital
appreciation. The portfolio invests primarily in equity securities, principally
common stocks, of relatively small U.S. companies in the range of the Russell
2000 Index that the investment manager believes are undervalued based on their
earnings, cash flow or asset values.
LORD ABBETT SERIES FUND, INC.
Lord Abbett Series Fund, Inc. is a mutual fund with multiple portfolios. The
fund's investment adviser is Lord, Abbett & Co. The following portfolio is
available under the Contracts:
GROWTH & INCOME PORTFOLIO
The Growth & Income Portfolio's investment objective is long-term growth of
capital and income without excessive fluctuations in market value.
MITCHELL HUTCHINS SERIES TRUST
Mitchell Hutchins Series Trust is a mutual fund with multiple portfolios.
Mitchell Hutchins Asset Management Inc. is the investment adviser of the fund.
The following portfolio is available under the Contracts:
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio's investment objective is current income and
capital growth. The portfolio invests primarily in dividend-paying stocks of
companies that its investment adviser believes have potential for rapid earnings
growth.
42
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
2000 Account E
INDIVIDUAL AND GROUP ANNUITY
================================================================================
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust is a mutual fund with multiple
portfolios. Neuberger Berman Management Inc. is the investment adviser. The
following portfolios are available under the Contracts:
LIMITED MATURITY BOND PORTFOLIO
The Limited Maturity Bond Portfolio seeks the highest available current
income consistent with liquidity and low risk to principal; total return is a
secondary goal. To pursue these goals, the portfolio invests mainly in
investment-grade bonds and other debt securities from U.S. government and
corporate issuers. These may include mortgage- and asset-backed securities.
PARTNERS PORTFOLIO
The Partners Portfolio seeks growth of capital. To pursue this goal, the
portfolio invests mainly in common stocks of mid- to large-capitalization
companies. The managers look for well-managed companies whose stock prices are
believed to be undervalued.
RYDEX VARIABLE TRUST
Rydex Variable Trust is a mutual fund with multiple portfolios which are
managed by PADCO Advisors II, Inc. The following portfolios are available under
the Contracts:
OTC FUND
The OTC Fund seeks to provide investment results that correspond to a
benchmark for over-the-counter securities. The Fund's current benchmark is the
NASDAQ 100 IndexTM. The Fund invests principally in securities of companies
included in the NASDAQ 100 IndexTM. It also may invest in other instruments
whose performance is expected to correspond to that of the Index, and may engage
in futures and options transactions.
NOVA FUND
The Nova Fund seeks to provide investment returns that correspond to 150% of
the daily performance of the Standard & Poor's 500 Composite Stock Price Index.
Unlike traditional index funds, as its primary investment strategy, the Fund
invests to a significant extent in futures contracts and options on: securities,
futures contracts and stock indexes. On a day-to-day basis, the Fund holds U.S.
government securities to collateralize these futures and options contracts.
SELIGMAN PORTFOLIOS, INC.
Seligman Portfolios, Inc. is a mutual fund with multiple portfolios which are
managed by J. & W. Seligman & Co. Incorporated. The following portfolios are
available under the Contracts:
SELIGMAN COMMUNICATIONS AND INFORMATION PORTFOLIO
The Seligman Communications and Information Portfolio seeks capital gain. The
Portfolio invests at least 80% of its net assets, exclusive of government
securities, short-term notes, and cash and cash equivalents, in securities of
companies operating in the communications, information and related industries.
The Portfolio generally invests at least 65% of its total assets in securities
of companies engaged in these industries. The Portfolio may invest in companies
of any size.
SELIGMAN GLOBAL TECHNOLOGY PORTFOLIO
The Seligman Global Technology Portfolio seeks long-term capital
appreciation. The Portfolio generally invests at least 65% of its assets in
equity securities of U.S. and non-U.S. companies with business operations in
technology and technology-related industries. The Portfolio may invest in
companies of any size.
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II, Inc. is a mutual fund. Strong Capital Management,
Inc. is the investment advisor for the fund. The following portfolio is
available under the Contracts:
OPPORTUNITY FUND II
The Opportunity Fund II seeks capital growth. The fund invests primarily in
stocks of medium-capitalization companies that the fund's manager believes are
underpriced, yet have attractive growth prospects.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Variable Insurance Funds, Inc. is a mutual fund. Strong Capital
Management, Inc. is the investment advisor for the fund. The following portfolio
is available under the Contracts:
MID-CAP GROWTH FUND II
The Mid-Cap Growth Fund II seeks capital appreciation. The fund invests at
least 65% of its assets in stocks of medium-capitalization companies that the
fund's managers believe have favor-
43
<PAGE>
================================================================================
able prospects for accelerating growth of earnings, cash flow, or asset value.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is a mutual fund with multiple portfolios.
Van Eck Associates Corporation serves as investment adviser to the funds. The
following portfolios are available under the Contracts:
WORLDWIDE BOND FUND
The Worldwide Bond Fund seeks high total return income plus capital
appreciation by investing globally, primarily in a variety of debt securities.
The fund's long-term assets will consist of debt securities rated B or better by
Standard & Poor's or Moody's Investors' Service.
WORLDWIDE EMERGING MARKETS FUND
The Worldwide Emerging Markets Fund seeks long-term capital appreciation by
investing in equity securities in emerging markets around the world. The fund
emphasizes investment in countries that have relatively low gross national
product per capita, as well as the potential for rapid economic growth.
WORLDWIDE HARD ASSETS FUND
The Worldwide Hard Assets Fund seeks long-term capital appreciation by
investing primarily in "hard asset securities." Income is a secondary
consideration.
WORLDWIDE REAL ESTATE FUND
The Worldwide Real Estate Fund seeks a high total return by investing in
equity securities of companies that own significant real estate or that
principally do business in real estate.
<PAGE>
[LOGO OMITTED]
CONSECO(R)
Step up.(SM)
ANNUITIES ARE NOT FDIC INSURED. ANNUITIES ARE NOT
OBLIGATIONS OF ANY BANK. THE FINANCIAL INSTITUTION DOES
NOT GUARANTEE PERFORMANCE BY THE INSURER ISSUING THE
ANNUITY, NOR IS IT INSURED BY THE FDIC, NCUSIF,
OR ANY OTHER FEDERAL ENTITY.
[FDIC LOGO OMITTED] [BANK LOGO OMITTED]
CONSECO EQUITY SALES, INC., IS A BROKER-DEALER FOR CONSECO VARIABLE
INSURANCE COMPANY. CONSECO EQUITY SALES IS THE PRINCIPAL UNDERWRITER OF
VARIABLE ANNUITY PRODUCTS, AND THE SECURITIES WITHIN, THAT ARE ISSUED
THROUGH CONSECO VARIABLE INSURANCE COMPANY. BOTH COMPANIES ARE SUBSIDIARIES
OF CONSECO, INC., A FINANCIAL SERVICES ORGANIZATION HEADQUARTERED IN
CARMEL, INDIANA. CONSECO, THROUGH ITS SUBSIDIARY COMPANIES, HELPS 13
MILLION CUSTOMERS STEP UP TO A BETTER, MORE SECURE FUTURE.
CONSECO EQUITY SALES , INC., IS A MEMBER OF THE NASD.
CONSECO VARIABLE INSURANCE COMPANY
11815 N. Pennsylvania Street
Carmel, IN 46032
05-7820 (03/00) 08445
(C) 2000 Conseco Variable Insurance Company
CONSECO.COM
CONSECO, THE OFFICIAL FINANCIAL SERVICES PROVIDER OF [NASCAR LOGO]
[LOGO: INSURANCE MARKETPLACE STANDARDS ASSOCIATION]
[LOGO: RETIRE ON YOUR TERMS VARIABLE ANNUITIES]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL & GROUP VARIABLE DEFERRED ANNUITY CONTRACTS
ISSUED BY
CONSECO VARIABLE INSURANCE COMPANY
AND
CONSECO VARIABLE ANNUITY ACCOUNT E
11815 N. PENNSYLVANIA ST., CARMEL, IN 46032
(317) 817-3700
MAY 1, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 2000 FOR CONSECO VARIABLE
ANNUITY ACCOUNT E -- INDIVIDUAL AND GROUP VARIABLE DEFERRED ANNUITY CONTRACTS.
YOU CAN OBTAIN A COPY OF THE PROSPECTUS BY CONTACTING CONSECO VARIABLE INSURANCE
COMPANY AT THE ADDRESS TELEPHONE NUMBER GIVEN ABOVE.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION AND HISTORY ............................................. 1
INDEPENDENT ACCOUNTANTS ..................................................... 1
DISTRIBUTION ................................................................ 1
VOTING RIGHTS ............................................................... 1
CALCULATION OF YIELD QUOTATIONS ............................................. 2
CALCULATION OF TOTAL RETURN QUOTATIONS ...................................... 3
OTHER PERFORMANCE DATA ...................................................... 5
FEDERAL TAX STATUS .......................................................... 7
ANNUITY PROVISIONS .......................................................... 15
FINANCIAL STATEMENTS ........................................................ 17
<PAGE>
GENERAL INFORMATION AND HISTORY
Conseco Variable Insurance Company (the "Company") is an indirect wholly owned
subsidiary of Conseco, Inc. On or about October 7, 1998, the Company changed its
name from Great American Reserve Insurance Company to its present name. In
certain states, the Company may continue to use the name Great American Reserve
Insurance Company until the name change is approved in that state. Conseco, Inc.
is a publicly held financial services holding company and one of middle
America's leading sources for insurance, investment and lending products. The
Company has its principal offices at 11815 N. Pennsylvania Street, Carmel,
Indiana 46032. The Variable Account was established by the Company.
INDEPENDENT ACCOUNTANTS
The financial statements of Conseco Variable Annuity Account E and Conseco
Variable Insurance Company included in the Prospectus and the Statement of
Additional Information have been examined by PricewaterhouseCoopers LLP,
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
The Company continuously offers the Contracts through associated persons of the
principal underwriter for the Variable Account, Conseco Equity Sales, Inc.
("CES"). CES is a registered broker-dealer and member of the National
Association of Securities Dealers, Inc. CES is located at 11815 N. Pennsylvania
Street, Carmel, Indiana 46032, and is an affiliate of the Company. In addition,
certain Contracts may be sold by life insurance/registered representatives of
other registered broker-dealers.
CES performs the sales functions relating to the Contracts and the Company
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), the
Company makes sales and administrative deductions, varying by type of Contract.
See "Charges and Deductions" in the Prospectus.
VOTING RIGHTS
Contract Owners may instruct the Company 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. The Company will
vote the shares of each sub-account held by the 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 the Company for or against any
proposition or the Company will abstain, in the same proportion as shares in
that sub-account for which instructions are received. The Company will vote, or
abstain from voting, any shares that are not attributable to Contract Owners in
the same proportion as all Contract Owners in the Variable Account vote or
abstain. However, if the Company 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 Contracts, not including contracts issued in connection with
governmental employers' deferred compensation plans described in the Prospectus,
participants and annuitants have the right to instruct the Contract Owner with
respect to the number of votes attributable to their Individual Accounts. 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
1
<PAGE>
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 Maturity Date, 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. On or after the Maturity Date,
the number of votes attributable to a Contract will generally decrease since
funds set aside for annuitants will decrease as payments are made.
CALCULATION OF YIELD QUOTATIONS
MONEY MARKET SUB-ACCOUNT
The Money Market Sub-account's 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-account's daily net investment factor, minus one (1.00) is multiplied
by 365 to produce an annualized yield. The annualized yield 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, mortality and expense risk fees and the administrative charge,
but does not include a deduction of 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-account's 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 Sub-account
maturity, the types and quality of Portfolio securities held by the
corresponding Fund of the Conseco Series Trust and its operating expenses.
OTHER SUB-ACCOUNTS
The Portfolios of the eligible 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
accumulation unit earned during the period by the maximum offering price per
accumulation unit on the last day of the period, according to the following
formula:
YIELD = 2 ((A - B) + 1)6 - 1)
-----
CD
Where:
A = the net investment income earned during the period by the
Portfolio.
B = the expenses accrued for the period (net of reimbursements,
if any).
C = the average daily number of accumulation units outstanding during
the period.
D = the maximum offering price per accumulation unit on the last day
of the period.
2
<PAGE>
CALCULATION OF TOTAL RETURN QUOTATIONS
The Company may include certain total return quotations for one or more of the
Portfolios of the eligible 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:
n
P (1+T) = 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).
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 12/31/99:
SINCE
VARIABLE ACCOUNT SUB-ACCOUNTS 1 YEAR 5 YEARS INCEPTION
- ----------------------------- ------ ------- ---------
CONSECO SERIES TRUST
Equity Portfolio .................................. 34.82% 29.06% 28.66%
Balanced Portfolio ................................ 18.15% 20.47% 19.86%
Fixed Income Portfolio ............................ (10.11%) 4.93% 4.88%
Government Securities Portfolio ................... (11.99%) 3.74% 3.74%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio ................... 20.77% N/A 25.80%
Alger American Leveraged AllCap Portfolio ......... 60.85% N/A 40.57%
Alger American MidCap Growth Portfolio ............ 19.05% N/A 16.30%
Alger American Small Capitalization Portfolio ..... 29.51% N/A 17.58%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC .........
VP International .................................. 48.17% N/A 27.49%
VP Value .......................................... (10.52%) N/A 5.17%
VP Income and Growth .............................. 6.54% N/A 8.90%
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund ........................... 34.68% N/A 17.60%
Berger IPT--Growth and Income Fund ................ 43.66% N/A 27.67%
Berger IPT--Small Company Growth Fund ............. 72.96% N/A 22.08%
Berger/BIAM IPT--International Fund ............... 18.65% N/A 11.22%
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
Limited Maturity Bond Portfolio ................... (8.42%) N/A (0.32%)
Partners Portfolio ................................ (3.09%) N/A 8.58%
3
<PAGE>
SINCE
VARIABLE ACCOUNT SUB-ACCOUNTS 1 YEAR 5 YEARS INCEPTION
- ----------------------------- ------ ------- ---------
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II ............................... 21.82% N/A 21.78%
STRONG VARIABLE INSURANCE FUNDS, INC
Strong Mid Cap Growth Fund II ..................... 71.54% N/A 46.85%
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC .................................. 17.45% N/A 24.80%
DREYFUS STOCK INDEX FUND .......................... 8.88% N/A 23.35%
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II ................ (7.67%) N/A 6.00%
Federated International Equity Fund II ............ 67.02% N/A 22.57%
Federated Utility Fund II ......................... (8.22%) N/A 11.49%
JANUS ASPEN SERIES
Aggressive Growth Portfolio ....................... 103.67% N/A 36.63%
Growth Portfolio .................................. 30.03% N/A 26.85%
Worldwide Growth Portfolio ........................ 48.54% N/A 32.50%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund ............................... (16.83%) N/A (0.14%)
Worldwide Emerging Markets Fund ................... 80.95% N/A 4.61%
Worldwide Hard Assets Fund ........................ 9.24% N/A (1.46%)
Worldwide Real Estate Fund ........................ (11.58%) N/A (15.66%)
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio ........... 6.93% N/A 8.53%
Dreyfus VIF International Value Portfolio ......... 15.41% N/A 5.09%
INVESCO VARIABLE INVESTMENT FUNDS, INC
INVESCO VIF--High Yield Fund ...................... (1.44%) N/A (3.83%)
INVESCO VIF--Equity Income Fund ................... 3.67% N/A 3.97%
LAZARD RETIREMENT SERIES, INC
Lazard Retirement Equity Portfolio ................ (2.37%) N/A 1.81%
Lazard Retirement Small Cap Portfolio ............. (5.12%) N/A (11.78%)
LORD ABBETT SERIES FUND, INC
Growth & Income Portfolio ......................... 5.39% N/A 3.48%
MITCHELL HUTCHINS SERIES TRUST
Growth & Income Portfolio ......................... (0.41%) N/A (0.86%)
- ----------
(1) Since inception (May 1, 1998).
(2) Since inception (July 25, 1994).
(3) Since inception (June 1, 1995).
(4) Since inception (May 1, 1996).
(5) Since inception (May 1, 1997).
4
<PAGE>
There is no performance shown for the following sub-accounts because they were
not available under the Contract until the date of the prospectus (May 1, 2000):
Conseco 20 Focus; Conseco High Yield; Berger IPT -- New Generation; Rydex OTC;
Rydex Nova; Seligman Communications and Information; and Seligman Global
Technology.
OTHER PERFORMANCE DATA
The Company 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" table, 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.
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 option's 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 the Company has
received from independent rating agencies. However, the Company does not
guarantee the investment performance of the Variable Account investment options.
GROSS AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 12/31/99:
SINCE
VARIABLE ACCOUNT SUB-ACCOUNTS 1 YEAR 5 YEARS INCEPTION
- ----------------------------- ------ ------- ---------
CONSECO SERIES TRUST
Equity Portfolio .................................. 47.20% 30.43% 29.45%
Balanced Portfolio ................................ 29.04% 21.77% 20.63%
Fixed Income Portfolio ............................ (1.77%) 6.11% 5.60%
Government Securities Portfolio ................... (3.83%) 4.91% 4.46%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio ................... 31.89% N/A 28.24%
Alger American Leveraged AllCap Portfolio ......... 75.59% N/A 42.14%
Alger American MidCap Growth Portfolio ............ 30.02% N/A 18.58%
Alger American Small Capitalization Portfolio ..... 41.43% N/A 18.95%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC .........
VP International .................................. 61.77% N/A 31.32%
VP Value .......................................... (2.23%) N/A 8.35%
VP Income and Growth .............................. 16.38% N/A 14.79%
5
<PAGE>
SINCE
VARIABLE ACCOUNT SUB-ACCOUNTS 1 YEAR 5 YEARS INCEPTION
- ----------------------------- ------ ------- ---------
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger IPT--Growth Fund ........................... 47.06% N/A 19.91%
Berger IPT--Growth and Income Fund ................ 56.84% N/A 30.14%
Berger IPT--Small Company Growth Fund ............. 88.79% N/A 24.48%
Berger/BIAM IPT-- International Fund .............. 29.58% N/A 14.61%
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
Limited Maturity Bond Portfolio ................... 0.07% N/A 2.73%
Partners Portfolio ................................ 5.88% N/A 11.86%
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II ............................... 33.03% N/A 25.44%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II ..................... 87.24% N/A 51.21%
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC .................................. 28.27% N/A 26.22%
DREYFUS STOCK INDEX FUND .......................... 18.93% N/A 24.75%
FEDERATED INSURANCE SERIES
Federated High Income Bond Fund II ................ 0.88% N/A 7.25%
Federated International Equity Fund II ............ 82.32% N/A 24.01%
Federated Utility Fund II ......................... 0.28% N/A 12.79%
JANUS ASPEN SERIES
Aggressive Growth Portfolio ....................... 122.28% N/A 38.18%
Growth Portfolio .................................. 41.99% N/A 28.29%
Worldwide Growth Portfolio ........................ 62.17% N/A 34.00%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund ............................... (9.11%) N/A 1.07%
Worldwide Emerging Markets Fund ................... 97.51% N/A 6.73%
Worldwide Hard Assets Fund ........................ 19.32% N/A (0.26%)
Worldwide Real Estate Fund ........................ (3.38%) N/A (11.03%)
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Disciplined Stock Portfolio ........... 16.80% N/A 14.40%
Dreyfus VIF International Value Portfolio ......... 26.04% N/A 10.80%
INVESCO VARIABLE INVESTMENT FUNDS, INC ............
INVESCO VIF--High Yield Fund ...................... 7.68% N/A 1.41%
INVESCO VIF--Equity Income Fund ................... 13.25% N/A 9.61%
LAZARD RETIREMENT SERIES, INC .....................
Lazard Retirement Equity Portfolio ................ 6.66% N/A 7.33%
Lazard Retirement Small Cap Portfolio ............. 3.67% N/A (6.94%)
LORD ABBETT SERIES FUND, INC ......................
Growth & Income Portfolio ......................... 15.12% N/A 9.09%
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SINCE
VARIABLE ACCOUNT SUB-ACCOUNTS 1 YEAR 5 YEARS INCEPTION
- ----------------------------- ------ ------- ---------
MITCHELL HUTCHINS SERIES TRUST
Growth & Income Portfolio ......................... 8.80% N/A 4.53%
- ----------
(1) Since inception (May 1, 1998).
(2) Since inception (July 25, 1994).
(3) Since inception (June 1, 1995).
(4) Since inception (May 1, 1996).
(5) Since inception (May 1,1997).
There is no performance shown for the following sub-accounts because they were
not available under the Contract until the date of the prospectus (May 1, 2000):
Conseco 20 Focus; Conseco High Yield; Berger IPT -- New Generation; Rydex OTC;
Rydex Nova; Seligman Communications and Information; and Seligman Global
Technology.
FEDERAL TAX STATUS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO
ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended ("Code") governs
taxation of annuities in general. An Owner is not taxed on increases in the
value of a Contract until distribution occurs, either in the form of a lump sum
payment or as annuity payments under the annuity option selected. For a lump sum
payment received as a total withdrawal (total surrender), the recipient is taxed
on the portion of the payment that exceeds the cost basis of the Contract. For
non-qualified contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion of
the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e. when the total of the
excludable amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the
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meaning of Section 72 of the Code. Owners, annuitants and beneficiaries under
the Contracts should seek competent financial advice about the tax consequences
of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
Regulations issued by the Treasury Department (the "Regulations") amplify the
diversification requirements for variable contracts set forth in the Code and
provide an alternative to the safe harbor provision described above. Under the
Regulations, an investment portfolio will be deemed adequately diversified if:
(1) no more than 55% of the value of the total assets of the portfolio is
represented by any one investment; (2) no more than 70% of the value of the
total assets of the portfolio is represented by any two investments; (3) no more
than 80% of the value of the total assets of the portfolio is represented by any
three investments; and (4) no more than 90% of the value of the total assets of
the portfolio is represented by any four investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all variable Investment Options underlying the
Contracts will be managed in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Variable Account will cause the Owner to be treated as the
owner of the assets of the Variable Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Variable
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
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In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owners being
retroactively determined to be the owners of the assets of the Variable Account.
Due to the uncertainty in this area, we reserve the right to modify the Contract
in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year.
PARTIAL 1035 EXCHANGES
Section 1035 of the Code provides that an annuity contract may be exchanged in a
tax-free transaction for another annuity contract. In 1998 in CONWAY VS.
COMMISSIONER, the Tax Court held that the direct transfer of a portion of an
annuity contract into another annuity contract qualified as a non-taxable
exchange. On November 22, 1999, the Internal Revenue Service filed an Action on
Decision which indicated that it acquiesced in the Tax Court decision in CONWAY.
However, in its acquiesence with the decision of the Tax Court, the Internal
Revenue Service stated that it will challenge transactions where taxpayers enter
into a series of partial exchanges and annuitizations as part of a design to
avoid application of the 10% premature distribution penalty or other limitations
imposed on annuity contracts under the Code. In the absence of further guidance
from the Internal Revenue Service it is unclear what specific types of partial
exchange designs and transactions will be challenged by the Internal Revenue
Service. Due to the uncertainty in this area, owners should consult their own
tax advisers prior to entering into a partial exchange of an annuity contract.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a Contract held by a trust or other entity as an
agent for a natural person nor to Contracts held by Qualified Plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
If the Contract is issued pursuant to a retirement plan which receives favorable
treatment under the provision of Sections 401, 403(b), 408 or 457 of the Code,
it may not be assigned, pledged or otherwise transferred except as allowed under
applicable law.
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DEATH BENEFITS
Any death benefits paid under the contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Owner are subject to federal income tax withholding. Generally, amounts
are withheld from periodic payments at the same rate as wages and at the rate of
10% from non-periodic payments. However, the Owner, in many cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Certain distributions from retirement plans qualified under Section 401 or
Section 403(b) of the Code, which are not directly rolled over to another
eligible retirement plan or individual retirement account or individual
retirement annuity, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement generally does not apply to: a) a
series of substantially equal payments made at least annually for the life or
life expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary or for a specified period of 10 years
or more; or b) distributions which are required minimum distributions; or c) the
portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions); or d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate Purchase
Payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after you reach age 59-1/2; (b) after your death; (c) if you
become totally disabled (for this purpose disability is as defined in Section
72(m)(7) of the Code); (d) in a series of substantially equal periodic payments
made not less frequently than annually for your life (or life expectancy) or for
the joint lives (or joint life expectancies) of you and your beneficiary;
(e)under an immediate annuity; or (f) which are allocable to Purchase Payments
made prior to August 14, 1982. With respect to (d) above, if the series of
substantially equal periodic payments is modified before the later of your
attaining age 59-1/2 or 5 years from the date of the first periodic payment,
then the tax for the year of the modification is increased by an amount equal to
the tax which would have been imposed (the 10% penalty tax) but for the
exception, plus interest for the tax years in which the exception was used.
The Contract provides that upon the death of the Annuitant prior to the Maturity
Date, the death proceeds will be paid to the beneficiary. Such payments made
upon the death of the Annuitant who is not the Owner of the Contract do not
qualify for the death of Owner exception described above, and will be subject to
the ten (10%) percent distribution penalty unless the beneficiary is 59-1/2
years old or one of the other exceptions to the penalty applies.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals -- Qualified Contracts" below.)
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QUALIFIED PLANS
The Contracts are designed to be suitable for use under various types of
Qualified Plans. Taxation of participants in each Qualified Plan varies with the
type of plan and terms and conditions of each specific plan. Owners, annuitants
and beneficiaries are cautioned that benefits under a Qualified Plan may be
subject to the terms and conditions of the plan regardless of the terms and
conditions of the Contracts issued pursuant to the plan. Some retirement plans
are subject to distribution and other requirements that are not incorporated
into the Company's administrative procedures. The Company is not bound by the
terms and conditions of such plans to the extent such terms conflict with the
terms of a Contract, unless the Company specifically consents to be bound.
Owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law.
A qualified contract will not provide any necessary or additional tax deferral
if it is used to fund a qualified plan that is tax deferred. However, the
contract has features and benefits other than tax deferral that may make it an
appropriate investment for a qualified plan. Following are general descriptions
of the types of Qualified Plans with which the Contracts may be used. Such
descriptions are not exhaustive and are for general informational purposes only.
The tax rules regarding Qualified Plans are very complex and will have differing
applications depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals -- Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
A. TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals Qualified Contracts" and "Tax-Sheltered Annuities --
Withdrawal Limitations" below.) Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
B. INDIVIDUAL RETIREMENT ANNUITIES
The Contracts offered by the prospectus are designed to be suitable for use as
an Individual Retirement Annuity (IRA). Generally, individuals who purchase IRAs
are not taxed on increases to the value of the
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contributions until distribution occurs. Following is a general description of
IRAs with which the Contract may be used. The description is not exhaustive and
is for general informational purposes only.
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an IRA. Under applicable limitations,
certain amounts may be contributed to an IRA which will be deductible from the
individual's taxable income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. (See "Tax
Treatment of Withdrawals -- Qualified Contracts" below.) Under certain
conditions, distributions from other IRAs and other Qualified Plans may be
rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
SIMPLE IRAS
Section 408(p) of the Code permits certain employers (generally those with less
than 100 employees) to establish a retirement program for employees using
Savings Incentive Match Plan Retirement Annuities ("SIMPLE IRA"). SIMPLE IRA
programs can only be established with the approval of and adoption by the
employer of the Contract Owner of the SIMPLE IRA. Contributions to SIMPLE IRAs
will be made pursuant to a salary reduction agreement in which an Owner would
authorize his/her employer to deduct a certain amount from his/her pay and
contribute it directly to the SIMPLE IRA. The Owner's employer will also make
contributions to the SIMPLE IRA in amounts based upon certain elections of the
employer. The only contributions that can be made to a SIMPLE IRA are salary
reduction contributions and employer contributions as described above, and
rollover contributions from other SIMPLE IRAs. Purchasers of Contracts to be
qualified as SIMPLE IRAs should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
ROTH IRAS
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues apply to all of
a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held a Roth IRA for at
least five taxable years and, in addition, that the distribution is made: (i)
after the individual reaches age 59-1/2, (ii) on the individual's death or
disability, or (iii) as a qualified first-time home purchase (subject to a
$10,000 lifetime maximum) for the individual, a spouse, child, grandchild, or
ancestor. Any distribution which is not a qualified distribution is taxable to
the extent of earnings in the distribution. Distributions are treated as made
from contributions first and therefore no distributions are taxable until
distributions exceed the amount of contributions and conversions to the Roth
IRA. The 10% penalty tax and the regular IRA exceptions to the 10% penalty tax
apply to taxable distributions from a Roth IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, ("conversion deposits") unless the individual has adjusted gross income
over $100,000 or the individual is a married taxpayer filing a
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separate return. The individual must pay tax on any portion of the IRA being
rolled over that represents income or a previously deductible IRA contribution.
However, for rollovers in 1998, the individual may pay that tax ratably over the
four taxable year period beginning with tax year 1998. In addition, distribution
of amounts attributable to conversion deposits held for less than 5 taxable
years will also be subject to the penalty tax.
Purchasers of Contracts intended to be qualified as a Roth IRA should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
C. PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employees until distributed from the
Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Special considerations apply to plans covering self-employed
individuals, including limitations on contributions and benefits for key
employees or 5 percent owners. (See "Tax Treatment of Withdrawals -- Qualified
Contracts" below.) Purchasers of Contracts for use with Pension or Profit
Sharing Plans should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
D. GOVERNMENT AND TAX-EXEMPT ORGANIZATION'S DEFERRED COMPENSATION
PLAN UNDER SECTION 457
Under Code provisions, employees and independent contractors performing services
for state and local governments and other tax-exempt organizations may
participate in Deferred Compensation Plans under Section 457 of the Code. The
amounts deferred under a Plan which meets the requirements of Section 457 of the
Code are not taxable as income to the participant until paid or otherwise made
available to the participant or beneficiary. As a general rule, the maximum
amount which can be deferred in any one year is the lesser of $8,000 or 33-1/3
percent of the participant's includible compensation. However, in limited
circumstances, the plan may provide for additional catch-up contributions in
each of the last three years before normal retirement age. Furthermore, the Code
provides additional requirements and restrictions regarding eligibility and
distributions.
All of the assets and income of a Plan established by a governmental employer
after August 20, 1996, must be held in trust for the exclusive benefit of
participants and their beneficiaries. For this purpose, custodial accounts and
certain annuity contracts are treated as trusts. Plans that were in existence on
August 20, 1996 may be amended to satisfy the trust and exclusive benefit
requirements any time prior to January 1, 1999, and must be amended not later
than that date to continue to receive favorable tax treatment. The requirement
of a trust does not apply to amounts under a Plan of a tax exempt
(non-governmental) employer. In addition, the requirement of a trust does not
apply to amounts under a Plan of a governmental employer if the Plan is not an
eligible plan within the meaning of section 457(b) of the Code. In the absence
of such a trust, amounts under the plan will be subject to the claims of the
employer's general creditors.
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In general, distributions from a Plan are prohibited under section 457 of the
Code unless made after the participating employee:
attains age 70-1/2,
separates from service,
dies, or
suffers an unforeseeable financial emergency as defined in the Code.
Under present federal tax law, amounts accumulated in a Plan under section 457
of the Code cannot be transferred or rolled over on a tax-deferred basis except
for certain transfers to other Plans under section 457.
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). This penalty is increased to 25% instead of 10% for SIMPLE IRAs if
distribution occurs within the first two years after the Owner first
participated in the SIMPLE IRA. To the extent amounts are not includible in
gross income because they have been rolled over to an IRA or to another eligible
Qualified Plan, no tax penalty will be imposed. The tax penalty will not apply
to the following distributions: (a) made on or after the date on which the Owner
or Annuitant (as applicable) reaches age 59-1/2; (b) following the death or
disability of the Owner or Annuitant (as applicable) (for this purpose
disability is as defined in Section 72(m) (7) of the Code); (c) after separation
from service, distributions that are part of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the Owner or Annuitant (as applicable) or the joint lives (or
joint life expectancies) of such Owner or Annuitant (as applicable) and his or
her designated Beneficiary; (d) to an Owner or Annuitant (as applicable) who has
separated from service after he has attained age 55; (e) made to the Owner or
Annuitant (as applicable) to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 to the Owner or Annuitant
(as applicable) for amounts paid during the taxable year for medical care; (f)
made to an alternate payee pursuant to a qualified domestic relations order; (g)
made on account of an IRS levy upon the qualified contract; (h) from an
Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Owner or Annuitant (as
applicable) has received unemployment compensation for at least 12 weeks (this
exception will no longer apply after the Owner or Annuitant (as applicable) has
been re-employed for at least 60 days); (i) from an Individual Retirement
Annuity made to the Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the qualified higher education expenses (as defined
in Section 72(t)(7) of the Code) of the Owner or Annuitant (as applicable) for
the taxable year; and (j) distributions up to $10,000 from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8) of
the Code). The exceptions stated in (d) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in (c) above applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service. With respect to (c) above, if the series of
substantially equal periodic payments is modified before the later of your
attaining age 59-1/2 or 5 years from the date of the first periodic payment,
then the tax for the year of the modification is increased by an amount equal to
the tax which would have been imposed (the 10% penalty tax) but for the
exception, plus interest for the tax years in which the exception was used.
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TAX-SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59-1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); (5) in the case of hardship; or (6) made pursuant
to a qualified domestic relations order, if otherwise permissible. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers and transfers between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
MANDATORY DISTRIBUTIONS -- QUALIFIED PLANS
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70-1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
ANNUITY PROVISIONS
DETERMINATION OF AMOUNT OF THE FIRST MONTHLY VARIABLE ANNUITY PAYMENT. On or
after the Maturity Date when annuity payments commence, we determine the value
of the Individual Account as the total of the product(s) of:
(a) the value of an Accumulation Unit for each Investment Option at the end of
the Valuation Period immediately before 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 Option as of the date the annuity is to commence. We
will deduct any applicable premium taxes from the Individual Account value.
We then calculate the amount of the first monthly variable annuity payment by
multiplying the Individual Account Value less any outstanding loans and
applicable charges, which is to be applied to provide variable payments, by the
amount of first monthly payment in accordance with annuity tables contained in
the Contract. The amount of the first monthly payment varies according to the
form of annuity you select, the age of the annuitant (for certain options) and
the assumed net investment rate you select. The standard assumed investment rate
(AIR) is 3%. However, you may select a 5% AIR or such other rate as the Company
may offer prior to the Maturity Date.
The AIR 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. If you select a 5% rate, rather than the standard 3% rate,
it 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
was equal to the assumed rate, the annuity payments would be level during that
period.
15
<PAGE>
If a greater first monthly payment would result, Conseco 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. On the Maturity Date, 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 the 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 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 for the immediately preceding Valuation Period and
(ii) a factor to neutralize the assumed net investment rate built into the
annuity tables, for it is replaced by the actual net investment rate in step
(i). The daily factor for a 3 percent assumed net investment rate is .99991902;
for a 5 percent rate, the daily factor is .99986634.
AMOUNTS OF SUBSEQUENT MONTHLY VARIABLE ANNUITY PAYMENTS. The amounts of
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 Investment Option.
If payments were based on the investment experience of more than one Investment
Option, the same procedure would be followed to determine the portion of the
monthly payment attributed to each Investment Option.
2. FIRST MONTHLY PAYMENT. Assume that at the Maturity Date 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 the
Maturity Date was $1.40000000; this produces a total value for the Individual
sub-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 $5.22 per $1,000 of value applied; the first monthly
payment to the annuitant would thus be 56 multiplied by $5.22, or $292.32.
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: $292.32 $1.30000000 produces 224.862 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
.99753980 to neutralize the assumed net investment rate of 3 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 1.00751520. This is then multiplied by the
Annuity Unit value for the Valuation Period preceding the due
16
<PAGE>
date of the second monthly payment (assume this value to be $1.30000000) to
produce the current Annuity Unit value, $1.30976976.
The second monthly payment is then calculated by multiplying the constant number
of Annuity Units by the current Annuity Unit value: 224.862 times $1.30976976
produces a payment of $294.52.
FINANCIAL STATEMENTS
Audited financial statements of Conseco Variable Annuity Account E and Conseco
Variable Insurance Company as of December 31, 1999 are included herein.
17
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
===================================================================================================================================
NET ASSET
SHARES COST VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in portfolio shares, at net asset value (Note 2):
The Alger American Fund:
Growth Portfolio ................................................................. 212,369.9 $10,954,993 $ 13,672,372
Leveraged AllCap Portfolio ....................................................... 323,992.7 12,113,548 18,781,855
MidCap Growth Portfolio .......................................................... 103,913.7 2,696,745 3,349,138
Small Capitalization Portfolio ................................................... 212,283.9 9,024,458 11,707,458
American Century Variable Portfolios, Inc:
Income and Growth Fund ........................................................... 117,633.5 820,625 941,068
International Fund ............................................................... 208,641.0 1,626,572 2,608,013
Value Fund ....................................................................... 626,328.8 4,078,007 3,726,656
Berger Institutional Products Trust:
100 Fund ......................................................................... 148,333.7 1,893,245 2,850,973
Growth and Income Fund ........................................................... 287,825.4 4,885,343 7,612,981
Small Company Growth Fund ........................................................ 104,936.8 1,635,128 2,467,064
BIAM International Fund .......................................................... 204,789.4 2,063,392 2,996,069
Conseco Series Trust:
Balanced Portfolio ............................................................... 1,486,856.9 20,915,762 21,783,656
Equity Portfolio ................................................................. 1,765,906.2 38,863,968 40,934,975
Fixed Income Portfolio ........................................................... 763,707.6 7,575,032 7,167,777
Government Securities Portfolio .................................................. 435,108.5 4,980,560 4,769,239
Money Market Portfolio ........................................................... 14,709,626.8 14,709,627 14,709,627
Dreyfus Stock Index Fund ........................................................... 1,289,837.9 37,449,042 49,594,269
The Dreyfus Socially Responsible Growth Fund, Inc .................................. 248,528.3 7,649,170 9,710,001
Dreyfus Variable Investment Fund:
Disciplined Stock Portfolio ...................................................... 15,469.5 376,282 416,439
International Value Portfolio .................................................... 6,465.2 94,504 101,309
Federated Insurance Series:
High Income Bond Fund II ......................................................... 427,031.7 4,546,053 4,372,805
International Equity Fund II ..................................................... 62,764.5 1,034,358 1,734,811
Utility Fund II .................................................................. 197,791.4 2,836,065 2,838,306
Invesco Variable Investment Funds, Inc:
Equity Income Fund................................................................ 27,369.7 526,682 575,038
High Yield Fund................................................................... 422,498.5 5,021,340 4,862,957
Janus Aspen Series:
Aggressive Growth Portfolio ...................................................... 267,419.3 8,370,700 15,962,256
Growth Portfolio ................................................................. 941,137.1 22,225,389 31,669,262
Worldwide Growth Portfolio ....................................................... 993,430.2 27,081,865 47,436,293
Lazard Retirement Series, Inc:
Equity Portfolio ................................................................. 87,920.4 927,558 1,013,722
Small Cap Portfolio .............................................................. 19,451.4 188,351 191,013
Lord Abbett Series Fund, Inc
Growth and Income Portfolio ...................................................... 41,458.8 918,907 918,726
Mitchell Hutchins Series Trust:
Growth and Income Portfolio ...................................................... 4,739.2 70,390 77,438
Neuberger Berman Advisers Management Trust:
Limited Maturity Bond Portfolio .................................................. 97,047.3 1,306,863 1,284,906
Partners Portfolio ............................................................... 274,020.8 5,205,965 5,381,769
Strong Variable Insurance Funds, Inc:
Mid Cap Growth Fund II ........................................................... 144,973.8 3,256,292 4,402,854
Strong Opportunity Fund II, Inc .................................................... 69,503.1 1,474,480 1,806,384
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund .............................................................. 214,785.1 2,375,658 2,296,053
Worldwide Emerging Markets Fund .................................................. 164,529.1 1,540,950 2,346,184
Worldwide Hard Assets Fund (formerly Gold and Natural
Resources Fund) (Note 1) ....................................................... 128,733.9 1,526,857 1,410,924
Worldwide Real Estate Fund ....................................................... 7,204.5 69,783 65,921
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets ................................................................................................. 350,548,561
Liabilities:
Net amounts due to Conseco Variable Insurance Company ............................................................. 408,722
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets (Note 6) ............................................................................................. $350,139,839
===================================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
18
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
===================================================================================================================================
TOTAL VALUE
UNITS UNIT VALUE OF UNITS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets attributable to:
Contract owners' deferred annuity reserves:
The Alger American Fund:
Growth Portfolio ......................................................... 5,480,300.6 $ 2.491860 $ 13,656,143
Leveraged AllCap Portfolio ............................................... 3,739,665.2 5.016250 18,759,096
MidCap Growth Portfolio .................................................. 1,789,442.1 1.869335 3,345,066
Small Capitalization Portfolio ........................................... 5,276,834.2 2.215940 11,693,147
American Century Variable Portfolios, Inc.:
Income and Growth Fund ................................................... 746,541.0 1.259139 939,999
International Fund ....................................................... 1,258,065.8 2.070551 2,604,890
Value Fund ............................................................... 3,004,508.6 1.238881 3,722,229
Berger Institutional Products Trust:
100 Fund ................................................................. 1,462,280.5 1.947260 2,847,440
Growth and Income Fund ................................................... 2,890,714.8 2.630360 7,603,620
Small Company Growth Fund ................................................ 1,102,899.8 2.234216 2,464,116
BIAM International Fund .................................................. 2,081,810.5 1.439253 2,996,253
Conseco Series Trust:
Balanced Portfolio ....................................................... 7,850,427.1 2.771503 21,757,485
Equity Portfolio ......................................................... 10,049,304.8 4.068452 40,885,109
Fixed Income Portfolio ................................................... 5,323,180.1 1.344927 7,159,291
Government Securities Portfolio .......................................... 3,757,732.3 1.267688 4,763,633
Money Market Portfolio ................................................... 12,049,203.3 1.219157 14,689,873
Dreyfus Stock Index Fund ................................................... 17,965,037.4 2.757290 49,534,816
The Dreyfus Socially Responsible Growth Fund, Inc. ......................... 3,333,181.2 2.909651 9,698,393
Dreyfus Variable Investment Fund:
Disciplined Stock Portfolio .............................................. 332,230.6 1.252051 415,970
International Value Portfolio ............................................ 85,251.5 1.186966 101,191
Federated Insurance Series:
High Income Bond Fund II ................................................. 3,165,625.8 1.378642 4,364,264
International Equity Fund II ............................................. 645,820.6 2.683147 1,732,831
Utility Fund II .......................................................... 1,632,263.7 1.736793 2,834,904
Invesco Variable Investment Funds, Inc.:
Equity Income Fund ....................................................... 492,759.7 1.165618 574,369
High Yield Fund .......................................................... 4,745,256.4 1.023611 4,857,298
Janus Aspen Series:
Aggressive Growth Portfolio .............................................. 3,617,752.9 4.406952 15,943,265
Growth Portfolio ......................................................... 10,090,318.2 3.134816 31,631,290
Worldwide Growth Portfolio ............................................... 12,380,622.3 3.826970 47,380,277
Lazard Retirement Series, Inc.:
Equity Portfolio ......................................................... 899,537.0 1.125543 1,012,468
Small Cap Portfolio ...................................................... 215,217.6 0.886723 190,838
Lord Abbett Series Fund, Inc.:
Growth and Income Portfolio .............................................. 793,510.8 1.156495 917,691
Mitchell Hutchins Series Trust:
Growth and Income Portfolio .............................................. 71,828.8 1.076908 77,353
Neuberger Berman Advisers Management Trust:
Limited Maturity Bond Portfolio .......................................... 1,194,491.4 1.074523 1,283,509
Partners Portfolio ....................................................... 3,981,862.2 1.348993 5,371,504
Strong Variable Insurance Funds, Inc.:
Mid Cap Growth Fund II ................................................... 1,457,235.0 3.017741 4,397,558
Strong Opportunity Fund II , Inc. .......................................... 984,898.5 1.831885 1,804,221
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund ...................................................... 2,183,728.7 1.050195 2,293,341
Worldwide Emerging Markets Fund .......................................... 1,845,366.5 1.269899 2,343,429
Worldwide Hard Assets Fund
(formerly Gold and Natural Resources Fund) (Note 1) .................... 1,426,277.7 0.988034 1,409,211
Worldwide Hard Assets Fund (Note 1) ..................................... 65.5 1.378275 91
Worldwide Real Estate Fund ............................................... 80,034.5 0.822657 65,841
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................................................. $350,123,313
===================================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
19
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
DECEMBER 31, 1999
===============================================================================
REPORTED VALUE
- -------------------------------------------------------------------------------
Net assets attributable to contract owners'
deferred annuity reserves (from page 3) ....................... $350,123,313
- -------------------------------------------------------------------------------
Contract owners' annuity payment reserves:
Conseco Series Trust:
Money Market Portfolio .................................. 5,534
Federated Insurance Series:
High Income Bond Fund II ................................ 5,388
Neuberger Berman Advisers Management Trust:
Partners Portfolio ...................................... 5,604
- -------------------------------------------------------------------------------
Net assets attributable to contract owners'
annuity payment reserves............................. 16,526
- --------------------------------------------------------------------------------
Net assets......................................... $350,139,839
================================================================================
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
================================================================================
THIS PAGE INTENTIONALLY LEFT BLANK.
21
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
===================================================================================================================================
AMERICAN
CENTURY
VARIABLE
THE ALGER AMERICAN FUNDS PORTFOLIOS
--------------------------------------------------------- ----------
LEVERAGED SMALL INCOME AND
GROWTH ALL CAP MIDCAP CAPITALIZATION GROWTH
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends from investments in portfolio shares......... $ 776,884 $ 522,645 $ 343,247 $ 749,200 $ 96
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fees........................ 115,958 124,584 30,871 92,307 7,684
Administrative fees.................................... 13,915 14,950 3,704 11,077 922
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses....................................... 129,873 139,534 34,575 103,384 8,606
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)..................... 647,011 383,111 308,672 645,816 (8,510)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) and unrealized
appreciation (depreciation) of investments:
Net realized gains (losses) on sales of
investments in portfolio shares ................... 102,656 872,252 78,297 80,293 18,320
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares ................ 2,011,423 5,347,823 339,394 2,491,281 93,713
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments
in portfolio shares ........................... 2,114,079 6,220,075 417,691 2,571,574 112,033
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ............................. $ 2,761,090 $ 6,603,186 $ 726,363 $ 3,217,390 $ 103,523
===================================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
===================================================================================================================================
AMERICAN
CENTURY
VARIABLE
THE ALGER AMERICAN FUNDS PORTFOLIOS
--------------------------------------------------------- ----------
LEVERAGED SMALL INCOME AND
GROWTH ALL CAP MIDCAP CAPITALIZATION GROWTH
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss) .......................... $ 647,011 $ 383,111 $ 308,672 $ 645,816 $ (8,510)
Net realized gains (losses) on sales of investments
in portfolio shares ................................. 102,656 872,252 78,297 80,293 18,320
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares .................. 2,011,423 5,347,823 339,394 2,491,281 93,713
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ................................. 2,761,090 6,603,186 726,363 3,217,390 103,523
- -----------------------------------------------------------------------------------------------------------------------------------
Changes from contract owners' transactions:
Net contract purchase payments ........................ 4,009,371 3,789,407 725,957 860,397 469, 755
Contract redemptions .................................. (385,154) (247,907) (83,518) (457,073) (8,847)
Net transfers ......................................... 2,263,279 3,593,047 (494,377) 2,156,624 143,774
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from contract owners' transactions ............ 5,887,496 7,134,547 148,062 2,559,948 604,682
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets ....... 8,648,586 13,737,733 874,425 5,777,338 708,205
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, beginning of year ............................ 5,007,557 5,021,363 2,470,641 5,915,809 231,794
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (Note 6) ............ $ 13,656,143 $ 18,759,096 $ 3,345,066 $ 11,693,147 $ 939,999
===================================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AMERICAN CENTURY
VARIABLE PORTFOLIOS
(CONTINUED) BERGER INSTITUTIONAL PRODUCTS TRUST CONSECO SERIES TRUST PORTFOLIOS
- ---------------------------- -------------------------------------------------------- ------------------------------------------
GROWTH AND SMALL BIAM FIXED
INTERNATIONAL VALUE 100 INCOME COMPANY INTERNATIONAL BALANCED EQUITY INCOME
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 380,194 $ 450 $ -- $ -- $ 16,494 $ 3,987,902 $ 11,479,520 $ 411,110
- ------------------------------------------------------------------------------------------------------------------------------------
20,304 47,022 28,774 92,882 17,904 28,170 260,655 396,895 79,131
2,436 5,643 3,453 11,146 2,149 3,380 31,279 47,627 9,496
- ------------------------------------------------------------------------------------------------------------------------------------
22,740 52,665 32,227 104,028 20,053 31,550 291,934 444,522 88,627
- ------------------------------------------------------------------------------------------------------------------------------------
(22,740) 327,529 (31,777) (104,028) (20,053) (15,056) 3,695,968 11,034,998 322,483
- ------------------------------------------------------------------------------------------------------------------------------------
63,104 (77,104) 99,951 1,243,906 192,400 8,942 349,105 324,163 (80,270)
937,729 (302,377) 859,250 1,969,994 866,219 690,015 1,152,263 1,730,768 (347,279)
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,833 (379,481) 959,201 3,213,900 1,058,619 698,957 1,501,368 2,054,931 (427,549)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 978,093 $ (51,952) $ 927,424 $ 3,109,872 $ 1,038,566 $ 683,901 $ 5,197,336 $ 13,089,929 $ (105,066)
====================================================================================================================================
AMERICAN CENTURY
VARIABLE PORTFOLIOS
(CONTINUED) BERGER INSTITUTIONAL PRODUCTS TRUST CONSECO SERIES TRUST PORTFOLIOS
- ---------------------------- -------------------------------------------------------- ------------------------------------------
GROWTH AND SMALL BIAM FIXED
INTERNATIONAL VALUE 100 INCOME COMPANY INTERNATIONAL BALANCED EQUITY INCOME
====================================================================================================================================
$ (22,740) $ 327,529 $ (31,777) $ (104,028) $ (20,053) $ (15,056) $ 3,695,968 $ 11,034,998 $ 322,483
63,104 (77,104) 99,951 1,243,906 192,400 8,942 349,105 324,163 (80,270)
937,729 (302,377) 859,250 1,969,994 866,219 690,015 1,152,263 1,730,768 (347,279)
- ------------------------------------------------------------------------------------------------------------------------------------
978,093 (51,952) 927,424 3,109,872 1,038,566 683,901 5,197,336 13,089,929 (105,066)
- ------------------------------------------------------------------------------------------------------------------------------------
203,602 505,927 352,778 1,430,861 286,430 22,843 2,692,288 4,249,667 906,132
(24,933) (153,412) (112,033) (793,457) (65,927) (1,166) (1,238,845) (1,658,283) (405,393)
33,834 13,458 (252,139) (2,685,701) 148,372 (14,553) (7,694,332) (5,608,028) 840,161
- ------------------------------------------------------------------------------------------------------------------------------------
212,503 365,973 (11,394) (2,048,297) 368,875 7,124 (6,240,889) (3,016,644) 1,340,900
- ------------------------------------------------------------------------------------------------------------------------------------
1,190,596 314,021 916,030 1,061,575 1,407,441 691,025 (1,043,553) 10,073,285 1,235,834
- ------------------------------------------------------------------------------------------------------------------------------------
1,414,294 3,408,208 1,931,410 6,542,045 1,056,675 2,305,228 22,801,038 30,811,824 5,923,457
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,604,890 $ 3,722,229 $ 2,847,440 $ 7,603,620 $ 2,464,116 $ 2,996,253 $21,757,485 $ 40,885,109 $ 7,159,291
====================================================================================================================================
</TABLE>
23
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
STATEMENTS OF OPERATIONS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
====================================================================================================================================
CONSECO SERIES DREYFUS
TRUST PORTFOLIOS VARIABLE
(CONTINUED) INVESTMENT
--------------------------- ----------
DREYFUS
SOCIALLY DREYFUS
GOVERNMENT MONEY RESPONSIBLE STOCK DISCIPLINED
SECURITIES MARKET GROWTH INDEX STOCK
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends from investments in portfolio shares......... $ 208,403 $ 466,644 $ 323,807 $ 848,258 $ 3,882
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fees........................ 35,599 120,813 100,043 514,342 3,126
Administrative fees.................................... 4,272 14,497 12,005 61,721 375
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses....................................... 39,871 135,310 112,048 576,063 3,501
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ...................... 168,532 331,334 211,759 272,195 381
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) and unrealized appreciation
(depreciation) of investments:
Net realized gains (losses) on sales of investments
in portfolio shares .............................. (53,419) -- 569,099 750,331 27,382
Net change in unrealized appreciation
(depreciation) of investments
in portfolio shares ...................... (216,869) -- 1,295,573 6,256,103 1,880
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments
in portfolio shares ................. (270,288) -- 1,864,672 7,006,434 29,262
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations ........ $ (101,756) $ 331,334 $ 2,076,431 $ 7,278,629 $ 29,643
====================================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1999
====================================================================================================================================
CONSECO SERIES DREYFUS
TRUST PORTFOLIOS VARIABLE
(CONTINUED) INVESTMENT
--------------------------- ----------
DREYFUS
SOCIALLY DREYFUS
GOVERNMENT MONEY RESPONSIBLE STOCK DISCIPLINED
SECURITIES MARKET GROWTH INDEX STOCK
====================================================================================================================================
Changes from operations:
Net investment income (loss)........................... $ 168,532 $ 331,334 $ 211,759 $ 272,195 $ 381
Net realized gains (losses) on sales of investments
in portfolio shares ................................. (53,419) -- 569,099 750,331 27,382
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares .................. (216,869) -- 1,295,573 6,256,103 1,880
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (101,756) 331,334 2,076,431 7,278,629 29,643
- ------------------------------------------------------------------------------------------------------------------------------------
Changes from contract owners' transactions:
Net contract purchase payments......................... 413,613 5,982,018 2,198,167 9,744,333 243,883
Contract redemptions................................... (152,438) (1,323,488) (331,772) (2,102,160) (1,559)
Net transfers ......................................... 2,570,373 2,668,928 (751,898) 2,613,043 (149,676)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from contract
owners' transactions .............................. 2,831,548 7,327,458 1,114,497 10,255,216 92,648
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets ........... 2,729,792 7,658,792 3,190,928 17,533,845 122,291
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, beginning of year ............................ 2,033,841 7,036,615 6,507,465 32,000,971 293,679
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (Note 6) ................ $ 4,763,633 $ 14,695,407 $ 9,698,393 $ 49,534,816 $ 415,970
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
DREYFUS
VARIABLE
INVESTMENT
(CONTINUED) FEDERATED INSURANCE SERIES FUNDS INVESCO VARIABLE INV. FUNDS JANUS ASPEN SERIES PORTFOLIOS
- ---------- ----------------------------------------- --------------------------- -------------------------------------------
INTERNATIONAL HIGH INCOME INTERNATIONAL EQUITY AGGRESSIVE WORLDWIDE
VALUE BOND II EQUITY II UTILITY II INCOME HIGH YIELD GROWTH GROWTH GROWTH
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8,041 $ 595,613 $ 53,628 $ 268,51 $ 9,632 $ 325,343 $ 293,381 $ 133,950 $ 63,086
- ------------------------------------------------------------------------------------------------------------------------------------
879 76,596 22,860 41,951 5,554 20,963 106,419 238,216 434,997
105 9,192 2,743 5,034 667 2,515 12,770 28,586 52,200
- ------------------------------------------------------------------------------------------------------------------------------------
984 85,788 25,603 46,985 6,221 23,478 119,189 266,802 487,197
- ------------------------------------------------------------------------------------------------------------------------------------
7,057 509,825 28,025 221,533 3,411 301,865 174,192 (132,852) (424,111)
- ------------------------------------------------------------------------------------------------------------------------------------
91 (249,357) 146,565 102,468 7,321 1,541 1,414,594 334,162 2,571,165
10,335 (209,064) 767,800 (287,128) 43,945 (146,439) 6,256,473 7,430,621 15,961,067
- ------------------------------------------------------------------------------------------------------------------------------------
10,426 (458,421) 914,365 (184,660) 51,266 (144,898) 7,671,067 7,764,783 18,532,232
- ------------------------------------------------------------------------------------------------------------------------------------
$ 17,483 $ 51,404 $ 942,390 $ 36,873 $ 54,677 $ 156,967 $ 7,845,259 $ 7,631,931 $ 18,108,121
====================================================================================================================================
DREYFUS
VARIABLE
INVESTMENT
(CONTINUED) FEDERATED INSURANCE SERIES FUNDS INVESCO VARIABLE INV. FUNDS JANUS ASPEN SERIES PORTFOLIOS
- ---------- -------------------------------------------- ------------------------- ------------------------------------------
INTERNATIONAL HIGH INCOME INTERNATIONAL EQUITY AGGRESSIVE WORLDWIDE
VALUE BOND II EQUITY II UTILITY II INCOME HIGH YIELD GROWTH GROWTH GROWTH
====================================================================================================================================
$ 7,057 $ 509,825 $ 28,025 $ 221,533 $ 3,411 $ 301,865 $ 174,192 $ (132,852) $ (424,111)
91 (249,357) 146,565 102,468 7,321 1,541 1,414,594 334,162 2,571,165
10,335 (209,064) 767,800 (287,128) 43,945 (146,439) 6,256,473 7,430,621 15,961,067
- ------------------------------------------------------------------------------------------------------------------------------------
17,483 51,404 942,390 36,873 54,677 156,967 7,845,259 7,631,931 18,108,121
- ------------------------------------------------------------------------------------------------------------------------------------
29,652 930,590 85,680 937,941 167,974 403,084 2,346,950 5,238,650 7,151,112
(120) (538,823) (188,919) (227,339) (17,639) (122,694) (355,291) (1,184,221) (1,878,924)
9,328 (2,847,499) (897,172) (1,299,462) 223,672 4,277,974 1,143,153 8,275,443 (3,618,581)
- ------------------------------------------------------------------------------------------------------------------------------------
38,860 (2,455,732) (1,000,411) (588,860) 374,007 4,558,364 3,134,812 12,329,872 1,653,607
- ------------------------------------------------------------------------------------------------------------------------------------
56,343 (2,404,328) (58,021) (551,987) 428,684 4,715,331 10,980,071 19,961,803 19,761,728
- ------------------------------------------------------------------------------------------------------------------------------------
44,848 6,773,980 1,790,852 3,386,891 145,685 141,967 4,963,194 11,669,487 27,618,549
- ------------------------------------------------------------------------------------------------------------------------------------
$ 101,191 $ 4,369,652 $ 1,732,831 $ 2,834,904 $ 574,369 $ 4,857,298 $ 15,943,265 $ 31,631,290 $ 47,380,277
====================================================================================================================================
</TABLE>
25
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
STATEMENTS OF OPERATIONS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
====================================================================================================================================
NEUBERGER
BERMAN
ADVISERS
MANAGEMENT
LAZARD RETIREMENT TRUST
SERIES PORTFOLIOS PORTFOLIOS
--------------------------- ----------
MITCHELL
LORD ABBETT HUTCHINS
SERIES TRUST SERIES TRUST LIMITED
GROWTH AND GROWTH AND MATURITY
EQUITY SMALL CAP INCOME INCOME BOND
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends from investments in portfolio shares......... $ 36,196 $ 2,590 $ 70,646 $ 1 $ 51,597
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fees........................ 14,642 1,461 7,538 940 13,084
Administrative fees.................................... 1,757 175 905 113 1,570
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses....................................... 16,399 1,636 8,443 1,053 14,654
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)..................... 19,797 954 62,203 (1,052) 36,943
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) and unrealized appreciation
(depreciation) of investments:
Net realized gains (losses) on sales of investments
in portfolio shares ............................... 61,034 (1,200) 23,084 (136) 3,040
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares ................ 1,467 (2,123) (7,310) (5,478) (38,552)
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments
in portfolio shares .......................... 62,501 (3,323) 15,774 (5,614) (35,512)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ........................... $ 82,298 $ (2,369) $ 77,977 $ (6,666) $ 1,431
====================================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1999
====================================================================================================================================
NEUBERGER
BERMAN
ADVISERS
MANAGEMENT
LAZARD RETIREMENT TRUST
SERIES PORTFOLIOS PORTFOLIOS
--------------------------- ----------
MITCHELL
LORD ABBETT HUTCHINS
SERIES TRUST SERIES TRUST LIMITED
GROWTH AND GROWTH AND MATURITY
EQUITY SMALL CAP INCOME INCOME BOND
====================================================================================================================================
Changes from operations:
Net investment income (loss) .......................... $ 19,797 $ 954 $ 62,203 $ (1,052) $ 36,943
Net realized gains (losses) on sales of investments
in portfolio shares ................................. 61,034 (1,200) 23,084 (136) 3,040
Net change in unrealized appreciation
(depreciation) of investments in portfolio shares ... 1,467 (2,123) (7,310) (5,478) (38,552)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ................................ 82,298 (2,369) 77,977 (6,666) 1,431
- ------------------------------------------------------------------------------------------------------------------------------------
Changes from contract owners' transactions:
Net contract purchase payments ........................ 75,768 94,818 341,535 34,644 228,919
Contract redemptions .................................. (17,879) (2,007) (15,618) (1,378) (23,338)
Net transfers ......................................... (316,901) (48,568) 199,363 (145,156) (79,322)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from contract owners' transactions .............. (259,012) 44,243 525,280 (111,890) 126,259
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets ........ (176,714) 41,874 603,257 (118,556) 127,690
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, beginning of year ............................ 1,189,182 148,964 314,434 195,909 1,155,819
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (Note 6) ............. $ 1,012,468 $ 190,838 $ 917,691 $ 77,353 $ 1,283,509
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
NEUBERGER
BERMAN
ADVISERS
MANAGEMENT STRONG
TRUST VARIABLE
PORTFOLIOS INSURANCE
(CONTINUED) FUNDS VAN ECK WORLDWIDE INSURANCE TRUST FUNDS
- ----------- ----------- ---------------------------------------------------------------------
(NOTE 1)
STRONG OLD
MID CAP OPPORTUNITY EMERGING HARD REAL HARD COMBINED
PARTNERS GROWTH II FUND II BOND MARKETS ASSETS ESTATE ASSETS TOTAL
================================================================================================================ ==============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 277,185 $ 1,822 $ 220,843 $ 182,453 $ -- $ 18,473 $ 742 $ -- $ 23,132,476
- -------------------------------------------------------------------------------------------------------------- --------------
95,726 27,334 25,173 31,551 18,701 17,441 579 -- 3,319,669
11,487 3,280 3,021 3,786 2,244 2,093 69 -- 398,359
- -------------------------------------------------------------------------------------------------------------- --------------
107,213 30,614 28,194 35,337 20,945 19,534 648 -- 3,718,028
- -------------------------------------------------------------------------------------------------------------- --------------
169,972 (28,792) 192,649 147,116 (20,945) (1,061) 94 -- 19,414,448
- -------------------------------------------------------------------------------------------------------------- --------------
(295,817) 603,446 23,921 46,471 (63,354) (218,833) 1,419 -- 9,081,033
481,873 1,017,981 319,256 (447,508) 1,204,979 447,348 (3,517) -- 57,972,929
- -------------------------------------------------------------------------------------------------------------- --------------
186,056 1,621,427 343,177 (401,037) 1,141,625 228,515 (2,098) -- 67,053,962
- -------------------------------------------------------------------------------------------------------------- --------------
$ 356,028 $ 1,592,635 $ 535,826 $ (253,921) $ 1,120,680 $ 227,454 $ (2,004) $ -- $ 86,468,410
================================================================================================================================
====================================================================================================================================
NEUBERGER
BERMAN
ADVISERS
MANAGEMENT STRONG
TRUST VARIABLE
PORTFOLIOS INSURANCE
(CONTINUED) FUNDS VAN ECK WORLDWIDE INSURANCE TRUST FUNDS
- ----------- ----------- ---------------------------------------------------------------------
(NOTE 1)
STRONG OLD
MID CAP OPPORTUNITY EMERGING HARD REAL HARD COMBINED
PARTNERS GROWTH II FUND II BOND MARKETS ASSETS ESTATE ASSETS TOTAL
================================================================================================================ ==================
$ 169,972 $ (28,792) $ 192,649 $ 147,116 $ (20,945) $ (1,061) $ 94 $ -- $ 19,414,448
(295,817) 603,446 23,921 46,471 (63,354) (218,833) 1,419 -- 9,081,033
481,873 1,017,981 319,256 (447,508) 1,204,979 447,348 (3,517) -- 57,972,929
- -------------------------------------------------------------------------------------------------------------- --------------
356,028 1,592,635 535,826 (253,921) 1,120,680 227,454 (2,004) -- 86,468,410
- -------------------------------------------------------------------------------------------------------------- --------------
1,134,268 655,531 476,339 121,658 282,332 94,334 7,278 (1,329) 59,925,157
(554,425) (67,689) (94,458) (198,760) (39,666) (111,836) (1,082) -- (15,189,471)
(3,673,565) 1,315,983 (854,529) (640,897) (131,603) (31,123) 26,384 -- 281,111
- -------------------------------------------------------------------------------------------------------------- --------------
(3,093,722) 1,903,825 (472,648) (717,999) 111,063 (48,625) 32,580 (1,329) 45,016,797
- -------------------------------------------------------------------------------------------------------------- --------------
(2,737,694) 3,496,460 63,178 (971,920) 1,231,743 178,829 30,576 (1,329) 131,485,207
- -------------------------------------------------------------------------------------------------------------- --------------
8,114,802 901,098 1,741,043 3,265,261 1,111,686 1,230,382 35,265 1,420 218,654,632
- -------------------------------------------------------------------------------------------------------------- --------------
$ 5,377,108 $ 4,397,558 $ 1,804,221 $ 2,293,341 $ 2,343,429 $ 1,409,211 $ 65,841 $ 91 $ 350,139,839
============================================================================================================== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
===================================================================================================================================
AMERICAN
CENTURY
VARIABLE
THE ALGER AMERICAN FUNDS PORTFOLIOS
--------------------------------------------------------- ----------
LEVERAGED SMALL INCOME AND
GROWTH ALL CAP MIDCAP CAPITALIZATION GROWTH
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends from investments in portfolio shares......... $ 374,254 $ 129,677 $ 129,887 $ 673,096 $ 1,070
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fees........................ 33,919 40,525 19,951 68,876 922
Administrative fees.................................... 4,070 4,863 2,394 8,265 111
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses....................................... 37,989 45,388 22,345 77,141 1,033
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .................... 336,265 84,289 107,542 595,955 37
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) and unrealized appreciation
(depreciation) of investments:
Net realized gains (losses) on sales of investments
in portfolio shares ............................... 8,941 374,595 (10,849) 363,207 (4,106)
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares ................ 676,695 1,030,800 313,657 (112,117) 26,730
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments
in portfolio shares ........................... 685,636 1,405,395 302,808 251,090 22,624
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ............................. $ 1,021,901 $ 1,489,684 $ 410,350 $ 847,045 $ 22,661
===================================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===================================================================================================================================
AMERICAN
CENTURY
VARIABLE
THE ALGER AMERICAN FUNDS PORTFOLIOS
--------------------------------------------------------- ----------
LEVERAGED SMALL INCOME AND
GROWTH ALL CAP MIDCAP CAPITALIZATION GROWTH
===================================================================================================================================
Changes from operations:
Net investment income (loss) .......................... $ 336,265 $ 84,289 $ 107,542 $ 595,955 $ 37
Net realized gains (losses) on sales of investments
in portfolio shares ................................. 8,941 374,595 (10,849) 363,207 (4,106)
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares .................. 676,695 1,030,800 313,657 (112,117) 26,730
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ................................. 1,021,901 1,489,684 410,350 847,045 22,661
- -----------------------------------------------------------------------------------------------------------------------------------
Changes from contract owners' transactions:
Net contract purchase payments ........................ 2,215,629 1,041,432 1,080,010 1,987,015 201,735
Contract redemptions .................................. (53,824) (105,224) (28,677) (175,370) (1,637)
Net transfers ......................................... 863,424 247,311 248,802 (2,228,408) 9,035
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from contract owners' transactions ................ 3,025,229 1,183,519 1,300,135 (416,763) 209,133
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets ...................... 4,047,130 2,673,203 1,710,485 430,282 231,794
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, beginning of year ............................ 960,427 2,348,160 760,156 5,485,527 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year .......................... $ 5,007,557 $ 5,021,363 $ 2,470,641 $ 5,915,809 $ 231,794
===================================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
AMERICAN CENTURY
VARIABLE PORTFOLIOS
(CONTINUED) BERGER INSTITUTIONAL PRODUCTS TRUST CONSECO SERIES TRUST PORTFOLIOS
- ---------------------------- -------------------------------------------------------- ------------------------------------------
GROWTH AND SMALL BIAM FIXED
INTERNATIONAL VALUE 100 INCOME COMPANY INTERNATIONAL BALANCED EQUITY INCOME
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 27,110 $ 92,413 $ 4,392 $ 43,198 $ 435 $ 32,039 $ 1,230,591 $ 1,912,300 $ 389,710
- -----------------------------------------------------------------------------------------------------------------------------------
11,080 27,348 18,963 54,118 8,690 27,185 226,010 316,150 71,545
1,330 3,282 2,276 6,494 1,043 3,262 27,121 37,938 8,585
- -----------------------------------------------------------------------------------------------------------------------------------
12,410 30,630 21,239 60,612 9,733 30,447 253,131 354,088 80,130
- -----------------------------------------------------------------------------------------------------------------------------------
14,700 61,783 (16,847) (17,414) (9,298) 1,592 977,460 1,558,212 309,580
- -----------------------------------------------------------------------------------------------------------------------------------
14,441 (10,313) 60,729 102,712 (33,023) 2,777 25,118 (42,192) 70,842
42,844 (53,898) 126,081 741,672 (46,639) 284,596 35,650 1,669,037 (125,689)
- -----------------------------------------------------------------------------------------------------------------------------------
57,285 (64,211) 186,810 844,384 (79,662) 287,373 60,768 1,626,845 (54,847)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 71,985 $ (2,428) $ 169,963 $ 826,970 $ (88,960) $ 288,965 $ 1,038,228 $ 3,185,057 $ 254,733
====================================================================================================================================
====================================================================================================================================
AMERICAN CENTURY
VARIABLE PORTFOLIOS
(CONTINUED) BERGER INSTITUTIONAL PRODUCTS TRUST CONSECO SERIES TRUST PORTFOLIOS
- ---------------------------- -------------------------------------------------------- ------------------------------------------
GROWTH AND SMALL BIAM FIXED
INTERNATIONAL VALUE 100 INCOME COMPANY INTERNATIONAL BALANCED EQUITY INCOME
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 14,700 $ 61,783 $ (16,847) $ (17,414) $ (9,298) $ 1,592 $ 977,460 $ 1,558,212 $ 309,580
14,441 (10,313) 60,729 102,712 (33,023) 2,777 25,118 (42,192) 70,842
42,844 (53,898) 126,081 741,672 (46,639) 284,596 35,650 1,669,037 (125,689)
- -----------------------------------------------------------------------------------------------------------------------------------
71,985 (2,428) 169,963 826,970 (88,960) 288,965 1,038,228 3,185,057 254,733
- -----------------------------------------------------------------------------------------------------------------------------------
812,918 1,994,912 909,579 1,791,325 793,463 61,604 7,357,525 10,463,939 3,411,455
(11,147) (31,566) (22,486) (258,723) (12,235) (908) (578,798) (741,888) (324,089)
361,982 937,413 150,316 3,090,981 143,546 (12,544) 3,656,283 (1,397,363) (2,737,088)
- -----------------------------------------------------------------------------------------------------------------------------------
1,163,753 2,900,759 1,037,409 4,623,583 924,774 48,152 10,435,010 8,324,688 350,278
- -----------------------------------------------------------------------------------------------------------------------------------
1,235,738 2,898,331 1,207,372 5,450,553 835,814 337,117 11,473,238 11,509,745 605,011
- -----------------------------------------------------------------------------------------------------------------------------------
178,556 509,877 724,038 1,091,492 220,861 1,968,111 11,327,800 19,302,079 5,318,446
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,414,294 $ 3,408,208 $ 1,931,410 $ 6,542,045 $1,056,675 $ 2,305,228 $ 22,801,038 $ 30,811,824 $ 5,923,457
====================================================================================================================================
</TABLE>
29
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
STATEMENTS OF OPERATIONS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
====================================================================================================================================
CONSECO SERIES DREYFUS
TRUST PORTFOLIOS VARIABLE
(CONTINUED) INVESTMENT
--------------------------- ----------
DREYFUS
SOCIALLY DREYFUS
GOVERNMENT MONEY RESPONSIBLE STOCK DISCIPLINED
SECURITIES MARKET GROWTH INDEX STOCK
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends from investments in portfolio shares......... $ 78,409 $ 269,620 $ 244,730 $ 398,526 $ 2,600
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fees........................ 16,251 66,728 51,873 306,045 1,229
Administrative fees.................................... 1,950 8,007 6,225 36,725 147
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses....................................... 18,201 74,735 58,098 342,770 1,376
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)..................... 60,208 194,885 186,632 55,756 1,224
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) and unrealized appreciation
(depreciation) of investments:
Net realized gains (losses) on sales of investments
in portfolio shares ................................ 6,375 -- 185,607 962,916 36,116
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares.................. 1,874 -- 633,149 4,438,654 38,277
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments
in portfolio shares ........................... 8,249 -- 818,756 5,401,570 74,393
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ............................. $ 68,457 $ 194,885 $ 1,005,388 $ 5,457,326 $ 75,617
====================================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
====================================================================================================================================
CONSECO SERIES DREYFUS
TRUST PORTFOLIOS VARIABLE
(CONTINUED) INVESTMENT
--------------------------- ----------
DREYFUS
SOCIALLY DREYFUS
GOVERNMENT MONEY RESPONSIBLE STOCK DISCIPLINED
SECURITIES MARKET GROWTH INDEX STOCK
====================================================================================================================================
Changes from operations:
Net investment income (loss) .......................... $ 60,208 $ 194,885 $ 186,632 $ 55,756 $ 1,224
Net realized gains (losses) on sales of investments
in portfolio shares ................................. 6,375 -- 185,607 962,916 36,116
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares .................. 1,874 -- 633,149 4,438,654 38,277
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ................................. 68,457 194,885 1,005,388 5,457,326 75,617
- ------------------------------------------------------------------------------------------------------------------------------------
Changes from contract owners' transactions:
Net contract purchase payments ........................ 1,230,619 5,610,327 2,915,040 11,843,387 78,723
Contract redemptions .................................. (20,365) (635,311) (68,419) (690,753) (4,197)
Net transfers ......................................... 312,083 (1,673,324) 529,759 (901,334) 143,536
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from contract owners'
transactions .................................... 1,522,337 3,301,692 3,376,380 10,251,300 218,062
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets .................... 1,590,794 3,496,577 4,381,768 15,708,626 293,679
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, beginning of year ............................ 443,047 3,540,038 2,125,697 16,292,345 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ....................... $ 2,033,841 $ 7,036,615 $ 6,507,465 $ 32,000,971 $ 293,679
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
DREYFUS
VARIABLE
INVESTMENT
(CONTINUED) FEDERATED INSURANCE SERIES FUNDS INVESCO VARIABLE INV. FUNDS JANUS ASPEN SERIES PORTFOLIOS
- ---------- ----------------------------------------- --------------------------- -------------------------------------------
INTERNATIONAL HIGH INCOME INTERNATIONAL EQUITY AGGRESSIVE WORLDWIDE
VALUE BOND II EQUITY II UTILITY II INCOME HIGH YIELD GROWTH GROWTH GROWTH
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,163 $ 112,989 $ 570 $ 78,210 $ 7,194 $ 14,716 $ -- $ 590,460 $ 848,719
- -----------------------------------------------------------------------------------------------------------------------------------
140 61,051 18,837 22,948 604 699 43,724 122,807 277,413
17 7,326 2,260 2,754 73 84 5,247 14,737 33,290
- -----------------------------------------------------------------------------------------------------------------------------------
157 68,377 21,097 25,702 677 783 48,971 137,544 310,703
- -----------------------------------------------------------------------------------------------------------------------------------
3,006 44,612 (20,527) 52,508 6,517 13,933 (48,971) 452,916 538,016
- -----------------------------------------------------------------------------------------------------------------------------------
(15) 83,981 66,748 78,346 25 (13,130) 69,888 1,278,856 1,098,639
(3,529) (117,533) (73,328) 125,778 4,411 (11,944) 1,055,063 1,296,335 3,129,436
- -----------------------------------------------------------------------------------------------------------------------------------
(3,544) (33,552) (6,580) 204,124 4,436 (25,074) 1,124,951 2,575,191 4,228,075
- -----------------------------------------------------------------------------------------------------------------------------------
$ (538) $ 11,060 $ (27,107) $ 256,632 $ 10,953 $ (11,141) $ 1,075,980 $ 3,028,107 $ 4,766,091
====================================================================================================================================
====================================================================================================================================
DREYFUS
VARIABLE
INVESTMENT
(CONTINUED) FEDERATED INSURANCE SERIES FUNDS INVESCO VARIABLE INV. FUNDS JANUS ASPEN SERIES PORTFOLIOS
- ---------- ----------------------------------------- --------------------------- -------------------------------------------
INTERNATIONAL HIGH INCOME INTERNATIONAL EQUITY AGGRESSIVE WORLDWIDE
VALUE BOND II EQUITY II UTILITY II INCOME HIGH YIELD GROWTH GROWTH GROWTH
====================================================================================================================================
$ 3,006 $ 44,612 $ (20,527) $ 52,508 $ 6,517 $ 13,933 $ (48,971) $ 452,916 $ 538,016
(15) 83,981 66,748 78,346 25 (13,130) 69,888 1,278,856 1,098,639
(3,529) (117,533) (73,328) 125,778 4,411 (11,944) 1,055,063 1,296,335 3,129,436
- -----------------------------------------------------------------------------------------------------------------------------------
(538) 11,060 (27,107) 256,632 10,953 (11,141) 1,075,980 3,028,107 4,766,091
- -----------------------------------------------------------------------------------------------------------------------------------
45,401 2,790,736 436,482 1,356,794 118,885 214,857 1,160,560 4,424,471 10,235,818
(15) (315,350) (54,450) (41,667) (935) (460) (179,148) (305,746) (602,821)
-- 1,339,407 1,043,767 773,434 16,782 (61,289) 109,728 (3,994,752) (2,066,063)
- -----------------------------------------------------------------------------------------------------------------------------------
45,386 3,814,793 1,425,799 2,088,561 134,732 153,108 1,091,140 123,973 7,566,934
- -----------------------------------------------------------------------------------------------------------------------------------
44,848 3,825,853 1,398,692 2,345,193 145,685 141,967 2,167,120 3,152,080 12,333,025
- -----------------------------------------------------------------------------------------------------------------------------------
-- 2,948,127 392,160 1,041,698 -- -- 2,796,074 8,517,407 15,285,524
- -----------------------------------------------------------------------------------------------------------------------------------
$ 44,848 $ 6,773,980 $ 1,790,852 $ 3,386,891 $ 145,685 $ 141,967 $ 4,963,194 $ 11,669,487 $ 27,618,549
====================================================================================================================================
</TABLE>
31
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
STATEMENTS OF OPERATIONS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
====================================================================================================================================
NEUBERGER
BERMAN
ADVISERS
MANAGEMENT
LAZARD RETIREMENT TRUST
SERIES PORTFOLIOS PORTFOLIOS
--------------------------- ----------
MITCHELL
LORD ABBETT HUTCHINS
SERIES TRUST SERIES TRUST LIMITED
GROWTH AND GROWTH AND MATURITY
EQUITY SMALL CAP INCOME INCOME BOND
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends from investments in portfolio shares......... $ 4,020 $ 20 $ 19,184 $ 13,648 $ 2,889
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fees........................ 2,407 332 1,171 939 6,711
Administrative fees.................................... 289 40 140 113 805
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses....................................... 2,696 372 1,311 1,052 7,516
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .................... 1,324 (352) 17,873 12,596 (4,627)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) and unrealized appreciation
(depreciation) of investments:
Net realized gains (losses) on sales of investments
in portfolio shares ................................ 30 (183) (1,465) 26,752 514
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares ................. 84,696 4,785 7,130 12,525 16,409
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments
in portfolio shares ............................ 84,726 4,602 5,665 39,277 16,923
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ............................ $ 86,050 $ 4,250 $ 23,538 $ 51,873 $ 12,296
====================================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
====================================================================================================================================
NEUBERGER
BERMAN
ADVISERS
MANAGEMENT
LAZARD RETIREMENT TRUST
SERIES PORTFOLIOS PORTFOLIOS
--------------------------- ----------
MITCHELL
LORD ABBETT HUTCHINS
SERIES TRUST SERIES TRUST LIMITED
GROWTH AND GROWTH AND MATURITY
EQUITY SMALL CAP INCOME INCOME BOND
====================================================================================================================================
Changes from operations:
Net investment income (loss) .......................... $ 1,324 $ (352) $ 17,873 $ 12,596 $ (4,627)
Net realized gains (losses) on sales of investments
in portfolio shares ................................. 30 (183) (1,465) 26,752 514
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares ..................... 84,696 4,785 7,130 12,525 16,409
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ................................. 86,050 4,250 23,538 51,873 12,296
- -----------------------------------------------------------------------------------------------------------------------------------
Changes from contract owners' transactions:
Net contract purchase payments......................... 34,427 41,117 298,670 34,614 681,124
Contract redemptions................................... (712) (321) (1,230) (3,248) (14,874)
Net transfers.......................................... 1,069,417 103,918 (6,544) 112,670 451,102
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from contract owners' transactions .............. 1,103,132 144,714 290,896 144,036 1,117,352
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets.......... 1,189,182 148,964 314,434 195,909 1,129,648
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, beginning of year............................. -- -- -- -- 26,171
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year........................ $ 1,189,182 $ 148,964 $ 314,434 $ 195,909 $ 1,155,819
====================================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
NEUBERGER
BERMAN
ADVISERS
MANAGEMENT STRONG
TRUST VARIABLE
PORTFOLIOS INSURANCE
(CONTINUED) FUNDS VAN ECK WORLDWIDE INSURANCE TRUST FUNDS
- ----------- ----------- ---------------------------------------------------------------------
(NOTE 1)
STRONG OLD
MID CAP OPPORTUNITY EMERGING HARD REAL HARD COMBINED
PARTNERS GROWTH II FUND II BOND MARKETS ASSETS ESTATE ASSETS TOTAL
================================================================================================================ ==============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 227,138 $ 3 $ 61,848 $ 33,029 $ 31,237 $ 666,685 $ -- $ -- $ 8,749,779
- ---------------------------------------------------------------------------------------------------------------- -------------
74,561 6,683 16,228 42,545 17,529 34,829 233 -- 2,119,799
8,947 802 1,947 5,105 2,104 4,180 28 -- 254,376
- ---------------------------------------------------------------------------------------------------------------- -------------
83,508 7,485 18,175 47,650 19,633 39,009 261 -- 2,374,175
- ---------------------------------------------------------------------------------------------------------------- -------------
143,630 (7,482) 43,673 (14,621) 11,604 627,676 (261) -- 6,375,604
- ---------------------------------------------------------------------------------------------------------------- -------------
(245,137) 10,860 (66,197) 61,830 (528,657) (1,068,009) (3,058) -- 2,964,511
(324,545) 130,770 11,247 305,864 40,753 (567,677) (346) 17 14,847,690
- ---------------------------------------------------------------------------------------------------------------- -------------
(569,682) 141,630 (54,950) 367,694 (487,904) (1,635,686) (3,404) 17 17,812,201
- ---------------------------------------------------------------------------------------------------------------- -------------
$ (426,052) $ 134,148 $ (11,277) $ 353,073 $ (476,300) $ (1,008,010) $ (3,665) $ 17 $ 24,187,805
================================================================================================================ =============
====================================================================================================================================
NEUBERGER
BERMAN
ADVISERS
MANAGEMENT STRONG
TRUST VARIABLE
PORTFOLIOS INSURANCE
(CONTINUED) FUNDS VAN ECK WORLDWIDE INSURANCE TRUST FUNDS
- ----------- ----------- ---------------------------------------------------------------------
(NOTE 1)
STRONG OLD
MID CAP OPPORTUNITY EMERGING HARD REAL HARD COMBINED
PARTNERS GROWTH II FUND II BOND MARKETS ASSETS ESTATE ASSETS TOTAL
================================================================================================================ ==============
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 143,630 $ (7,482) $ 43,673 $ (14,621) $ 11,604 $ 627,676 $ (261) $ -- $ 6,375,604
(245,137) 10,860 (66,197) 61,830 (528,657) (1,068,009) (3,058) -- 2,964,511
(324,545) 130,770 11,247 305,864 40,753 (567,677) (346) 17 14,847,690
- ---------------------------------------------------------------------------------------------------------------- -------------
(426,052) 134,148 (11,277) 353,073 (476,300) (1,008,010) (3,665) 17 24,187,805
- ---------------------------------------------------------------------------------------------------------------- -------------
4,153,659 712,421 764,227 623,450 866,750 573,578 58,434 (23,550) 85,403,562
(149,179) (6,257) (22,064) (343,267) (62,766) (294,353) -- -- (6,164,480)
3,295,749 (40,591) 704,394 (830,498) (1,132,261) (2,574,019) (19,504) 24,730 63,987
- ---------------------------------------------------------------------------------------------------------------- -------------
7,300,229 665,573 1,446,557 (550,315) (328,277) (2,294,794) 38,930 1,180 79,303,069
- ---------------------------------------------------------------------------------------------------------------- -------------
6,874,177 799,721 1,435,280 (197,242) (804,577) (3,302,804) 35,265 1,197 103,490,874
- ---------------------------------------------------------------------------------------------------------------- -------------
1,240,625 101,377 305,763 3,462,503 1,916,263 4,533,186 -- 223 115,163,758
- ---------------------------------------------------------------------------------------------------------------- -------------
$ 8,114,802 $ 901,098 $ 1,741,043 $3,265,261 $ 1,111,686 $ 1,230,382 $ 35,265 $ 1,420 $ 218,654,632
================================================================================================================ ==============
</TABLE>
33
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
================================================================================
(1) GENERAL
Conseco Variable Annuity Account E ("Account E") is registered under the
Investment Company Act of 1940, as amended, as a unit investment trust. Account
E was established on November 12, 1993, and commenced operations on July 25,
1994, as a segregated investment account for individual and group variable
annuity contracts which are registered under the Securities Act of 1933. The
operations of Account E are included in the operations of Conseco Variable
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.
Prior to June 1, 1995, Account E invested solely in shares of the portfolios
of the Conseco Series Trust. Currently, the following investment options are
available (effective date in parenthesis):
THE ALGER AMERICAN FUND
Growth Portfolio (June 1, 1996)
Leveraged AllCap
Portfolio (June 1, 1995)
MidCap Growth Portfolio (June 1, 1996)
Small Capitalization Portfolio (June 1, 1995)
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
Income and Growth Fund (May 1, 1998)
International Fund (May 1, 1997)
Value Fund (May 1, 1997)
BERGER INSTITUTIONAL PRODUCTS TRUST
100 Fund (June 1, 1996)
Growth and Income Fund (June 1, 1996)
Small Company Growth Fund (June 1, 1996)
BIAM International Fund (May 1, 1997)
CONSECO SERIES TRUST
Balanced Portfolio
Equity Portfolio
Fixed Income Portfolio
Government Securities Portfolio
Money Market Portfolio
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. ~ (JUNE 1, 1995)
DREYFUS STOCK INDEX FUND (JUNE 1, 1995)
DREYFUS VARIABLE INVESTMENT FUND (MAY 1, 1998)
International Value Portfolio
Disciplined Stock Portfolio
FEDERATED INSURANCE SERIES (JUNE 1, 1995)
High Income Bond Fund II
International Equity Fund II
Utility Fund II
INVESCO VARIABLE INVESTMENT FUNDS, INC. (MAY 1, 1998)
Equity Income Fund
High Yield Fund
JANUS ASPEN SERIES (JUNE 1, 1995)
Aggressive Growth Portfolio
Growth Portfolio
Worldwide Growth Portfolio
LAZARD RETIREMENT SERIES, INC. (MAY 1, 1998)
Equity Portfolio
Small Cap Portfolio
LORD ABBETT SERIES FUND, INC. (MAY 1, 1998)
Growth and Income Portfolio
MITCHELL HUTCHINS SERIES TRUST (MAY 1, 1998)
Growth and Income Portfolio
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST (MAY 1, 1997)
Limited Maturity Bond Portfolio
Partners Portfolio
STRONG VARIABLE INSURANCE FUNDS, INC.
Mid Cap Growth Fund II (May 1, 1997)
STRONG OPPORTUNITY FUND II (MAY 1, 1997)
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund (formerly Gold and Natural
Resources Fund) (June 1,1995)
Worldwide Bond Fund (June 1, 1995)
Worldwide Emerging Markets Fund (June 1, 1996)
Worldwide Real Estate Fund (May 1, 1998)
Van Eck Worldwide Insurance Trust terminated the Worldwide Hard Assets Fund
on May 1, 1997 and the Gold and Natural Resources Fund was renamed the Worldwide
Hard Assets Fund. The remaining units in the terminated fund are owned by a
contract owner who has not transferred the funds.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported increases and decreases in net assets from operations during the
reporting period. Actual results could differ from those estimates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION, TRANSACTIONS AND INCOME
Investments in portfolio shares are valued using the net asset value of the
respective portfolios at the end of each New York Stock Exchange business day.
Investment share transactions are accounted for on a trade date basis (the date
the order to purchase or redeem shares is executed) and dividend income is
recorded on the ex-dividend date. The cost of investments in portfolio shares
sold is determined on a first-in first-out basis. Account E 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 E 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 E are included in the
total operations of the Company, which is treated as a life insurance company
for federal income tax purposes under the Internal Revenue Code. Net investment
income and realized gains (losses) are retained in Account E and are not taxable
until received by the contract owner or beneficiary in the form of annuity
payments or other distributions.
34
<PAGE>
CONSECO VARIABLE ANNUITY ACCOUNT E
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
================================================================================
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 1983 Group
Annuity Mortality Table. The assumed net investment rate is equal to the assumed
rate of accumulation. The annuity unit values for periodic retirement payments
are as follows:.
DECEMBER 31,
1999
- --------------------------------------------------------------------------------
Conseco Series Trust:
Money Market Portfolio................................ 1.000834
Federated Insurance Series:
High Income Bond Fund II.............................. 0.956791
Neuberger Berman Advisers Management Trust:
Partners Portfolio.................................... 1.013185
- --------------------------------------------------------------------------------
(3) PURCHASES AND SALES OF INVESTMENTS IN PORTFOLIO SHARES
The aggregate cost of purchases of investments in portfolio shares was
$139,192,174 and $137,408,045 for the years ended December 31, 1999 and 1998,
respectively. The aggregate proceeds from sales of investments in portfolio
shares were $74,610,705 and $51,611,210 for the years ended December 31, 1999
and 1998, 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 E a
fee, which is equal on an annual basis to 1.25 percent of the daily value of the
total investments of Account E, for assuming the mortality and expense risks.
These fees were $3,319,669 and $2,119,799 for the years ended December 31, 1999
and 1998, respectively.
Pursuant to an agreement between Account E and the Company (which may be
terminated by the Company at any time), the Company provides sales and
administrative services to Account E, as well as a minimum death benefit prior
to retirement for the contracts. The Company may deduct a percentage of amounts
surrendered to cover sales expenses. The percentage varies up to 9.00 percent
based upon the number of years the contract has been held. In addition, the
Company deducts units from individual contracts annually and upon full surrender
to cover an administrative fee of $30 unless the value of the contract is
$25,000 or greater. This fee is recorded as a redemption in the accompanying
Statements of Changes in Net Assets. Sales and administrative charges were
$1,055,120 and $489,585 for the years ended December 31, 1999 and 1998,
respectively.
The Company also deducts daily from Account E a fee, which is equal on an
annual basis to 0.15 percent of the daily value of the total investments of
Account E, for administrative expenses. These expenses were $398,359 and
$254,376 for the years ended December 31, 1999 and 1998, 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 through various retail broker/dealers including Conseco Securities, Inc.
(formerly Conseco Financial Services, Inc. prior to its name change in August
1999), an affiliate of the Company.
(6) NET ASSETS
Net assets consisted of the following at December 31, 1999:
- --------------------------------------------------------------------------------
Proceeds from the sales of units since organization,
less cost of units redeemed ................................ $227,818,892
Undistributed net investment income .......................... 34,190,128
Undistributed net realized gains on sales of investments...... 12,492,767
Net unrealized appreciation of investments ................... 75,638,052
- --------------------------------------------------------------------------------
Net assets ................................................. $350,139,839
================================================================================
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
TO THE BOARD OF DIRECTORS OF CONSECO VARIABLE
INSURANCE COMPANY AND CONTRACT OWNERS OF
CONSECO VARIABLE ANNUITY ACCOUNT E
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Conseco Variable Annuity
Account E (the Account) at December 31, 1999, and the results of its operations
and the changes for the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States. 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 of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of portfolio shares owned at December 31, 1999 by correspondence with the funds,
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers
- --------------------------
Indianapolis, Indiana
February 10, 2000
36
<PAGE>
- --------------------------------------------------------------------------------
Conseco Variable Insurance Company
Financial Statements as of December 31, 1999 and 1998,
and for the years ended December 31, 1999, 1998 and 1997
37
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
Conseco Variable Insurance Company
In our opinion, the accompanying balance sheet and the related statements
of operations, shareholder's equity and cash flows present fairly, in all
material respects, the financial position of Conseco Variable Insurance Company
(the "Company") at December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
April 13, 2000
38
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET
December 31, 1999 and 1998
(Dollars in millions)
ASSETS
1999 1998
-------- --------
Investments:
Actively managed fixed maturities at
fair value (amortized cost:
1999 - $1,491.8; 1998 - $1,520.5) ............ $1,398.7 $1,524.1
Equity securities at fair value
(cost: 1999 - $47.8 million;
1998 - $46.0 million) ......................... 49.8 45.7
Mortgage loans .................................... 108.0 110.2
Policy loans ...................................... 75.5 79.6
Other invested assets ............................. 50.8 120.3
-------- --------
Total investments ........................... 1,682.8 1,879.9
Cash and cash equivalents ............................. 81.5 48.4
Accrued investment income ............................. 35.6 30.5
Cost of policies purchased ............................ 131.6 98.0
Cost of policies produced ............................. 147.6 82.5
Reinsurance receivables ............................... 26.4 22.2
Goodwill .............................................. 45.3 46.7
Assets held in separate accounts ...................... 1,457.0 696.4
Other assets .......................................... 6.0 7.1
-------- --------
Total assets ................................ $3,613.8 $2,911.7
======== ========
(continued on next page)
The accompanying notes are an integral part
of the financial statements.
39
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
BALANCE SHEET (Continued)
December 31, 1999 and 1998
(Dollars in millions, except per share amount)
LIABILITIES AND SHAREHOLDER'S EQUITY
1999 1998
-------- --------
Liabilities:
Insurance liabilities:
Interest-sensitive products ....................... $1,289.2 $1,365.2
Traditional products .............................. 242.8 246.2
Claims payable and other policyholder funds ....... 64.1 62.6
Liabilities related to separate accounts .......... 1,457.0 696.4
Income tax liabilities ............................... 33.4 37.5
Investment borrowings ................................ 135.1 65.7
Other liabilities .................................... 16.5 33.0
-------- --------
Total liabilities ............................ 3,238.1 2,506.6
-------- --------
Shareholder's equity:
Common stock and additional paid-in capital
(par value $4.80 per share, 1,065,000
shares authorized, 1,043,565 shares issued
and outstanding) .................................. 380.8 380.8
Accumulated other comprehensive loss ................. (28.4) (.8)
Retained earnings .................................... 23.3 25.1
-------- --------
Total shareholder's equity ................... 375.7 405.1
-------- --------
Total liabilities and shareholder's equity ... $3,613.8 $2,911.7
======== ========
The accompanying notes are an integral part
of the financial statements.
40
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
(Dollars in millions)
1999 1998 1997
------- ------- -------
Revenues:
Insurance policy income .................. $ 72.1 $ 73.6 $ 75.7
Net investment income .................... 297.6 198.0 222.6
Net gains (losses) from
sale of investments .................... (10.0) 18.5 13.3
------- ------- -------
Total revenues ..................... 359.7 290.1 311.6
------- ------- -------
Benefits and expenses:
Insurance policy benefits ................ 266.8 170.6 191.0
Amortization ............................. 13.8 33.6 27.1
Other operating costs and expenses ....... 40.3 38.7 32.2
------- ------- -------
Total benefits and expenses ........ 320.9 242.9 250.3
------- ------- -------
Income before income taxes ......... 38.8 47.2 61.3
Income tax expense ........................... 13.6 16.6 22.1
------- ------- -------
Net income ......................... $ 25.2 $ 30.6 $ 39.2
======= ======= =======
The accompanying notes are an integral part
of the financial statements.
41
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
for the years ended December 31, 1999, 1998 and 1997
(Dollars in millions)
Accumulated
Common other
stock and compre-
additional hensive
paid-in income Retained
Total capital (loss) earnings
------ ------ ------ ------
Balance, December 31, 1996 ................ $396.9 $380.8 $ (4.6) $ 20.7
Comprehensive income, net of tax:
Net income ............................ 39.2 -- -- 39.2
Change in unrealized appreciation
(depreciation) of securities
(net of applicable income tax
expense of $7.2) .................... 13.3 -- 13.3 --
------
Total comprehensive income ........ 52.5
Dividends on common stock ............... (32.5) -- -- (32.5)
------ ------ ------ ------
Balance, December 31, 1997 ................ 416.9 380.8 8.7 27.4
Comprehensive income, net of tax:
Net income ........................... 30.6 -- -- 30.6
Change in unrealized appreciation
(depreciation) of securities
(net of applicable income tax
benefit of $5.1) ................... (9.5) -- (9.5) --
------
Total comprehensive income ........ 21.1
Dividends on common stock ............... (32.9) -- -- (32.9)
------ ------ ------ ------
Balance, December 31, 1998 ................ 405.1 380.8 (.8) 25.1
Comprehensive loss, net of tax:
Net income .............................. 25.2 -- -- 25.2
Change in unrealized depreciation of
securities (net of applicable income
tax benefit of $15.7 million) ........ (27.6) -- (27.6) --
------
Total comprehensive loss ......... (2.4)
Dividends on common stock ............... (27.0) -- -- (27.0)
------ ------ ------ ------
Balance, December 31, 1999 ................ $375.7 $380.8 $(28.4) $ 23.3
====== ====== ====== ======
The accompanying notes are an integral part
of the financial statements.
42
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
(Dollars in millions)
1999 1998 1997
------- ------- -------
Cash flows from operating activities:
Net income .................................. $ 25.2 $ 30.6 $ 39.2
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization .......................... 13.8 43.0 27.1
Income taxes .......................... 11.4 (1.2) 6.7
Insurance liabilities ................. 162.6 120.0 95.2
Accrual and amortization of
investment income ................... (11.4) 1.6 .3
Deferral of cost of policies
produced ............................ (62.7) (35.3) (31.8)
Net (gains) losses from sale
of investments ...................... 10.0 (18.5) (13.3)
Other ................................. .7 (38.3) (4.6)
------- ------- -------
Net cash provided by operating
activities .......................... 149.6 101.9 118.8
------- ------- -------
Cash flows from investing activities:
Sales of investments ........................ 904.8 1,185.0 755.2
Maturities and redemptions .................. 109.0 145.5 150.4
Purchases of investments .................... (1,502.0) (1,420.7) (923.5)
------- ------- -------
Net cash used by investing
activities .......................... (488.2) (90.2) (17.9)
------- ------- -------
Cash flows from financing activities:
Deposits to insurance liabilities ........... 654.1 400.4 255.9
Investment borrowings ....................... 69.4 4.7 12.6
Withdrawals from insurance liabilities ...... (324.8) (385.0) (302.2)
Dividends paid on common stock .............. (27.0) (32.9) (32.5)
------- ------- -------
Net cash provided (used) by
financing activities ................ 371.7 (12.8) (66.2)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents ................ 33.1 (1.1) 34.7
Cash and cash equivalents, beginning of year ... 48.4 49.5 14.8
------- ------- -------
Cash and cash equivalents, end of year ......... $ 81.5 $ 48.4 $ 49.5
======= ======= =======
The accompanying notes are an integral part
of the financial statements.
43
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Conseco Variable Insurance Company ("we" or the "Company") markets
tax-qualified annuities and certain employee benefit-related insurance products
through professional independent agents. Prior to its name change in October
1998, the Company was named Great American Reserve Insurance Company. Since
August 1995, the Company has been a wholly owned subsidiary of Conseco, Inc.
("Conseco"), a financial services holding company operating throughout the
United States. Conseco's life insurance subsidiaries develop, market and
administer supplemental health insurance, annuity, individual life insurance,
individual and group major medical insurance and other insurance products.
Conseco's finance subsidiaries originate, purchase, sell and service consumer
and commercial finance loans. On March 31, 2000, Conseco announced its plan to
explore the sale of its finance subsidiaries and its hiring of Lehman Brothers
to assist in the planned sale.
The following summary explains the accounting policies we use to arrive at
the more significant numbers in our financial statements. We prepare our
financial statements in accordance with generally accepted accounting principles
("GAAP"). We follow the accounting standards established by the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants and the Securities and Exchange Commission. We reclassified certain
amounts in our 1998 and 1997 financial statements and notes to conform with the
1999 presentation.
INVESTMENTS
FIXED MATURITIES are securities that mature more than one year after
issuance and include bonds, notes receivable and redeemable preferred stock.
Fixed maturities that we may sell prior to maturity are classified as ACTIVELY
MANAGED and are carried at estimated fair value, with any unrealized gain or
loss, net of tax and related adjustments, recorded as a component of
shareholder's equity. Fixed maturity securities that we intend to sell in the
near term are classified as TRADING and included in other invested assets. We
include any unrealized gain or loss on trading securities in net investment
gains.
EQUITY SECURITIES include investments in common stocks and non-redeemable
preferred stock. We carry these investments at estimated fair value. We record
any unrealized gain or loss, net of tax and related adjustments, as a component
of shareholder's equity.
MORTGAGE LOANS held in our investment portfolio are carried at amortized
unpaid balances, net of provisions for estimated losses.
POLICY LOANS are stated at their current unpaid principal balances.
OTHER INVESTED ASSETS include trading securities and certain
non-traditional investments. Non-traditional investments include investments in
certain limited partnerships, mineral rights and promissory notes; we account
for them using either the cost method, or for investments in partnerships over
whose operations the Company exercises significant influence, the equity method.
We defer any fees received or costs incurred when we originate investments
(primarily mortgage loans). We amortize fees, costs, discounts and premiums as
yield adjustments over the contractual lives of the investments. We consider
anticipated prepayments on mortgage-backed securities in determining estimated
future yields on such securities.
44
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
When we sell a security (other than a trading security), we report the
difference between our sale proceeds and its amortized cost (determined based on
specific identification) as an investment gain or loss.
We regularly evaluate all of our investments based on current economic
conditions, credit loss experience and other investee-specific developments. If
there is a decline in a security's net realizable value that is other than
temporary, we treat it as a realized loss and reduce our cost basis of the
security to its estimated fair value.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include commercial paper, invested cash and other
investments purchased with maturities of less than three months. We carry them
at amortized cost, which approximates their estimated fair value.
SEPARATE ACCOUNTS
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policyholders. The assets of these accounts are
legally segregated. They are not subject to the claims that may arise out of any
other business of the Company. We report separate account assets at market
value; the underlying investment risks are assumed by the contract holders. We
record the related liabilities at amounts equal to the market value of the
underlying assets. We record the fees earned for administrative and
contractholder services performed for the separate accounts in insurance policy
income.
COST OF POLICIES PRODUCED
The costs that vary with, and are primarily related to, producing new
insurance business are referred to as cost of policies produced. We amortize
these costs using the interest rate credited to the underlying policy: (i) in
relation to the estimated gross profits for universal life-type and
investment-type products; or (ii) in relation to future anticipated premium
revenue for other products.
When we realize a gain or loss on investments backing our universal life or
investment-type products, we adjust the amortization to reflect the change in
estimated gross profits from the products due to the current realized gain or
loss and the effect of the event on future investment yields. We also adjust the
cost of policies produced for the change in amortization that would have been
recorded if actively managed fixed maturity securities had been sold at their
stated aggregate fair value and the proceeds reinvested at current yields. We
include the impact of this adjustment in accumulated other comprehensive income
(loss) within shareholder's equity.
Each year, we evaluate the recoverability of the unamortized balance of the
cost of policies produced. We consider estimated future gross profits or future
premiums, expected mortality or morbidity, interest earned and credited rates,
persistency and expenses in determining whether the balance is recoverable.
COST OF POLICIES PURCHASED
The cost assigned to the right to receive future cash flows from contracts
existing at the date of an acquisition is referred to as the cost of policies
purchased. The balance of this account is amortized, evaluated for recovery, and
adjusted for the impact of unrealized gains (losses) in the same manner as the
cost of policies produced described above.
The discount rate we use to determine the value of the cost of policies
purchased is the rate of return we need to earn in order to invest in the
business being acquired. In determining this required rate of return, we
consider many factors including: (i) the magnitude of the risks associated with
each of the actuarial assumptions used in determining expected future cash
flows; (ii) the cost of our capital required to fund the acquisition; (iii) the
likelihood of changes in projected future cash flows that might occur if there
are changes in insurance regulations and tax laws; (iv) the acquired company's
compatibility with other
45
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Company activities that may favorably affect future cash flows; (v) the
complexity of the acquired company; and (vi) recent prices (i.e., discount rates
used in determining valuations) paid by others to acquire similar blocks of
business.
GOODWILL
Goodwill is the excess of the amount paid to acquire the Company over the
fair value of its net assets. Our analysis indicates that the anticipated
ongoing cash flows from the earnings of the Company extends significantly beyond
the maximum 40-year period allowed for goodwill amortization. Accordingly, we
amortize goodwill on the straight-line basis generally over a 40-year period. At
December 31, 1999, the total accumulated amortization of goodwill was $16.1
million. We continually monitor the value of our goodwill based on our estimates
of future earnings. We determine whether goodwill is fully recoverable from
projected undiscounted net cash flows from our earnings over the remaining
amortization period. If we were to determine that changes in such projected cash
flows no longer support the recoverability of goodwill over the remaining
amortization period, we would reduce its carrying value with a corresponding
charge to expense or shorten the amortization period (no such changes have
occurred).
RECOGNITION OF INSURANCE POLICY INCOME AND RELATED BENEFITS AND EXPENSES ON
INSURANCE CONTRACTS
Generally, we recognize insurance premiums for traditional life and
accident and health contracts as earned over the premium-paying periods. We
establish reserves for future benefits on a net-level premium method based upon
assumptions as to investment yields, mortality, morbidity, withdrawals and
dividends. We record premiums for universal life-type and investment-type
contracts that do not involve significant mortality or morbidity risk as
deposits to insurance liabilities. Revenues for these contracts consist of
mortality, morbidity, expense and surrender charges. We establish reserves for
the estimated present value of the remaining net costs of all reported and
unreported claims.
REINSURANCE
In the normal course of business, we seek to limit our exposure to loss on
any single insured or to certain groups of policies by ceding reinsurance to
other insurance enterprises. We currently retain no more than $.5 million of
mortality risk on any one policy. We diversify the risk of reinsurance loss by
using a number of reinsurers that have strong claims-paying ratings. If any
reinsurer could not meet its obligations, the Company would assume the
liability. The likelihood of a material loss being incurred as the result of the
failure of one of our reinsurers is considered remote. The cost of reinsurance
is recognized over the life of the reinsured policies using assumptions
consistent with those used to account for the underlying policy. The cost of
reinsurance ceded totaled $23.1 million, $21.0 million and $24.2 million in
1999, 1998 and 1997, respectively. A receivable is recorded for the reinsured
portion of insurance policy benefits paid and liabilities for insurance
products. Reinsurance recoveries netted against insurance policy benefits
totaled $20.8 million, $21.8 million and $14.9 million in 1999, 1998 and 1997,
respectively.
INCOME TAXES
Our income tax expense includes deferred income taxes arising from
temporary differences between the tax and financial reporting bases of assets
and liabilities. In assessing the realization of deferred income tax assets, we
consider whether it is more likely than not that the deferred income tax assets
will be realized. The ultimate realization of deferred income tax assets depends
upon generating future taxable income during the periods in which temporary
differences become deductible. If future income is not generated as expected,
deferred income tax assets may need to be written off (no such write-offs have
occurred).
INVESTMENT BORROWINGS
As part of our investment strategy, we may enter into reverse repurchase
agreements and dollar-roll transactions to increase our investment return or to
improve our liquidity. We account for these transactions as collateral
borrowings, where the amount borrowed is equal to the sales price of the
underlying securities. Reverse repurchase agreements involve a sale of
securities and an agreement to repurchase the same securities at a later date at
an agreed-upon price. Dollar rolls are similar to reverse
46
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
repurchase agreements except that, with dollar rolls, the repurchase involves
securities that are only substantially the same as the securities sold. Such
borrowings averaged $137.7 million during 1999 and $66.0 million during 1998.
These borrowings were collateralized by investment securities with fair values
approximately equal to the loan value. The weighted average interest rate on
short-term collateralized borrowings was 5.0 percent and 4.4 percent in 1999 and
1998, respectively. The primary risk associated with short-term collateralized
borrowings is that a counterparty will be unable to perform under the terms of
the contract. Our exposure is limited to the excess of the net replacement cost
of the securities over the value of the short-term investments (such excess was
not material at December 31, 1999). We believe the counterparties to our reverse
repurchase and dollar-roll agreements are financially responsible and that the
counterparty risk is minimal.
USE OF ESTIMATES
When we prepare financial statements in conformity with GAAP, we are
required to make estimates and assumptions that significantly affect various
reported amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting periods. For example, we use significant estimates
and assumptions in calculating values for the cost of policies produced, the
cost of policies purchased, goodwill, insurance liabilities, liabilities related
to litigation, guaranty fund assessment accruals and deferred income taxes. If
our future experience differs materially from these estimates and assumptions,
our financial statements could be affected.
FAIR VALUES OF FINANCIAL INSTRUMENTS
We use the following methods and assumptions to determine the estimated
fair values of financial instruments:
INVESTMENT SECURITIES. For fixed maturity securities (including redeemable
preferred stocks) and for equity and trading securities, we use quotes from
independent pricing services, where available. For investment securities
for which such quotes are not available, we use values obtained from
broker-dealer market makers or by discounting expected future cash flows
using a current market rate appropriate for the yield, credit quality, and
(for fixed maturity securities) the maturity of the investment being
priced.
CASH AND CASH EQUIVALENTS. The carrying amount for these instruments
approximates their estimated fair value.
MORTGAGE LOANS AND POLICY LOANS. We discount future expected cash flows for
loans included in our investment portfolio based on interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. We aggregate loans with similar characteristics in our
calculations.
OTHER INVESTED ASSETS. We use quoted market prices, where available. When
quotes are not available, we estimate the fair value based on: (i)
discounted future expected cash flows; or (ii) independent transactions
which establish a value for our investment. When we are unable to estimate
a fair value, we assume a market value equal to carrying value.
INSURANCE LIABILITIES FOR INTEREST-SENSITIVE PRODUCTS. We discount future
expected cash flows based on interest rates currently being offered for
similar contracts with similar maturities.
INVESTMENT BORROWINGS. Due to the short-term nature of these borrowings
(terms generally less than 30 days), estimated fair values are assumed to
approximate the carrying amount reported in the balance sheet.
Here are the estimated fair values of our financial instruments:
47
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
1999 1998
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Dollars in millions)
Financial assets:
Actively managed fixed maturities ... $1,398.7 $1,398.7 $1,524.1 $1,524.1
Equity securities ................... 49.8 49.8 45.7 45.7
Mortgage loans ...................... 108.0 102.8 110.2 119.0
Policy loans ........................ 75.5 75.5 79.6 79.6
Other invested assets ............... 50.8 50.8 120.3 120.3
Cash and cash equivalents ........... 81.5 81.5 48.4 48.4
Financial liabilities:
Insurance liabilities for
interest-sensitive products (1) ... 1,289.2 1,289.2 1,365.2 1,365.2
Investment borrowings ............... 135.1 135.1 65.7 65.7
- ------------------
(1) The estimated fair value of the liabilities for interest-sensitive
products was approximately equal to its carrying value at December 31,
1999 and 1998. This was because interest rates credited on the vast
majority of account balances approximate current rates paid on similar
products and because these rates are not generally guaranteed beyond
one year. We are not required to disclose fair values for insurance
liabilities, other than those for interest-sensitive products .
However, we take into consideration the estimated fair values of all
insurance liabilities in our overall management of interest rate risk.
We attempt to minimize exposure to changing interest rates by matching
investment maturities with amounts due under insurance contracts.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by
Statement of Financial Accounting Standards No. 137, "Deferral of the Effective
Date of FASB Statement No. 133" requires all derivative instruments to be
recorded on the balance sheet at estimated fair value. Changes in the fair value
of derivative instruments are to be recorded each period either in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, on the type of hedge
transaction. SFAS 133 is required to be implemented in year 2001. We are
currently evaluating the impact of SFAS 133; at present, we do not believe it
will have a material effect on our consolidated financial position or results of
operations. Because of ongoing changes to implementation guidance, we do not
plan on adopting the new standard until the first quarter of 2001.
We implemented the Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1") on
January 1, 1999. SOP 98-1 defines internal use software and when the costs
associated with internal use software should be capitalized. The implementation
of SOP 98-1 did not have a material effect on our consolidated financial
position or results of operations.
2. INVESTMENTS:
At December 31, 1999, the amortized cost and estimated fair value of
actively managed fixed maturities and equity securities were as follows:
Gross Gross Esti-
unre- unre- mated
Amortized alized alized fair
cost gains losses value
-------- ------ ----- --------
(Dollars in millions)
Investment grade:
Corporate securities ..................... $ 840.6 $ 2.2 $59.3 $ 783.5
United States Treasury securities
and obligations of United States
government corporations and agencies ... 15.5 .1 .7 14.9
States and political subdivisions ........ 11.7 -- 1.1 10.6
Debt securities issued by
foreign governments .................... 12.2 -- 1.6 10.6
Mortgage-backed securities ............... 482.3 .2 22.7 459.8
Below-investment grade
(primarily corporate securities) .......... 129.5 2.4 12.6 119.3
-------- ------ ----- --------
Total actively managed
fixed maturities ..................... $1,491.8 $ 4.9 $98.0 $1,398.7
======== ====== ===== ========
Equity securities ........................... $47.8 $3.9 $1.9 $49.8
===== ==== ==== =====
48
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
At December 31, 1998, the amortized cost and estimated fair value of
actively managed fixed maturities and equity securities were as follows:
Gross Gross Esti-
unre- unre- mated
Amortized alized alized fair
cost gains losses value
-------- ------ ----- --------
(Dollars in millions)
Investment grade:
Corporate securities ...................... $ 860.4 $20.7 $15.0 $ 866.1
United States Treasury securities
and obligations of United States
government corporations
and agencies ............................ 26.9 .8 .2 27.5
States and political subdivisions ......... 17.3 .3 -- 17.6
Debt securities issued by
foreign governments ..................... 11.7 -- .8 10.9
Mortgage-backed securities ................ 487.4 8.0 1.2 494.2
Below-investment grade
(primarily corporate securities) ........... 116.8 1.2 10.2 107.8
-------- ----- ----- --------
Total actively managed
fixed maturities ...................... $1,520.5 $31.0 $27.4 $1,524.1
======== ===== ===== ========
Equity securities ............................ $ 46.0 $ .8 $ 1.1 $ 45.7
======== ===== ===== ========
Accumulated other comprehensive loss included in shareholder's equity as of
December 31, 1999 and 1998, is summarized as follows:
1999 1998
------- -------
(Dollars in millions)
Unrealized gains (losses) on investments ............. $ (90.8) $ .9
Adjustments to cost of policies purchased
and cost of policies produced ...................... 46.3 (2.1)
Deferred income tax benefit .......................... 16.1 .4
------- -------
Accumulated other comprehensive loss .......... $ (28.4) $ (.8)
======= =======
The following table sets forth the amortized cost and estimated fair value
of actively managed fixed maturities at December 31, 1999, by contractual
maturity. Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Most of the mortgage-backed securities shown below
provide for periodic payments throughout their lives.
49
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
Estimated
Amortized fair
cost value
-------- --------
(Dollars in millions)
Due in one year or less ................................ $ 8.2 $ 8.2
Due after one year through five years .................. 90.8 89.5
Due after five years through ten years ................. 279.9 259.6
Due after ten years .................................... 628.2 579.4
-------- --------
Subtotal .......................................... 1,007.1 936.7
Mortgage-backed securities (a) ......................... 484.7 462.0
-------- --------
Total actively managed fixed maturities ........ $1,491.8 $1,398.7
======== ========
- ----------
(a) Includes below-investment grade mortgage-backed securities with an
amortized cost and estimated fair value of $2.4 million and $2.2 million,
respectively.
Net investment income consisted of the following:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Actively managed fixed maturity securities ....... $ 114.8 $ 118.4 $ 133.6
Equity securities ................................ 12.2 3.2 1.7
Mortgage loans ................................... 9.9 12.1 16.4
Policy loans ..................................... 4.8 5.1 5.4
Other invested assets ............................ 3.5 13.3 7.7
Cash and cash equivalents ........................ 2.1 2.9 3.4
Separate accounts ................................ 151.8 44.1 55.7
------- ------- -------
Gross investment income ...................... 299.1 199.1 223.9
Investment expenses .............................. 1.5 1.1 1.3
------- ------- -------
Net investment income ..................... $ 297.6 $ 198.0 $ 222.6
======= ======= =======
The Company had no significant fixed maturity investments or mortgage loans
that were not accruing investment income in 1999, 1998 and 1997.
Investment gains (losses), net of investment expenses, were included in
revenue as follows:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Fixed maturities:
Gross gains .................................... $ 8.6 $ 34.0 $ 20.6
Gross losses ................................... (14.5) (12.4) (5.1)
Other than temporary decline in fair value ..... (1.3) -- (.3)
------- ------- -------
Net investment gains (losses) from fixed
maturities before expenses ................. (7.2) 21.6 15.2
Other ............................................ .7 .1 2.2
------- ------- -------
Net investment gains (losses) before expenses (6.5) 21.7 17.4
Investment expenses .............................. 3.5 3.2 4.1
------- ------- -------
Net investment gains (losses) ................ $ (10.0) $ 18.5 $ 13.3
======= ======= =======
50
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
At December 31, 1999, the mortgage loan balance was primarily comprised of
commercial loans. Approximately 16 percent, 11 percent, 10 percent, 8 percent, 8
percent and 8 percent of the mortgage loan balance were on properties located in
Michigan, Texas, Florida, California, Georgia and Tennessee, respectively. No
other state comprised greater than 7 percent of the mortgage loan balance.
Noncurrent mortgage loans were insignificant at December 31, 1999. At December
31, 1999, our allowance for loss on mortgage loans was $.3 million.
Life insurance companies are required to maintain certain investments on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $11.5 million at December 31, 1999.
The Company had no investments in any single entity in excess of 10 percent
of shareholder's equity at December 31, 1999, other than investments issued or
guaranteed by the United States government or a United States government agency.
3. INSURANCE LIABILITIES:
These liabilities consisted of the following:
<TABLE>
<CAPTION>
Interest
Withdrawal Mortality rate
assumption assumption assumption 1999 1998
----------- ---------- ---------- -------- --------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Interest-sensitive products:
Investment contracts ........ N/A N/A (c) $ 976.7 $1,036.0
Universal life-type contracts N/A N/A N/A 312.5 329.2
-------- --------
Total interest-sensitive
products ................ 1,289.2 1,365.2
-------- --------
Traditional products:
Traditional life insurance
contracts ................. Company (a) 7.6% 137.0 139.9
experience
Limited-payment contracts ... Company (b) 7.5% 105.8 106.3
experience, -------- --------
if applicable
Total traditional
products ............... 242.8 246.2
-------- --------
Claims payable and other
policyholder funds ............ N/A N/A N/A 64.1 62.6
Liabilities related to
separate accounts ............. N/A N/A N/A 1,457.0 696.4
-------- --------
Total ....................... $3,053.1 $2,370.4
======== ========
<FN>
- -------------
(a) Principally, modifications of the 1975 - 80 Basic, Select and Ultimate
Tables.
(b) Principally, the 1984 United States Population Table and the NAIC 1983
Individual Annuitant Mortality Table.
(c) At December 31, 1999 and 1998, approximately 97 percent and 95 percent,
respectively, of this liability represented account balances where future
benefits are not guaranteed. The weighted average interest rate on the
remainder of the liabilities representing the present value of guaranteed
future benefits was approximately 6 percent at December 31, 1999.
</FN>
</TABLE>
51
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
4. INCOME TAXES:
Income tax liabilities were comprised of the following:
1999 1998
----- -----
(Dollars in millions)
Deferred income tax liabilities (assets):
Investments (primarily actively managed
fixed maturities) ................................ $ 3.6 $ 5.4
Cost of policies purchased and cost
of policies produced ............................. 75.3 56.7
Insurance liabilities .............................. (39.2) (28.2)
Unrealized depreciation ............................ (16.1) (.4)
Other .............................................. 10.2 (2.2)
----- -----
Deferred income tax liabilities ............... 33.8 31.3
Current income tax liabilities (assets) ................ (.4) 6.2
----- -----
Income tax liabilities ........................ $33.4 $37.5
===== =====
Income tax expense was as follows:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Current tax provision ..................... $ 4.3 $ 20.8 $ 16.3
Deferred tax provision (benefit) .......... 9.3 (4.2) 5.8
------- ------- -------
Income tax expense ............... $ 13.6 $ 16.6 $ 22.1
======= ======= =======
A reconciliation of the income tax provisions based on the U.S. statutory
corporate tax rate to the provisions reflected in the statement of operations is
as follows:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Tax on income before income taxes at
statutory rate .......................... 35.0% 35.0% 35.0%
State taxes ............................... 1.5 1.0 .7
Other ..................................... (1.4) (.8) .3
------- ------- -------
Income tax expense ............... 35.1% 35.2% 36.0%
======= ======= =======
5. OTHER DISCLOSURES:
LITIGATION
The Company is involved on an ongoing basis in lawsuits related to its
operations. Although the ultimate outcome of certain of such matters cannot be
predicted, such lawsuits currently pending against the Company are not expected,
individually or in the aggregate, to have a material adverse effect on the
Company's financial condition, cash flows or results of operations.
GUARANTY FUND ASSESSMENTS
The balance sheet at December 31, 1999, includes: (i) accruals of $1.6
million, representing our estimate of all known assessments that will be levied
against the Company by various state guaranty associations based on premiums
written through
52
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
December 31, 1999; and (ii) receivables of $1.1 million that we estimate will be
recovered through a reduction in future premium taxes as a result of such
assessments. These estimates are subject to change when the associations
determine more precisely the losses that have occurred and how such losses will
be allocated among the insurance companies. We recognized expense for such
assessments of $1.1 million in 1999, $1.1 million in 1998 and $1.2 million in
1997.
RELATED PARTY TRANSACTIONS
The Company operates without direct employees through management and
service agreements with subsidiaries of Conseco. Fees for such services
(including data processing, executive management and investment management
services) are based on Conseco's direct and directly allocable costs plus a 10
percent margin. Total fees incurred by the Company under such agreements were
$43.4 million in 1999, $37.8 million in 1998 and $36.7 million in 1997.
During 1998 and 1997, the Company purchased $13.0 million and $11.2 million
par value, respectively, of senior subordinated notes issued by subsidiaries of
Conseco. The total carrying value of such notes purchased during 1998, 1997 and
prior years was $45.5 million at December 31, 1998. Such notes are classified as
"other invested assets" in the accompanying balance sheet. In 1999, all such
notes were repurchased from the Company by Conseco or its subsidiaries.
6. OTHER OPERATING STATEMENT DATA:
Insurance policy income consisted of the following:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Traditional products:
Direct premiums collected ...................... $ 700.4 $ 445.8 $ 309.6
Reinsurance assumed ............................ 18.7 15.6 14.9
Reinsurance ceded .............................. (23.1) (21.0) (24.2)
------- ------- -------
Premiums collected, net of reinsurance ..... 696.0 440.4 300.3
Less premiums on universal life and
products without mortality and morbidity
risk which are recorded as additions to
insurance liabilities ........................ 654.1 400.4 255.9
------- ------- -------
Premiums on traditional products with
mortality or morbidity risk, recorded
as insurance policy income ............... 41.9 40.0 44.4
Fees and surrender charges on interest-
sensitive products ............................. 30.2 33.6 31.3
------- ------- -------
Insurance policy income .................... $ 72.1 $ 73.6 $ 75.7
======= ======= =======
The five states with the largest shares of 1999 collected premiums were
California (14 percent), Texas (14 percent), Florida (13 percent), Michigan (8.8
percent) and Indiana (5.2 percent). No other state accounted for more than 4
percent of total collected premiums.
Changes in the cost of policies purchased were as follows:
53
<PAGE>
CONSECO VARIABLE INSURANCE COMPANY
Notes to Financial Statements
------------------------------
1999 1998 1997
------- ------- -------
(Dollars in millions)
Balance, beginning of year ....................... $ 98.0 $ 106.4 $ 143.0
Amortization ................................. (4.1) (21.1) (15.4)
Amounts related to fair value adjustment
of actively managed fixed maturities ....... 37.7 11.8 (21.2)
Other ........................................ -- .9 --
------- ------- -------
Balance, end of year ............................. $ 131.6 $ 98.0 $ 106.4
======= ======= =======
Based on current conditions and assumptions as to future events on all
policies in force, the Company expects to amortize approximately 9 percent of
the December 31, 1999, balance of cost of policies purchased in 2000, 10 percent
in 2001, 9 percent in 2002, 7 percent in 2003 and 6 percent in 2004. The
discount rates used to determine the amortization of the cost of policies
purchased ranged from 3.6 percent to 8.0 percent and averaged 5.8 percent.
Changes in the cost of policies produced were as follows:
1999 1998 1997
------- ------- -------
(Dollars in millions)
Balance, beginning of year ....................... $ 82.5 $ 55.9 $ 38.2
Additions .................................... 62.7 35.3 31.8
Amortization ................................. (8.3) (11.0) (10.2)
Amounts related to fair value adjustment
of actively managed fixed maturities ....... 10.7 2.3 (3.9)
------- ------- -------
Balance, end of year ............................. $ 147.6 $ 82.5 $ 55.9
======= ======= =======
7. STATEMENT OF CASH FLOWS:
Income taxes paid during 1999, 1998, and 1997, were $2.1 million, $17.1
million and $14.8 million, respectively.
8. STATUTORY INFORMATION:
Statutory accounting practices prescribed or permitted by regulatory
authorities for insurance companies differ from GAAP. The Company reported the
following amounts to regulatory agencies:
1999 1998
------ ------
(Dollars
in millions)
Statutory capital and surplus .................................. $112.6 $134.0
Asset valuation reserve ........................................ 41.4 30.9
Interest maintenance reserve ................................... 66.7 73.1
------ ------
Total .......................................................... $220.7 $238.0
====== ======
Our statutory net income was $14.6 million, $32.7 million and $32.7 million
in 1999, 1998 and 1997, respectively. Statutory net income differs from net
income presented in our financial statements prepared in accordance with GAAP,
primarily because for GAAP reporting we are required to defer and amortize costs
that vary with and are primarily related to the production of new business as
described in note 1.
State insurance laws generally restrict the ability of insurance companies
to pay dividends or make other distributions. We may pay dividends to our parent
in 2000 of $12.8 million without permission from state regulatory authorities.
In 1998, the National Association of Insurance Commissioners adopted
codified statutory accounting principles, which are expected to constitute the
only source of prescribed statutory accounting practices and are effective in
2001. The changes to statutory accounting practices resulting from the
codification are not expected to have a material effect on the statutory capital
and surplus or statutory operating earnings data shown above.
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