[Federal Register Volume 67, Number 67 (Monday, April 8, 2002)]
[Notices]
[Pages 16777-16781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8365]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25504; File No. 812-12775]


Conseco Variable Insurance Company

April 1, 2002.
AGENCY: The Securities and Exchange Commission (``SEC'' or 
``Commission'').

ACTION: Notice of application for an order pursuant to Section 26(c) of 
the Investment Company Act of 1940, as amended (the ``Act''), approving 
a substitution of securities.

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    Applicants: Conseco Variable Insurance Company (``Conseco 
Variable''), Conseco Variable Annuity Account C, Conseco Variable 
Annuity Account E, Conseco Variable Annuity Account F, Conseco Variable 
Annuity Account G, Conseco Variable Annuity Account H, and Conseco 
Variable Annuity I (each an ``Account,'' together the ``Accounts'') 
(the Accounts together with Conseco Variable, the ``Applicants'').
    Summary of Application: The Applicants request an order permitting 
the substitution of securities issued by Strong Opportunity Fund II: 
Investor Class (the ``Substitute Fund'') for securities issued by the 
Berger IPT-New Generation Fund (the ``Replaced Fund''), and held by 
each Account that supports variable annuity contracts issued by Conseco 
Variable (the ``Contracts'').
    Filing Date: The initial application was filed on February 11, 
2002. The amended and restated application was filed on March 25, 2002.
    Hearing or Notification of Hearing: An order granting the amended 
and restated application will be issued unless the Commission orders a 
hearing. Interested person may request a hearing by writing to the 
Secretary of the Commission and serving Applicants with a copy of the 
request, personally or by mail. Hearing requests should be received by 
the Commission by 5:30 p.m. on April 25, 2002, and should be 
accompanied by proof of service on Applicants in the form of an 
affidavit or, for lawyers, a certificate of service. Hearing requests 
should state the nature of the writer's interest, the reason for the 
request, and the issues contested. Persons who wish to be notified may 
request notification by writing to the Secretary of the SEC.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549-0609. Applicants, c/o Meg Cullem-
Fiore, Esq., Conseco Variable Insurance Company, 11815 N. Pennsylvania 
Street, Carmel, Indiana 46032. Copy to Mary Jane Wilson-Bilik, Esq., 
Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Ave., NW, 
Washington, DC 20004-2415.

FOR FURTHER INFORMATION CONTACT: Curtis A. Young, Senior Counsel, or 
Lorna J. MacLeod, Branch Chief, Office of Insurance Products, Division 
of Investment Management at 202-942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the amended 
and restated application. The complete

[[Page 16778]]

amended and restated application may be obtained for a fee from the 
SEC's Public Reference Branch, 450 5th Street, NW, Washington, DC 
20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Conseco Variable Insurance Company was originally organized in 
1937. Prior to October 7, 1998, Conseco Variable was known as Great 
American Reserve Company. Conseco Variable is principally engaged in 
the life insurance and annuity 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., a publicly held financial services holding company.
    2. Each Account is a ``separate account'' as defined by Rule 0-1(e) 
under the Act. Each Account is registered with the Commission as a unit 
investment trust (the file number for each Account is provided in the 
chart below.) Each Account is comprised of 59 subaccounts and each 
subaccount invests exclusively in shares of a registered open-end, 
diversified, management investment company established to fund benefits 
under variable annuity contracts and variable life insurance policies 
(a ``Fund''). Under the insurance law of Texas, the assets of each 
Account attributable to the Contracts are owned by its depositor, but 
are held separately from the other assets of the depositor for the 
benefit of the owners of, and the persons entitled to payment under, 
those Contracts.

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                                                 1940 Act File                                     1933 Act File
               Separate account                       No.                   Contract                    No.
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Variable Annuity:
    Account C.................................       811-04819  Maxiflex Individual.............       033-02460
                                                                Maxiflex Group..................       033-61122
Variable Annuity:
    Account E.................................       811-08288  Achievement Series and Educator        033-74092
                                                                 Series.
Variable Annuity:
    Account F.................................       811-08483  Conseco Advantage...............       333-40309
Variable Annuity:
    Account G.................................       811-07501  Monument Series.................       333-00373
Variable Annuity:
    Account H.................................       811-09693  Advantage Plus..................       333-90737
Variable Annuity:
    Account I.................................       811-10213  Advantage Strategy..............       333-53836
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    3. The Contracts are flexible premium variable annuity contracts. 
The variable annuity Contracts provide for the accumulation of values 
on a variable basis, fixed basis, or both, during the accumulation 
period, and provide settlement or annuity payment options on a variable 
or fixed basis, or both. The assets of each Account, other than 
Variable Annuity Account C, support one variable annuity Contract; 
interests in the Variable Accounts offered through such Contracts have 
been registered under the Securities Act of 1933, as amended, (the 
``1933 Act'') on Form N-4. Under each of the Contracts Conseco Variable 
reserves the right to substitute shares of one Fund for shares of 
another, including a Fund of a different trust. The prospectuses for 
the Contracts and the Accounts contain appropriate disclosure of this 
right.
    4. The Replaced Fund is a series in the Berger Institutional 
Products Trust (the ``Trust''), a series investment company as defined 
by Rule 18f-2 under the Act that issues separate series of shares of 
beneficial interest in connection with each of its funds.
    5. The Substitute Fund is a management investment company that is 
not a series company. The shares of the Replaced Fund and the 
Substitute Fund are registered under the 1933 Act on Form N-1A (Nos. 
033-45320 and 033-63493, respectively). Conseco Variable is not 
affiliated with the Substitute Fund.
    6. Conseco Equity Sales, Inc., an affiliate of Conseco Variable, is 
the principal underwriter and distributor of the Contracts. Conseco 
Equity Sales is a broker-dealer registered under the Securities 
Exchange Act of 1934, as amended, and a member of the National 
Association of Securities Dealers, Inc. Sales of the Contracts are made 
by registered representatives of Conseco Equity Sales and broker-
dealers authorized to sell the Contracts.
    7. Strong Capital Management, Inc. (``Strong'') serves as 
Investment Advisor to the Substitute Fund. Conseco Variable is not 
affiliated with Strong or with the Substitute Fund.
    8.The following chart sets out the investment objectives and 
certain policies of the Substitute Fund and the Replacement Fund, as 
stated in their respective prospectuses and statements of additional 
information.

------------------------------------------------------------------------
            Substitute fund                      Replacement fund
------------------------------------------------------------------------
Berger IPT-New Generation Fund.........  Strong Opportunity Fund II
                                          (Investor Class).
Investment Objective--To seek capital    Investment Objective--To seek
 appreciation..                           capital growth.
Investment Policies--The Fund invests    Investment Policies-Under
 primarily in the common stocks of        normal circumstances, the Fund
 companies with new ideas, technologies   invests primarily in stocks of
 or methods of doing business. The Fund   medium-capitalized companies
 generally is weighted toward small       that the fund's manager
 capitalization companies and is          believes are underpriced, yet
 intended for investors comfortable       have attractive growth
 with above-average risk..                prospects.
------------------------------------------------------------------------

    9. The following charts show the approximate year-end size (in net 
assets), expense ratio (ratio of operating expenses as a percentage of 
average net assets), and annual total returns for each of the past 
three years (if available) for each of the Funds involved in the 
proposed substitution.

[[Page 16779]]



                                  Replaced Fund: Berger IPT-New Generation Fund
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                                                                             Expense      Expense
                                                               Net assets     ratio        ratio
                                                              at year-end    (without      (with        Total
                            Year                                   (in       waivers)     waivers)   return  (in
                                                               millions)       (in          (in        percent)
                                                                             percent)     percent)
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2000*.......................................................         $2.5         3.52         1.15        -40.8
2001........................................................         $2.1         2.31         1.15       -49.0
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*For period from inception, May 1, 2000 to December 31, 2000.


                               Substitute Fund: Strong Growth Opportunity Fund II
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                                                                           Expense
                                                             Net assets     ratio        Expense
                                                            at year-end    (without   ratio  (with  Total return
                           Year                                  (in       waivers)     waivers)         (in
                                                             millions)       (in      (in percent)    percent)
                                                                           percent)
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1998......................................................         $912         1.20          1.2          13.5
1999......................................................       $1,119         1.20          1.1          34.9
2000......................................................       $1,182         1.20          1.1           6.6
2001......................................................       $1,283         1.35          1.10         -3.36
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                                                                      Before           After          Revenue
                                                                   reimbursement   reimbursement      sharing
                              Fund                                 or fee waiver   or fee waiver    percentage
                                                                   (in percent)    (in percent)    (in percent)
----------------------------------------------------------------------------------------------------------------
Replaced fund...................................................            2.31            1.15             .25
Substitute fund.................................................            1.35            1.10             .20
----------------------------------------------------------------------------------------------------------------

    10. Applicants believe that for this proposed substitution, the 
investment objective and policies of the Substitute Fund are 
sufficiently similar to those of the Replaced Fund that Contract owners 
will have reasonable continuity in investment expectations. Applicants 
also believe that the proposed substitution will better serve the 
interests of Contract owners because, generally, the Substitute Fund 
has lower fees or expenses, superior performance, and a larger, growing 
asset base in the Contracts than the Replaced Fund.
    11. Recently Conseco Variable was informed by Berger Institutional 
Products Trust that the latter intends to take steps to close the 
Berger Institutional Products Trust-New Generation Fund. At a recent 
meeting, the board of trustees voted to authorize the liquidation of 
the New Generation Fund on or after April 29, 2002 (the ``Liquidation 
Date'').
    12. Applicants propose to have Conseco Variable purchase shares of 
the Substitute Fund on the Liquidation Date with the proceeds it 
receives from the liquidation of the Replaced Fund. Applicants 
represent that the proposed substitution will occur at the relative 
accumulation unit values of the subaccounts investing in the Replaced 
Fund and the Substitute Fund on the Liquidation Date in conformity with 
Section 22(c) of the Act and Rule 22c-1 thereunder, without the 
imposition of any transfer or similar charge, and with no change in the 
amount of any Contract owner's account value or death benefit or in the 
dollar value of his or her investment in any of the Accounts. Contract 
owners will not incur any fees or charges as a result of the proposed 
substitution, nor will their rights or Applicants' obligations under 
the Contracts be altered in any way. All expenses incurred in 
connection with the proposed substitution, including brokerage 
commissions, legal, accounting, and other fees and expenses, will be 
paid by Applicants and will not be borne by Contract owners. In 
addition, the proposed substitution will not impose any tax liability 
on Contract owners and will in no way alter the tax benefits to 
contract owners. The proposed substitution will not cause the Contract 
fees and charges currently being paid by existing Contract owners to be 
greater after the proposed substitution than before the proposed 
substitution. The proposed substitution will in no way alter the 
insurance benefits to contract owners or the contractual obligations of 
Conseco Variable.
    13. Conseco Variable represents that it does not currently receive, 
and will not receive for three years, any amounts from the Substitute 
Fund or its adviser (or the adviser's affiliates) at a higher rate than 
it had received from the Replaced Fund and/or its adviser/affiliates, 
including without limitation 12b-1, shareholder service, 
administration, or other service fees, revenue sharing or other 
arrangement, either with specific reference to the Substitute Fund or 
as part of an overall business arrangement.
    14. Applicants represent that in the event that the Substitute Fund 
has operating expenses (taking into account expense waivers and 
reimbursements) for any fiscal period (not to exceed a fiscal quarter) 
during the 12 months following the date of the proposed substitution, 
equal on an annualized basis to an amount greater than 1.15%, Conseco 
Variable will make adjustments to the expenses for the subaccounts that 
invest in the Substitute Fund for those owners who were owners on the 
date of the substitution. These adjustments will limit those owners' 
expenses so that the amount of the Substitute Fund's operating expenses 
together with the corresponding subaccount's asset-based expenses paid 
during such period on an annualized basis will be no greater than the 
sum of the Replaced Fund's expenses after waivers and reimbursements 
(1.15%) together with the corresponding subaccount's asset-based 
expenses during the fiscal year preceding the proposed substitution.
    15. In addition, for those owners who were owners on the date of 
the substitution, Conseco Variable will not

[[Page 16780]]

increase contract charges for a period of 12 months following the date 
of the substitution, except to the extent of any increase in premium 
taxes charged by one or more states. The non-asset-based expenses 
include the Contract Maintenance Charge and Surrender Charges.
    16. Applicants represent that the proposed substitution will not be 
treated as a transfer for the purpose of assessing transfer charges or 
for determining the number of remaining permissible transfers in a 
Contract quarter or year. Except where Conseco Variable may impose 
restrictions to prevent or restrict ``market timing'' activities by 
Contract owners or their agents, Applicants will not exercise any right 
they may have under the Contracts to impose additional restrictions on 
transfers under any of the Contracts for a period of at least 30 days 
following the substitution. Similarly, Applicants will permit Contract 
owners to make one transfer of Contract value out of a subaccount to be 
affected by the proposed substitution to another subaccount without the 
transfer being treated as one of a limited number of permitted 
transfers or a limited number of transfers permitted without a transfer 
charge
    17. By supplements to the various May 1, 2001 prospectuses for the 
Contracts and the Accounts, Applicants will notify owners of the 
Contracts of their intention to take the necessary actions, including 
seeking the order requested by this amended and restated application to 
substitute shares of Substitute Fund as described herein (``Pre-
Substitution Notice'').
    18. The supplements about the proposed substitution will advise 
Contract owners that from the date of the supplement until the date of 
the proposed substitution, Applicants will not (except where Applicant 
may impose restrictions to prevent or restrict ``market timing'' 
activities by Contract owners or their agents) exercise any rights 
reserved under any Contract to impose additional restrictions on 
transfers until at least 30 days after the proposed substitution. 
Similarly, the supplements will disclose that, from the date of the 
supplement until the date of the substitution, Applicants will permit 
Contract owners to make one transfer of Contract value out of a 
subaccount to be affected by the proposed substitution to another 
subaccount without the transfer being treated as one of a limited 
number of permitted transfers or a limited number of transfers 
permitted without a transfer charge. The supplements also will advise 
Contract owners that if the proposed substitution is carried out, then 
each Contract owner affected by a substitution will be sent a written 
notice (``Post-Substitution Notice'') informing them of the fact and 
details of the substitution.
    19. In addition, within five days after the proposed substitution, 
any Contract owners who are affected by a substitution will be sent a 
written confirmation of the transaction in accordance with Rule 10b-10 
under the Securities Exchange Act of 1934, as amended, informing them 
that the substitution was carried out. The confirmation notice also 
will reiterate the facts that Applicants: (a) will not exercise any 
rights reserved by it under any of the Contracts to impose additional 
restrictions on transfers, and (b) will permit such Contract owners to 
make one transfer of Contract value out of an affected subaccount to 
another subaccount for 30 days after the substitution without the 
transfer being treated as one of a limited number of permitted 
transfers or a limited number of transfers permitted without a transfer 
charge. A current prospectus for the Substitute Fund will be sent to 
Contract owners on or about the time the confirmation notices are sent.

Applicants' Legal Analysis

    1. Section 26(c) of the Act requires the depositor of a registered 
unit investment trust holding the securities of a single issuer to 
receive Commission approval before substituting the securities held by 
the trust.
    2. Section 26(c) was intended to specifically address substitution 
by unit investment trusts that previously had been scrutinized under 
Section 11 of the Act. Section 26(c) allows Commission scrutiny of 
proposed substitutions which could, in effect, force investors 
dissatisfied with the substitute security to redeem their shares, 
thereby possibly incurring a loss of the sales load deducted from 
initial purchase payments, an additional sales load upon reinvestment 
of the proceeds of redemption, or both. The section was designed to 
forestall the ability of a depositor to present holders of interest in 
a unit investment trust with situations in which an investor's only 
choice would be to continue an investment in an unsuitable underlying 
security, or to elect a costly and, in effect, forced redemption.
    3. The Applicants submit that the substitution is not the type of 
substitution that Section 26(c) was designed to prevent. Unlike 
traditional unit investment trusts where a depositor could only 
substitute an investment security in a manner which permanently 
affected all the investors in the trust, the Contracts provide each 
Contract owner with the right to exercise his or her own judgment and 
transfer Contract values into other subaccounts.
    4. Also, the proposed substitution is unlike the type of 
substitution that Section 26(c) was designed to prevent in that by 
purchasing a Contract, Contract owners select much more than a 
particular investment company in which to invest their Contract values. 
They also select the specific type of insurance coverage offered by 
Conseco Variable under their Contract as well as numerous other rights 
and privileges set forth in the Contract. Contract owners may also have 
considered the size, financial condition, type, and reputation for 
service of the Applicant from whom they purchased their Contract. These 
factors will not change because of the proposed substitution.
    5. Applicants maintain that Contract owners will be well served by 
the proposed substitution. The proposed substitution is an appropriate 
one given the Funds available under the Contracts. For the proposed 
substitution, Applicants believe that the Substitute Fund is 
substantially the same or more conservative in its investment 
objective(s) or strategies than the Replaced Fund. Likewise, Applicants 
believe that the Substitute Fund has a lower investment risk profile 
than the Replaced Fund.
    6. Apart from the replacement of the underlying investment vehicle, 
the rights of the Contract owners and the obligations of Conseco 
Variable under the Contracts would not be altered by the substitution 
except, of course, that Contract owners will not have the right to 
allocate contract value to subaccounts that invest in the Substitute 
Fund.
    7. The Applicants note that, in accordance with the terms of each 
of the Contracts, no sales charges or surrender charges will apply to 
transfers in connection with the substitution, and Conseco Variable 
represents that no such charge shall be imposed. In addition, Contract 
owners who were affected by the substitution will be sent a Post-
Substitution Notice informing them that the substitution was carried 
out and advising them of their transfer rights. The Applicants assert 
that the procedures to be implemented are sufficient to assure that 
each Contract owner's cash values immediately after the substitution 
shall be equal to the cash value immediately before the substitution.

Applicants' Conditions

    For purposes of the approval sought pursuant to Section 26(c) of 
the Act, the

[[Page 16781]]

substitution described in the amended and restated application will not 
be completed, unless all of the following conditions are met.
    1. The Commission shall have issued an order approving the 
substitution under Section 26(c) of the 1940 Act.
    2. Each Contract owner will have been sent (a) a copy of the 
effective prospectus relating to the Replacement Fund and any necessary 
amendments to the prospectuses relating to the Contracts, (b) prior to 
the Liquidation Date, a Pre-Substitution Notice describing the terms of 
the substitution and the rights of the Contract owners in connection 
with the substitution, and (c) if affected by the substitution, a Post-
Substitution Notice informing them that the substitution was carried 
out and advising them of their transfer rights.
    Applicants assert, for the reasons stated above, that the proposed 
substitution is consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act and 
the requested Order approving the substitution should be granted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-8365 Filed 4-5-02; 8:45 am]
BILLING CODE 8010-01-U