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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
 
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                                      OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR
 
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                           ACT OF 1934 [NO FEE REQUIRED]
 
          FOR THE TRANSITION PERIOD FROM              TO
 
                         COMMISSION FILE NUMBER: 1-9250
 
                                 CONSECO, INC.
 
<TABLE>
<S>                                            <C>
 
                   INDIANA                                    NO. 35-1468632
          (STATE OF INCORPORATION)                   (IRS EMPLOYER IDENTIFICATION NO.)
 
        11825 N. PENNSYLVANIA STREET
            CARMEL, INDIANA 46032                             (317) 817-6100
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (TELEPHONE)
</TABLE>
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
             -------------------                 -----------------------------------------
<S>                                            <C>
         Common Stock, No Par Value                    New York Stock Exchange, Inc.
        8 1/8% Senior Notes due 2003                   New York Stock Exchange, Inc.
        10 1/2% Senior Notes due 2004                  New York Stock Exchange, Inc.
 9.16% Trust Originated Preferred Securities           New York Stock Exchange, Inc.
              7% FELINE PRIDES                         New York Stock Exchange, Inc.
 8.70% Trust Originated Preferred Securities           New York Stock Exchange, Inc.
  9% Trust Originated Preferred Securities             New York Stock Exchange, Inc.
</TABLE>
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
                           Common Stock, No Par Value
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days:  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]
 
     Aggregate market value of common stock held by nonaffiliates (computed as
of March 19, 1999): $10,442,338,786
 
     Shares of common stock outstanding as of March 19, 1999: 323,330,675
 
     DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's
definitive proxy statement for the annual meeting of shareholders to be held May
26, 1999 are incorporated by reference into Part III of this Report.
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                                     PART I
 
ITEM 1. BUSINESS OF CONSECO.
 
     Conseco, Inc. is a financial services holding company. We conduct and
manage our business through two operating segments, reflecting our major lines
of business: (i) insurance and fee-based operations and (ii) finance operations.
Our insurance subsidiaries develop, market and administer supplemental health
insurance, annuity, individual life insurance, individual and group major
medical insurance and other insurance products. Our finance subsidiaries
originate, purchase, sell and service consumer and commercial finance loans
throughout the United States. As used in this report, the terms "we," "Conseco"
or the "Company" refer to Conseco, Inc. and its consolidated subsidiaries,
unless the context requires otherwise. Since 1982, Conseco has acquired 19
insurance groups. In 1998, we acquired Green Tree Financial Corporation ("Green
Tree") which comprises our finance operations. Our operating strategy is to grow
our businesses by focusing our resources on the development and expansion of
profitable products and strong distribution channels, to seek to achieve
superior investment returns through active asset management and to control
expenses. For a discussion concerning results of operations by operating
segment, see "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations."
 
     In 1997, Conseco launched a comprehensive effort to transform its name into
a recognized brand. We believe that in a competitive marketplace like financial
services, companies that can differentiate themselves through a familiar brand
can obtain full value for their products; sell more efficiently and command
greater customer loyalty; recruit and retain talent more easily; better
withstand and weather inevitable business crises; and have better access to the
financial markets and the capital they need in order to grow. Our advertising
campaign is designed to introduce consumers to the Conseco brand, to our product
line and to the benefits of doing business with Conseco.
 
     Conseco was organized in 1979 as an Indiana corporation and commenced
operations in 1982. Our executive offices are located at 11825 N. Pennsylvania
Street, Carmel, Indiana 46032, and our telephone number is (317) 817-6100.
 
MARKETING AND DISTRIBUTION
 
INSURANCE
 
     Conseco seeks to retain the loyalty of its agency force by providing
marketing and sales support; electronic and automated access to account and
commission information; and marketing and training tools. We also have
introduced new products like equity-indexed annuities (1996), indexed universal
life (1998) and multi-year-guarantee annuities (1999). We are also seeking to
reduce our agents' administrative burden, increase their productive sales time
and get them the information they need faster and more reliably. In 1997, we
introduced the Conseco Online Information System ("COINS"), which enables agents
to track policy and commission information and order materials at their
convenience. Many of our marketing companies and agents use COINS.
 
     Our insurance subsidiaries collectively hold licenses to market our
insurance products in all fifty states, the District of Columbia, and certain
protectorates of the United States. Sales to residents of the following states
accounted for at least 4.5 percent of our 1998 collected premiums: Florida (9.5
percent), California (9.2 percent), Illinois (8.5 percent), Texas (7.5 percent)
and Michigan (4.5 percent).
 
     We believe that people purchase most types of life insurance, accident and
health insurance and annuity products only after being contacted and solicited
by an insurance agent. Accordingly, the success of our distribution system is
largely dependent on our ability to attract and retain agents who are
experienced and highly motivated. In order to encourage agents to place a high
volume of life, accident and health and annuity business with our subsidiaries,
we offer commission rate bonuses and compensation awards which increase with the
volume of new business written.
 
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     A description of the primary distribution channels follows:
 
     Career Agents. This agency force of approximately 5,000 agents working from
185 branch offices, permits one-on-one contacts with potential policyholders and
promotes strong personal relationships with existing policyholders. The career
agents sell primarily Medicare supplement and long-term care insurance policies.
In 1998, this distribution channel accounted for $1,284.6 million, or 22
percent, of our total collected premiums. Most of these agents sell only Conseco
policies and typically visit the prospective policyholder's home to conduct
personalized "kitchen-table" sales presentations. After the sale of an insurance
policy, the agent serves as a contact person for policyholder questions, claims
assistance and additional insurance needs. The personalized marketing and
service efforts of the career field agents, supported by home office persistency
programs, have contributed to a persistency rate of approximately 84 percent on
Medicare supplement policies sold through this channel during 1998.
 
     Professional Independent Producers. This distribution channel consists of a
general agency and insurance brokerage distribution system comprised of
approximately 150,000 independent licensed agents doing business in all fifty
states. In 1998, this channel accounted for $4,550.5 million, or 76 percent, of
our total collected premiums.
 
     Professional independent producers are a diverse network of independent
agents, insurance brokers and marketing organizations. Marketing companies
typically recruit agents for Conseco by advertising our products and commission
structure through direct mail advertising or through seminars for insurance
agents and brokers. These organizations bear most of the costs incurred in
marketing our products. We compensate the marketing organizations by paying them
a percentage of the commissions earned on new sales generated by the agents
recruited by such organizations. Certain of these marketing organizations are
specialty organizations that have a marketing expertise or a distribution system
relating to a particular product, such as flexible-premium annuities for
educators.
 
     Direct Marketing. This distribution channel is engaged primarily in the
sale of "graded benefit life" insurance policies. In 1998, this channel
accounted for $129.1 million, or 2 percent, of our total collected premiums.
 
FINANCE
 
     Our finance subsidiaries operate from service centers throughout the United
States serving all 50 states. Originations to customers in the following states
accounted for at least 4.6 percent of our 1998 originations: Texas (7.2
percent), California (6.7 percent), North Carolina (6.6 percent), Florida (6.2
percent) and Michigan (4.6 percent).
 
     During 1998, 74 percent of our finance products were marketed indirectly to
customers through intermediary channels such as dealers, vendors, contractors
and retailers; the remaining products were marketed directly to our customers
through our regional offices and service centers. A description of the primary
distribution channels follows:
 
     Dealers, Vendors, Contractors, Retailers. Manufactured housing, home
improvement, home equity, consumer finance and equipment finance receivables are
purchased from and originated by selected dealers and contractors after
undergoing a proprietary automated credit scoring system at one of our regional
service centers. During 1998, these marketing channels accounted for 86 percent
of manufactured housing, 73 percent of home improvement, 45 percent of home
equity, 92 percent of consumer finance and 65 percent of equipment finance.
 
     Regional Service Centers, Retail Satellite Offices and Telemarketing
Center. We market and originate manufactured housing loans through 51 regional
offices and 2 origination and processing centers. We originate home equity loans
through a system of 114 retail satellite offices and 6 regional centers. We also
market private label retail credit products through selected retailers and
process the contracts through Conseco Bank, Inc., ("Conseco Bank"), a Utah
industrial loan company, and through Green Tree Retail Services Bank ("Retail
Bank"), a South Dakota limited purpose credit card bank. We utilize direct mail
to originate home improvement loans, home equity loans and credit cards. We
provide commercial finance loans to dealers,
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manufacturers and other distributors through 3 regional lending centers. During
1998, these marketing channels accounted for 14 percent of manufactured housing,
27 percent of home improvement, 55 percent of home equity, 8 percent of consumer
finance, 35 percent of equipment finance and 100 percent of retail credit
contracts.
 
INSURANCE PRODUCTS
 
     SUPPLEMENTAL HEALTH
 
     Supplemental health products include Medicare supplement, long-term care
and specified-disease insurance products distributed through a career agency
force and professional independent producers. During 1998, we collected Medicare
supplement premiums of $916.7 million, long-term care premiums of $728.4 million
and specified disease premiums of $392.3 million.
 
     The following describes the major supplemental health products:
 
     Medicare supplement. Medicare is a two-part federal health insurance
program for disabled persons and senior citizens (age 65 and older). Part A of
the program provides protection against the costs of hospitalization and related
hospital and skilled nursing home care, subject to an initial deductible,
related coinsurance amounts and specified maximum benefit levels. The deductible
and coinsurance amounts are subject to change each year by the federal
government. Part B of Medicare covers doctors bills and a number of other
medical costs not covered by Part A, subject to deductible and coinsurance
amounts for "approved" charges.
 
     Medicare supplement policies provide coverage for many of the medical
expenses which the Medicare program does not cover, such as deductibles,
coinsurance costs (in which the insured and Medicare share the costs of medical
expenses) and specified losses which exceed the federal program's maximum
benefits. Our Medicare supplement plans automatically adjust coverage to reflect
changes in Medicare benefits. In marketing these products, we concentrate on
individuals who have recently become eligible for Medicare by reaching the age
of 65. We offer a higher first-year commission for sales to these policyholders
and competitive premium pricing. Approximately one-half of new sales of Medicare
supplement policies are to individuals who are 65 years old.
 
     Long-term care. Long-term care products provide coverage, within prescribed
limits, for nursing home, home healthcare, or a combination of both nursing home
and home healthcare expenses. The long-term care plans are sold primarily to
retirees, and to a lesser degree, to older self-employed individuals and others
in middle-income levels.
 
     Current nursing home care policies cover incurred and daily fixed-dollar
benefits available with an elimination period (which, similar to a deductible,
requires the insured to pay for a certain number of days of nursing home care
before the insurance coverage begins), subject to a maximum benefit. Home
healthcare policies cover the usual and customary charges after a deductible and
are subject to a daily or weekly maximum dollar amount, and an overall benefit
maximum. We monitor the loss experience on our long-term care products and, when
necessary, apply for rate increases in the states in which we sell such
products.
 
     Specified-disease products. These policies generally provide fixed or
limited benefits. Cancer insurance and heart/stroke products are guaranteed
renewable individual accident and health insurance policies. Payments under
cancer insurance policies are generally made directly to, or at the direction
of, the policyholder following diagnosis of, or treatment for, a covered type of
cancer. Heart/stroke policies provide for payments directly to the policyholder
for treatment of a covered heart disease, heart attack or stroke. The benefits
provided under the specified-disease policies do not necessarily reflect the
actual cost incurred by the insured as a result of the illness; benefits are not
reduced by any other medical insurance payments made to or on behalf of the
insured.
 
     Approximately 73 percent of our specified-disease policies in force (based
on a count of policies) are sold with return of premium or cash value riders.
The return of premium rider generally provides that after a policy has been in
force for a specified number of years or upon the policyholder reaching a
specified age, the
 
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Company will pay to the policyholder, or a beneficiary under the policy, the
aggregate amount of all premiums paid under the policy, without interest, less
the aggregate amount of all claims incurred under the policy.
 
     ANNUITIES
 
     Annuity products include equity-indexed annuity, variable annuity,
traditional fixed rate annuity and market value-adjusted annuity products sold
through both career agents and professional independent producers. During 1998,
we collected annuity premiums of $1,999.1 million.
 
     The following describes the major annuity products:
 
     Equity-indexed annuity products. These products accounted for $798.2
million, or 13 percent, of our total premiums collected in 1998. The
accumulation value of these annuities is credited with interest at an annual
minimum guaranteed rate of 3 percent (or, including the effect of applicable
sales loads, a 1.5 percent compound average interest rate over the term of the
contracts), but the annuities provide for higher returns based on a percentage
(the "participation rate") of the change in the Standard & Poor's Corporation
("S&P") 500 Index during each year of their term. The Company has the
discretionary ability to annually change the participation rate which currently
ranges from 50 percent to 75 percent plus a first-year "bonus", similar to the
bonus interest described below for traditional fixed rate annuity products, of
25 percent. The minimum guaranteed values are equal to: (i) 90 percent of
premiums collected for annuities for which premiums are received in a single
payment (single premium deferred annuities "SPDAs"), or 75 percent of first year
and 87.5 percent of renewal premiums collected for annuities which allow for
more than one payment (flexible premium deferred annuities "FPDAs"); plus (ii)
interest credited at an annual rate of 3 percent. The annuity provides for
penalty-free withdrawals of up to 10 percent of premium in each year after the
first year of the annuity's term. Other withdrawals from SPDA products are
generally subject to a surrender charge of 9 percent over the eight year
contract term at which time the contract must be renewed or withdrawn. Other
withdrawals from FPDA products are subject to a surrender charge of 12 percent
to 20 percent in the first year, declining 1.2 percent to 1.3 percent each year,
to zero over a 10 to 15 year period, depending on issue age. We purchase S&P 500
Index Call Options ("S&P 500 Call Options") in an effort to hedge potential
increases to policyholder benefits resulting from increases in the S&P 500 Index
to which the product's return is linked.
 
     Variable annuity products. Variable annuities accounted for $332.6 million,
or 5.6 percent, of our total premiums collected in 1998. Variable annuities,
sold on a single-premium or flexible-premium basis, differ from fixed annuities
in that the original principal value may fluctuate, depending on the performance
of assets allocated pursuant to various investment options chosen by the
contract owner. Variable annuities offer contract owners a fixed or variable
rate of return based upon the specific investment portfolios into which premiums
may be directed.
 
     Traditional fixed rate annuity products. These products include: (1) SPDAs
and FPDAs (excluding the equity-indexed and market value-adjusted products) and
single-premium immediate annuities ("SPIAs"). SPDAs and FPDAs accounted for
$601.4 million, or 10.1 percent, of our total collected premiums in 1998. Our
SPDAs and FPDAs typically have an interest rate (the "crediting rate") that is
guaranteed by the Company for the first policy year, after which, we have the
discretionary ability to change the crediting rate to any rate not below a
guaranteed minimum rate. The guaranteed rate recently written on annuities is
3.0 percent, and the rate on all policies in force ranges from 3 percent to 6
percent. The initial crediting rate is largely a function of: (i) the interest
rate we can earn on invested assets acquired with the new annuity fund deposits;
and (ii) the rates offered on similar products by our competitors. For
subsequent adjustments to crediting rates, we take into account the yield on our
investment portfolio, annuity surrender assumptions, competitive industry
pricing and the crediting rate history for particular groups of annuity policies
with similar characteristics.
 
     Approximately 83 percent of our new annuity sales have been "bonus"
products. The initial crediting rate on these products specifies a bonus
crediting rate ranging from 1 percent to 9 percent of the annuity deposit for
the first policy year only. After the first year, the bonus interest portion of
the initial crediting rate is automatically discontinued, and the renewal
crediting rate is established. Generally, there is a compensating
 
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adjustment in commissions paid to the agent to offset the first year bonus. As
of December 31, 1998, crediting rates on our outstanding traditional annuities
were at an average rate, excluding bonuses, of 4.6 percent.
 
     The policyholder is typically permitted to withdraw all or part of the
premium paid plus the accumulated interest credited to his account (the
"accumulation value"), subject in virtually all cases to the assessment of a
surrender charge for withdrawals in excess of specified limits. Most of our
traditional annuities provide for penalty-free withdrawals of up to 10 percent
of the accumulation value each year, subject to limitations. Withdrawals in
excess of allowable penalty-free amounts are assessed a surrender charge during
a penalty period which generally ranges from five to 12 years after the date a
policy is issued. The initial surrender charge is generally 6 percent to 12
percent of the accumulation value and generally decreases by approximately 1 to
2 percentage points per year during the penalty period. Surrender charges are
set at levels to protect the Company from loss on early terminations and to
reduce the likelihood of policyholders terminating their policies during periods
of increasing interest rates. This practice lengthens the effective duration of
policy liabilities and enables the Company to maintain profitability on such
policies.
 
     SPIAs accounted for $172.2 million, or 2.9 percent, of our total collected
premiums in 1998. SPIAs are designed to provide a series of periodic payments
for a fixed period of time or for life, according to the policyholder's choice
at the time of issue. Once the payments begin, the amount, frequency and length
of time for which they are payable are fixed. SPIAs often are purchased by
persons at or near retirement age who desire a steady stream of payments over a
future period of years. The single premium is often the payout from a terminated
annuity contract. The implicit interest rate on SPIAs is based on market
conditions when the policy is issued. The implicit interest rate on the
Company's outstanding SPIAs averaged 7.3 percent at December 31, 1998.
 
     Market value-adjusted annuity products. This product has a "market value
adjustment" feature designed to provide the Company with additional protection
from early terminations during a period of rising interest rates by reducing the
surrender value payable upon a full or partial surrender of the policy in excess
of the allowable penalty-free withdrawal amount. Conversely, during a period of
declining interest rates, the feature would increase the surrender value payable
to the policyholder. In 1998, we collected premiums of $94.7 million from SPDAs
and FPDAs with this feature.
 
     LIFE
 
     Life products include traditional, universal life and other life insurance
products. These products are currently sold through career agents, professional
independent producers and direct response marketing. During 1998, we collected
total life premiums of $928.8 million.
 
     Interest-sensitive life products. These products include universal life
products that provide whole life insurance with adjustable rates of return
related to current interest rates. They accounted for $511.9 million, or 8.6
percent, of our total collected premiums in 1998 and are marketed through
professional independent producers and to a lesser extent, career agents. The
principal differences between universal life products and other
interest-sensitive life insurance products are policy provisions affecting the
amount and timing of premium payments. Universal life policyholders may vary the
frequency and size of their premium payments, and policy benefits may also
fluctuate according to such payments. Premium payments under other interest-
sensitive policies may not be varied by the policyholders, and as a result, are
designed to reduce the administrative costs typically associated with monitoring
universal life premium payments and policy benefits.
 
     Traditional life. These products accounted for $416.9 million, or 7.0
percent, of our total collected premiums in 1998. Traditional life policies,
including whole life, graded benefit life and term life products, are marketed
through professional independent producers, career agents and direct response
marketing. Under whole life policies, the policyholder generally pays a level
premium over the policyholder's expected lifetime. The annual premium in a whole
life policy is generally higher than the premium for comparable term insurance
coverage in the early years of the policy's life, but is generally lower than
the premium for comparable term insurance coverage in the later years of the
policy's life. These policies, which continue to be marketed by the Company on a
limited basis, combine insurance protection with a savings component that
increases in amount gradually over the life of the policy. The policyholder may
borrow against the savings
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generally at a rate of interest lower than that available from other lending
sources. The policyholder may also choose to surrender the policy and receive
the accumulated cash value rather than continuing the insurance protection. Term
life products offer pure insurance protection for a specified period of
time -- typically 5, 10 or 20 years.
 
     Traditional life products also include graded benefit life insurance
products. Graded benefit life products accounted for $129.1 million, or 2.2
percent, of our total collected premiums in 1998. Graded benefit life insurance
products are offered on an individual basis primarily to persons age 50 to 80,
principally in face amounts of $350 to $10,000, without medical examination or
evidence of insurability. Premiums are paid as frequently as monthly. Benefits
paid are less than the face amount of the policy during the first two years,
except in cases of accidental death. Graded benefit life policies are marketed
using direct response marketing techniques. New policyholder leads are generated
primarily from television and print advertisements.
 
     INDIVIDUAL AND GROUP MAJOR MEDICAL
 
     Current sales of our individual and group major medical health insurance
products are targeted primarily to self-employed individuals, small business
owners and early retirees. In addition, we insure several large groups but do
not actively market new business of this type. Several deductible and
coinsurance options are available, and most policies require certain utilization
review procedures. The profitability of this business depends largely on the
overall persistency of the business in force, claim experience and expense
management. During 1998, we collected total premiums of $878.2 million from
these products.
 
FINANCE PRODUCTS
 
     CONSUMER FINANCING
 
     Manufactured Housing. Our finance subsidiaries provide financing for
consumer purchases of manufactured housing. During 1998, we originated $6.1
billion of contracts for manufactured housing purchases, or 28 percent of our
total originations. At December 31, 1998, our managed receivables include $21.1
billion of contracts for manufactured housing purchases, or 57 percent of total
managed receivables. Manufactured housing or a manufactured home is a structure,
transportable in one or more sections, which is designed to be a dwelling with
or without a permanent foundation. Manufactured housing does not include either
modular housing (which typically involves more sections, greater assembly and a
separate means of transporting the sections), or recreational vehicles.
 
     The majority of sales contracts for manufactured home purchases are
financed on a conventional basis. Federal Housing Administration and Veterans's
Administration contracts represent less than 1 percent of our manufactured
housing originations and 2 percent of our total servicing portfolio.
Manufactured housing contracts are generally subject to minimum down payments of
at least 5 percent of the amount financed and have terms of up to 30 years.
 
     Through our regional service centers, we purchase manufactured housing
contracts from dealers located throughout the United States. Our regional
service center personnel solicit dealers in their region. If the dealer wishes
to utilize our financing, the dealer completes an application. Upon approval, a
dealer agreement is executed. We also originate manufactured housing installment
loan agreements directly with customers. For the year ended December 31, 1998,
86 percent of our manufactured housing contract originations were purchased from
dealers and 14 percent were originated directly by us.
 
     Customers' credit applications for new manufactured homes are reviewed in
our service centers. If the application meets our guidelines, we generally
purchase the contract after the customer has moved into the manufactured home.
We use a proprietary automated credit scoring system to evaluate manufactured
housing contracts. The scoring system is statistically based, quantifying
information using variables obtained from customer credit applications and
credit reports.
 
     Mortgage Services. These products include home equity and home improvement
loans. During 1998, we originated $5.2 billion of contracts for these products,
or 24 percent of our total originations. At December 31,
 
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1998, our managed receivables include $8.3 billion of contracts for home equity
and home improvement loans, or 22 percent of total managed receivables.
 
     We originate home equity loans through 114 retail satellite offices and six
regional centers and through a network of correspondent lenders throughout the
United States. The satellite offices are responsible for originating,
processing, underwriting and funding the loan transaction. Subsequently, loans
are re-underwritten in the regional service center and on a test basis by a
third party to ensure compliance with our credit policy. After the loan has
closed, the loan documents are forwarded to our loan servicing center. The
servicing center is responsible for handling customer service and performing
document handling, custodial and quality control functions.
 
     During 1998, approximately 55 percent of our home equity finance loans were
originated directly with the borrower. The remaining finance volume was
originated through approximately 250 correspondent lenders. We re-underwrite all
of the loan documents originated with our correspondents to ensure compliance
with our policies.
 
     Typically, home equity loans are secured by first or second liens. Homes
used for collateral in securing home equity loans may be either residential or
investor owned, one-to-four-family properties having a minimum appraised value
of $25,000. During 1998, approximately 79 percent of the loans originated were
secured by first liens. The average loan to value for loans originated in 1998
was approximately 85 percent. The majority of our home equity loans are fixed
rate closed-end loans. We periodically purchase adjustable rate loans from our
correspondent network. Adjustable rate loans accounted for 24 percent of our
home equity finance volume during 1998.
 
     We originate the majority of our home improvement loan contracts indirectly
through a network of home improvement contractors located throughout the United
States. We review the financial condition, business experience and
qualifications of all contractors through which we obtain loans.
 
     We finance both conventional home improvement contracts and contracts
insured through the Federal Housing Administration Title I program. Such
contracts are generally secured by first, second or, to a lesser extent, third
liens on the improved real estate. We also implemented an unsecured conventional
home improvement lending program for certain customers which generally allows
for loans of $2,500 to $15,000. Unsecured loans account for less than 5 percent
of our home improvement servicing portfolio.
 
     Typically, an approved contractor submits the customer's credit application
and construction contract to our centralized service center where an analysis of
the creditworthiness of the customer is made using a proprietary credit scoring
system. If it is determined that the application meets the Company's
underwriting guidelines, the Company typically purchases the contract from the
contractor when the customer verifies satisfactory completion of the work.
 
     We also originate home improvement loans directly with borrowers. After
receiving a mail solicitation, the customer calls our telemarketing center and
our sales representative explains the available financing plans, terms and rates
depending on the customer's needs. The majority of the loans are secured by a
second or third lien on the real estate of the customer. Direct distribution
accounted for approximately 27 percent of the home improvement finance
originations during 1998.
 
     The types of home improvements we finance include exterior renovations
(such as windows, siding and roofing); pools and spas; kitchen and bath
remodeling; and room additions and garages. We may also extend additional credit
beyond the purchase price of the home improvement for the purpose of debt
consolidation.
 
     Consumer/Credit Card. These products include financing for consumer
products and our private label credit card programs. During 1998, we originated
$2.7 billion of contracts for these products, or 13 percent of our total
originations. At December 31, 1998, our managed receivables include $3.0 billion
of contracts for consumer product and credit card loans, or 8 percent of total
managed receivables.
 
     We also provide financing for the purchase of certain consumer products
such as marine products (boats, boat trailers and outboard motors); motorcycles;
recreational vehicles; sport vehicles (snowmobiles, personal watercraft and
all-terrain vehicles); pianos and organs; and horse and utility trailers.
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     These financing contracts are typically originated by dealers throughout
the United States. Approved dealers submit the customer's credit application and
purchase order to our central service center where an analysis of the
creditworthiness of the proposed buyer is made. If the application is approved,
we purchase the contract when the customer completes the purchase transaction.
 
     We also offer private label retail credit card programs with select
retailers. We review the credit of individual customers seeking credit cards
utilizing a credit scoring system.
 
     COMMERCIAL FINANCING
 
     Commercial. Through our three regional lending centers, we extend credit
under revolving credit agreements with dealers, manufacturers and distributors
of various consumer and commercial products. During 1998, we originated $7.4
billion of contracts for commercial financing, or 35 percent of our total
originations. At December 31, 1998, our managed receivables include $4.8 billion
of contracts for commercial financing, or 13 percent of total managed
receivables. "Floorplan receivables" represent the financing of product
inventory for retail dealers of a variety of consumer products. The products
securing the floorplan receivables include manufactured housing, recreational
vehicles and marine products. "Asset-based receivables" generally represent the
financing of production and inventory by manufacturers secured by finished goods
inventory, accounts receivable arising from the sale of such inventory, certain
work-in-process, raw materials and components parts, as well as other assets of
the borrower.
 
     We generally provide floorplan financing for products only if we have also
entered into an agreement with the manufacturer, distributor or other vendor of
such product to allow us to provide the consumer financing in connection with
the sale of products that are the subject of the floorplan financing. Advances
made for the purchase of inventory are most commonly arranged in the following
manner: the dealer will contact the manufacturer and place a purchase order for
a shipment of inventory. The manufacturer will then contact us to obtain
approval for the loan. Upon such request, we will analyze whether: (i) the
manufacturer is in compliance with its floor plan agreement; (ii) the dealer is
in compliance with our program; and (iii) such purchase order is within the
dealer's credit limit. If these requirements are met, we will approve the loan.
The manufacturer will then ship the inventory and directly submit the invoice
for such purchase order to us for payment. Interest or finance charges normally
begin as of the invoice date. The proceeds of the loan being made are paid
directly to the manufacturer and are often funded a number of days subsequent to
the invoice date depending upon specific arrangements with the manufacturer.
Inventory inspections are frequently performed to physically verify the
collateral securing the dealer's loan, check the condition of the inventory,
account for any missing inventory and collect any funds due. Approximately
two-thirds of our manufactured housing dealers are participants in this program.
 
     Asset-based receivables are credit facilities provided to certain
manufacturers and distributors involving a revolving line of credit for a
contractually committed period of time. Under these arrangements, the borrower
may draw the lesser of the maximum amount of the line of credit or a
specifically negotiated loan amount, subject to the availability of adequate
collateral. In these facilities, we will most typically lend against finished
inventory and eligible accounts receivable which are free and clear of other
liens and in compliance with specified standards.
 
     Equipment. Our equipment finance operations provide financing programs for
commercial borrowers, including truck and trailer financing for over the road
new and used trucks/tractors and trailers. In addition, financing is provided on
various types of aircraft. Financing or lease agreements for office equipment
(telecommunication systems, facsimile machines, or copiers) and other equipment
types, and fixed rate financing for the land, building or equipment of franchise
operations are also available.
 
     Upon receipt of a customer's credit application and purchase order from the
dealer or vendor, we analyze the creditworthiness of the applicant. If the
application meets our guidelines, we purchase the sales contract or lease
equipment at the time the customer accepts delivery of the product. Customer
service, collection and other administrative and support functions are handled
from centralized servicing offices.
 
                                        9
<PAGE>   10
 
ACQUISITIONS
 
     Since 1982, Conseco has acquired 19 insurance groups and related businesses
and two finance companies. We continue to regularly investigate acquisition
opportunities in the industries in which we operate. We evaluate potential
acquisitions based on a variety of factors, including the operating results and
financial condition of the business to be acquired, its growth potential,
management and personnel and the potential return on such acquisition in
relation to other acquisition opportunities and the internal development of our
existing business operations. No assurances can be given as to when, if at all,
or upon what terms Conseco will make any such acquisition.
 
INVESTMENTS
 
     Conseco Capital Management, Inc. ("CCM"), a registered investment adviser
wholly owned by Conseco, manages the investment portfolios of Conseco's
subsidiaries. CCM had approximately $40.4 billion of assets (at fair value)
under management at December 31, 1998, of which $29.2 billion were assets of
Conseco's subsidiaries and $11.2 billion were assets of unaffiliated parties.
Our investment philosophy is to maintain a largely investment-grade fixed-income
portfolio, provide adequate liquidity for expected liability durations and other
requirements and maximize total return through active investment management.
 
     Investment activities are an integral part of our business; investment
income is a significant component of our total revenues. Profitability of many
of our insurance products is significantly affected by spreads between interest
yields on investments and rates credited on insurance liabilities. Although
substantially all credited rates on SPDAs and FPDAs may be changed annually,
changes in crediting rates may not be sufficient to maintain targeted investment
spreads in all economic and market environments. In addition, competition and
other factors, including the impact of the level of surrenders and withdrawals,
may limit our ability to adjust or to maintain crediting rates at levels
necessary to avoid narrowing of spreads under certain market conditions. As of
December 31, 1998, the average yield, computed on the cost basis of our
investment portfolio, was 7.3 percent, and the average interest rate credited or
accruing to our total insurance liabilities, excluding interest bonuses
guaranteed for the first year of the annuity contract only, was 5.1 percent.
 
     We manage the equity-based risk component of our equity-indexed annuity
products by: (i) purchasing S&P 500 call options in an effort to hedge such
risk; and (ii) adjusting the participation rate to reflect the change in the
cost of such options (such cost varies based on market conditions). Accordingly,
we are able to focus on managing the interest rate spread component of these
products.
 
     We seek to balance the duration of our invested assets with the expected
duration of benefit payments arising from our insurance liabilities. At December
31, 1998, the adjusted modified duration of fixed maturities and short-term
investments was approximately 5.8 years and the duration of our insurance
liabilities was approximately 6.7 years.
 
     For information regarding the composition and diversification of the
investment portfolio of our subsidiaries, see "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations --
Investments" and the notes to our consolidated financial statements.
 
COMPETITION
 
     Our businesses operate in a highly competitive environment. The financial
services industry consists of a large number of companies, some of which are
larger and have greater financial resources, broader and more diversified
product lines and larger staffs than those of Conseco. An expanding number of
banks, securities brokerage firms and other financial intermediaries also market
insurance products or offer competing products, such as mutual fund products,
traditional bank investments and other investment and retirement funding
alternatives. We also compete with many of these companies and others in
providing services for fees. In most areas, competition is based on a number of
factors, including pricing, service provided to distributors and policyholders
and ratings. Conseco's subsidiaries must also compete with its competitors to
attract and retain the allegiance of dealers, vendors, contractors,
manufacturers, retailers and agents.
 
                                       10
<PAGE>   11
 
     In the finance industry, operations are affected by consumer demand which
is influenced by regional trends, economic conditions and personal preferences.
Competition in the finance industry is primarily between banks, finance
companies (or finance divisions of manufacturers), savings and loan associations
and credit unions. Competition is based on a number of factors, including
service, the credit review process, the integration of financing programs and
the ability to manage the servicing portfolio in changing economic environments.
 
     In the individual health insurance business, insurance companies compete
primarily on the basis of marketing, service and price. The provisions of the
Omnibus Budget Reconciliation Act of 1984 and the work of the National
Association of Insurance Commissioners ("NAIC") (an association of state
regulators and their staffs) have resulted in standardized policy features for
Medicare supplement products. This increases the comparability of such policies
and may intensify competition based on factors other than product features. See
"Underwriting" and "Governmental Regulation." In addition to the products of
other insurance companies, our health insurance products compete with health
maintenance organizations, preferred provider organizations and other health
care-related institutions which provide medical benefits based on contractual
agreements.
 
     Marketing companies, agents who market insurance products, school
districts, financial institutions and policyholders use the financial strength
ratings assigned to an insurer by independent rating agencies as one factor in
determining which insurer's products to market or purchase. Substantially all of
our primary life insurance companies have received: (i) an "A" (Excellent)
insurance company rating by A.M. Best Company ("A.M. Best"); (ii) an "AA-"
claims-paying ability rating from Duff & Phelps' Credit Rating Company ("Duff &
Phelps"); and (iii) an "A+" claims-paying ability rating from S&P. A.M. Best
insurance company ratings for the industry currently range from "A++ (Superior)"
to "F (In Liquidation)". Publications of A.M. Best indicate that the "A" and
"A-" ratings are assigned to those companies that, in A.M. Best's opinion, have
demonstrated excellent overall performance when compared to the standards
established by A.M. Best and have demonstrated a strong ability to meet their
obligations to policyholders over a long period of time. Duff & Phelps'
claims-paying ability ratings range from "AAA (Highest claims-paying ability)"
to "DD (Company is under an order of liquidation)." An "AA-" rating represents
"Very high claims-paying ability." S&P claims-paying ability ratings range from
"AAA (Superior)" to "R (Regulatory Action)". An "A" is assigned by S&P to those
companies which, in its opinion, have a secure claims-paying ability and whose
financial capacity to meet policyholder obligations is viewed on balance as
sound, but their capacity to meet such policyholder obligations is somewhat more
susceptible to adverse changes in economic or underwriting conditions than more
highly rated insurers. A plus or minus sign attached to a S&P or Duff & Phelps
claims-paying rating shows relative standing within a ratings category. These
A.M. Best, Duff & Phelps and S&P ratings consider the claims paying ability of
the rated company and are not a rating of the investment worthiness of the rated
company.
 
     We believe that we are able to compete effectively because: (i) we
emphasize a number of specialized distribution channels, where the ability to
respond rapidly to changing customer needs yields a competitive edge; (ii) we
are experienced in establishing and cultivating relationships with the unique
distribution networks and the independent marketing companies operating in these
specialized markets; (iii) we can offer competitive rates as a result of our
lower-than-average operating costs and higher-than-average investment yields
achieved by applying active investment portfolio management techniques; and (iv)
we have reliable policyholder administrative services, supported by customized
information technology systems.
 
INSURANCE UNDERWRITING
 
     Under regulations promulgated by the NAIC and adopted as a result of the
Omnibus Budget Reconciliation Act of 1990, we are prohibited from underwriting
our Medicare supplement policies for certain first-time purchasers. If a person
applies for insurance within six months after becoming eligible by reason of
age, or disability in certain limited circumstances, the application may not be
rejected due to medical conditions. Some states prohibit underwriting of all
Medicare supplement policies. For other prospective Medicare supplement
policyholders, such as senior citizens who are transferring to Conseco's
products, the underwriting procedures are relatively limited, except for
policies providing prescription drug coverage.
                                       11
<PAGE>   12
 
     Before issuing long-term care or comprehensive major medical products to
individuals and groups, we generally apply detailed underwriting procedures
designed to assess and quantify the insurance risks. We require medical
examinations of applicants (including blood and urine tests, where permitted)
for certain health insurance products and for life insurance products which
exceed prescribed policy amounts. These requirements are graduated according to
the applicant's age and may vary by type of policy or product. We also rely on
medical records and the potential policyholder's written application. In recent
years, there have been significant regulatory changes with respect to
underwriting individual and group major medical plans. An increasing number of
states prohibit underwriting and/or charging higher premiums for substandard
risks. We monitor changes in state regulation that affect our products, and
consider these regulatory developments in determining where we market our
products.
 
     Most of our life insurance policies are underwritten individually, although
standardized underwriting procedures have been adopted for certain low
face-amount life insurance coverages. After initial processing, insurance
underwriters review each file and obtain the information needed to make an
underwriting decision (such as medical examinations, doctors' statements and
special medical tests). After collecting and reviewing the information, the
underwriter either: (i) approves the policy as applied for, or with an extra
premium charge because of unfavorable factors; or (ii) rejects the application.
We underwrite group insurance policies based on the characteristics of the group
and its past claim experience. Graded benefit life insurance policies are issued
without medical examination or evidence of insurability. There is minimal
underwriting on annuities.
 
REINSURANCE
 
     Consistent with the general practice of the life insurance industry, our
subsidiaries enter into both facultative and treaty agreements of indemnity
reinsurance with other insurance companies in order to reinsure portions of the
coverage provided by our insurance products. Indemnity reinsurance agreements
are intended to limit a life insurer's maximum loss on a large or unusually
hazardous risk or to diversify its risk. Indemnity reinsurance does not
discharge the original insurer's primary liability to the insured. The Company's
reinsured business is ceded to numerous reinsurers. We believe the assuming
companies are able to honor all contractual commitments, based on our periodic
review of their financial statements, insurance industry reports and reports
filed with state insurance departments.
 
     As of December 31, 1998, the policy risk retention limit was generally $.8
million or less on the policies of our subsidiaries. Reinsurance ceded by
Conseco represented 23 percent of gross combined life insurance in force and
reinsurance assumed represented 1.9 percent of net combined life insurance in
force. At December 31, 1998, the total ceded business in force of $30.8 billion
was primarily ceded to insurance companies rated "A- (Excellent)" or better by
A.M. Best. Our principal reinsurers at December 31, 1998 were American Equity
Investment Life Insurance Company, Cologne Life, Connecticut General Life
Insurance Company, Employers Re, Life Reassurance Corporation of America,
Lincoln National Life Insurance Company, RGA Reinsurance Company, Security Life
of Denver and Swiss Re Life and Health America. No other single reinsurer
assumes greater than 4 percent of the total ceded business in force.
 
EMPLOYEES
 
     At December 31, 1998, Conseco, Inc. and its subsidiaries had approximately
14,000 employees, including: (i) 3,300 home office employees; (ii) 1,400
employees in our Chicago office (primarily involved with our supplemental health
operations); (iii) 1,600 employees in various locations serving as
administrative centers for our insurance operations; (iv) 200 employees in
branch offices (primarily supporting our career agency force); and (v) 7,500
employees supporting our finance operations. None of our employees is covered by
a collective bargaining agreement. We believe that we have excellent relations
with our employees.
 
                                       12
<PAGE>   13
 
GOVERNMENTAL REGULATION
 
     INSURANCE
 
     Our insurance subsidiaries are subject to regulation and supervision by the
insurance regulatory agencies of the states in which they transact business.
State laws generally establish supervisory agencies with broad regulatory
authority, including the power to: (i) grant and revoke business licenses; (ii)
regulate and supervise trade practices and market conduct; (iii) establish
guaranty associations; (iv) license agents; (v) approve policy forms; (vi)
approve premium rates for some lines of business; (vii) establish reserve
requirements; (viii) prescribe the form and content of required financial
statements and reports; (ix) determine the reasonableness and adequacy of
statutory capital and surplus; (x) perform financial, market conduct and other
examinations; (xi) define acceptable accounting principles; (xii) regulate the
type and amount of permitted investments; and (xiii) limit the amount of
dividends and surplus debenture payments that can be paid without obtaining
regulatory approval. Our insurance subsidiaries are subject to periodic
examinations by state regulatory authorities. We do not expect the results of
any ongoing examinations to have a material effect on the Company's financial
condition.
 
     Most states have also enacted regulations on the activities of insurance
holding company systems, including acquisitions, extraordinary dividends, the
terms of surplus debentures, the terms of affiliate transactions and other
related matters. Currently, the Company and its insurance subsidiaries have
registered as holding company systems pursuant to such legislation in the
domiciliary states of the insurance subsidiaries (Arizona, Arkansas, California,
Illinois, Indiana, Missouri, New York, Ohio, Pennsylvania, Tennessee and Texas),
and they routinely report to other jurisdictions. Recently, a number of state
legislatures have considered or have enacted legislative proposals that alter,
and in many cases increase, the authority of state agencies to regulate
insurance companies and holding company systems.
 
     Most states have either enacted legislation or adopted administrative
regulations which affect the acquisition of control of insurance companies as
well as transactions between insurance companies and persons controlling them.
The nature and extent of such legislation and regulations vary from state to
state. Most states, however, require administrative approval of: (i) the
acquisition of 10 percent or more of the outstanding shares of an insurance
company domiciled in the state; or (ii) the acquisition of 10 percent or more of
the outstanding stock of an insurance holding company whose insurance subsidiary
is domiciled in the state. The acquisition of 10 percent of such shares is
generally deemed to be the acquisition of control for the purpose of the holding
company statutes. These regulations require the acquirer to file detailed
information concerning the acquiring parties and the plan of acquisition, and to
obtain administrative approval prior to the acquisition. In many states,
however, an insurance authority may determine that control does not exist, even
in circumstances in which a person owns or controls 10 percent or a greater
amount of securities.
 
     The federal government does not directly regulate the insurance business.
However, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services
regulation, securities regulation and federal taxation, do affect the insurance
business. Legislation has been introduced from time to time in Congress that
could result in the federal government assuming some role in regulating the
companies or allowing combinations between insurance companies, banks and other
entities.
 
     The Securities and Exchange Commission has requested comments as to whether
equity-indexed annuities, such as those sold by the Company, should be treated
as securities under the Federal securities laws rather than as insurance
products. Treatment of these products as securities would likely require
additional registration and licensing of these products and the agents selling
them, as well as cause the Company to seek additional marketing relationships
for these products.
 
     On the basis of statutory statements filed with state regulators annually,
the NAIC calculates certain financial ratios to assist state regulators in
monitoring the financial condition of insurance companies. A "usual range" of
results for each ratio is used as a benchmark. In the past, variances in certain
ratios of our insurance subsidiaries have resulted in inquiries from insurance
departments to which we have responded. Such inquiries did not lead to any
restrictions affecting our operations.
 
                                       13
<PAGE>   14
 
     In recent years, the NAIC has developed several model laws and regulations
including: (i) investment reserve requirements; (ii) risk-based capital ("RBC")
standards; (iii) codification of insurance accounting principles; (iii)
additional investment restrictions; and (iv) restrictions on an insurance
company's ability to pay dividends. The NAIC is currently developing new model
laws or regulations, including: (i) product design standards; (ii) reserve
requirements; and (iii) product illustrations.
 
     The RBC standards establish capital requirements for insurance companies
based on the ratio of the company's total adjusted capital (defined as the total
of its statutory capital, surplus, asset valuation reserve and certain other
adjustments) to its RBC. The standards are designed to help identify companies
which are under capitalized and require specific regulatory actions in the event
an insurer's RBC falls below specified levels. Each of our life insurance
subsidiaries has more than enough statutory capital to meet the standards as of
December 31, 1998.
 
     The NAIC has adopted model long-term care policy language providing
nonforfeiture benefits and has proposed a rate stabilization standard for
long-term care policies. Various bills are proposed from time to time in the
U.S. Congress which would provide for the implementation of certain minimum
consumer protection standards for inclusion in all long-term care policies,
including guaranteed renewability, protection against inflation and limitations
on waiting periods for pre-existing conditions. Federal legislation permits
premiums paid for qualified long-term care insurance to be treated as
tax-deductible medical expenses and for benefits received on such policies to be
excluded from taxable income.
 
     In addition, our insurance subsidiaries are required under guaranty fund
laws of most states in which we transact business, to pay assessments up to
prescribed limits to fund policyholder losses or liabilities of insolvent
insurance companies.
 
     Most states mandate minimum benefit standards and loss ratios for accident
and health insurance policies. We are generally required to maintain, with
respect to our individual long-term care policies, minimum anticipated loss
ratios over the entire period of coverage of not less than 60 percent. With
respect to our Medicare supplement policies, we are generally required to attain
and maintain an actual loss ratio, after three years, of not less than 65
percent. We provide, to the insurance departments of all states in which we
conduct business, annual calculations that demonstrate compliance with required
minimum loss ratios for both long-term care and Medicare supplement insurance.
These calculations are prepared utilizing statutory lapse and interest rate
assumptions. In the event we have failed to maintain minimum mandated loss
ratios, our insurance subsidiaries could be required to provide retrospective
refunds and/or prospective rate reductions. We believe that our insurance
subsidiaries currently comply with all applicable mandated minimum loss ratios.
 
     NAIC model regulations, adopted in substantially all states, created 10
standard Medicare supplement plans (Plans A through J). Plan A provides the
least extensive coverage, while Plan J provides the most extensive coverage.
Under NAIC regulations, Medicare insurers must offer Plan A, but may offer any
of the other plans at their option. Conseco currently offers nine of the model
plans. We have declined to offer Plan J, due in part to its high benefit levels
and, consequently, high costs to the consumer.
 
     Numerous proposals to reform the current health care system (including
Medicare) have been introduced in Congress and in various state legislatures.
Proposals have included, among other things, modifications to the existing
employer-based insurance system, a quasi-regulated system of "managed
competition" among health plans, and a single-payer, public program. Changes in
health care policy could significantly affect our business. For example, Federal
comprehensive major medical or long-term care programs, if proposed and
implemented, could partially or fully replace some of Conseco's current
products.
 
     A number of states have passed or are considering legislation that would
limit the differentials in rates that insurers could charge for health care
coverages between new business and renewal business for similar demographic
groups. State legislation has also been adopted or is being considered that
would make health insurance available to all small groups by requiring coverage
of all employees and their dependents, by limiting the applicability of
pre-existing conditions exclusions, by requiring insurers to offer a basic plan
exempt from certain benefits as well as a standard plan, or by establishing a
mechanism to spread the risk of high risk
 
                                       14
<PAGE>   15
 
employees to all small group insurers. Congress and various state legislators
have from time to time proposed changes to the health care system that could
affect the relationship between health insurers and their customers, including
external review.
 
     We cannot predict with certainty the effect that any proposals, if adopted,
or legislative developments could have on our insurance businesses and
operations.
 
     FINANCE
 
     The Company's finance operations are subject to regulation by certain
federal and state regulatory authorities. A substantial portion of the Company's
consumer loans and assigned sales contracts are originated or purchased by
finance subsidiaries licensed under applicable state law. The licensed entities
are subject to examination by and reporting requirements of the state
administrative agencies issuing such licenses. The finance subsidiaries are
subject to state laws and regulations which in certain states: limit the amount,
duration and charges for such loans and contracts; require disclosure of certain
loan terms and regulate the content of documentation; place limitations on
collection practices; and govern creditor remedies. The licenses granted are
renewable and may be subject to revocation by the respective issuing authority
for violation of such state's laws and regulations.
 
     In addition to the finance companies licensed under state law, both Conseco
Bank and Retail Bank are under the supervision of, and subject to examination
by, the Federal Deposit Insurance Corporation. Conseco Bank is also supervised
and examined by the Utah Department of Financial Institutions. Retail Bank is
supervised and examined by the South Dakota Department of Banking. The ownership
of these entities does not subject the Company to regulation by the Federal
Reserve Board as a bank holding company. Conseco Bank has the authority to
engage generally in the banking business and may accept all types of deposits,
other than demand deposits. Retail Bank is limited by its charter to engage in
the credit card business and may issue only certificates of deposit in
denominations of $100,000 or greater. Conseco Bank and Retail Bank are subject
to regulation relating to capital adequacy, leverage, loans, deposits, consumer
protection, community reinvestment, payment of dividends, and transactions with
affiliates.
 
     A number of states have usury and other consumer protection laws which may
place limitations on the amount of interest charged on loans originated in such
state. Generally, state law has been preempted by federal law under the
Depositary Institutions Deregulation and Monetary Control Act of 1980 ("DIDA")
which deregulates the rate of interest, discount points and finance charges with
respect to first lien residential loans, including manufactured home loans and
real estate secured mortgage loans. As permitted under DIDA, a number of states
enacted legislation timely opting out of coverage of either or both of the
interest rate and/or finance charge provisions of the Act. States may no longer
opt out of the interest rate provisions of the Act, but could in the future opt
out of the finance charge provisions. To be eligible for federal preemption for
manufactured home loans, the Company's licensed finance companies must comply
with certain restrictions providing protection to consumers. In addition,
another provision of DIDA applicable to state-chartered insured depository
institutions, permits both Conseco Bank and Retail Bank to export interest rate,
finance charges and certain fees from the states where they are located to all
other states, with the exception of Iowa which opted out of the Act during the
permitted time period. Interest rates, finance charges and fees in Utah and
South Dakota are, for the most part, deregulated.
 
     The Company's operations are subject to federal regulation under other
applicable federal laws and regulations, the more significant of which include:
the Truth in Lending Act ("TILA"); the Equal Credit Opportunity Act ("ECOA");
the Fair Credit Reporting Act ("FCRA"); the Real Estate Settlement and
Procedures Act ("RESPA"); the Home Mortgage Disclosure Act ("HMDA"); the Home
Owner Equity Protection Act ("HOEPA"); and certain rules and regulations of the
Federal Trade Commission ("FTC Rules").
 
     TILA and Regulation Z promulgated thereunder contain certain disclosure
requirements designed to provide consumers with uniform, understandable
information with respect to the terms and conditions of extensions of credit and
the ability to compare credit terms. TILA also provides consumers with a three
day right to cancel certain credit transactions, including certain of the loans
originated by the Company.
                                       15
<PAGE>   16
 
     ECOA requires certain disclosures to applicants for credit concerning
information that is used as a basis for denial of credit and prohibits
discrimination against applicants with respect to any aspect of a credit
transaction on the basis of sex, race, color, religion, national origin, age,
marital status, derivation of income from a public assistance program or the
good faith exercise of a right under TILA. ECOA also requires that adverse
action notices be given to applicants who are denied credit.
 
     FCRA regulates the process of obtaining, using and reporting of credit
information on consumers. This Act also regulates the use of credit information
among affiliates.
 
     RESPA regulates the disclosure of information for consumers in loans
involving a mortgage on real estate. The Act and related regulations also govern
payment for and disclosure of payments for settlement services in connection
with mortgage loans and prohibits the payment of referral fees for the referral
of a loan or related services.
 
     HMDA requires reporting of certain information to the Department of Housing
and Urban Development, including the race and sex of applicants in connection
with mortgage loan applications. A lender is required to obtain and report such
information if the application is made in person, but is not required to obtain
such information if the application is taken over the telephone.
 
     HOEPA provides for additional disclosure and regulation of certain consumer
mortgage loans which are defined by the Act as "Covered Loans." A Covered Loan
is a mortgage loan (other than a mortgage loan to finance the initial purchase
of a dwelling) which (1) has total origination fees in excess of the greater of
eight percent of the loan amount, or $441, or (2) has an annual percentage rate
of more than ten percent higher than comparably maturing United States treasury
obligations. A number of the Company's home equity and home improvement loans
are Covered Loans under the Act.
 
     The FTC Rules provide, among other things, that in connection with the
purchase of consumer sales finance contracts from dealers, the holder of the
contract is subject to all claims and defenses which the consumer could assert
against the dealer, but the consumer's recovery under such provisions cannot
exceed the amount paid under the sales contract.
 
     In the judgment of the Company, existing federal and state law and
regulations have not had a material adverse effect on the finance operations of
the Company. There can, however, be no assurance that future law and regulatory
changes will not occur and will not place additional burdens on the Company's
finance operations.
 
     The Company's commercial lending operations are not subject to material
regulation in most states, although certain states do require licensing. In
addition, certain provisions of ECOA apply to commercial loans to small
businesses.
 
FEDERAL INCOME TAXATION
 
     The annuity and life insurance products marketed and issued by our
insurance subsidiaries generally provide the policyholder with an income tax
advantage, as compared to other savings investments such as certificates of
deposit and bonds, in that income taxation on the increase in value of the
product is deferred until it is received by the policyholder. With other savings
investments, the increase in value is taxed as earned. Annuity benefits and life
insurance benefits, which accrue prior to the death of the policyholder, are
generally not taxable until paid. Life insurance death benefits are generally
exempt from income tax. Also, benefits received on immediate annuities (other
than structured settlements) are recognized as taxable income ratably, as
opposed to the methods used for some other investments which tend to accelerate
taxable income into earlier years. The tax advantage for annuities and life
insurance is provided in the Internal Revenue Code (the "Code"), and is
generally followed in all states and other United States taxing jurisdictions.
 
     From time to time, various tax law changes have been proposed that could
have an adverse effect on our business, including elimination of all or a
portion of the income tax advantage of certain insurance products.
 
                                       16
<PAGE>   17
 
The Clinton administration, in its Revenue Proposal as released in February
1999, has proposed changes in how life insurance companies are taxed; such
changes could increase the Company's current tax liability.
 
     Our insurance company subsidiaries are taxed under the life insurance
company provisions of the Code. Provisions in the Code require a portion of the
expenses incurred in selling insurance products to be deducted over a period of
years, as opposed to immediate deduction in the year incurred. This provision
increases the tax for statutory accounting purposes, which reduces statutory
surplus and, accordingly, decreases the amount of cash dividends that may be
paid by the life insurance subsidiaries. As of December 31, 1998, the cumulative
taxes paid by our insurance subsidiaries as a result of this provision were
approximately $350 million.
 
     The Company had tax loss carryforwards at December 31, 1998, of
approximately $1.0 billion, portions of which begin expiring in 2002. However,
the amount of such loss that may be offset against current taxable income is
subject to the following limitations: (i) losses may be offset against income of
other corporate entities only if such entities are included in the same
consolidated tax return (insurance companies are currently not eligible for
inclusion in Conseco's consolidated tax return until five years after they are
acquired); (ii) losses incurred in non-life companies (which comprise most of
the loss carryforwards) may offset only a portion of income from life companies
in the same consolidated tax return; and (iii) some loss carryforwards may not
be used to offset taxable income of entities acquired after the loss was
incurred. We, however, believe we will be able to utilize all current loss
carryforwards before they expire.
 
ITEM 2. PROPERTIES.
 
     Headquarters. Our headquarters is located on a 170-acre corporate campus in
Carmel, Indiana, immediately north of Indianapolis. The 11 buildings on the
campus (all but one of which are owned) contain approximately 810,000 square
feet of space and house Conseco's executive offices and certain administrative
operations of its subsidiaries. The campus has ample room for additional
buildings to support future growth.
 
     Insurance operations. Our supplemental health products are primarily
administered from a single facility of 300,000 square feet in downtown Chicago,
Illinois, leased under an agreement having a remaining life of nine years. We
also lease approximately 130,000 square feet of warehouse space in a second
Chicago facility; this lease has a remaining life of four years. Conseco owns an
office building in Kokomo, Indiana (100,000 square feet), and two office
buildings in Rockford, Illinois (total of 169,000 square feet), which serve as
administrative centers for portions of our insurance operations. Conseco owns
one office building in Philadelphia, Pennsylvania (127,000 square feet), which
serves as the administrative center for our direct response life insurance
operations; approximately 60 percent of this space is occupied by the Company,
with the remainder leased to tenants. Conseco leases 24,000 square feet of
office space in Bensalem, Pennsylvania, with a remaining lease term of one year.
Conseco leases 22,000 square feet of office space in Schaumburg, Illinois, for
use by our major medical marketing and certain information technology
operations. Conseco also leases 220 sales offices in various states totaling
approximately 375,000 square feet; these leases are short-term in length, with
remaining lease terms ranging from one to five years.
 
     Finance operations. Certain corporate servicing operations are housed in
Saint Paul, Minnesota, in 110,000 square feet of a building owned by the
Company. The finance segment operates 51 manufactured housing regional service
centers and three commercial finance business centers. Such offices are leased,
typically for a term of three to five years, and range in size from 1,700 to
22,000 square feet. We also operate a central servicing center in Rapid City,
South Dakota. The lease on this facility is for a term of five years, with an
option to purchase, and consists of 137,000 square feet. The home improvement
and consumer product divisions lease their main office in Saint Paul, Minnesota.
The lease is for a term of five years and consists of 125,000 square feet. The
home equity business has operations in six regional locations and 114 regional
satellite offices, plus a service center in Tempe, Arizona, which opened in
February 1997. The equipment and leasing business is housed in leased facilities
in Bloomington, Minnesota (22,000 square feet) and Paramus, New Jersey (44,000
square feet). The finance division's insurance business and certain corporate
functions are housed in a leased facility in Eagan, Minnesota. This facility
provides 83,000 square feet with a lease commitment of two years.
 
                                       17
<PAGE>   18
 
ITEM 3. LEGAL PROCEEDINGS.
 
     Green Tree has been served with various related lawsuits which were filed
in the United States District Court for the District of Minnesota. These
lawsuits were filed as purported class actions on behalf of persons or entities
who purchased common stock or options of Green Tree during the alleged class
periods that generally run from February 1995 to January 1998. One such action
did not include class action claims. In addition to Green Tree, certain current
and former officers and directors of Green Tree are named as defendants in one
or more of the lawsuits. Green Tree and other defendants have obtained an order
from the United States District Court for the District of Minnesota
consolidating the lawsuits seeking class action status into two actions: one
which pertains to a purported class of common stockholders and the other which
pertains to a purported class of stock option traders. Plaintiffs in the
lawsuits assert claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. In each case, plaintiffs allege that Green Tree and the other
defendants violated federal securities laws by, among other things, making false
and misleading statements about the current state and future prospects of Green
Tree (particularly with respect to prepayment assumptions and performance of
certain loan portfolios of Green Tree) which allegedly rendered Green Tree's
financial statements false and misleading. The Company believes that the
lawsuits are without merit and intends to defend such lawsuits vigorously.
However, the ultimate outcome of these lawsuits cannot be predicted with
certainty. Green Tree has filed motions, which are pending, to dismiss these
lawsuits.
 
     In addition, the Company and its subsidiaries are involved on an ongoing
basis in lawsuits related to its operations. Although the ultimate outcome of
certain of such matters cannot be predicted, none of such lawsuits currently
pending against the Company or its subsidiaries is expected, individually or in
the aggregate, to have a material adverse effect on the Company's consolidated
financial condition, cash flows or results of operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     None.
 
                                       18
<PAGE>   19
 
OPTIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
 
<TABLE>
<CAPTION>
                                                            POSITIONS WITH CONSECO, PRINCIPAL
       OFFICER NAME AND AGE(A)           SINCE            OCCUPATION AND BUSINESS EXPERIENCE(B)
       -----------------------           -----            -------------------------------------
<S>                                      <C>      <C>
Stephen C. Hilbert, 53...............    1979     Since 1979, Chairman of the Board and Chief Executive
                                                  Officer and, since 1988, President of Conseco.
Ngaire E. Cuneo, 48..................    1992     Since 1992, Executive Vice President, Corporate
                                                  Development and, since 1994, Director of Conseco.
Rollin M. Dick, 67...................    1986     Since 1986, Executive Vice President, Chief Financial
                                                  Officer and Director of Conseco.
John J. Sabl, 47.....................    1997     Since 1997, Executive Vice President, General Counsel
                                                  and Secretary of Conseco; from 1983 to 1997 Partner in
                                                  the law firm of Sidley & Austin.
Thomas J. Kilian, 48.................    1998     Since 1998, Executive Vice President and Chief
                                                  Operations Officer of Conseco and President of Conseco
                                                  Marketing, LLC; since 1996, President of Conseco
                                                  Services, LLC (responsible for insurance operations,
                                                  data processing, human resources and administrative
                                                  services for various Conseco subsidiaries); from 1989
                                                  to 1996, Senior Vice President of data processing for
                                                  various Conseco subsidiaries.
James S. Adams, 39...................    1997     Since 1997, Senior Vice President, Chief Accounting
                                                  Officer and Treasurer of Conseco; from 1989 to
                                                  present, Senior Vice President and Treasurer of
                                                  various Conseco subsidiaries.
Maxwell E. Bublitz, 43...............    1998     Since 1998, Senior Vice President, Investments of
                                                  Conseco; from 1994 to present, President and Chief
                                                  Executive Officer of Conseco Capital Management, Inc.,
                                                  a subsidiary of Conseco.
Bruce A. Crittenden, 47..............    1999     Since 1999, Senior Vice President and
                                                  President-Finance Group of Conseco; from 1996 to
                                                  present, Executive Vice President, from 1997 to
                                                  present, President, Retail/Mortgage Services and Home
                                                  Improvement Divisions, from 1995 to 1996, Senior Vice
                                                  President of Green Tree Financial Corporation, a
                                                  subsidiary of Conseco; from 1972 to 1995, various
                                                  officer positions with Household International, Inc.,
                                                  including Managing Director (1993-1995), Senior Vice
                                                  President (1991-1993) and Chief Operating Officer
                                                  (1988-1991).
</TABLE>
 
-------------------------
(a) The executive officers serve as such at the discretion of the Board of
    Directors and are elected annually.
 
(b) Business experience is given for at least the last five years.
 
                                       19
<PAGE>   20
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
 
MARKET INFORMATION
 
     The common stock of Conseco (trading symbol "CNC") has been listed for
trading on the New York Stock Exchange (the "NYSE") since 1986. The following
table sets forth the quarterly dividends paid per share and the ranges of high
and low sales prices per share on the NYSE for the last two fiscal years, based
upon information supplied by the NYSE. All applicable per share data have been
adjusted for the two-for-one stock split distributed February 11, 1997.
 
<TABLE>
<CAPTION>
                                                                         MARKET PRICE
                                                                -------------------------------    DIVIDEND
                           PERIOD                                    HIGH              LOW           PAID
                           ------                                    ----              ---         --------
<S>                                                             <C>              <C>              <C>
1997:
  First Quarter.............................................    $43 7/8          $30 3/4          $.03125
  Second Quarter............................................     42 7/8           34 1/4           .03125
  Third Quarter.............................................     50               35 1/8           .03125
  Fourth Quarter............................................     50 1/16          39 7/8           .12500
1998:                                                              
  First Quarter.............................................    $57 7/8          $38 1/2          $.12500
  Second Quarter............................................     58 1/8           43 3/8           .12500
  Third Quarter.............................................     51 3/4           26 5/8           .12500
  Fourth Quarter............................................     38 1/4           22               .14000
</TABLE>
 
     As of March 13, 1999, there were approximately 160,000 holders of the
outstanding shares of common stock, including individual participants in
securities position listings.
 
DIVIDENDS
 
     Cash dividends are paid quarterly at an amount determined by our Board of
Directors. Our general policy is to retain most of our earnings. Retained
earnings have been used: (i) to finance the growth and development of the
Company's business through acquisitions or otherwise; (ii) to pay preferred
stock dividends; (iii) to pay distributions on the Company-obligated mandatorily
redeemable preferred securities of subsidiary trusts; (iv) to repurchase common
stock on those occasions when we have determined that our shares were
undervalued in the market and that the use of funds for stock repurchases would
not interfere with other cash needs; and (v) to pay dividends on common stock.
 
     We have paid all cumulative dividends on our preferred stock and
distributions on our Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts when due. We are prohibited from paying common
stock dividends if such payments are not current. Certain Conseco financing
agreements require the Company to maintain financial ratios which could also
limit our ability to pay dividends.
 
     Our ability to pay dividends depends primarily on the receipt of cash
dividends and other cash payments from our finance and life insurance company
subsidiaries. Our life insurance companies are organized under state laws and
subject to regulation by state insurance departments. These laws and regulations
limit the ability of insurance subsidiaries to make cash dividends, loans or
advances to a holding company such as Conseco. However, these laws generally
permit the payment out of the subsidiary's earned surplus, without prior
approval, of annual dividends which in the aggregate do not exceed the greater
of (or in a few states, the lesser of): (i) the subsidiary's prior year net gain
from operations; or (ii) 10 percent of surplus attributable to policyholders at
the prior year-end, both computed on the statutory basis of accounting
prescribed for insurance companies. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations -- Liquidity of
Conseco (parent company)."
 
                                       20
<PAGE>   21
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (A).
 
<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                    -------------------------------------------------------------
                                                      1998         1997         1996         1995         1994
                                                      ----         ----         ----         ----         ----
                                                            (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                                 <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.........................    $ 3,948.8    $ 3,410.8    $ 1,654.2    $ 1,465.0    $ 1,285.6
Gain on sale of finance receivables.............        745.0        779.0        400.6        443.3        318.6
Net investment income:
  Assets held by insurance subsidiaries.........      2,078.1      1,825.3      1,302.5      1,142.6        385.7
  Finance receivables and other.................        251.3        194.6        125.6        124.7         78.1
  Interest-only securities......................        132.9        125.8         77.2         51.3         33.3
Net investment gains (losses)...................        208.2        266.5         60.8        204.1        (30.5)
Total revenues..................................      7,716.0      6,846.4      3,789.8      3,561.2      2,357.6
Interest expense:
  Corporate.....................................        165.4        109.4        108.1        119.4         59.3
  Finance and investment borrowings.............        275.1        202.9         92.1         79.5         49.3
Total benefits and expenses.....................      6,670.3      5,360.7      2,974.0      2,738.5      1,732.9
Income before income taxes, minority interest
  and extraordinary charge......................      1,045.7      1,485.7        815.8        822.7        624.7
Extraordinary charge on extinguishment of debt,
  net of tax....................................         42.6          6.9         26.5          2.1          4.0
Net income(b)...................................        467.1        866.4        452.2        470.9        330.5
Preferred stock dividends and charge related to
  induced conversions of convertible preferred
  stock.........................................          7.8         21.9         27.4         18.4         18.6
Net income applicable to common stock...........        459.3        844.5        424.8        452.5        311.9
PER SHARE DATA(c)
Net income, basic...............................    $    1.47    $    2.72    $    1.85    $    2.19    $    1.39
Net income, diluted(b)..........................         1.40         2.52         1.69         2.03         1.32
Dividends declared per common share.............         .530         .313         .083         .046         .125
Book value per common share outstanding.........        16.37        16.45        13.47         8.52         5.58
Shares outstanding at year-end..................        315.8        310.0        293.4        205.2        212.7
Weighted average shares outstanding for diluted
  earnings......................................        332.7        338.7        267.7        232.3        250.5
BALANCE SHEET DATA -- PERIOD END
Total assets....................................    $43,599.9    $40,679.8    $28,724.0    $19,517.7    $12,302.3
Notes payable and commercial paper:
  Corporate.....................................      2,932.2      2,354.9      1,094.9        871.4        191.8
  Finance.......................................      2,389.3      1,863.0        762.5        383.6        309.3
  Notes payable of affiliates, not direct
    obligations of Conseco......................           --           --           --        584.7        611.1
Total liabilities...............................     36,229.4     34,082.0     23,810.2     17,082.7     10,509.2
Minority interests in consolidated subsidiaries:
  Company-obligated mandatorily redeemable
    preferred securities of subsidiary trusts...      2,096.9      1,383.9        600.0           --           --
  Preferred stock...............................           --           --         97.0        110.7        130.1
  Common stock..................................           --           --           --        292.6        191.6
Shareholders' equity............................      5,273.6      5,213.9      4,216.8      2,031,7      1,471.4
OTHER FINANCIAL DATA(c)(d)
Premiums and deposits collected (e).............    $ 6,081.3    $ 5,075.6    $ 3,280.2    $ 3,106.5    $ 1,879.1
Operating earnings(f)...........................      1,046.3        991.8        467.5        381.8        331.8
Operating earnings per diluted common
  share(f)......................................         3.15         2.93         1.75         1.64         1.33
Managed finance receivables.....................     37,199.8     27,957.1     20,072.7     13,887.6      9,821.1
Total managed assets (at fair value)(g).........     87,247.4     70,259.8     59,084.8     42,711.4     32,806.9
Shareholders' equity excluding unrealized
  appreciation (depreciation) of fixed maturity
  securities(h).................................      5,285.5      5,036.7      4,177.0      1,919.1      1,609.1
Book value per common share outstanding,
  excluding unrealized appreciation
  (depreciation) of fixed maturity
  securities(h).................................        16.40        15.88        13.33         7.97         6.23
Finance originations............................    $21,422.0    $15,647.8    $10,544.3    $ 6,891.0    $ 4,065.6
Delinquencies greater than 60 days as a
  percentage of managed finance receivables.....        1.19%        1.08%        1.08%         .93%         .70%
Net credit losses as a percentage of average
  managed finance receivables...................        1.03%        1.05%         .74%         .56%         .63%
</TABLE>
 
                                       21
<PAGE>   22
 
-------------------------
(a)  Comparison of selected supplemental consolidated financial data in the
     table above is significantly affected by the following business
     combinations accounted for as purchases: Washington National Corporation
     (effective December 1, 1997); Colonial Penn Life Insurance Company and
     Providential Life Insurance Company (September 30, 1997); Pioneer Financial
     Services, Inc. (April 1, 1997); Capitol American Financial Corporation
     (January 1, 1997); Transport Holdings Inc. (December 31, 1996); American
     Travellers Corporation (December 31, 1996); FINOVA Acquisition I, Inc.
     (December 1, 1996); Life Partners Group, Inc. (July 1, 1996); and American
     Life Holdings, Inc. (September 29, 1994). All financial data have been
     restated to give retroactive effect to the merger with Green Tree accounted
     for as a pooling of interests.
 
(b)  Net income of $467.1 million for the year ended December 31, 1998, or $1.40
     per diluted share, included nonrecurring and impairment charges totaling
     $503.8 million (net of taxes), or $1.52 per share. Such amounts were
     comprised of (i) $148.0 million of merger-related costs; (ii) $549.4
     million to write down the carrying value of Green Tree's interest-only
     securities and servicing rights; and (iii) income taxes of $193.6 million.
 
(c)  All share and per-share amounts have been restated to reflect the
     two-for-one stock splits paid on February 11, 1997 and April 1, 1996.
 
(d)  Amounts under this heading are included to assist the reader in analyzing
     the Company's financial position and results of operations. Such amounts
     are not intended to, and do not, represent insurance policy income, net
     income, net income per share, shareholders' equity or book value per share
     prepared in accordance with generally accepted accounting principles
     ("GAAP").
 
(e)  Includes premiums received from universal life products and products
     without mortality or morbidity risk. Such premiums are not reported as
     revenues under GAAP and were $2,585.7 million in 1998; $2,099.4 million in
     1997; $1,881.3 million in 1996; $1,757.5 million in 1995; and $634.6
     million in 1994. Also includes deposits in mutual funds and certificates of
     deposits totaling $117.1 million in 1998 and $19.9 million in 1997.
 
(f)  Represents income before extraordinary charge, net investment gains
     (losses) of our life insurance and corporate segments (less that portion of
     amortization of cost of policies purchased and cost of policies produced
     and income taxes relating to such gains (losses)), and nonrecurring and
     impairment charges (net of income taxes).
 
(g)  Represents: (i) our assets, excluding finance receivables, interest-only
     securities and servicing assets, of $38.9 billion, $37.2 billion, $26.4
     billion, $17.9 billion, and $11.3 billion at December 31, 1998, 1997, 1996,
     1995 and 1994, respectively; (ii) the total fixed and revolving credit
     receivables that Green Tree manages, including receivables on its balance
     sheet and receivables applicable to the holders of asset-backed securities
     sold by Green Tree of $37.2 billion, $28.0 billion, $20.1 billion, $13.9
     billion, and $9.8 billion at December 31, 1998, 1997, 1996, 1995 and 1994,
     respectively; and (iii) the total market value of the investment portfolios
     managed by CCM, excluding assets of Conseco's subsidiaries, of $11.2
     billion, $5.1 billion, $12.6 billion, $10.9 billion and $11.7 billion at
     December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
 
(h)  Excludes the effects of reporting fixed maturities at fair value and
     recording the unrealized gain or loss on such securities as a component of
     shareholders' equity, net of tax and other adjustments.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS.
 
     In this section, we review the consolidated financial condition of Conseco
at December 31, 1998 and 1997, the consolidated results of operations for the
three years ended December 31, 1998, and where appropriate, factors that may
affect future financial performance. We have prepared all financial information
to give retroactive effect to the merger with Green Tree (the "Green Tree
Merger") accounted for as a pooling of interests. Please read this discussion in
conjunction with the accompanying consolidated financial statements, notes and
selected consolidated financial data.
 
                                       22
<PAGE>   23
 
     All statements, trend analyses and other information contained in this
report and elsewhere (such as in filings by the Company with the Securities and
Exchange Commission, press releases, presentations by the Company or its
management or oral statements) relative to markets for the Company's products
and trends in the Company's operations or financial results, as well as other
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend," and other similar expressions, constitute forward-looking
statements under the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to known and unknown risks, uncertainties
and other factors which may cause actual results to be materially different from
those contemplated by the forward-looking statements. Such factors include,
among other things: (i) general economic conditions and other factors, including
prevailing interest rate levels, stock and credit market performance and health
care inflation, which may affect (among other things) the Company's ability to
sell its products, its ability to make loans and access capital resources and
the costs associated therewith, the market value of the Company's investments,
the lapse rate and profitability of policies, and the level of defaults and
prepayments of loans made by the Company; (ii) the Company's ability to achieve
anticipated synergies and levels of operational efficiencies; (iii) customer
response to new products, distribution channels and marketing initiatives; (iv)
mortality, morbidity, usage of health care services and other factors which may
affect the profitability of the Company's insurance products; (v) changes in the
Federal income tax laws and regulations which may affect the relative tax
advantages of some of the Company's products; (vi) increasing competition in the
sale of insurance and annuities and in the finance business; (vii) regulatory
changes or actions, including those relating to regulation of financial services
affecting (among other things) bank sales and underwriting of insurance
products, regulation of the sale, underwriting and pricing of products, and
health care regulation affecting health insurance products; (viii) the ability
to achieve Year 2000 readiness for significant systems and operations on a
timely basis; (ix) the availability and terms of future acquisitions; and (x)
the risk factors or uncertainties listed from time to time in the Company's
filings with the Securities and Exchange Commission.
 
     CONSOLIDATED RESULTS AND ANALYSIS
 
     Net income of $467.1 million in 1998, or $1.40 per diluted share, included
(i) net investment losses (net of related costs, amortization and taxes) of
$32.8 million, or 10 cents per share; (ii) an extraordinary charge (net of
taxes) of $42.6 million, or 13 cents per share, related to early retirement of
debt; (iii) the impairment loss (net of taxes) of $355.8 million, or $1.08 per
share, to reduce the value of interest-only securities and servicing rights; and
(iv) a nonrecurring charge (net of taxes) of $148.0 million, or $.44 per share,
related primarily to merger costs incurred in conjunction with the Green Tree
Merger.
 
     Net income of $866.4 million in 1997, or $2.52 per diluted share, included:
(i) net investment gains (net of related costs, amortization and taxes) of $44.1
million, or 13 cents per diluted share; (ii) an extraordinary charge of $6.9
million, or 2 cents per share, related to early retirement of debt; (iii) a
charge of 4 cents per share related to the induced conversion of preferred stock
(treated as a preferred stock dividend); (iv) an impairment loss totaling $117.8
million or 35 cents per share and (v) nonrecurring charges totaling $44.8
million, or 13 cents per share. Nonrecurring charges included: (i) $40.5 million
related to premium deficiencies on our Medicare supplement business in the state
of Massachusetts; and (ii) $4.3 million related to the death of an executive
officer. The impairment loss represents a charge to reduce the value of
interest-only securities and servicing rights generally due to adverse
prepayments.
 
     Net income of $452.2 million in 1996, or $1.69 per diluted share, included:
(i) net investment gains (net of related costs, amortization and taxes) of $11.2
million, or 4 cents per diluted share; and (ii) an extraordinary charge of $26.5
million, or 10 cents per share, related to early retirement of debt.
 
     Total revenues included net investment gains of $208.2 million in 1998,
$266.5 million in 1997 and $60.8 million in 1996. Excluding net investment
gains, total revenues were $7.5 billion in 1998, up 14 percent over 1997. Total
revenues, excluding net investment gains, were up 76 percent in 1997 over 1996.
Increases in total revenues in all three years reflect the impact and timing of
acquisitions, as well as growth in both segments.
 
                                       23
<PAGE>   24
 
     RESULTS OF OPERATIONS BY SEGMENT FOR THE THREE YEARS ENDED DECEMBER 31,
1998:
 
     The following tables and narratives summarize our operating results by
business segment.
 
<TABLE>
<CAPTION>
                                                                  1998        1997       1996
                                                                  ----        ----       ----
                                                                    (DOLLARS IN MILLIONS)
<S>                                                             <C>         <C>         <C>
Operating earnings:
  Operating income of segments before income taxes and
     minority interest of segments:
       Insurance and fee-based operations (see page 25).....    $1,367.8    $1,116.3    $581.2
       Finance operations (see page 28).....................       584.0       672.6     322.2
       Corporate interest and other expenses (see page 31)..      (180.4)     (126.8)   (112.4)
                                                                --------    --------    ------
          Operating income before income taxes and minority
            interest........................................     1,771.4     1,662.1     791.0
     Income tax related to operating income.................       634.7       618.0     288.6
                                                                --------    --------    ------
          Operating income before minority interest.........     1,136.7     1,044.1     502.4
     Minority interest in consolidated subsidiaries.........        90.4        52.3      34.9
                                                                --------    --------    ------
     Operating earnings.....................................     1,046.3       991.8     467.5
Nonoperating items:
  Impairment charge, net of tax.............................      (355.8)     (117.8)       --
  Nonrecurring charge, net of tax...........................      (148.0)      (44.8)       --
  Net investment gains (losses), net of tax and other
     items..................................................       (32.8)       44.1      11.2
                                                                --------    --------    ------
       Income before extraordinary charge...................       509.7       873.3     478.7
Extraordinary charge, net of tax............................        42.6         6.9      26.5
                                                                --------    --------    ------
       Net income...........................................    $  467.1    $  866.4    $452.2
                                                                ========    ========    ======
</TABLE>
 
                                       24
<PAGE>   25
 
     INSURANCE AND FEE-BASED OPERATIONS
 
<TABLE>
<CAPTION>
                                                                  1998         1997         1996
                                                                  ----         ----         ----
                                                                       (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>          <C>
Premiums and deposits collected:
  Annuities.................................................    $ 1,999.1    $ 1,689.7    $ 1,670.3
  Supplemental health.......................................      2,037.4      1,843.5        810.8
  Life......................................................        928.8        709.2        403.6
  Individual and group major medical........................        878.2        744.0        341.0
  Other.....................................................        120.7         69.3         54.5
  Mutual funds..............................................         87.1         19.9           --
  Certificates of deposit...................................         30.0           --           --
                                                                ---------    ---------    ---------
          Total premiums and deposits collected.............    $ 6,081.3    $ 5,075.6    $ 3,280.2
                                                                =========    =========    =========
Average insurance liabilities:
  Annuities:
     Mortality based........................................    $   689.5    $   617.4    $   568.4
     Equity-linked..........................................        902.5        254.0           --
     Deposit based..........................................     11,649.6     11,336.4     10,483.0
  Health....................................................      4,452.0      3,626.5      1,083.3
  Life:
     Interest sensitive.....................................      4,131.4      3,256.2      1,963.2
     Non-interest sensitive.................................      2,762.9      2,284.7      1,478.8
                                                                ---------    ---------    ---------
          Total average insurance liabilities, net of
            reinsurance receivables.........................    $24,587.9    $21,375.2    $15,576.7
                                                                =========    =========    =========
Insurance policy income.....................................    $ 3,948.8    $ 3,410.8    $ 1,654.2
Net investment income:
  General account invested assets...........................      1,927.0      1,715.6      1,254.1
  Equity-indexed products based on S&P 500 Index............        103.9         39.4           --
  Separate account assets...................................         51.0         70.3         48.4
Fee revenue and other income................................         91.3         65.8         49.8
                                                                ---------    ---------    ---------
          Total revenues(a).................................      6,122.0      5,301.9      3,006.5
                                                                ---------    ---------    ---------
Insurance policy benefits...................................      2,704.8      2,368.3      1,195.0
Amounts added to policyholder account balances:
  Annuity and universal life products other than those
     listed below...........................................        728.6        697.1        620.2
  Equity-indexed products based on S&P 500 Index............         96.1         39.3           --
  Variable annuity products.................................         51.0         70.3         48.4
Amortization related to operations..........................        493.6        408.8        240.0
Interest expense on investment borrowings...................         65.3         42.0         22.0
Other operating costs and expenses..........................        614.8        559.8        299.7
                                                                ---------    ---------    ---------
          Total benefits and expenses (a)...................      4,754.2      4,185.6      2,425.3
                                                                ---------    ---------    ---------
          Operating income before income taxes, minority
            interest and extraordinary charge...............      1,367.8      1,116.3        581.2
Net investment gains (losses), net of related costs and
  amortization..............................................        (28.3)        85.3         24.8
Nonrecurring charges........................................           --        (62.4)          --
                                                                ---------    ---------    ---------
          Income before income taxes, minority interest and
            extraordinary charge............................    $ 1,339.5    $ 1,139.2    $   606.0
                                                                =========    =========    =========
</TABLE>
 
                                       25
<PAGE>   26
 
<TABLE>
<CAPTION>
                                                                  1998         1997         1996
                                                                  ----         ----         ----
                                                                       (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>          <C>
Ratios:
  Investment income, net of interest credited on annuities
     and universal life products and interest expense on
     borrowings, as a percentage of insurance liabilities...         4.45%        4.35%        3.73%
  Operating costs and expenses as a percentage of average
     insurance liabilities, net of reinsurance..............         4.51%        4.53%        3.46%
Health loss ratios:
  All health lines:
     Insurance policy benefits and in reserves..............    $ 2,020.5    $ 1,837.5    $   857.7
     Loss ratio.............................................        67.35%       68.86%       70.90%
  Medicare supplement:
     Insurance policy benefits and in reserves..............    $   604.2    $   544.5    $   422.9
     Loss ratio.............................................        68.30%       69.13%       68.19%
  Long-term care:
     Insurance policy benefits and in reserves..............    $   477.1    $   433.4    $   109.0
     Loss ratio.............................................        66.88%       63.56%       58.67%
  Specified disease:
     Insurance policy benefits and in reserves..............    $   212.7    $   239.6           --
     Loss ratio.............................................        55.57%       61.64%          --
  Major medical:
     Insurance policy benefits and in reserves..............    $   633.1    $   579.6    $   300.0
     Loss ratio.............................................        72.52%       77.99%       85.74%
  Other:
     Insurance policy benefits and in reserves..............    $    93.4    $    40.4    $    25.8
     Loss ratio.............................................        68.78%       60.11%       48.50%
</TABLE>
 
-------------------------
(a) Revenues exclude net investment gains (losses); benefits and expenses
    exclude amortization related to realized gains.
 
     General: Conseco's life insurance subsidiaries develop, market and
administer annuity, supplemental health, individual life insurance, individual
and group major medical and other insurance products. We distribute these
products through a career agency force, professional independent producers and
direct response marketing. The segment's 1998 results were affected by several
recent acquisitions, including: Pioneer Financial Services, Inc. (acquired April
1, 1997); Colonial Penn Life Insurance Company and Providential Life Insurance
Company (September 30, 1997); and Washington National Corporation (December 1,
1997).
 
     Premiums and deposits collected in 1998 were $6.1 billion, up 20 percent
over 1997. Premiums and deposits collected in 1997 were $5.1 billion, up 55
percent over 1996. These increases were primarily due to recent acquisitions and
premium rate increases. On a pro forma basis, including in all periods premiums
and deposits collected by companies owned at year end 1998 (excluding
discontinued health products) collected premiums and deposits increased by 8.4
percent in 1998 and 2.6 percent in 1997.
 
     See "Sales by Insurance Subsidiaries" for further analysis.
 
     Average insurance liabilities, net of reinsurance receivables, were $24.6
billion in 1998, up 15 percent over 1997, and $21.4 billion in 1997, up 37
percent over 1996.
 
     Insurance policy income is comprised of: (i) premiums earned on policies
which provide mortality or morbidity coverage; and (ii) fees and other charges
made against other policies. See "Sales by Insurance Subsidiaries" for further
analysis.
 
     Net investment income on general account invested assets (which excludes
income on separate account assets related to variable annuities and the income
and change in the fair value of S&P 500 Call Options
 
                                       26
<PAGE>   27
 
related to equity-indexed products) increased by 12 percent, to $1,927.0
million, in 1998, and by 37 percent, to $1,715.6 million, in 1997. The average
balance of general account invested assets increased by 17 percent in 1998 to
$26 billion and by 42 percent in 1997 to $22 billion. General account invested
assets increased primarily due to the recent acquisitions. The yield on these
assets decreased by .1 percentage point to 7.5 percent in 1998 and increased by
 .1 percentage point to 7.6 percent in 1997. Such fluctuations reflect the
general decreases in investment interest rates over the last three years, offset
by the fluctuations in income from limited partnerships and other investments.
 
     Net investment income related to equity-indexed products based on the S&P
500 Index is substantially offset by a corresponding charge to amounts added to
policyholder account balances for equity-indexed products. Such income and
related charge fluctuated based on the performance of the S&P 500 Index to which
the returns on such products are linked. During 1998, we recorded income from
the S&P 500 Options of $103.9 million and added amounts to policyholders'
account balances of the equity-indexed products of $96.1 million.
 
     Net investment income from separate account assets is offset by a
corresponding charge to amounts added to policyholder account balances for
variable annuity products. Such income and related charge fluctuated in
relationship to total separate account assets and the return earned on such
assets.
 
     Insurance policy benefits increased in 1998 and in 1997 as a result of an
increase in the amount of business in force on which benefits are incurred. The
amount of business increased primarily as a result of recent acquisitions.
 
     The loss ratios for Medicare supplement products have been relatively
stable and within our expectations for the last three years. Governmental
regulations generally require us to attain and maintain a loss ratio, after
three years, of not less than 65 percent.
 
     The net cash flows from our long-term care products generally result in the
accumulation of amounts in the early policy years of a policy (accounted for as
reserve increases) which will be paid out as benefits in later policy years
(accounted for as reserve decreases). Accordingly, during the asset accumulation
phase of these policies, the loss ratio will increase, but the increase in the
change in reserve will be partially offset by investment income earned on the
assets which have accumulated. The increase in the loss ratio during 1998
reflects such an occurrence; the 1998 and 1997 loss ratios also reflect the
different characteristics of long-term care policies sold by recently acquired
companies.
 
     The 1998 loss ratio for specified disease products benefited from favorable
claim developments. These reduced insurance policy benefits and change in
reserves by approximately $10.0 million.
 
     The 1998 and 1997 loss ratios for major medical products reflect recent
premium rate increases and claim management activities. The 1998 loss ratio also
benefited from favorable claim developments.
 
     The loss ratios on our other products have fluctuated over the last three
years primarily because of the different characteristics of policies included in
this category sold by recently acquired companies.
 
     Amounts added to policyholder account balances for interest expense on
annuity products increased by 4.5 percent, to $728.6 million, in 1998, and by 12
percent, to $697.1 million, in 1997. The increase in interest expense resulting
from a larger block of annuity business in force was partially offset by a
reduction in crediting rates. The weighted average crediting rates for these
annuity liabilities decreased by .2 percentage points, to 4.6 percent, during
1998, and decreased by .2 percentage points, to 4.8 percent, during 1997.
 
     Amortization related to operations includes amortization of: (i) the cost
of policies produced; (ii) the cost of policies purchased; and (iii) goodwill.
Balances subject to amortization increased as a result of recent acquisitions
and new policies sold.
 
     Interest expense on investment borrowings increased along with our
investment borrowing activities. Average investment borrowings were $1,092.4
million during 1998, compared to $719.3 million during 1997. The weighted
average interest rate on such borrowings was 5.4 percent during 1998 and 5.8
percent during 1997.
 
                                       27
<PAGE>   28
 
     Other operating costs and expenses increased primarily because of recent
acquisitions.
 
     Net investment gains (losses), net of related costs and amortization
fluctuate from period to period. Selling securities at a gain and reinvesting
the proceeds at lower yields may, absent other management action, tend to
decrease future investment yields. We believe, however, that the following
factors mitigate the adverse effect on net income: (i) we recognize additional
amortization of cost of policies purchased and cost of policies produced in
order to reflect reduced future yields (thereby reducing such amortization in
future periods); (ii) we can reduce interest rates credited to some products,
thereby diminishing the effect of the yield decrease on the investment spread;
and (iii) the investment portfolio grows as a result of reinvesting the
investment gains. As a result of the sales of fixed maturity investments, our
amortization of the cost of policies purchased and the cost of policies produced
increased by $236.5 million, $181.2 million and $36.0 million in 1998, 1997 and
1996, respectively.
 
     FINANCE OPERATIONS:
 
<TABLE>
<CAPTION>
                                                                  1998         1997         1996
                                                                  ----         ----         ----
                                                                       (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>          <C>
Contract originations:
  Manufactured housing......................................    $ 6,077.5    $ 5,479.3    $ 4,882.0
  Mortgage services.........................................      5,215.8      3,476.3      1,490.7
  Consumer/credit card......................................      2,727.9      1,511.0        979.4
  Commercial................................................      7,400.8      5,181.2      3,202.2
                                                                ---------    ---------    ---------
     Total..................................................    $21,422.0    $15,647.8    $10,554.3
                                                                =========    =========    =========
Sales of receivables:
  Manufactured housing......................................    $ 5,419.4    $ 5,369.8    $ 5,033.4
  Home equity/home improvement..............................      4,810.9      3,031.5      1,324.2
  Consumer/equipment........................................      2,022.4      1,615.5      1,555.7
  Leases....................................................        379.9        508.0           --
  Commercial and retail revolving credit....................        741.0        224.4        500.3
                                                                ---------    ---------    ---------
     Total..................................................    $13,373.6    $10,749.2    $ 8,413.6
                                                                =========    =========    =========
Managed receivables (average):
  Manufactured housing......................................    $19,478.2    $16,279.3    $13,136.5
  Mortgage services.........................................      6,425.3      3,444.3      1,540.0
  Consumer/credit card......................................      2,388.6      1,368.9        738.6
  Commercial................................................      4,082.2      2,642.1      1,115.1
                                                                ---------    ---------    ---------
     Total..................................................    $32,374.3    $23,734.6    $16,530.2
                                                                =========    =========    =========
Net investment income:
  Finance receivables and other.............................    $   251.3    $   194.6    $   125.6
  Interest-only securities..................................        132.9        125.8         77.2
Gain on sale of finance receivables.........................        745.0        779.0        400.6
Fee revenue and other income................................        260.4        178.6        119.1
                                                                ---------    ---------    ---------
     Total revenues.........................................      1,389.6      1,278.0        722.5
                                                                ---------    ---------    ---------
Finance interest expense....................................        213.7        160.9         70.1
Other operating costs and expenses..........................        591.9        444.5        330.2
                                                                ---------    ---------    ---------
     Total expenses.........................................        805.6        605.4        400.3
                                                                ---------    ---------    ---------
     Operating income before income taxes, minority interest
       and extraordinary charge.............................        584.0        672.6        322.2
Impairment charge...........................................        549.4        190.0           --
Nonrecurring charges........................................        148.0           --           --
                                                                ---------    ---------    ---------
     Income (loss) before income taxes, minority interest
       and extraordinary charge.............................    $  (113.4)   $   482.6    $   322.2
                                                                =========    =========    =========
</TABLE>
 
                                       28
<PAGE>   29
 
     General: Conseco's finance subsidiaries provide financing for manufactured
housing, home equity, home improvements, consumer products and equipment, and
provide consumer and commercial revolving credit. Finance products include both
fixed-term and revolving loans and leases. Conseco also markets physical damage
and term mortgage life insurance and other credit protection relating to the
loans it services.
 
     Contract originations in 1998 were $21.4 billion, up 37 percent over 1997.
Contract originations in 1997 were $15.6 billion, up 48 percent over 1996.
 
     Manufactured housing contract originations increased by $598.2 million, or
11 percent, during 1998 and by $597.3 million, or 12 percent, during 1997. The
increase in 1998 is primarily due to an increase in the average size of the
contracts written. The increase in 1997 is due to both an increase in the
average size and number of contracts written.
 
     Mortgage services contract originations increased by $1.7 billion, or 50
percent, during 1998 and by $2.0 billion, or 133 percent, during 1997. We have
continued to expand our home equity retail origination network.
 
     Consumer/credit card contract originations increased by $1.2 billion, or 81
percent, during 1998 and by $531.6 million, or 54 percent, during 1997. The
increase is primarily the result of our marketing efforts.
 
     Commercial originations increased by $2.2 billion, or 43 percent, during
1998 and increased by $2.0 billion, or 62 percent, during 1997. The increase
reflects higher production in all areas of commercial financing.
 
     Sales of receivables occur when we sell finance receivables that we
originate through securitizations. The total receivables sold in a particular
period depends on many factors, including: (i) the volume of recent
originations; (ii) market conditions; and (iii) the availability and cost of
alternative financing. Total finance receivables sold increased by 24 percent in
1998. Total finance receivables sold in 1997 were up 28 percent over 1996. Total
finance receivables held by the Company were $3.3 billion at December 31, 1998,
an increase of $1.3 billion over December 31, 1997, as a result of: (i) an
increase in the pace of originations; and (ii) our election to hold more of the
loans scheduled for sale late in each quarter until early in the next quarter,
when the market supply of securitizations is usually lower and the spreads are
usually better.
 
     Managed receivables include finance receivables we sell through
securitizations as well as finance receivables and interests in finance
receivables we retain. The average managed receivables increased to $32.4
billion in 1998, up 36 percent over 1997, and to $23.7 billion in 1997, up 44
percent over 1996.
 
     Net investment income on finance receivables and other consists of: (i)
interest earned on unsold finance receivables; and (ii) interest income on
short-term and other investments. Such income increased by 29 percent, to $251.3
million, in 1998 and by 55 percent, to $194.6 million, in 1997, consistent with
the increases in average finance receivables. The weighted average yield earned
on finance receivables was 9.4 percent, 11.3 percent and 13.4 percent during
1998, 1997 and 1996, respectively.
 
     Net investment income on interest-only securities is the accretion
recognized on the interest-only securities we retain after we sell finance
receivables. Such income increased by 5.6 percent, to $132.9 million, in 1998,
and by 63 percent, to $125.8 million, in 1997. The increase was consistent with
the change in the average balance of interest-only securities and the increase
in the discount rate assumption we use to value our interest-only securities.
The weighted average yields earned on interest-only securities were 13.2
percent, 11.2 percent and 9.2 percent during 1998, 1997 and 1996, respectively.
 
     Gain on sale of finance receivables is the difference between the proceeds
from the sale of receivables (net of related transaction costs) and the
allocated carrying amount of the receivables sold. We determine the allocated
carrying amount by allocating the original amount of the receivables between the
portion sold and any retained interests (securities classified as fixed
maturities, interest-only securities and servicing rights), based on their
relative fair values at the time of sale. Assumptions used in calculating the
estimated fair value of interest-only securities and servicing rights are
subject to volatility that could materially affect operating results. Prepayment
rates may vary from expected rates as a result of competition, obligor mobility,
general
 
                                       29
<PAGE>   30
 
and regional economic conditions and changes in interest rates. In addition,
actual losses incurred as a result of loan defaults may vary from projected
performance.
 
     Our gain on sale of finance receivables decreased by 4.4 percent, to $745.0
million, in 1998 and increased by 94 percent, to $779.0 million, in 1997. Our
gain recognized at the time of the sale fluctuates when changes occur in: (i)
the amount of loans sold; (ii) market conditions (such as the market interest
rates available on securities sold in our securitizations); (iii) the amount and
type of interest in the receivables sold that we retain; and (iv) assumptions
used to calculate the gain. The account also reflects a charge of $200 million
in 1996 as a result of adjustments necessary to fully consider the effects of
partial prepayments on projected future interest collections and the impact of
changes in projected future interest due to investors. Such adjustments were
calculated using the cash out method to measure the period of time for which
projected cash flows related to securitizations should be discounted.
 
     In response to higher prepayment rates and higher market yields on publicly
traded securities similar to our interest-only securities, we increased the
assumed prepayment and discount rates used to calculate the gain on sale of
finance receivables for sales completed after June 30, 1998. Accordingly, the
amount of gain as a percentage of closed-end loans sold decreased to 6.27
percent in 1998 from 7.44 percent in 1997 and 7.61 percent in 1996.
 
     Current conditions in the credit markets and the resulting less attractive
pricing of certain lower rated securities have caused us to hold, rather than
sell, certain securities with corporate guarantee provisions formed in our
securitizations. We recognize no gain on the sale of the securities we hold, but
we recognize greater interest income, net of related interest expense, over the
term we hold them. At December 31, 1998, we held $340.8 million of such
securities that are included in actively managed fixed maturities.
 
     Fee revenue and other income includes servicing income, commissions earned
on insurance policies written in conjunction with financing transactions, and
other income from late fees. Such income increased by 46 percent, to $260.4
million, in 1998 and by 50 percent, to $178.6 million, in 1997. Our servicing
portfolio (on which servicing income is earned) grew and our net written
insurance premiums grew along with managed receivables.
 
     Finance interest expense increased by 33 percent, to $213.7 million, in
1998 and by 130 percent, to $160.9 million, in 1997. We increased borrowings to
fund the increase in our average inventory of finance receivables from increases
in our loan originations, commercial revolving credit and lease portfolio
financings and securities held from our securitizations. These increases were
offset somewhat by a decrease in our average borrowing rate, which was 7.2
percent, 8.1 percent and 8.7 percent during 1998, 1997 and 1996, respectively,
and a reduction in borrowings attributable to the proceeds of the $1.1 billion
capital contribution from Conseco in 1998.
 
     Other operating costs and expenses include the costs associated with
servicing our managed receivables, and non-deferrable costs related to
originating new loans. Such expense increased by 33 percent, to $591.9 million,
in 1998 and by 35 percent, to $444.5 million, in 1997, reflecting: (i) the
growth in our servicing portfolio; and (ii) the increased volume of contracts
originated.
 
     Impairment charges represent reductions in the value of interest-only
securities and servicing rights. During the second quarter of 1998, prepayments
on securitized loan contracts continued to exceed our expectations and we
concluded that such prepayments were likely to continue to be higher than
expected in future periods. As a result, we concluded that an impairment had
occurred in the value of the interest-only securities and servicing rights, and
we set a new value based on current assumptions. In addition, during the second
quarter of 1998, the market yields of publicly traded securities similar to our
interest-only securities increased. The new assumptions were based on our
internal evaluations and consultation with external investment managers having
significant experience in valuing these securities. Compared to the assumptions
previously used: (i) we increased prepayment rates; (ii) we increased the
discount rate used to determine the present value of future cash flows to 15
percent from 11.5 percent; and (iii) we increased the anticipated future rates
of default. We recognized a $549.4 million impairment charge in 1998 to reduce
the carrying value of the interest-only securities and servicing rights. In
February 1999 we announced that, subject to audit,
 
                                       30
<PAGE>   31
 
a portion of the impairment charge would be recognized in earlier periods. After
analysis and discussion with the relevant auditors, we concluded that all of
this charge should be recognized in 1998. The 1997 charge was generally due to
adverse prepayment experience.
 
     Nonrecurring charges include various costs (including investment banking,
accounting, legal and regulatory fees and other costs associated with the Green
Tree Merger) totaling $148.0 million.
 
     CORPORATE INTEREST AND OTHER EXPENSES
 
     These accounts were $180.4 million in 1998, $126.8 million in 1997 and
$112.4 million in 1996. Interest expense included in that total was $165.4
million in 1998, $109.4 million in 1997 and $108.1 million in 1996, fluctuating
in relationship to the average debt outstanding and the average interest rate.
 
SALES BY INSURANCE SUBSIDIARIES
 
     In accordance with GAAP, insurance policy income as shown in our
consolidated statement of operations consists of premiums we receive for
policies having life contingencies or morbidity features. For annuity and
universal life contracts without such features, premiums collected are not
reported as revenues, but as deposits to insurance liabilities. We recognize
revenues for these products over time in the form of investment income and
surrender or other charges.
 
                                       31
<PAGE>   32
 
     Total premiums and deposits collected were as follows:
 
<TABLE>
<CAPTION>
                                                                  1998        1997        1996
                                                                  ----        ----        ----
                                                                     (DOLLARS IN MILLIONS)
<S>                                                             <C>         <C>         <C>
Premiums collected by our insurance subsidiaries:
  Life insurance:
    First-year..............................................    $  154.0    $  150.0    $   79.2
    Renewal.................................................       774.8       559.2       324.4
                                                                --------    --------    --------
      Total life insurance..................................       928.8       709.2       403.6
                                                                --------    --------    --------
Annuities:
  Equity-indexed (first-year)...............................       783.2       387.7        80.4
  Equity-indexed (renewal)..................................        15.0          --          --
                                                                --------    --------    --------
      Subtotal-equity-indexed annuities.....................       798.2       387.7        80.4
                                                                --------    --------    --------
  Variable (first-year).....................................       267.2       127.4        37.9
  Variable (renewal)........................................        65.4        57.8        53.0
                                                                --------    --------    --------
    Subtotal -- variable annuities..........................       332.6       185.2        90.9
                                                                --------    --------    --------
  Traditional fixed (first-year)............................       717.7       857.7     1,148.6
  Traditional fixed (renewal)...............................        55.9        79.6        92.7
                                                                --------    --------    --------
    Subtotal -- traditional fixed annuities.................       773.6       937.3     1,241.3
                                                                --------    --------    --------
  Market value-adjusted (first-year)........................        86.6       165.7       237.2
  Market value-adjusted (renewal)...........................         8.1        13.8        20.5
                                                                --------    --------    --------
    Subtotal -- market-value adjusted annuities.............        94.7       179.5       257.7
                                                                --------    --------    --------
      Total annuities.......................................     1,999.1     1,689.7     1,670.3
                                                                --------    --------    --------
Supplemental health:
  Medicare supplement (first-year)..........................       106.6       101.8        72.5
  Medicare supplement (renewal).............................       810.1       694.4       545.4
                                                                --------    --------    --------
    Subtotal -- Medicare supplement.........................       916.7       796.2       617.9
                                                                --------    --------    --------
  Long-term care (first-year)...............................       122.6       143.3        51.6
  Long-term care (renewal)..................................       605.8       520.4       141.3
                                                                --------    --------    --------
    Subtotal -- long-term care..............................       728.4       663.7       192.9
                                                                --------    --------    --------
  Specified disease (first-year)............................        41.5        44.9          --
  Specified disease (renewal)...............................       350.8       338.7          --
                                                                --------    --------    --------
    Subtotal -- specified disease...........................       392.3       383.6          --
                                                                --------    --------    --------
      Total supplemental health.............................     2,037.4     1,843.5       810.8
                                                                --------    --------    --------
Individual and group major medical:
  Individual (first-year)...................................        95.5        70.5         6.0
  Individual (renewal)......................................       228.3       147.2        44.9
                                                                --------    --------    --------
    Subtotal -- individual..................................       323.8       217.7        50.9
                                                                --------    --------    --------
  Group (first-year)........................................        48.0        63.6          --
  Group (renewal)...........................................       506.4       462.7       290.1
                                                                --------    --------    --------
    Subtotal -- group.......................................       554.4       526.3       290.1
                                                                --------    --------    --------
      Total major medical...................................       878.2       744.0       341.0
                                                                --------    --------    --------
Other health (discontinued):
  Other (first-year)........................................        12.6        13.2         2.2
  Other (renewal)...........................................       108.1        56.1        52.3
                                                                --------    --------    --------
      Total -- other........................................       120.7        69.3        54.5
                                                                --------    --------    --------
Total first-year premiums...................................     2,435.5     2,125.8     1,715.6
Total renewal premiums......................................     3,528.7     2,929.9     1,564.6
                                                                --------    --------    --------
      Total premiums collected by our insurance
       subsidiaries.........................................     5,964.2     5,055.7     3,280.2
                                                                --------    --------    --------
Deposits collected by our other subsidiaries:
  Mutual funds'.............................................        87.1        19.9          --
  Certificates of deposit...................................        30.0          --          --
                                                                --------    --------    --------
      Total premiums and deposits collected.................    $6,081.3    $5,075.6    $3,280.2
                                                                ========    ========    ========
</TABLE>
 
                                       32
<PAGE>   33
 
     Our recent acquisitions have a significant effect on premiums collected.
Total premiums and deposits collected for all currently consolidated companies
for 1998, 1997 and 1996 (including periods prior to their acquisition by
Conseco) are provided below:
 
<TABLE>
<CAPTION>
                                                                  1998        1997        1996
                                                                  ----        ----        ----
                                                                     (DOLLARS IN MILLIONS)
<S>                                                             <C>         <C>         <C>
Pro forma premiums collected by our insurance subsidiaries:
  Life insurance:
    First-year..............................................    $  154.0    $  203.5    $  226.4
    Renewal.................................................       774.8       718.8       703.4
                                                                --------    --------    --------
         Total life insurance...............................       928.8       922.3       929.8
                                                                --------    --------    --------
  Annuities:
    Equity-indexed (first-year).............................       783.2       387.7        80.4
    Equity-indexed (renewal)................................        15.0          --          --
                                                                --------    --------    --------
      Subtotal -- equity-indexed annuities..................       798.2       387.7        80.4
                                                                --------    --------    --------
    Variable (first-year)...................................       267.2       127.4        37.9
    Variable (renewal)......................................        65.4        58.7        54.3
                                                                --------    --------    --------
      Subtotal -- variable annuities........................       332.6       186.1        92.2
                                                                --------    --------    --------
    Traditional fixed (first-year)..........................       717.7       900.3     1,217.6
    Traditional fixed (renewal).............................        55.9        93.1       136.2
                                                                --------    --------    --------
      Subtotal -- Traditional fixed annuities...............       773.6       993.4     1,353.8
                                                                --------    --------    --------
    Market value-adjusted (first-year)......................        86.6       165.7       265.4
    Market value-adjusted (renewal).........................         8.1        13.8        20.5
                                                                --------    --------    --------
      Subtotal -- market-value adjusted annuities...........        94.7       179.5       285.9
                                                                --------    --------    --------
         Total annuities....................................     1,999.1     1,746.7     1,812.3
                                                                --------    --------    --------
  Supplemental health:
    Medicare supplement (first-year)........................       106.6       113.2       114.3
    Medicare supplement (renewal)...........................       810.1       775.3       757.3
                                                                --------    --------    --------
      Subtotal -- Medicare supplement.......................       916.7       888.5       871.6
                                                                --------    --------    --------
    Long-term care (first-year).............................       122.6       146.0       142.2
    Long-term care (renewal)................................       605.8       528.1       442.7
                                                                --------    --------    --------
      Subtotal -- long-term care............................       728.4       674.1       584.9
                                                                --------    --------    --------
    Specified disease (first-year)..........................        41.5        44.9        49.8
    Specified disease (renewal).............................       350.8       338.7       333.8
                                                                --------    --------    --------
      Subtotal -- specified disease.........................       392.3       383.6       383.6
                                                                --------    --------    --------
         Total supplemental health..........................     2,037.4     1,946.2     1,840.1
                                                                --------    --------    --------
  Individual and group major medical:
    Individual (first-year).................................        95.5        84.5        44.4
    Individual (renewal)....................................       228.3       178.5       128.5
                                                                --------    --------    --------
      Subtotal -- individual................................       323.8       263.0       172.9
                                                                --------    --------    --------
    Group (first-year)......................................        48.0        88.0       101.2
    Group (renewal).........................................       506.4       512.8       502.3
                                                                --------    --------    --------
      Subtotal -- group.....................................       554.4       600.8       603.5
                                                                --------    --------    --------
         Total major medical................................       878.2       863.8       776.4
                                                                --------    --------    --------
  Other health (discontinued):
    Other (first-year)......................................        12.6        14.7        34.3
    Other (renewal).........................................       108.1       147.2       215.8
                                                                --------    --------    --------
         Total -- other.....................................       120.7       161.9       250.1
                                                                --------    --------    --------
  Total first-year premiums.................................     2,435.5     2,275.9     2,313.9
  Total renewal premiums....................................     3,528.7     3,365.0     3,294.8
                                                                --------    --------    --------
         Total pro forma premiums collected by our insurance
           subsidiaries.....................................     5,964.2     5,640.9     5,608.7
                                                                --------    --------    --------
Deposits collected by our other subsidiaries:
  Mutual funds..............................................        87.1        19.9          --
  Certificates of deposit...................................        30.0          --          --
                                                                --------    --------    --------
         Total pro forma premiums and deposits collected....    $6,081.3    $5,660.8    $5,608.7
                                                                ========    ========    ========
</TABLE>
 
                                       33
<PAGE>   34
 
     Life products are sold through career agents, professional independent
producers and direct response distribution channels. Life premiums collected in
1998 were $928.8 million, up 31 percent over 1997. Life premiums collected in
1997 were $709.2 million, up 76 percent over 1996. Such increases relate
primarily to premiums collected by recently acquired companies in periods after
their acquisition.
 
     Annuities include traditional fixed-rate annuities, market value-adjusted
annuities, equity-indexed annuities and variable annuities sold through both
career agents and professional independent producers.
 
     In response to consumers' desire for alternative investment products with
returns linked to equities, we introduced our first equity-indexed annuity
product in 1996. The accumulation value of these annuities is credited with
interest at an annual minimum guaranteed rate of 3 percent (or, including the
effect of applicable sales loads, a 1.5 percent compound average interest rate
over the term of the contracts). The annuities provide for higher returns based
on a percentage of the change in the S&P 500 Index during each year of their
term. We purchase S&P 500 Call Options in an effort to hedge increases to
policyholder benefits that would result from increases in the S&P 500 Index.
Total collected premiums for this product increased by 106 percent, to $798.2
million, in 1998 and by 382 percent, to $387.7 million, in 1997.
 
     Variable annuities offer contract holders the ability to direct premiums
into specific investment portfolios; rates of return are based on the
performance of the portfolio. Such annuities have become increasingly popular
recently as a result of the desire of investors to invest in common stocks. In
1996, we began to offer more investment options for variable annuity deposits,
and we expanded our marketing efforts, resulting in increased collected
premiums. Our profits on variable annuities come from the fees charged to
contract holders. Variable annuity collected premiums increased by 80 percent,
to $332.6 million, in 1998 and by 104 percent, to $185.2 million, in 1997.
 
     Traditional fixed-rate annuity products include single-premium deferred
annuities ("SPDAs"), flexible-premium deferred annuities ("FPDAs") and
single-premium immediate annuities ("SPIAs"), which are credited with a
guaranteed rate. The demand for traditional fixed-rate annuity contracts has
decreased in recent years, as relatively low interest rates have made other
investment products more attractive. SPDA and FPDA policies typically have an
interest rate that is guaranteed for the first policy year, after which we have
the discretionary ability to change the crediting rate to any rate not below a
guaranteed rate. The interest rate credited on a SPIA is based on the market
conditions existing when the policy is issued and remains unchanged over the
life of the SPIA. Annuity premiums on these products decreased by 17 percent, to
$773.6 million, in 1998 and by 24 percent, to $937.3 million, in 1997.
 
     We offer deferred annuity products with a "market value adjustment"
feature. These products provide us with additional protection from early
terminations when interest rates rise by reducing the surrender value payable
upon a full surrender of the policy in excess of the allowable penalty-free
withdrawal amount. Conversely, when interest rates fall, the market value
adjustment feature increases the surrender value payable to the policyholder.
Annuity premiums collected with this feature decreased by 47 percent, to $94.7
million, in 1998 and by 30 percent to $179.5 million, in 1997.
 
     Supplemental health products include Medicare supplement, long-term care
and specified disease insurance products distributed through a career agency
force and professional independent producers. Our profits on supplemental health
policies depend on the overall level of sales, the persistency of the in-force
business, claim experience and expense management.
 
     Collected premiums on Medicare supplement policies increased by 15 percent,
to $916.7 million, in 1998 and by 29 percent, to $796.2 million, in 1997,
primarily reflecting our recent acquisitions, a reinsurance assumption agreement
and rate increases. Sales of Medicare supplement policies have been affected by:
(i) steps taken to improve profitability by increasing premium rates and
changing our commission structure and underwriting criteria; (ii) increased
competition from alternative providers, including HMOs; and (iii) reduced
production in Massachusetts due to our decision to cease writing new business in
that state (as announced in the third quarter of 1997).
 
                                       34
<PAGE>   35
 
     Premiums collected on long-term care policies increased by 9.7 percent, to
$728.4 million, in 1998 and by 244 percent, to $663.7 million, in 1997. The
increase reflects growth from both recently acquired and previously owned
companies.
 
     Premiums collected on specified disease products were $392.3 million and
$383.6 million in 1998 and 1997, respectively. Substantially all of the premiums
collected in both periods are from recently acquired companies.
 
     Individual and group major medical products include individual and group
major medical health insurance products. Group premiums increased by 5.3
percent, to $554.4 million, in 1998 and by 81 percent, to $526.3 million, in
1997. Individual health premiums increased by 49 percent, to $323.8 million, in
1998 and by 328 percent, to $217.7 million in 1997. The increases principally
reflect recent acquisitions.
 
     Other health products include: (i) various other health insurance products
that are not currently being actively marketed; and (ii) in 1998, the specialty
health insurance products of a recently acquired company marketed to educators.
Premiums collected in 1998 were $120.7 million, up 74 percent over 1997.
Premiums collected in 1997 were $69.3 million, up 27 percent over 1996. We have
discontinued the sale of our other health products; collected premiums will
decrease in future periods. The in-force business continues to be profitable.
 
                                       35
<PAGE>   36
 
PRO FORMA DATA ASSUMING PORTFOLIO LENDING
 
     The following pro forma data present our estimate of our operating earnings
(income before extraordinary charge, net investment gains (losses) (less that
portion of amortization of cost of policies purchased and cost of policies
produced and income taxes relating to such gains (losses), impairment charge
(net of income taxes) and nonrecurring charges (net of income taxes)) on a
portfolio basis; that is, as if we had accounted for the securitizations of our
finance receivables as financing transactions throughout the Company's history
rather than as sales. Accordingly, the pro forma data exclude gain on sale of
finance receivables, servicing revenues and interest income on interest-only
securities. The pro forma data do reflect, over the life of the loans, the
spread between: (i) the interest earned on the loans included in the
securitization pools; and (ii) the sum of the interest paid to the holders of
the debt securities pursuant to the securitizations and credit losses in the
portfolio. The pro forma data are intended to assist you in analyzing our
operating results; they are not intended to, and do not, represent the results
of the Company's operations prepared in accordance with GAAP.
 
<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                                --------------------------------
                                                                  1998        1997        1996
                                                                  ----        ----        ----
                                                                (AMOUNTS IN MILLIONS EXCEPT PER
                                                                         SHARE AMOUNTS)
<S>                                                             <C>         <C>         <C>
PRO FORMA OPERATING EARNINGS DATA
Margin on interest spread products:
  Finance income............................................    $3,050.2    $2,274.4    $1,616.3
  Investment income from insurance product investments......     2,458.7     2,107.2     1,453.0
  Provision for credit losses...............................       380.6       281.9       150.5
  Finance and investment borrowing interest expense.........     2,235.3     1,701.7     1,169.0
  Amounts added to annuity and financial product account
    balances................................................       875.7       806.7       668.6
                                                                --------    --------    --------
         Net interest margin................................     2,017.3     1,591.3     1,081.2
                                                                --------    --------    --------
Margin on morbidity and mortality products:
  Insurance policy income...................................     3,849.0     3,332.7     1,603.6
  Insurance policy benefits.................................     2,704.8     2,368.3     1,195.0
                                                                --------    --------    --------
         Net mortality and morbidity........................     1,144.2       964.4       408.6
                                                                --------    --------    --------
Other revenues:
  Fee revenue and other.....................................       211.6       130.7        95.6
  Policy surrender fees.....................................        99.8        78.1        50.6
                                                                --------    --------    --------
         Total other revenues...............................       311.4       208.8       146.2
                                                                --------    --------    --------
Corporate interest expense..................................       165.4       109.4       108.1
Amortization................................................       496.5       408.8       240.0
Other operating costs and expenses..........................     1,042.2       888.3       559.0
                                                                --------    --------    --------
         Total costs and expenses...........................     1,704.1     1,406.5       907.1
                                                                --------    --------    --------
         Pro forma operating earnings before income taxes
           and minority interest............................     1,768.8     1,358.0       728.9
Income tax expense..........................................       633.8       461.3       236.9
                                                                --------    --------    --------
         Pro forma operating earnings before minority
           interest.........................................     1,135.0       896.7       492.0
Minority interest...........................................        90.4        52.3        34.9
                                                                --------    --------    --------
         Pro forma operating earnings.......................    $1,044.6    $  844.4    $  457.1
                                                                ========    ========    ========
Reconciliation of reported operating earnings per diluted
  share to
  pro forma operating earnings per share:
  Reported operating earnings per share.....................    $   3.15    $   2.93    $   1.75
    Pro-forma adjustments:
       Finance income.......................................        6.06        4.39        3.86
       Interest-only interest income........................        (.25)       (.20)       (.16)
       Provision for credit losses..........................        (.71)       (.52)       (.35)
       Amortization of net deferred costs...................        (.14)       (.07)       (.06)
       Interest expense.....................................       (3.65)      (2.74)      (2.49)
       Eliminate gain-on-sale (before impairment charge)....       (1.39)      (1.33)       (.84)
       Eliminate servicing income...........................        (.26)       (.21)       (.17)
       Deferral of net origination costs....................         .33         .24         .17
                                                                --------    --------    --------
         Pro forma operating earnings per share.............    $   3.14    $   2.49    $   1.71
                                                                ========    ========    ========
</TABLE>
 
                                       36
<PAGE>   37
 
INVESTMENTS
 
     Our investment strategy is to: (i) maintain a predominately
investment-grade fixed income portfolio; (ii) provide adequate liquidity to meet
our cash obligations to policyholders and others; and (iii) maximize current
income and total investment return through active investment management.
Consistent with this strategy, investments in fixed maturity securities,
mortgage loans, policy loans, separate accounts and short-term investments made
up 90 percent of our $29.2 billion investment portfolio at December 31, 1998.
The remainder of the invested assets were equity securities and other invested
assets.
 
     Insurance statutes regulate the type of investments that our insurance
subsidiaries are permitted to make and limit the amount of funds that may be
used for any one type of investment. In light of these statutes and regulations
and our business and investment strategy, we generally seek to invest in United
States government and government-agency securities and corporate securities
rated investment grade by established nationally recognized rating organizations
or in securities of comparable investment quality, if not rated.
 
     The following table summarizes investment yields earned over the past three
years:
 
<TABLE>
<CAPTION>
                                                                  1998         1997         1996
                                                                  ----         ----         ----
                                                                       (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>          <C>
Weighted average invested assets:
  As reported...............................................    $27,401.7    $23,288.8    $16,356.3
  Excluding unrealized appreciation (depreciation)(a).......     27,071.9     23,177.7     16,278.8
Net investment income, excluding income on finance
  receivables and interest-only securities..................      2,078.1      1,825.3      1,302.5
Yields earned:
  As reported...............................................          7.6%         7.8%         8.0%
  Excluding unrealized appreciation (depreciation)(a).......          7.7%         7.9%         8.0%
</TABLE>
 
-------------------------
 
(a) Excludes the effect of reporting fixed maturities at fair value as described
    in note 1 to the consolidated financial statements.
 
     Although investment income is a significant component of total revenues,
the profitability of certain of our insurance products is determined primarily
by the spreads between the interest rates we earn and the rates we credit or
accrue to our insurance liabilities. At December 31, 1998, the average yield,
computed on the cost basis of our investment portfolio, was 7.3 percent, and the
average interest rate credited or accruing to our total insurance liabilities
was 5.1 percent, excluding interest bonuses guaranteed only for the first year
of the contract.
 
     ACTIVELY MANAGED FIXED MATURITIES
 
     Our actively managed fixed maturity portfolio at December 31, 1998,
included primarily debt securities of the United States government, public
utilities and other corporations, and mortgage-backed securities.
Mortgage-backed securities included collateralized mortgage obligations ("CMOs")
and mortgage-backed pass-through securities.
 
     At December 31, 1998, our fixed maturity portfolio had $424.2 million of
unrealized gains and $445.2 million of unrealized losses, for a net unrealized
loss of $21.0 million. Estimated fair values for fixed maturity investments were
determined based on: (i) estimates from nationally recognized pricing services
(80 percent of the portfolio); (ii) broker-dealer market makers (7 percent of
the portfolio); and (iii) internally developed methods (13 percent of the
portfolio).
 
     At December 31, 1998, approximately 6.9 percent of our invested assets (9.2
percent of fixed maturity investments) were rated below-investment grade by
nationally recognized statistical rating organizations (or, if not rated by such
firms, with ratings below Class 2 assigned by the NAIC). We plan to maintain
approximately the present level of below-investment-grade fixed maturities.
These securities generally have greater risks than other corporate debt
investments, including risk of loss upon default by the borrower, and are
 
                                       37
<PAGE>   38
 
often unsecured and subordinated to other creditors. Below-investment-grade
issuers usually have higher levels of indebtedness and are more sensitive to
adverse economic conditions, such as recession or increasing interest rates,
than are investment-grade issuers. We are aware of these risks and monitor our
below-investment-grade securities closely. At December 31, 1998, our
below-investment-grade fixed maturity investments had an amortized cost of
$2,237.1 million and an estimated fair value of $1,999.6 million.
 
     We periodically evaluate the creditworthiness of each issuer whose
securities we hold. We pay special attention to those securities whose market
values have declined materially for reasons other than changes in interest rates
or other general market conditions. We evaluate the realizable value of the
investment, the specific condition of the issuer and the issuer's ability to
comply with the material terms of the security. Information reviewed may include
the recent operational results and financial position of the issuer, information
about its industry, recent press releases and other information. Conseco employs
a staff of experienced securities analysts in a variety of specialty areas.
Among its other responsibilities, this staff is charged with compiling and
reviewing such information. If evidence does not exist to support a realizable
value equal to or greater than the carrying value of the investment, and such
decline in market value is determined to be other than temporary, we reduce the
carrying amount to its net realizable value, which becomes the new cost basis;
we report the amount of the reduction as a realized loss. We recognize any
recovery of such reductions in the cost basis of an investment only upon the
sale, repayment or other disposition of the investment. In 1998, we recorded
writedowns of fixed maturity investments, equity securities and other invested
assets totaling $32.4 million. Our investment portfolio is subject to the risks
of further declines in realizable value. However, we attempt to mitigate this
risk through the diversification and active management of our portfolio.
 
     As of December 31, 1998, our fixed maturity investments in substantive
default (i.e., in default due to nonpayment of interest or principal) had an
amortized cost and carrying value of $56.5 million and $48.7 million,
respectively. The Company had no fixed maturity investments in technical (but
not substantive) default (i.e., in default, but not as to the payment of
interest or principal). There were no other fixed maturity investments about
which we had serious doubts as to the ability of the issuer to comply on a
timely basis with the material terms of the instrument.
 
     When a security defaults, our policy is to discontinue the accrual of
interest and eliminate all previous interest accruals, if we determine that such
amounts will not be ultimately realized in full. Investment income forgone due
to defaulted securities was not significant in any of the three years ended
December 31, 1998.
 
     At December 31, 1998, fixed maturity investments included $6.4 billion of
mortgage-backed securities (or 29 percent of all fixed maturity securities).
CMOs are backed by pools of mortgages that are segregated into sections or
"tranches" that provide for sequential retirement of principal. Pass-through
securities receive principal and interest payments through their regular pro
rata share of the payments on the underlying mortgages backing the securities.
The yield characteristics of mortgage-backed securities differ from those of
traditional fixed-income securities. Interest and principal payments occur more
frequently, often monthly. Mortgage-backed securities are subject to risks
associated with variable prepayments. Prepayment rates are influenced by a
number of factors that cannot be predicted with certainty, including: the
relative sensitivity of the underlying mortgages backing the assets to changes
in interest rates; a variety of economic, geographic and other factors; and the
repayment priority of the securities in the overall securitization structures.
 
     In general, prepayments on the underlying mortgage loans and the securities
backed by these loans increase when the level of prevailing interest rates
declines significantly relative to the interest rates on such loans.
Mortgage-backed securities purchased at a discount to par will experience an
increase in yield when the underlying mortgages prepay faster than expected.
These securities purchased at a premium that prepay faster than expected will
incur a reduction in yield. When interest rates decline, the proceeds from the
prepayment of mortgage-backed securities are likely to be reinvested at lower
rates than we were earning on the prepaid securities. When interest rates
increase, prepayments on mortgage-backed securities decrease, because fewer
underlying mortgages are refinanced. When this occurs, the average duration of
the mortgage-backed securities increases, which decreases the yield on
mortgage-backed securities purchased at a discount, because
 
                                       38
<PAGE>   39
 
the discount is realized as income at a slower rate and increases the yield on
those purchased at a premium as a result of a decrease in annual amortization of
the premium.
 
     The degree to which a mortgage-backed security is susceptible to income
fluctuations is influenced by: (i) the difference between its cost and par; (ii)
the relative sensitivity of the underlying mortgages backing the security to
prepayment in a changing interest rate environment; and (iii) the repayment
priority of the security in the overall securitization structure. The Company
seeks to limit the extent of these risks associated with mortgage-backed
securities in our fixed maturity portfolio by: (i) purchasing securities that
are backed by collateral with lower prepayment sensitivity (such as mortgages
priced at a discount to par value and mortgages that are extremely seasoned);
(ii) avoiding the purchase of securities for our fixed maturity portfolio whose
values are heavily influenced by changes in prepayments (such as interest-only
and principal-only securities); (iii) investing in securities structured to
reduce prepayment risk (such as planned amortization class ("PAC") and targeted
amortization class ("TAC") CMOs); and (iv) actively managing the entire
portfolio of mortgage-backed securities to dispose of those which are deemed
more likely to be prepaid. PAC and TAC instruments represented approximately 28
percent of our mortgage-backed securities at December 31, 1998. The
call-adjusted modified duration of our mortgage-backed securities at December
31, 1998, was 4.1 years.
 
     Mortgage-backed securities held in our fixed maturity portfolio at December
31, 1998, summarized by interest rates on the underlying collateral were as
follows:
 
<TABLE>
<CAPTION>
                                                                  PAR       AMORTIZED    ESTIMATED
                                                                 VALUE        COST       FAIR VALUE
                                                                 -----      ---------    ----------
                                                                       (DOLLARS IN MILLIONS)
<S>                                                             <C>         <C>          <C>
Below 7 percent.............................................    $3,594.9    $3,591.1      $3,620.4
7 percent -- 8 percent......................................     1,744.9     1,733.5       1,776.0
8 percent -- 9 percent......................................       385.4       383.8         393.3
9 percent and above.........................................       589.1       597.5         598.6
                                                                --------    --------      --------
     Total mortgage-backed securities.......................    $6,314.3    $6,305.9      $6,388.3
                                                                ========    ========      ========
</TABLE>
 
     Mortgage-backed securities held in our fixed maturity portfolio at December
31, 1998, summarized by security type, were as follows:
 
<TABLE>
<CAPTION>
                                                                              ESTIMATED FAIR VALUE
                                                                             ----------------------
                                                                                            % OF
                                                                AMORTIZED                  FIXED
                            TYPE                                  COST        AMOUNT     MATURITIES
                            ----                                ---------     ------     ----------
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>         <C>
Pass-throughs and sequential and targeted amortization
  classes...................................................    $3,556.0     $3,618.8        17%
Planned amortization classes and accretion-directed bonds...     1,733.8      1,742.2         8
Subordinated classes........................................       984.2        993.5         4
Other.......................................................        31.9         33.8        --
                                                                --------     --------        --
                                                                $6,305.9     $6,388.3        29%
                                                                ========     ========        ==
</TABLE>
 
     Pass-throughs and sequential and targeted amortization classes have similar
prepayment variability. Pass-throughs have historically provided the best
liquidity among mortgage-backed securities and also provide the best
price/performance ratio in highly volatile interest rate environments. This type
of security is also frequently used as collateral in the dollar-roll market.
Sequential classes pay in a strict sequence; all principal payments received by
the CMO are paid to the sequential tranches in order of priority. Targeted
amortization classes provide a modest amount of prepayment protection when
prepayments on the underlying collateral increase from those assumed at pricing.
Thus, they offer slightly better call protection than sequential classes and
pass-throughs.
 
     Planned amortization classes and accretion-directed bonds are some of the
most stable and liquid instruments in the mortgage-backed securities market.
Planned amortization class bonds adhere to a fixed
 
                                       39
<PAGE>   40
 
schedule of principal payments as long as the underlying mortgage collateral
experiences prepayments within a certain range. Changes in prepayment rates are
first absorbed by support classes. This insulates the planned amortization
classes from the consequences of both faster prepayments (average life
shortening) and slower prepayments (average life extension).
 
     Subordinated CMO classes have both prepayment and credit risk. The
subordinated classes are used to enhance the credit quality of the senior
securities, and as such, rating agencies require that this support not
deteriorate due to the prepayment of the subordinated securities. The credit
risk of subordinated classes is derived from the negative leverage of owning a
small percentage of the underlying mortgage loan collateral while bearing a
majority of the risk of loss due to homeowner defaults.
 
     If we decide to sell an investment held in the actively managed fixed
maturity category, we either sell the security or transfer it to the trading
account at its fair value and recognize the gain or loss immediately. We
transferred securities with a fair value of approximately $350 million into our
trading account during 1998: there was no material gain or loss on the transfer.
 
     During 1998, we sold $30.7 billion of investments (primarily fixed
maturities), resulting in $459.9 million of investment gains and $149.8 million
of investment losses (both before related expenses, amortization and taxes).
Such securities were sold in response to changes in the investment environment,
which created opportunities to enhance the total return of the investment
portfolio without adversely affecting the quality of the portfolio or the
matching of expected maturities of assets and liabilities. As discussed in the
notes to the consolidated financial statements, the realization of gains and
losses affects the timing of the amortization of the cost of policies produced
and the cost of policies purchased related to universal life and investment
products.
 
     OTHER INVESTMENTS
 
     At December 31, 1998, we held mortgage loan investments purchased for our
investment portfolio with a carrying value of $1,130.2 million (or 3.9 percent
of total invested assets) and a fair value of $1,200.9 million. Mortgage loans
were substantially comprised of commercial loans. Noncurrent mortgage loans were
insignificant at December 31, 1998. Realized losses on mortgage loans were not
significant in any of the past three years. At December 31, 1998, we had a
mortgage loan loss reserve of $9.2 million. Approximately 9 percent of the
mortgage loans were on properties located in Texas, 8 percent in New York, 8
percent in Florida, 7 percent in Ohio and 7 percent in California. No other
state accounted for more than 5 percent of the mortgage loan balance.
 
     At December 31, 1998, we held $349.0 million of trading securities; they
are included in other invested assets. Trading securities are investments we
intend to sell in the near term. We carry trading securities at estimated fair
value; changes in fair value are reflected in the statement of operations.
 
     Other invested assets also include: (i) trading securities; (ii) S&P 500
Call Options; (iii) certain nontraditional investments, including investments in
venture capital funds, limited partnerships, mineral rights and promissory
notes; and (iv) investments held in a trust for the benefit of the purchasers of
certain investment products of our investment management subsidiary.
 
     Short-term investments totaled $1,704.7 million, or 5.8 percent of invested
assets at December 31, 1998, and consisted primarily of commercial paper and
repurchase agreements relating to government securities.
 
     As part of our investment strategy, we enter into reverse repurchase
agreements and dollar-roll transactions to increase our return on investments
and improve our liquidity. Reverse repurchase agreements involve a sale of
securities and an agreement to repurchase the same securities at a later date at
an agreed-upon price. Dollar rolls are similar to reverse repurchase agreements
except that the repurchase involves securities that are only substantially the
same as the securities sold. We enhance our investment yield by investing the
proceeds from the sales in short-term securities pending the contractual
repurchase of the securities at discounted prices in the forward market. We are
able to engage in such transactions due to the market demand for mortgage-backed
securities to form CMOs. Such investment borrowings averaged $1,092.4 million
during 1998 and were collateralized by investment securities with fair values
approximately
                                       40
<PAGE>   41
 
equal to the loan value. The weighted average interest rate on short-term
collateralized borrowings was 5.4 percent in 1998. The primary risk associated
with short-term collateralized borrowings is that the 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 (which was not material at December 31, 1998). We believe
that the counterparties to our reverse repurchase and dollar-roll agreements are
financially responsible and that counterparty risk is minimal.
 
FINANCE RECEIVABLES, INTEREST-ONLY SECURITIES AND SERVICING RIGHTS OF FINANCE
SUBSIDIARIES
 
     FINANCE RECEIVABLES
 
     Finance receivables, summarized by type, were as follows:
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                                ----------------------
                                                                  1998         1997
                                                                  ----         ----
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>
Manufactured housing........................................    $  798.8     $  303.4
Mortgage services...........................................       603.5        568.6
Consumer/credit card........................................       587.3        187.0
Commercial..................................................     1,352.9        931.8
                                                                --------     --------
                                                                 3,342.5      1,990.8
Less allowance for doubtful accounts........................       (43.0)       (19.8)
                                                                --------     --------
  Net finance receivables...................................    $3,299.5     $1,971.0
                                                                ========     ========
</TABLE>
 
     We pool and securitize substantially all of the finance receivables we
originate, retaining: (i) investments in interest-only securities that are
subordinated to the rights of other investors; (ii) servicing on the contracts;
and (iii) in some securitizations, certain securities that are senior to the
interest-only securities. In a typical securitization, we sell finance
receivables to a special purpose entity which we establish for the limited
purpose of purchasing the finance receivables and selling securities
representing interests in the receivables. These interest-bearing securities are
collateralized by the underlying pool of finance receivables. We receive the
proceeds from the sale of the securities in exchange for the finance
receivables. The securities are typically sold at the same amount as the
principal balance of the receivables sold. We retain a residual interest, which
represents the right to receive, over the life of the pool of receivables: (i)
the excess of the principal and interest received on the receivables transferred
to the special purpose entity over the principal and interest paid to the
holders of other interests in the securitization; and (ii) servicing fees.
 
     In some securitizations, we also retain certain lower-rated securities
which are senior in payment priority to the interest-only securities. These
securities had a fair market value of $340.8 million at December 31, 1998, and
are classified as actively managed fixed maturity securities. We intend to hold
these securities for investment purposes, but may sell them in the future. In
addition, our life insurance subsidiaries, from time-to-time prior to our merger
with Green Tree, have purchased interests in the securities of the special
purpose entities. These securities are also classified as fixed maturity
investments.
 
     When we sell finance receivables, we recognize a gain equal to the proceeds
from the sale, net of related transaction costs and the allocated carrying
amount of the receivables sold. We allocate the carrying amount of finance
receivables between the assets sold and retained based on their relative fair
values at the date of sale. We determine the estimated fair value of the
retained assets (securities classified as fixed maturities, interest-only
securities and servicing rights) by discounting their projected future cash
flows using current prepayment, default, loss, servicing cost and discount rate
assumptions. Since we recognize no gain on securities we retain, our decision to
retain additional securities in some securitizations (as described in the
preceding paragraph) reduces the gain recognized in the current period. Such
decision, however, increases investment income in future periods, or creates the
opportunity to recognize additional gains in a later period if we decide to sell
the securities.
 
                                       41
<PAGE>   42
 
     We service for a fee all of the finance receivables we originate or
purchase from other originators. We collect, in the special purpose
securitization entity, loan payments, taxes and insurance payments, where
applicable, and other payments from borrowers and remit principal and interest
payments to holders of the securities backed by the finance receivables we have
sold. The cash applicable to the servicing fee and residual interest is remitted
from the special purpose entity to the Company.
 
     Managed finance receivables by loan type were as follows:
 
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                ---------------------------------
                                                                  1998         1997        1996
                                                                  ----         ----        ----
                                                                      (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>          <C>
Fixed term..................................................    $  33,992    $  26,023    $18,965
Revolving credit............................................        3,208        1,934      1,108
                                                                ---------    ---------    -------
     Total..................................................    $  37,200    $  27,957    $20,073
                                                                =========    =========    =======
Number of fixed term contracts serviced.....................    1,263,000    1,076,000    827,000
                                                                =========    =========    =======
Number of revolving credit accounts serviced................    1,298,000      700,000    180,000
                                                                =========    =========    =======
</TABLE>
 
     At December 31, 1998, no single state accounted for more than 8 percent of
the contracts we serviced. In addition, no single contractor, dealer or vendor
accounted for more than 2 percent of the total contracts we originated.
 
     The following table provides certain information with respect to the
60-days-and-over contractual dollar delinquency, loss experience and repossessed
collateral for the Company's managed finance receivables as of December 31, for
the years indicated.
 
<TABLE>
<CAPTION>
                                                                1998    1997    1996
                                                                ----    ----    ----
<S>                                                             <C>     <C>     <C>
Delinquency(a):
  Manufactured housing......................................    1.39%   1.22%   1.19%
  Home equity/improvement...................................     .92     .88     .85
  Other consumer............................................    1.61    1.21     .94
       Total consumer lending...............................    1.29    1.15    1.13
  Commercial lending........................................     .53     .55     .61
       Total................................................    1.19%   1.08%   1.08%
Net credit losses(b):
  Manufactured housing......................................    1.14%   1.14%    .76%
  Home equity/improvement...................................     .72     .72    1.12
  Other consumer............................................    2.01    1.47     .52
       Total consumer lending...............................    1.12    1.09     .77
  Commercial lending........................................     .44     .69     .44
       Total................................................    1.03%   1.05%    .74%
Repossessed collateral(c):
  Manufactured housing......................................     .97%   1.04%    .93%
  Home equity/improvement...................................    1.88     .71     .23
  Other consumer............................................     .32     .50     .51
       Total consumer lending...............................    1.14     .94     .84
  Commercial lending........................................    1.11    1.00%   1.26
       Total................................................    1.14%    .95%    .85%
</TABLE>
 
-------------------------
(a) As a percentage of managed finance receivables at period end, excluding
    receivables already in repossession or foreclosure.
 
(b) As a percentage of average managed finance receivables during the period,
    net of recoveries.
 
(c) Includes receivables in the process of foreclosure and repossessed
    collateral in process of liquidation as a percentage of managed finance
    receivables at period end.
 
                                       42
<PAGE>   43
 
     INTEREST-ONLY SECURITIES
 
     On a quarterly basis, we estimate the fair value of our interest-only
securities by discounting the projected future cash flows using current
assumptions. If we determine that the differences between the estimated fair
value and the carrying value of these securities is a temporary difference, we
adjust shareholders' equity. At December 31, 1998, this adjustment, which was
considered to be a temporary decline, decreased the carrying value of the
interest-only securities by $8.2 million. Declines in value are considered to be
other than temporary when the present value of the estimated future cash flows
discounted at a risk free rate using current assumptions is less than the
carrying value of the interest-only securities. When this occurs, we reduce the
amortized cost to the estimated fair value and recognize a loss in the statement
of operations.
 
     During the second quarter of 1998, prepayments on loan contracts continued
to exceed expectations and management concluded that such prepayments were
likely to continue to be higher than expected in future periods as well. We
recognized a $549.4 million impairment charge to reduce the carrying value of
interest-only securities and servicing rights, in the second quarter of 1998 as
described above under "Finance Operations."
 
CONSOLIDATED FINANCIAL CONDITION
 
     CHANGES IN THE CONSOLIDATED BALANCE SHEET OF 1998 COMPARED WITH 1997
 
     Changes in the consolidated balance sheet at December 31, 1998 compared to
1997, reflect: (i) our operating results; (ii) the previously discussed
impairment and nonrecurring charges totaling $503.8 million (net of income taxes
of $193.6 million); (iii) our origination and sale of finance receivables; (iv)
changes in the fair value of actively managed fixed maturity securities and
interest-only securities; and (v) various financing transactions. Financing
transactions (described in the notes to the consolidated financial statements)
include: (i) common stock issuances and repurchases; (ii) the issuance and
repayment of notes payable and commercial paper; and (iii) issuance of
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts.
 
     We record our actively managed fixed maturity investments and interest-only
securities at estimated fair value in accordance with GAAP. At December 31,
1998, we decreased the carrying value of such investments by $29.2 million as a
result of this adjustment. The fair value adjustment resulted in a $519.6
million increase in carrying value at year-end 1997.
 
     Total capital (excluding the notes payable of the finance segment used to
fund finance receivables) at December 31, 1998 and 1997, was as follows:
 
<TABLE>
<CAPTION>
                                                               1998         1997
                                                               ----         ----
                                                             (DOLLARS IN MILLIONS)
<S>                                                          <C>          <C>
Corporate notes payable and commercial paper.............    $ 2,932.2    $2,354.9
Company-obligated mandatorily redeemable preferred
  securities of subsidiary trusts........................      2,096.9     1,383.9
Shareholders' equity:
  Preferred stock........................................        105.5       115.8
  Common stock and additional paid-in capital............      2,736.5     2,619.8
  Accumulated other comprehensive income (loss)..........        (28.4)      200.6
  Retained earnings......................................      2,460.0     2,277.7
                                                             ---------    --------
     Total shareholders' equity..........................      5,273.6     5,213.9
                                                             ---------    --------
     Total capital.......................................    $10,302.7    $8,952.7
                                                             =========    ========
</TABLE>
 
     Consistent with recent discussions with rating agencies, the Company has
targeted the following goals for sometime during 1999: (i) the ratio of
corporate debt to total capital to be at or below 25 percent; and (ii) the ratio
of corporate debt and preferred stock to total capital to be at or below 40
percent.
 
                                       43
<PAGE>   44
 
     Corporate notes payable and commercial paper increased during 1998 with the
issuance of debt, the proceeds of which we used to contribute $1.1 billion of
additional capital to Green Tree. The increase was partially offset by the
repayment of debt using the proceeds from the issuance of Company-obligated
mandatorily redeemable preferred securities.
 
     We instituted a commercial paper program in April 1997 to lower our
borrowing costs and improve our liquidity. Borrowings under our commercial paper
program averaged approximately $808.7 million during 1998 and carried a weighted
average interest rate of 5.7 percent.
 
     Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts are classified as minority interest in accordance with GAAP. During 1998,
we issued $733.6 million of these securities, using the proceeds to repay debt.
Refer to the notes in the consolidated financial statements for a description of
these securities.
 
     Shareholders' equity increased by $59.7 million in 1998, to $5.3 billion.
Significant components of the increase included: (i) net income of $467.1
million; (ii) the conversion of convertible debentures into common stock having
a value of $67.4 million; and (iii) the issuance of common stock related to
stock options and employee benefit plans of $221.2 million (including the tax
benefit thereon). These increases were partially offset by: (i) repurchases of
common stock for $308.4 million; (ii) common and preferred stock dividends
totaling $166.3 million; and (iii) the decrease in net unrealized appreciation
of $229.1 million.
 
     Book value per common share outstanding changed to $16.37 at December 31,
1998, from $16.45 a year earlier. Such change was primarily attributable to the
factors discussed in the previous paragraph. Excluding unrealized appreciation
(depreciation) of fixed maturity securities, book value per common share
outstanding increased to $16.40 at December 31, 1998, from $15.88 a year
earlier.
 
                                       44
<PAGE>   45
 
     FINANCIAL RATIOS
 
<TABLE>
<CAPTION>
                                                      1998        1997        1996        1995        1994
                                                      ----        ----        ----        ----        ----
<S>                                                  <C>         <C>         <C>         <C>         <C>
Book value per common share:
  As reported....................................    $16.37      $16.45      $13.47      $ 8.52      $ 5.58
  Excluding unrealized appreciation(a)...........     16.40       15.88       13.33        7.97        6.23
Ratio of earnings to fixed charges:
  As reported....................................      3.30x       5.55x       4.85x       4.94x       5.80x
  Excluding interest expense on debt related to
     finance receivables and other
     investments(b)..............................      6.79x      13.00x       7.80x       7.36x       9.28x
Ratio of operating earnings to fixed charges(c):
  As reported....................................      4.89x       6.09x       4.73x       4.57x       5.60x
  Excluding interest expense on debt related to
     finance receivables and other
     investments(b)..............................     10.81x      14.43x       7.60x       6.76x       8.93x
Ratio of earnings to fixed charges, preferred
  dividends and distributions on
  Company-obligated mandatorily redeemable
  preferred securities of subsidiary trusts:
     As reported.................................      2.47x       4.10x       3.74x       4.14x       4.48x
     Excluding interest expense on debt related
       to finance receivables and other
       investments(b)............................      3.68x       6.72x       5.11x       5.61x       6.14x
Ratio of operating earnings to fixed charges,
  preferred dividends and distributions on
  Company-obligated mandatorily redeemable
  preferred securities of subsidiary trusts(c):
     As reported.................................      3.66x       4.49x       3.65x       3.83x       4.32x
     Excluding interest expense on debt related
       to finance receivables and other
       investments(b)............................      5.86x       7.45x       4.98x       5.16x       5.91x
Rating agency ratios(a)(d)(e)(f)(g):
  Debt to total capital..........................        26%         25%         16%         27%          1%
  Debt and preferred stock to total capital......        43%         35%         26%         27%          1%
</TABLE>
 
-------------------------
(a) Excludes the effect of reporting fixed maturities at fair value.
 
(b) These ratios are included to assist the reader in analyzing the impact of
    interest expense on debt related to finance receivables and other
    investments (which is generally offset by interest earned on finance
    receivables and other investments financed by such debt). Such ratios are
    not intended to, and do not, represent the following ratios prepared in
    accordance with GAAP: the ratio of earnings to fixed charges; and the ratio
    of earnings to fixed charges, preferred dividends and distributions on
    Company-obligated mandatorily redeemable preferred securities of subsidiary
    trusts.
 
(c) Such ratios exclude the following items from earnings: (i) net investment
    gains (losses) of our life insurance and corporate segments (less that
    portion of amortization of cost of policies purchased and cost of policies
    produced relating to such gains (losses)); (ii) impairment charges; and
    (iii) nonrecurring charges. Such ratios are not intended to, and do not,
    represent the following ratios prepared in accordance with GAAP: the ratio
    of earnings to fixed charges; and the ratio of earnings to fixed charges,
    preferred dividends and distributions on Company-obligated mandatorily
    redeemable preferred securities of subsidiary trusts.
 
(d) Excludes debt of finance segment used to fund finance receivables and
    investment borrowings of the insurance segment.
 
(e) These ratios are calculated in a manner discussed with rating agencies.
 
(f) Corporate debt is reduced by cash and investments held by non-life companies
    other than finance companies.
 
                                       45
<PAGE>   46
 
(g) Total capital includes amounts for the purchase of common shares pursuant to
    stock purchase contracts related to FELINE PRIDES (as described in the notes
    to the consolidated financial statements) as if such shares had been
    purchased.
 
     LIQUIDITY FOR INSURANCE AND FEE-BASED OPERATIONS
 
     Our insurance operating companies generally receive adequate cash flow from
premium collections and investment income to meet their obligations. Life
insurance and annuity liabilities are generally long-term in nature.
Policyholders may, however, withdraw funds or surrender their policies, subject
to surrender and withdrawal penalty provisions. We seek to balance the duration
of our invested assets with the estimated duration of benefit payments arising
from our contract liabilities.
 
     Only a small portion of our insurance liabilities have a time for
contractual payment; the majority of such liabilities are payable upon
occurrence of the insured event or upon surrender. Of our total insurance
liabilities at December 31, 1998, approximately 17 percent could be surrendered
by the policyholder without a penalty. Approximately 61 percent could be
surrendered by the policyholder subject to penalty or the release of an
insurance liability in excess of surrender benefits paid. The remaining 22
percent were not subject to surrender.
 
     Approximately 68 percent of insurance liabilities were subject to interest
rates that may be reset annually; the remainder have no explicit interest rate.
 
     Insurance liabilities for interest-sensitive products by credited rate
(excluding interest rate bonuses for the first policy year only) at December 31,
1998 were as follows (dollars in millions):
 
<TABLE>
<S>                                                             <C>
Below 4.75 percent..........................................    $ 9,554.1
4.75 percent -- 5.00 percent................................      1,360.9
5.00 percent -- 5.25 percent................................      2,051.0
5.25 percent -- 5.50 percent................................      1,128.6
5.50 percent -- 5.75 percent................................        874.5
5.75 percent and above......................................      2,260.3
                                                                ---------
     Total insurance liabilities on investment contracts....    $17,229.4
                                                                =========
</TABLE>
 
     We believe that the diversity of our investment portfolio and the
concentration of investments in high-quality, liquid securities provides
sufficient liquidity to meet foreseeable cash requirements. Our investment
portfolio at December 31, 1998, included $1.7 billion of short-term investments
and $16.8 billion of publicly traded investment grade bonds. Although there is
no present need or intent to dispose of such investments, our life insurance
subsidiaries could readily liquidate portions of their investments, if such a
need arose. In addition, investments could be used to facilitate borrowings
under reverse-repurchase agreements or dollar-roll transactions. Such borrowings
have been used by the life companies from time to time to increase their return
on investments and to improve liquidity.
 
     LIQUIDITY FOR FINANCE OPERATIONS
 
     Our finance operations require continued access to the capital markets for
the warehousing and sale of finance receivables. To satisfy these needs, we use
a variety of capital resources.
 
     The most important liquidity source for our finance operations has been our
ability to sell finance receivables in the secondary markets through loan
securitizations. Under certain securitized sales structures, we have provided a
variety of credit enhancements, which generally take the form of corporate
guarantees, but have also included bank letters of credit, surety bonds, cash
deposits and over-collateralization or other equivalent collateral. When
choosing the appropriate structure for a securitized loan sale, we analyze the
cash flows unique to each transaction, as well as the marketability and
projected economic value of such transactions. The structure of each securitized
sale depends, to a great extent, on conditions in the fixed-income markets at
the time of sale as well as on cost considerations and the availability and
effectiveness of the various enhancement methods.
 
                                       46
<PAGE>   47
 
     During the third and fourth quarters of 1998, liquidity in the credit
markets became extremely limited for many issuers. We believe the liquidity in
this market has improved significantly since then. This market is very large and
fills a need for many investors and therefore we believe it is unlikely to
disappear. We have been able to sell finance receivables even under the tough
market conditions which existed during the latter half of 1998. In addition, we
have access to bank credit, master repurchase agreements and securitization
lines that would enable us to continue production of loans for some time, even
if the asset-backed markets were temporarily not available.
 
     In some recent securitizations, we elected to hold certain lower-rated
securities rather than sell them at market prices prevalent in recent months. We
may also choose to retain additional securities from future securitizations. We
believe there are adequate sources of liquidity to continue to hold a reasonable
quantity of such securities while still maintaining current levels of loan
originations. Holding these securities results in reduced gains from the sale of
finance receivables and comparable increases in the interest income spread we
earn while the securities are held. In addition, volatility in the asset-backed
securities markets may cause a reduction in the profits we realize on the
finance receivables we sell. Several competing lenders have announced in recent
months that they are no longer lending in product lines that provide the
majority of our new loans. Brokers who previously expected to sell completed
loans to such lenders have solicited bids from us and others to purchase these
loans. Moreover, we and other lenders have increased the interest rates charged
on new loans in recent months. We are unable to estimate the amount of increased
business, if any, or the level of profitability thereon that might result from
these events.
 
     Cash received by the Company from the special purpose securitization
entities in 1998 in the form of servicing fees and payments on the residual
interest securities increased to $517.9 million compared to $395.2 million in
1997. This growth is the result of our growing servicing portfolio. Interest on
unsold loans also increased during 1998 as a result of the increase in the
outstanding finance receivables.
 
     At December 31, 1998, we have $4.0 billion in master repurchase agreements,
subject to the availability of eligible collateral, with various investment
banking firms for the purpose of financing our contract and commercial finance
loan production. The master repurchase agreements generally provide for annual
terms which are extended each quarter by mutual agreement of the parties for an
additional annual term based upon receipt of updated quarterly financial
information. At December 31, 1998, we had $780.6 million borrowed under the
repurchase agreements. In addition, we have a $700 million line of credit
secured by our interest-only securities. This line of credit matures on February
12, 2000 with an option to extend for an additional one year term. As of
December 31, 1998, we had borrowed $300.0 million under this facility.
 
     LIQUIDITY OF CONSECO (PARENT COMPANY)
 
     The parent company is a legal entity, separate and distinct from its
subsidiaries, and has no business operations. The parent company needs cash for:
(i) principal and interest payments on debt; (ii) dividends on preferred and
common stock; (iii) payments to subsidiary trusts to be used for distributions
on the Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts; (iv) holding company administrative expenses; (v) income
taxes; and (vi) investments in subsidiaries. The primary sources of cash to meet
these obligations are payments from our operating subsidiaries. The statutorily
permitted payments from our life insurance subsidiaries include: (i) fees for
services provided; (ii) tax sharing payments; (iii) dividend payments; and (iv)
surplus debenture interest and principal payments. We also receive dividend and
tax-sharing payments from our non-insurance subsidiaries. The parent company may
also obtain cash by: (i) issuing debt or equity securities; (ii) borrowing
additional amounts under its revolving credit agreement, as described in the
notes to the consolidated financial statements; or (iii) selling all or a
portion of its subsidiaries. These sources have historically provided adequate
cash flow to fund: (i) the needs of the parent company's normal operations; (ii)
internal expansion, acquisitions and investment opportunities; and (iii) the
retirement of debt and equity.
 
     At December 31, 1998, the parent company and its non-life subsidiaries had
short-term investments of $57.7 million, of which $51.9 million was expended in
January 1999 for accrued interest and dividends. The parent company and its
non-life subsidiaries had additional investments in fixed maturities, equity
securities
 
                                       47
<PAGE>   48
 
and other invested assets of $245.8 million at December 31, 1998, which, if
needed, could be liquidated or contributed to the insurance subsidiaries.
 
     The ability of our insurance subsidiaries to pay dividends is subject to
state insurance department regulations. These regulations generally permit
dividends to be paid from earned surplus of the insurance company for any
12-month period in amounts equal to the greater of (or in a few states, the
lesser of): (i) net gain from operations for the prior year; or (ii) 10 percent
of surplus as of the end of the preceding year. Any dividends in excess of these
levels require the approval of the director or commissioner of the applicable
state insurance department. After deduction of $205.1 million of fees and
interest paid to Conseco in 1998, the remaining statutory earnings of our
insurance subsidiaries permit distributions to Conseco in 1999 of approximately
$202 million without the permission of regulatory authorities. In addition, our
finance subsidiary had operating cash flows of approximately $350.0 million and
our subsidiaries other than insurance and finance had operating cash flows of
approximately $95.0 million.
 
     Our debt agreements require us to maintain minimum working capital and RBC
ratios, and limit our ability to incur additional indebtedness. They also
restrict the amount of retained earnings that is available for dividends and
require Conseco to maintain certain minimum ratings at its insurance
subsidiaries.
 
INFLATION
 
     Inflation does not have a significant effect on our balance sheet; we have
minimal investments in property, equipment or inventories. To the extent that
interest rates may change to reflect inflation or inflation expectations, there
would be an effect on our balance sheet and operations. Lower interest rates
experienced in recent periods have increased the value of our investment in
fixed maturities and may have increased the amount of new finance receivables
originated. These lower rates may also have made it more difficult to issue new
fixed rate annuities and may have accelerated prepayments of finance
receivables. It is not possible to calculate the effect of these changes on our
operating results. It is likely that rising interest rates would have the
opposite effect. Changes in interest rates can also affect the value of the
finance receivables we hold.
 
     Medical cost inflation has had a significant impact on our supplemental
health operations. Generally, these costs have increased more rapidly than the
Consumer Price Index. Medical costs will likely continue to rise. The impact of
medical cost inflation on our operations depends on our ability to increase
premium rates. Such increases are subject to approval by state insurance
departments. We seek to price our new standardized supplement plans to reflect
the impact of these filings and the lengthening of the period required to
implement rate increases.
 
YEAR 2000 READINESS DISCLOSURE
 
     Many computer programs were originally designed to identify each year using
two digits. If not corrected, these computer programs could cause system
failures or miscalculations in the year 2000, with possible adverse effects on
our operations. In 1996, we initiated a comprehensive corporate-wide program
designed to ensure that our computer programs function properly in the year
2000. A number of our employees (including several officers), as well as
external consultants and contract programmers, are working on various year-2000
projects. Under the program, we are analyzing our application systems, operating
systems, hardware, networks, electronic data interfaces and infrastructure
devices (such as facsimile machines and telephone systems). We also have been
working with vendors and other external business relations to help avoid
year-2000 problems related to the software or services they provide to us.
 
     Our year-2000 projects are currently on schedule. We are conducting our
year-2000 projects in three phases: (i) an audit and assessment phase, designed
to identify year-2000 issues; (ii) a modification phase, designed to correct
year-2000 issues; and (iii) a testing phase, designed to test the modifications
after they have been installed. We have completed the audit and assessment phase
for all critical systems. The modification phase of our program is substantially
complete for our insurance subsidiaries' projects. We expect to substantially
complete our finance subsidiaries' modification projects by the end of the
second quarter of 1999. The testing phase of our program is expected to be
completed by the end of the third quarter of 1999.
 
                                       48
<PAGE>   49
 
We believe that we have provided for sufficient time in order to complete any
additional modifications, if necessary, before December 31, 1999.
 
     For some of our year-2000 issues, we are working to complete the previously
planned conversions of older systems to the more modern, year-2000-ready systems
already used in other areas of the Company. In other cases, we are purchasing
new, more modern systems; these costs are being capitalized as assets and
amortized over their expected useful lives. In the remaining cases, we are
modifying existing systems; these costs are being charged to operating expense.
 
     We currently estimate that the total expense of our year-2000 projects will
be approximately $70 million. This expense is not material to Conseco's
financial position and we are funding it through operating cash flows.
Approximately 75 percent of this expense was incurred in 1996, 1997 and 1998.
This expense related primarily to modifying existing software systems.
 
     The impact of year-2000 issues will depend not only on the corrective
actions we take, but also on the way in which year-2000 issues are addressed by
governmental agencies, businesses and other third parties: (i) that provide
services, utilities or data to the Company; (ii) that receive services or data
from the Company; or (iii) whose financial condition or operating capability is
important to the Company. We are in the process of identifying risks and
updating assessments of potential year-2000 risks associated with our external
business relationships, such as third-party administrators, utilities and
financial institutions. These procedures are necessarily limited to matters over
which we are able to reasonably exercise control. We have been informed by our
key financial institutions and utilities that they will be year-2000 ready at
year-end 1999.
 
     We are also assessing what contingency plans will be needed if any of our
critical systems or those of external business relationships are not year-2000
ready at year-end 1999. We do not currently anticipate such a situation, but our
consideration of contingency plans will continue to evolve as new information
becomes available.
 
     Our year-2000 projects are the highest priority for our information
technology and many other employees. Other systems projects continue while our
year-2000 projects are being completed, however, in many cases, we have
accelerated system upgrades when the new systems address year-2000 issues.
 
     The failure to correct a material year-2000 problem could result in an
interruption in, or failure of, a number of normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year-2000 problem, including the uncertainty of the
preparedness of our external business relationships, we are not able to
currently determine whether the consequences of year-2000 failures will have a
material impact on the Company's results of operations, liquidity and financial
condition. However, we believe our year-2000 readiness efforts will minimize the
likelihood of a material adverse impact.
 
MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
 
     INSURANCE AND FEE-BASED
 
     We seek to invest our available funds in a manner that will maximize
shareholder value and fund future obligations to policyholders and debtors,
subject to appropriate risk considerations. We seek to meet this objective
through investments that: (i) have similar characteristics to the liabilities
they support; (ii) are diversified among industries, issuers and geographic
locations; and (iii) make up a predominantly investment-grade fixed maturity
securities portfolio. Many of our products incorporate surrender charges, market
interest rate adjustments or other features to encourage persistency.
 
     We seek to maximize the total return on our investments through active
investment management. Accordingly, we have determined that our entire portfolio
of fixed maturity securities is available to be sold in response to: (i) changes
in market interest rates; (ii) changes in relative values of individual
securities and asset sectors; (iii) changes in prepayment risks; (iv) changes in
credit quality outlook for certain securities; (v) liquidity needs; and (vi)
other factors. From time to time, we invest in securities for trading purposes,
although such investments account for a relatively small portion of our total
portfolio.
 
                                       49
<PAGE>   50
 
     The profitability of many of our products depends on the spreads between
the interest yield we earn on investments and the rates we credit on our
insurance liabilities. Although substantially all credited rates on our annuity
products may be changed annually (subject to minimum guaranteed rates), changes
in competition and other factors, including the impact of the level of
surrenders and withdrawals, may limit our ability to adjust or to maintain
crediting rates at levels necessary to avoid narrowing of spreads under certain
market conditions. Approximately 68 percent of our insurance liabilities were
subject to interest rates that may be reset annually: the remainder have no
explicit interest rates. As of December 31, 1998, the average yield, computed on
the cost basis of our investment portfolio, was 7.3 percent, and the average
interest rate credited or accruing to our total insurance liabilities was 5.1
percent, excluding interest bonuses guaranteed for the first year of the annuity
contract only.
 
     We use computer models to simulate the cash flows expected from our
existing business under various interest rate scenarios. These simulations
enable us to measure the potential gain or loss in fair value of our interest
rate-sensitive financial instruments. With such estimates, we seek to closely
match the duration of our assets to the duration of our liabilities. When the
estimated durations of assets and liabilities are similar, exposure to interest
rate risk is minimized because a change in the value of assets should be largely
offset by a change in the value of liabilities. At December 31, 1998, the
adjusted modified duration of our fixed maturity securities and short-term
investments was approximately 5.8 years and the duration of our insurance
liabilities was approximately 6.7 years. We estimate that our fixed maturity
securities and short-term investments (net of corresponding changes in the value
of cost of policies purchased, cost of policies produced and insurance
liabilities) would decline in fair value by approximately $490 million if
interest rates were to increase by 10 percent from their December 31, 1998
levels. This compares to a decline in fair value of $540 million based on
amounts and rates at December 31, 1997. The calculations involved in our
computer simulations incorporate numerous assumptions, require significant
estimates and assume an immediate change in interest rates without any
management of the investment portfolio in reaction to such change. Consequently,
potential changes in value of our financial instruments indicated by the
simulations will likely be different from the actual changes experienced under
given interest rate scenarios, and the differences may be material. Because we
actively manage our investments and liabilities, our net exposure to interest
rates can vary over time.
 
     FINANCE
 
     Our finance receivables are funded primarily with floating-rate debt. We
substantially reduce interest rate risk by selling such receivables through
securitizations. The finance receivables sold and the asset-backed securities
purchased by investors generally both have fixed rates. Principal payments on
the assets are passed through to investors in the securities as received,
thereby reducing interest rate exposure in these transactions that might
otherwise arise from maturity mismatches between debt instruments and assets.
 
     We retain interests in the finance receivables sold through investments in
interest-only securities that are subordinated to the rights of other investors.
Interest-only securities do not have a stated maturity or amortization period.
The expected amount of the cash flow as well as the timing depends on the
performance of the underlying collateral supporting each securitization. The
actual cash flow of these instruments could vary substantially if performance is
different from our assumptions. We develop assumptions to value these
investments by analyzing past portfolio performance, current loan
characteristics, current market conditions and the expected effect of our
actions to mitigate adverse performance. Assumptions used as of December 31,
1998, are summarized in the notes to the consolidated financial statements.
 
     We use computer models to simulate the cash flows expected from our
interest-only securities under various interest rate scenarios. These
simulations enable us to measure the potential gain or loss in fair value of
these financial instruments, including the effects of changes in interest rates
on prepayments. We estimate that our interest-only securities would decline in
fair value by approximately $79 million if interest rates were to decrease by 10
percent from their December 31, 1998 levels. The calculations involved in our
computer simulations incorporate numerous assumptions, require significant
estimates and assume an immediate change in interest rates without any
management of the interest-only securities in reaction to such change.
Consequently, potential changes in value of our interest-only securities
indicated by the simulations will likely
 
                                       50
<PAGE>   51
 
be different from the actual changes experienced under given interest rate
scenarios, and the differences may be material.
 
     CORPORATE
 
     We manage the ratio of borrowed capital to total capital and the portion of
our outstanding capital subject to fixed and variable rates, taking into
consideration the current interest rate environment and other market conditions.
Our borrowed capital at December 31, 1998, included commercial paper, notes
payable and Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts totaling $5.0 billion ($1.5 billion of which is at floating
rates and $3.5 billion of which is at fixed rates). Based on the interest rate
exposure and prevalent rates at December 31, 1998, a relative 10 percent
decrease in interest rates would increase the fair value of our fixed-rate
borrowed capital by approximately $90 million. This compares to a $75 million
increase based on our borrowed capital and prevalent rates at December 31, 1997.
Our interest expense on floating-rate debt will fluctuate as prevailing interest
rates change.
 
     For investment purposes, we periodically enter into interest rate swap
agreements which effectively exchange a fixed rate of interest on a notional
amount ($1.7 billion at December 31, 1998) for a floating rate. At December 31,
1998, such interest rate swap agreements were scheduled to mature in various
years through 2008 and had an average remaining life of five years (the average
call date is 2.7 years). If the counterparties of these interest rate swaps do
not meet their obligations, Conseco could have a loss. Conseco limits its
exposure to such a loss by diversifying among several counterparties believed to
be financially sound and creditworthy. At December 31, 1998, all of the
counterparties were rated "A" or higher by Standard & Poor's Corporation. Based
on the interest rate exposure and prevalent rates at December 31, 1998, a
relative 10 percent increase in interest rates would cause the value of our
interest rate swaps to decrease by $4.1 million.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
     The information included under the caption "Market-Sensitive Instruments
and Risk Management" in "Item 7. Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations" is incorporated
herein by reference.
 
                                       51
<PAGE>   52
 
       ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
<S>                                                             <C>
Report of Management........................................     53
Report of Independent Accountants...........................     54
Consolidated Balance Sheet at December 31, 1998 and 1997....     55
Consolidated Statement of Operations for the years ended
  December 31, 1998, 1997 and 1996..........................     57
Consolidated Statement of Shareholders' Equity for the years
  ended December 31, 1998, 1997 and 1996....................     58
Consolidated Statement of Cash Flows for the years ended
  December 31, 1998, 1997 and 1996..........................     61
Notes to Consolidated Financial Statements..................     62
</TABLE>
 
                                       52
<PAGE>   53
 
                              REPORT OF MANAGEMENT
 
To Our Shareholders
 
     Management of Conseco, Inc. is responsible for the reliability of the
financial information in this annual report. The financial statements are
prepared in accordance with generally accepted accounting principles, and the
other financial information in this annual report is consistent with that of the
financial statements (except for such information described as being in
accordance with regulatory or statutory accounting requirements).
 
     The integrity of the financial information relies in large part on
maintaining a system of internal control that is established by management to
provide reasonable assurance that assets are safeguarded and transactions are
properly authorized, recorded and reported. Reasonable assurance is based upon
the premise that the cost of controls should not exceed the benefits derived
from them. The Company's internal auditors continually evaluate the adequacy and
effectiveness of this system of internal control and actions are taken to
correct deficiencies as they are identified.
 
     Certain financial information presented depends upon management's estimates
and judgments regarding the ultimate outcome of transactions which are not yet
complete. Management believes these estimates and judgments are fair and
reasonable in view of present conditions and available information.
 
     The Company engages independent accountants to audit its financial
statements and express their opinion thereon. They have full access to each
member of management in conducting their audits. Such audits are conducted in
accordance with generally accepted auditing standards and include a review of
internal controls, tests of the accounting records, and such other auditing
procedures as they consider necessary to express an opinion on the Company's
financial statements.
 
     The Audit Committee of the Board of Directors, composed solely of
independent directors, meets periodically with management, internal auditors and
the independent accountants to review internal accounting control, audit
activities and financial reporting matters. The internal auditors, independent
accountants and Audit Committee have full and free access to each other.
 
                               STEPHEN C. HILBERT
                             Chairman of the Board,
                     President and Chief Executive Officer
                                 ROLLIN M. DICK
                            Executive Vice President
                          and Chief Financial Officer
 
                                       53
<PAGE>   54
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors
and Shareholders of Conseco, Inc.
 
     We have audited the accompanying consolidated balance sheet of Conseco,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. The consolidated
financial statements give retroactive effect to the merger of Conseco, Inc. and
Green Tree Financial Corporation on June 30, 1998, which has been accounted for
as a pooling of interests as described in note 1 to the consolidated financial
statements. 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 did not audit the consolidated financial
statements of Green Tree Financial Corporation and subsidiaries as of and for
the years ended December 31, 1997 and 1996 which statements reflect total assets
of 11 percent as of December 31, 1997 and total revenues of 16 percent and 19
percent for the years ended December 31, 1997 and 1996, respectively, of the
related consolidated financial statement totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to data included for Green Tree Financial Corporation, is
based solely on the report of the other auditors.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
 
     In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Conseco, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, after giving retroactive effect to the merger of
Conseco, Inc. and Green Tree Financial Corporation described in note 1 to the
financial statements, all in conformity with generally accepted accounting
principles.
 
                                          PRICEWATERHOUSECOOPERS LLP
 
Indianapolis, Indiana
March 30, 1999
 
                                       54
<PAGE>   55
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                           CONSOLIDATED BALANCE SHEET
                           DECEMBER 31, 1998 AND 1997
                             (DOLLARS IN MILLIONS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                  1998         1997
                                                                  ----         ----
<S>                                                             <C>          <C>
Investments:
  Actively managed fixed maturities at fair value (amortized
     cost: 1998 -- $21,848.3; 1997 -- $22,289.3)............    $21,827.3    $22,773.7
  Interest-only securities at fair value (amortized cost:
     1998 -- $1,313.6;
     1997 -- $1,363.5)......................................      1,305.4      1,398.7
  Equity securities at fair value (cost: 1998 -- $373.0;
     1997 -- $227.6)........................................        376.4        228.9
  Mortgage loans............................................      1,130.2      1,074.8
  Policy loans..............................................        685.6        692.4
  Other invested assets.....................................      1,259.8        530.7
  Short-term investments....................................      1,704.7      1,154.7
  Assets held in separate accounts..........................        899.4        682.8
                                                                ---------    ---------
       Total investments....................................     29,188.8     28,536.7
Accrued investment income...................................        383.8        379.3
Finance receivables.........................................      3,299.5      1,971.0
Cost of policies purchased..................................      2,425.2      2,466.4
Cost of policies produced...................................      1,453.9        915.2
Reinsurance receivables.....................................        734.8        795.8
Goodwill....................................................      3,960.2      3,693.4
Cash held in segregated accounts for investors..............        843.7        577.2
Other assets................................................      1,310.0      1,344.8
                                                                ---------    ---------
       Total assets.........................................    $43,599.9    $40,679.8
                                                                =========    =========
</TABLE>
 
                            (continued on next page)
 
                  The accompanying notes are an integral part
                   of the consolidated financial statements.
                                       55
<PAGE>   56
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED BALANCE SHEET (CONTINUED)
                           DECEMBER 31, 1998 AND 1997
                             (DOLLARS IN MILLIONS)
 
                      LIABILITIES AND SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                  1998         1997
                                                                  ----         ----
<S>                                                             <C>          <C>
Liabilities:
  Liabilities for insurance and asset accumulation products:
     Interest sensitive products............................    $17,229.4    $17,357.6
     Traditional products...................................      6,391.6      5,784.8
     Claims payable and other policyholder funds............      1,491.5      1,615.5
     Unearned premiums......................................        376.6        406.1
     Liabilities related to separate accounts...............        899.4        682.8
     Liabilities related to deposit products................        541.7           --
  Investor payables.........................................        843.7        577.2
  Other liabilities.........................................      1,980.7      1,517.8
  Income tax liabilities....................................        197.1        532.8
  Investment borrowings.....................................        956.2      1,389.5
  Notes payable and commercial paper:
     Corporate..............................................      2,932.2      2,354.9
     Finance................................................      2,389.3      1,863.0
                                                                ---------    ---------
       Total liabilities....................................     36,229.4     34,082.0
                                                                ---------    ---------
Company-obligated mandatorily redeemable preferred
  securities of subsidiary trusts...........................      2,096.9      1,383.9
Shareholders' equity:
  Preferred stock...........................................        105.5        115.8
  Common stock and additional paid-in capital (no par value,
     1,000,000,000 shares authorized, shares issued and
     outstanding: 1998 -- 315,843,609;
     1997 -- 310,011,669)...................................      2,736.5      2,619.8
  Accumulated other comprehensive income (loss):
     Unrealized appreciation (depreciation) of fixed
      maturity securities...................................        (11.9)       177.2
     Unrealized appreciation (depreciation) of other
      investments...........................................        (12.1)        26.6
     Minimum pension liability adjustment...................         (4.4)        (3.2)
  Retained earnings.........................................      2,460.0      2,277.7
                                                                ---------    ---------
       Total shareholders' equity...........................      5,273.6      5,213.9
                                                                ---------    ---------
       Total liabilities and shareholders' equity...........    $43,599.9    $40,679.8
                                                                =========    =========
</TABLE>
 
                  The accompanying notes are an integral part
                   of the consolidated financial statements.
                                       56
<PAGE>   57
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                     1998                 1997                 1996
                                                                     ----                 ----                 ----
<S>                                                                <C>                  <C>                  <C>
Revenues:
  Insurance policy income................................          $3,948.8             $3,410.8             $1,654.2
  Net investment income..................................           2,462.3              2,145.7              1,505.3
  Gain on sale of finance receivables....................             745.0                779.0                400.6
  Net investment gains...................................             208.2                266.5                 60.8
  Fee revenue and other income...........................             351.7                244.4                168.9
                                                                -----------          -----------          -----------
     Total revenues......................................           7,716.0              6,846.4              3,789.8
                                                                -----------          -----------          -----------
Benefits and expenses:
  Insurance policy benefits..............................           3,580.5              3,175.0              1,863.6
  Interest expense.......................................             440.5                312.3                200.2
  Amortization...........................................             733.0                590.0                276.0
  Other operating costs and expenses.....................           1,218.9              1,021.7                634.2
  Impairment charge......................................             549.4                190.0                   --
  Nonrecurring charges...................................             148.0                 71.7                   --
                                                                -----------          -----------          -----------
     Total benefits and expenses.........................           6,670.3              5,360.7              2,974.0
                                                                -----------          -----------          -----------
     Income before income taxes, minority interest and
       extraordinary charge..............................           1,045.7              1,485.7                815.8
Income tax expense.......................................             445.6                560.1                302.2
                                                                -----------          -----------          -----------
     Income before minority interest and extraordinary
       charge............................................             600.1                925.6                513.6
Minority interest:
  Distributions on Company-obligated mandatorily
     redeemable preferred securities of subsidiary
     trusts, net of income taxes.........................              90.4                 49.0                  3.6
  Dividends on preferred stock of subsidiaries...........                --                  3.3                  8.9
  Equity in earnings of subsidiaries.....................                --                   --                 22.4
                                                                -----------          -----------          -----------
     Income before extraordinary charge..................             509.7                873.3                478.7
Extraordinary charge on extinguishment of debt, net of
  income taxes...........................................              42.6                  6.9                 26.5
                                                                -----------          -----------          -----------
     Net income..........................................             467.1                866.4                452.2
Less amounts applicable to preferred stock:
  Charge related to induced conversions..................                --                 13.2                   --
  Preferred stock dividends..............................               7.8                  8.7                 27.4
                                                                -----------          -----------          -----------
     Net income applicable to common stock...............          $  459.3             $  844.5             $  424.8
                                                                ===========          ===========           ==========
Earnings per common share:
  Basic:
     Weighted average shares outstanding.................       311,785,000          311,050,000          230,141,000
     Net income before extraordinary charge..............             $1.61                $2.74                $1.97
     Extraordinary charge................................               .14                  .02                  .12
                                                                -----------          -----------          -----------
       Net income........................................             $1.47                $2.72                $1.85
                                                                ===========          ===========           ==========
  Diluted:
     Weighted average shares outstanding.................       332,701,000          338,722,000          267,685,000
     Net income before extraordinary charge..............             $1.53                $2.54                $1.79
     Extraordinary charge................................               .13                  .02                  .10
                                                                -----------          -----------          -----------
       Net income........................................             $1.40                $2.52                $1.69
                                                                ===========          ===========          ===========
</TABLE>
 
                  The accompanying notes are an integral part
                   of the consolidated financial statements.

                                       57
<PAGE>   58
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                COMMON STOCK      ACCUMULATED OTHER
                                                  PREFERRED    AND ADDITIONAL       COMPREHENSIVE      RETAINED
                                       TOTAL        STOCK      PAID-IN CAPITAL      INCOME (LOSS)      EARNINGS
                                       -----      ---------    ---------------    -----------------    --------
<S>                                   <C>         <C>          <C>                <C>                  <C>
Balance, January 1, 1996............  $2,031.7     $ 283.5        $  428.2             $112.7          $1,207.3
  Comprehensive income, net of tax:
     Net income.....................     452.2          --              --                 --             452.2
     Change in unrealized
       appreciation (depreciation)
       of actively managed fixed
       maturity investments (net of
       applicable income tax benefit
       of $45.3 million)............     (72.8)         --              --              (72.8)               --
     Change in unrealized
       appreciation (depreciation)
       of other investments (net of
       applicable income tax benefit
       of $.6 million)..............      (1.0)         --              --               (1.0)               --
     Change in minimum pension
       liability adjustment (net of
       applicable income tax benefit
       of $1.4 million).............      (2.3)         --              --               (2.3)               --
                                      --------
          Total comprehensive
            income..................     376.1
  Issuance of convertible preferred
     stock..........................     266.8       266.8              --                 --                --
  Conversion of preferred stock into
     common shares..................        --      (283.2)          283.2                 --                --
  Issuance of shares in merger
     transactions...................   1,568.6          --         1,568.6                 --                --
  Issuance of shares for stock
     options and for employee
     benefit plans..................      66.9          --            66.9                 --                --
  Tax benefit related to issuance of
     shares under stock option
     plans..........................      28.6          --            28.6                 --                --
  Cost of issuance of preferred
     stock..........................     (21.7)         --           (21.7)                --                --
  Cost of shares acquired...........     (26.0)         --            (3.1)                --             (22.9)
  Dividends on preferred stock......     (27.4)         --              --                 --             (27.4)
  Dividends on common stock.........     (46.8)         --              --                 --             (46.8)
                                      --------     -------        --------             ------          --------
Balance, December 31, 1996..........   4,216.8       267.1         2,350.7               36.6           1,562.4
</TABLE>
 
                         (continued on following page)
 
                  The accompanying notes are an integral part
                   of the consolidated financial statements.
                                       58
<PAGE>   59
 
                         CONSECO, INC. AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, CONTINUED
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                 COMMON STOCK      ACCUMULATED OTHER
                                                   PREFERRED    AND ADDITIONAL       COMPREHENSIVE      RETAINED
                                        TOTAL        STOCK      PAID-IN CAPITAL      INCOME (LOSS)      EARNINGS
                                        -----      ---------    ---------------    -----------------    --------
<S>                                    <C>         <C>          <C>                <C>                  <C>
Balance, December 31, 1996 (carried
  forward from prior page).........    $4,216.8     $ 267.1        $2,350.7             $ 36.6          $1,562.4
  Comprehensive income, net of tax:
     Net income....................       866.4          --              --                 --             866.4
     Change in unrealized
       appreciation (depreciation)
       of actively managed fixed
       maturity investments net of
       applicable income tax
       expense of $74.0 million)...       137.4          --              --              137.4                --
     Change in unrealized
       appreciation (depreciation)
       of other investments (net of
       applicable income tax
       expense of $16.5 million)...        27.5          --              --               27.5                --
     Change in minimum pension
       liability adjustment net of
       applicable income tax
       benefit of $.5 million).....         (.9)         --              --                (.9)               --
                                       --------
          Total comprehensive
            income.................     1,030.4
  Conversion of preferred stock
     into common shares............          --      (151.3)          151.3                 --                --
  Issuance of shares in merger
     transactions..................       471.5          --           471.5                 --                --
  Issuance of shares for stock
     options and for employee
     benefit plans.................       246.7          --           246.7                 --                --
  Tax benefit related to issuance
     of shares under stock option
     plans.........................        91.4          --            91.4                 --                --
  Conversion of convertible
     debentures into common
     shares........................       150.0          --           150.0                 --                --
  Cost of shares acquired..........      (857.0)         --          (830.9)                --             (26.1)
  Other............................       (10.9)         --           (10.9)                --                --
  Dividends and inducements
     applicable to preferred
     stock.........................       (21.9)         --              --                 --             (21.9)
  Dividends on common stock........      (103.1)         --              --                 --            (103.1)
                                       --------     -------        --------             ------          --------
Balance, December 31, 1997.........     5,213.9       115.8         2,619.8              200.6           2,277.7
</TABLE>
 
                         (continued on following page)
 
                  The accompanying notes are an integral part
                   of the consolidated financial statements.
                                       59
<PAGE>   60
 
                         CONSECO, INC. AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, CONTINUED
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                 COMMON STOCK      ACCUMULATED OTHER
                                                   PREFERRED    AND ADDITIONAL       COMPREHENSIVE      RETAINED
                                        TOTAL        STOCK      PAID-IN CAPITAL      INCOME (LOSS)      EARNINGS
                                        -----      ---------    ---------------    -----------------    --------
<S>                                    <C>         <C>          <C>                <C>                  <C>
Balance, December 31, 1997 (carried
  forward from prior page).........    $5,213.9     $115.8         $2,619.8             $ 200.6         $2,277.7
Comprehensive income, net of tax:
  Net income.......................       467.1         --               --                  --            467.1
  Change in unrealized appreciation
     (depreciation) of actively
     managed fixed maturity
     investments (net of applicable
     income tax benefit of
     $101.9).......................      (189.1)        --               --              (189.1)              --
  Change in unrealized appreciation
     (depreciation) of other
     investments (net of applicable
     income tax benefit of
     $23.2)........................       (38.7)        --               --               (38.7)              --
  Change in minimum pension
     liability adjustment (net of
     applicable income tax expense
     of $.4 million)...............        (1.2)        --               --                (1.2)              --
                                       --------
          Total comprehensive
            income.................       238.1
  Conversion of preferred stock
     into common shares............          --      (10.3)            10.3                  --               --
  Issuance of shares for stock
     options and for employee
     benefit plans.................       158.1         --            158.1                  --               --
  Tax benefit related to issuance
     of shares under stock option
     plans.........................        63.1         --             63.1                  --               --
  Conversion of convertible
     debentures into common
     shares........................        67.4         --             67.4                  --               --
  Issuance of warrants in
     conjunction with financing
     transaction...................         7.7         --              7.7                  --               --
  Cost of shares acquired..........      (308.4)        --           (189.9)                 --           (118.5)
  Dividends on preferred stock.....        (7.8)        --               --                  --             (7.8)
  Dividends on common stock........      (158.5)        --               --                  --           (158.5)
                                       --------     ------         --------             -------         --------
Balance, December 31, 1998.........    $5,273.6     $105.5         $2,736.5             $ (28.4)        $2,460.0
                                       ========     ======         ========             =======         ========
</TABLE>
 
                  The accompanying notes are an integral part
                   of the consolidated financial statements.
                                       60
<PAGE>   61
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                   1998          1997          1996
                                                                   ----          ----          ----
<S>                                                             <C>           <C>           <C>
Cash flows from operating activities:
  Net income................................................    $    467.1    $    866.4    $    452.2
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Gain on sale of finance receivables.....................        (745.0)       (779.0)       (400.6)
    Points and origination fees received upon origination of
      finance receivables...................................         298.3         179.8          35.9
    Interest-only securities investment income..............        (132.9)       (125.8)        (77.2)
    Cash received from interest-only securities.............         358.0         266.1          71.6
    Servicing income........................................        (140.0)       (113.7)        (73.3)
    Cash received from servicing activities.................         159.9         129.1          73.3
    Amortization and depreciation...........................         775.9         639.6         354.9
    Income taxes............................................          86.7         166.2          92.4
    Insurance liabilities...................................          77.8          26.4         274.9
    Accrual and amortization of investment income...........         (73.3)        (71.7)        (26.8)
    Deferral of cost of policies produced and purchased.....        (790.3)       (699.0)       (308.4)
    Nonrecurring and impairment charges.....................         603.7         261.7            --
    Minority interest.......................................         137.5          75.4          26.8
    Extraordinary charge on extinguishment of debt..........          66.4          10.6          36.9
    Net investment gains....................................        (208.2)       (266.5)        (60.8)
    Other...................................................          38.0          43.9        (117.4)
                                                                ----------    ----------    ----------
      Net cash provided by operating activities.............         979.6         609.5         354.4
                                                                ----------    ----------    ----------
Cash flows from investing activities:
  Sales of investments......................................      30,708.4      18,436.8       8,394.1
  Maturities and redemptions of investments.................       1,541.2         750.7         614.3
  Purchases of investments..................................     (32,040.0)    (20,043.8)     (9,409.7)
  Cash received from the sale of finance receivables, net of
    expenses................................................      13,303.6      10,683.2       8,362.8
  Principal payments received on finance receivables........       6,065.9       4,084.4       2,461.2
  Finance receivables originated............................     (21,261.6)    (15,550.2)    (10,405.4)
  Acquisition of subsidiaries, net of cash held at date of
    merger..................................................            --        (759.7)       (642.3)
  Other.....................................................         (78.2)        (62.8)        (23.9)
                                                                ----------    ----------    ----------
      Net cash used by investing activities.................      (1,760.7)     (2,461.4)       (648.9)
                                                                ----------    ----------    ----------
Cash flows from financing activities:
  Issuance of Company-obligated mandatorily redeemable
    preferred securities of subsidiary trusts...............         710.8         780.4         587.7
  Issuance of shares related to stock options and employee
    benefit plans...........................................         121.3          57.4          26.7
  Issuance of notes payable and commercial paper............      16,630.9      13,604.3       8,829.8
  Payments on notes payable and commercial paper............     (15,522.5)    (11,747.3)     (9,262.7)
  Payments to repurchase equity securities..................        (257.4)       (738.6)        (21.5)
  Issuance of convertible preferred stock...................            --            --         257.7
  Purchase of preferred stock of subsidiary.................            --         (98.4)        (12.6)
  Investment borrowings.....................................        (433.3)        962.5          30.6
  Amounts received for investments in deposit products......       3,127.4       2,099.4       1,881.3
  Withdrawals from deposit products.........................      (2,763.2)     (2,072.3)     (1,842.5)
  Other.....................................................            --         (13.2)          1.9
  Distributions on Company-obligated mandatorily redeemable
    preferred securities of subsidiary trusts...............        (130.9)        (65.7)         (2.9)
  Dividends paid............................................        (152.0)       (108.0)        (70.3)
                                                                ----------    ----------    ----------
      Net cash provided by financing activities.............       1,331.1       2,660.5         403.2
                                                                ----------    ----------    ----------
      Net increase in short-term investments................         550.0         808.6         108.7
Short-term investments, beginning of year...................       1,154.7         346.1         237.4
                                                                ----------    ----------    ----------
Short-term investments, end of year.........................    $  1,704.7    $  1,154.7    $    346.1
                                                                ==========    ==========    ==========
</TABLE>
 
                  The accompanying notes are an integral part
                   of the consolidated financial statements.
                                       61
<PAGE>   62
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SIGNIFICANT ACCOUNTING POLICIES:
 
BASIS OF PRESENTATION
 
     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 have restated all
share and per-share amounts for the two-for-one stock splits distributed
February 11, 1997 and April 1, 1996.
 
     Conseco, Inc. ("we", "Conseco" or the "Company" ) is a financial services
holding company operating throughout the United States. Our life insurance
subsidiaries develop, market and administer supplemental health insurance,
annuity, individual life insurance, individual and group major medical insurance
and other insurance products. Our finance subsidiaries originate, purchase, sell
and service consumer and commercial finance loans. Conseco's operating strategy
is to grow its businesses by focusing our resources on the development and
expansion of profitable products and strong distribution channels, to seek to
achieve superior investment returns through active asset management and to
control expenses.
 
     Consolidation issues. The consolidated financial statements have been
prepared to give retroactive effect to the merger (the "Green Tree Merger") with
Green Tree Financial Corporation ("Green Tree") accounted for as a pooling of
interests (see note 2, "Acquisitions"). The pooling of interests method of
accounting requires the restatement of all periods presented as if Conseco and
Green Tree had always been combined. The consolidated statement of shareholders'
equity therefore reflects the accounts of the Company as if additional shares of
Conseco common stock had been issued during all periods presented. Intercompany
transactions prior to the merger have been eliminated, and we have made certain
reclassifications to Green Tree's financial statements to conform to Conseco's
presentations. See note 2 for additional discussion of the Green Tree Merger.
 
     Our consolidated financial statements exclude the results of material
transactions between us and our consolidated affiliates, or among our
consolidated affiliates. We reclassified certain amounts in our 1997 and 1996
consolidated financial statements and notes to conform with the 1998
presentation.
 
INVESTMENTS
 
     Fixed maturities are securities that mature more than one year after
issuance and include bonds, notes receivable and redeemable preferred stock.
Fixed maturities that we may sell prior to maturity are classified as actively
managed and are carried at estimated fair value, with any unrealized gain or
loss, net of tax and related adjustments, recorded as a component of
shareholders' 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.
 
     Interest-only securities represent the right to receive certain future cash
flows from our securitized receivable sales. Such cash flows generally are equal
to the value of the principal and interest to be collected on the underlying
financial contracts of each securitization in excess of the sum of the principal
and interest to be paid on the securities sold and contractual servicing fees.
We carry interest-only securities at estimated fair value. We determine fair
value by discounting the projected cash flows over the expected life of the
receivables sold using current prepayment, default, loss and interest rate
assumptions. In 1997, we adopted the cash out method to measure the period of
time for which projected cash flows related to securitizations should be
discounted and used that method to measure the adjustment recorded as a
restatement of the carrying value of the interest-only securities as of December
31, 1996 and the valuation of the interest-only securities as of December 31,
1997. We record any unrealized gain or loss determined to be temporary, net of
tax, as a component of shareholders' equity. Declines in value are considered to
be other than temporary when the
                                       62
<PAGE>   63
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
present value of estimated future cash flows discounted at a risk free rate
using current assumptions is less than the carrying value of the interest-only
securities. When declines in value considered to be other than temporary occur,
we reduce the amortized cost to estimated fair value and recognize a loss in the
statement of operations. See note 4 for additional discussion of gain on sale of
receivables and interest-only securities.
 
     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 shareholders' 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: (i) trading securities; (ii) Standard &
Poor's 500 Call Options ("S&P 500 Call Options"); and (iii) certain
non-traditional investments. We carry the S&P 500 Call Options at estimated fair
value as further described below under "Standard & Poor's 500 Index Call Options
and Interest Rate Swap Agreements". Non-traditional investments include
investments in venture capital funds, limited partnerships, mineral rights and
promissory notes; we account for them using either the cost method, or for
investments in partnerships over whose operations the Company exercises
significant influence, the equity method. Non-traditional investments at
December 31, 1998, also included $511.7 million of investments held in trust for
the benefit of the purchasers of certain products of our asset management
subsidiary; this amount is offset by the liabilities account, "liabilities
related to deposit products", the value of which fluctuates in relation to
changes in the values of these investments. Because we hold the residual
interests in the cash flows from the trust and actively manage its investments,
we are required to include the accounts of the trust in our consolidated
financial statements.
 
     Short-term investments include commercial paper, invested cash and other
investments purchased with maturities of less than three months. We carry them
at amortized cost, which approximates their estimated fair value. We consider
all short-term investments to be cash equivalents.
 
     We defer any fees received or costs incurred when we originate investments.
We amortize fees, costs, discounts and premiums as yield adjustments over the
contractual lives of the investments. We consider anticipated prepayments on
mortgage-backed securities in determining estimated future yields on such
securities.
 
     When we sell a security (other than a trading security), we report the
difference between our sale proceeds and its amortized cost (determined based on
specific identification) as an investment gain or loss.
 
     We regularly evaluate all of our investments based on current economic
conditions, credit loss experience and other investee-specific developments. If
there is a decline in a security's net realizable value that is other than
temporary, we treat it as a realized loss and reduce our cost basis of the
security to its estimated fair value.
 
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 Conseco. 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.
 
                                       63
<PAGE>   64
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
FINANCE RECEIVABLES
 
     Finance receivables consist of: (i) lease, commercial finance and revolving
credit receivables; and (ii) loans held for securitization. Lease receivables
are generally direct financing leases; the carrying value of these receivables
represents the present value of both the future minimum lease payments and
related residual values. Commercial finance receivables generally represent
dealer floorplan; asset-based financial arrangements with dealers, manufacturers
and other commercial entities; and commercial real estate loans. Revolving
credit receivables consist of retail credit card arrangements with merchants,
dealers and their customers. Loans held for sale generally consist of recent
originations of manufactured housing, home equity, home improvement and consumer
and equipment contracts which we expect to sell in the near term. We carry loans
held for sale at the lower of amortized cost or market as determined in the
aggregate for both commercial and other products. There was no valuation
allowance as of December 31, 1998 or 1997. We state finance receivables net of
allowance for expected losses.
 
     We defer fees received and costs incurred when we originate finance
receivables. We amortize fees, costs, discounts and premiums over the
contractual lives of the receivables, giving consideration to anticipated
prepayments. We include such deferred fees or costs in the cost of finance
receivables sold upon the sale.
 
COST OF POLICIES PRODUCED
 
     The costs that vary with, and are primarily related to, producing new
insurance business are referred to as cost of policies produced. We amortize
these costs using the interest rate credited to the underlying policy; (i) in
relation to the estimated gross profits for universal life-type and
investment-type products; or (ii) in relation to future anticipated premium
revenue for other products.
 
     When we sell investments backing our universal life or investment-type
product business at a gain or loss, we adjust the amortization to reflect the
change in future investment yields resulting from the sale (thereby changing the
future amortization to offset the change in yield). We also adjust the cost of
policies produced for the change in amortization that would have been recorded
if actively managed fixed maturity securities had been sold at their stated
aggregate fair value and the proceeds reinvested at current yields. We include
the impact of this adjustment in net unrealized appreciation (depreciation)
within shareholders' equity.
 
     Each year, we evaluate the recoverability of the unamortized balance of the
cost of policies produced. We consider estimated future gross profits or future
premiums, expected mortality or morbidity, interest earned and credited rates,
persistency and expenses in determining whether the balance is recoverable.
 
COST OF POLICIES PURCHASED
 
     The cost assigned to the right to receive future cash flows from contracts
existing at the date of an acquisition is referred to as cost of policies
purchased. This balance is amortized, evaluated for recoverability, and adjusted
for the impact of unrealized gains (losses) in the same manner as the cost of
policies produced described above.
 
GOODWILL
 
     Goodwill is the excess of the amount we paid to acquire a company over the
fair value of its net assets. We amortize goodwill on the straight-line basis
generally over a 40-year period. At December 31, 1998, the total accumulated
amortization of goodwill was $281.1 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
earnings of the subsidiaries 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). Cash flows considered
                                       64
<PAGE>   65
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
in such an analysis are those of the business acquired, if separately
identifiable, or the product line that acquired the business, if such earnings
are not separately identifiable.
 
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 $.8 million of
mortality risk on any one policy. We diversify the risk of reinsurance loss by
using a number of reinsurers that have strong claims-paying ratings. If any
reinsurer could not meet its obligations, the Company would assume the
liability. The likelihood of a material loss being incurred as the result of the
failure of one of our reinsurers is considered remote. The cost of reinsurance
ceded totaled $541.3 million, $499.0 million and $313.8 million in 1998, 1997
and 1996, respectively. Reinsurance recoveries netted against insurance policy
benefits totaled $484.3 million, $587.5 million and $281.4 million in 1998, 1997
and 1996, respectively.
 
INCOME TAXES
 
     Our income tax expense includes deferred income taxes arising from
temporary differences between the tax and financial reporting bases of assets
and liabilities. In assessing the realization of deferred income tax assets, we
consider whether it is more likely than not that the deferred income tax assets
will be realized. The ultimate realization of deferred income tax assets depends
upon generating future taxable income during the periods in which temporary
differences become deductible. If future income is not generated as expected,
deferred income tax assets may need to be written off (no such write-offs have
occurred).
 
INVESTMENT BORROWINGS
 
     As part of our investment strategy, we may enter into reverse repurchase
agreements and dollar-roll transactions to increase our investment return or to
improve our liquidity. We account for these transactions as collateral
borrowings, where the amount borrowed is equal to the sales price of the
underlying securities. Reverse repurchase agreements involve a sale of
securities and an agreement to repurchase the same securities at a later date at
an agreed-upon price. Dollar rolls are similar to reverse repurchase agreements
except that, with dollar rolls, the repurchase involves securities that are only
substantially the same as the securities sold. We account for these transactions
as short-term collateralized borrowings. Such borrowings averaged approximately
$1,092.4 million during 1998 (compared with an average of $719.3 million during
1997) and were collateralized by investment securities with fair values
approximately equal to the loan value. The weighted average interest rate on
short-term collateralized borrowings was 5.4 percent in 1998 and 5.8 percent in
1997. The primary risk associated with short-term collateralized borrowings is
that a counterparty will be unable to perform under the terms of the contract.
Our exposure is limited to the excess of the net replacement cost of the
securities over the value of the short-term investments (such excess was not
material at December 31, 1998). We believe the counterparties to our reverse
repurchase and dollar-roll agreements are financially responsible and that the
counterparty risk is minimal.
 
                                       65
<PAGE>   66
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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, interest-only securities, servicing rights,
goodwill, liabilities for insurance and deposit products, liabilities related to
litigation, guaranty fund assessment accruals, gain on sale of finance
receivables and deferred income taxes. If our future experience differs from
these estimates and assumptions, our financial statements could be materially
affected.
 
STANDARD & POOR'S 500 INDEX CALL OPTIONS AND INTEREST RATE SWAP AGREEMENTS
 
     Our equity-indexed annuity products provide a guaranteed base rate of
return, and a higher potential return linked to the performance of the S&P 500
Index. We buy S&P 500 Index Call Options in an effort to hedge potential
increases to policyholder benefits resulting from increases in the S&P 500
Index. We include the cost of the S&P 500 Call Options in the pricing of the
equity-indexed annuity products. We reflect changes in the values of the S&P 500
Call Options, which fluctuate in relation to changes in policyholder account
balances for these annuities, in net investment income. We defer the premiums
paid to purchase these instruments and amortize them to investment income over
their term. Such amortization was $52.0 million in 1998 and $14.6 million in
1997.
 
     Net investment income included $103.9 million and $39.4 million during 1998
and 1997, respectively, related to changes in the value of the S&P 500 Call
Options. There was no such income in 1996. Such investment income was
substantially offset by amounts added to policyholder account balances for
annuities and financial products. The value of the S&P 500 Call Options (with a
notional amount of approximately $1.2 billion) was $107.9 million at December
31, 1998. We classify such instruments as other invested assets.
 
     For investment purposes, we entered into various interest rate swap
agreements having an aggregate notional principal amount of $1.7 billion at
December 31, 1998. Such agreements are marked to market, with the related gain
(loss) classified as investment income in the statement of operations. The
agreements effectively exchange a fixed rate of interest on the notional amount
into a floating rate. At December 31, 1998, our swap agreements had a fair value
of $20.7 million. We received $5.0 million in cash from these investments during
1998. The agreements mature in various years through 2008 and have an average
remaining life of five years (the average call date is 2.7 years).
 
     If the counterparties of the aforementioned financial instruments fail to
meet their obligations, Conseco may have to recognize a loss. Conseco limits its
exposure to such a loss by diversifying among several counterparties believed to
be strong and creditworthy. At December 31, 1998, all of the counterparties were
rated "A" or higher by Standard & Poor's Corporation.
 
REVENUE RECOGNITION FOR SALES OF FINANCE RECEIVABLES AND AMORTIZATION OF
SERVICING RIGHTS
 
     Effective January 1, 1997, we account for the sale of finance receivables
in accordance with Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities "("SFAS 125"). In applying SFAS 125 to our securitized sales, we
are required to recognize a gain, representing the difference between the
proceeds from the sale (net of related sale costs) and the carrying value of the
component of the finance receivable sold. We determine such carrying amount by
allocating the carrying value of the finance receivables between the portion we
sell and the interests we retain (generally interest-only securities, other
securities classified as fixed maturity securities, and servicing rights), based
on each portion's relative fair values on the date of the sale.
 
                                       66
<PAGE>   67
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     We amortize the servicing rights (classified as other assets) we retain
after the sale of finance receivables, in proportion to, and over the estimated
period of, net servicing income.
 
     We evaluate servicing rights for impairment on an ongoing basis, stratified
by product type and origination period. To the extent that the recorded amount
exceeds the fair value, we establish a valuation allowance through a charge to
earnings. If we determine, upon subsequent measurement of the fair value of
these servicing rights, that the fair value equals or exceeds the amortized
cost, all or a portion of the previously recorded valuation allowance would be
deemed unnecessary and restored to earnings.
 
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.
 
          Interest-only securities. We discount future expected cash flows over
     the expected life of the receivables sold using prepayment, default, loss
     and interest rate assumptions that we believe market participants would use
     to value such securities.
 
          Short-term investments. We use quoted market prices. The carrying
     amount for these instruments approximates their estimated fair value.
 
          Mortgage loans and policy loans. We discount future expected cash
     flows for loans included in our investment portfolio based on interest
     rates currently being offered for similar loans to borrowers with similar
     credit ratings. We aggregate loans with similar characteristics in our
     calculations.
 
          Other invested assets. We use quoted market prices, where available.
     When quotes are not available, we assume a market value equal to carrying
     value.
 
          Finance receivables. For loans held for securitization, we use market
     values realized in recent sales of loans in securitization transactions.
     For other loans, we use carrying value.
 
          Insurance liabilities for investment contracts. We discount future
     expected cash flows based on interest rates currently being offered for
     similar contracts with similar maturities.
 
          Investment borrowings and notes payable. For publicly traded debt, we
     use current market values. For other notes, we use discounted cash flow
     analyses based on our current incremental borrowing rates for similar types
     of borrowing arrangements.
 
          Company-obligated mandatorily redeemable preferred securities of
     subsidiary trusts. We use quoted market prices.
 
                                       67
<PAGE>   68
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Here are the estimated fair values of our financial instruments:
 
<TABLE>
<CAPTION>
                                                               1998                      1997
                                                      ----------------------    ----------------------
                                                      CARRYING       FAIR       CARRYING       FAIR
                                                       AMOUNT        VALUE       AMOUNT        VALUE
                                                      --------       -----      --------       -----
                                                                   (DOLLARS IN MILLIONS)
<S>                                                   <C>          <C>          <C>          <C>
Financial assets:
  Actively managed fixed maturities...............    $21,827.3    $21,827.3    $22,773.7    $22,773.7
  Interest-only securities........................      1,305.4      1,305.4      1,398.7      1,398.7
  Equity securities...............................        376.4        376.4        228.9        228.9
  Mortgage loans..................................      1,130.2      1,200.9      1,074.8      1,138.2
  Policy loans....................................        685.6        685.6        692.4        692.4
  Other invested assets...........................      1,259.8      1,259.8        530.7        530.7
  Short-term investments..........................      1,704.7      1,704.7      1,154.7      1,154.7
  Finance receivables.............................      3,299.5      3,390.0      1,971.0      1,986.4
Financial liabilities:
  Insurance liabilities for investment
     contracts(1).................................     12,566.1     12,566.1     12,724.0     12,724.0
  Investment borrowings...........................        956.2        956.2      1,389.5      1,389.5
  Notes payable and commercial paper:
     Corporate....................................      2,932.2      2,900.4      2,354.9      2,398.8
     Finance......................................      2,389.3      2,386.4      1,863.0      1,872.7
     Company-obligated mandatorily redeemable
       preferred securities of subsidiary
       trusts.....................................      2,096.9      1,966.6      1,383.9      1,491.6
</TABLE>
 
-------------------------
(1) The estimated fair value of the liabilities for investment contracts was
    approximately equal to its carrying value at December 31, 1998 and 1997.
    This was because interest rates credited on the vast majority of account
    balances approximate current rates paid on similar investments and because
    these rates are not generally guaranteed beyond one year. We are not
    required to disclose fair values for insurance liabilities, other than those
    for investment contracts. However, we take into consideration the estimated
    fair values of all insurance liabilities in our overall management of
    interest rate risk. We attempt to minimize exposure to changing interest
    rates by matching investment maturities with amounts due under insurance
    contracts.
 
IMPAIRMENT CHARGE
 
     During the second quarter of 1998, prepayments on securitized loan
contracts continued to exceed expectations and management concluded that such
prepayments were likely to continue to be higher than expected in future periods
as well. As a result of these developments, we concluded that the value of the
interest-only securities and servicing rights had been impaired, and we
determined a new value using current assumptions. In addition, the market yields
of publicly traded securities similar to our interest-only securities also
increased during the second quarter. The new assumptions were based on our
internal evaluations and consultation with external investment managers having
significant experience in valuing these securities. The new assumptions reflect
the following changes from the assumptions previously used: (i) an increase in
prepayment rates; (ii) an increase (to 15 percent from 11.5 percent) in the
discount rate used to determine the present value of future cash flows; and
(iii) an increase in anticipated default rates. We recognized a $549.4 million
impairment charge in 1998 to reduce the carrying value of the interest-only
securities and servicing rights.
 
     We recognized a $190.0 million impairment charge in 1997 generally due to
adverse prepayment experience.
 
                                       68
<PAGE>   69
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NONRECURRING CHARGE RELATED TO GREEN TREE
 
     We recognized a $148.0 million nonrecurring charge in the second quarter of
1998 related to the Green Tree Merger consisting of: $45.0 million transaction
costs; $71.0 million severance and other employment related costs; and $32.0
million other costs. Transaction costs included expenses related to the Green
Tree Merger such as fees paid for investment bankers, attorneys, accountants and
printers. Severance and other employment related costs included contractual
severance and other benefits due to certain executives. Other costs included the
write-off of computer equipment and related software that will no longer be
used, losses for facilities to be vacated, increases to legal expense accruals,
and various other costs.
 
RECENTLY ISSUED ACCOUNTING STANDARDS
 
     Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") was issued in June
1998. SFAS 133 requires all derivative instruments to be recorded on the balance
sheet at estimated fair value. Changes in the fair value of derivative
instruments are to be recorded each period either in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, on the type of hedge transaction. SFAS 133 is
effective for year 2000. We are currently evaluating the impact of SFAS 133; at
present, we do not believe it will have a material effect on our consolidated
financial position or results of operations.
 
2. ACQUISITIONS
 
     GREEN TREE MERGER ACCOUNTED FOR AS A POOLING OF INTERESTS
 
     On June 30, 1998, we completed the Green Tree Merger. We issued a total of
128.7 million shares of Conseco common stock (including 5.0 million common
equivalent shares issued in exchange for Green Tree's outstanding options),
exchanging .9165 of a share of Conseco common stock for each share of Green Tree
common stock. The Green Tree Merger constituted a tax-free exchange and was
accounted for under the pooling of interests method. We restated all prior
period consolidated financial statements to include Green Tree as though it had
always been a subsidiary of Conseco.
 
     The results of operations for Conseco and Green Tree, separately and
combined, for periods prior to the merger were as follows:
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS         YEAR ENDED
                                                                  ENDED           DECEMBER 31,
                                                                 JUNE 30,     --------------------
                                                                   1998         1997        1996
                                                                ----------      ----        ----
                                                                      (DOLLARS IN MILLIONS)
<S>                                                             <C>           <C>         <C>
Revenues:
  Conseco...................................................     $3,232.1     $5,568.4    $3,067.3
  Green Tree................................................        570.7      1,281.5       724.1
  Less elimination of intercompany revenues.................          (.8)        (3.5)       (1.6)
                                                                 --------     --------    --------
     Combined...............................................     $3,802.0     $6,846.4    $3,789.8
                                                                 ========     ========    ========
Net income (loss):
  Conseco...................................................     $  274.7     $  567.3    $  252.4
  Green Tree................................................       (358.9)       301.4       200.8
  Less elimination of intercompany net income...............         (2.8)        (2.3)       (1.0)
                                                                 --------     --------    --------
     Combined...............................................     $  (87.0)    $  866.4    $  452.2
                                                                 ========     ========    ========
</TABLE>
 
                                       69
<PAGE>   70
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     ACQUISITIONS ACCOUNTED FOR AS PURCHASES
 
     The following acquisitions were accounted for under the purchase method of
accounting. Under this method, we allocated the cost to acquire the company to
the assets and liabilities acquired based on fair values as of the acquisition
date and we recorded goodwill equal to the excess of the total purchase cost
over the fair value of the assets acquired less the fair value of the
liabilities assumed.
 
<TABLE>
<CAPTION>
                                   EFFECTIVE            TOTAL
        ACQUISITION                   DATE              COST                     FINANCING
        -----------                ---------            -----                    ---------
                                                     (DOLLARS IN
                                                      MILLIONS)
<S>                            <C>                   <C>            <C>
Washington National
  Corporation ("WNC")......    December 1, 1997         $400        Cash
Colonial Penn Life
  Insurance Company and
  Providential Life
  Insurance Company
  ("Colonial Penn")........    September 30, 1997        460        Cash and notes payable
Pioneer Financial Services,
  Inc. ("PFS").............    April 1, 1997             505        Common stock and assumption of debt
Capitol American Financial
  Corporation ("CAF")......    January 1, 1997           700        Common stock and assumption of debt
Transport Holdings Inc.
  ("THI")..................    December 31, 1996         240        Common stock
American Travellers
  Corporation ("ATC")......    December 31, 1996         880        Common stock and assumption of debt
FINOVA Acquisition I,
  Inc......................    December 1, 1996          620        Cash
Life Partners Group, Inc.
  ("LPG")..................    July 1, 1996              840        Common stock and assumption of debt
</TABLE>
 
     1996 UNAUDITED PRO FORMA INFORMATION
 
     On a pro forma basis, assuming the acquisitions and financing transactions
we completed in 1996 had been completed at the beginning of 1996, our total
revenues, income before extraordinary charge, basic income before extraordinary
charge per share, and diluted income before extraordinary charge per share for
the year ended December 31, 1996, would have been $4,690.3 million, $552.5
million, $1.88 and $1.69, respectively. The pro forma data are not necessarily
indicative of our results of operations had these transactions occurred on
January 1, 1996, nor the results of future operations. We have not presented pro
forma data for the 1997 acquisitions because, in accordance with the disclosure
requirements of the Securities and Exchange Commission, such acquisitions are
not significant, either individually or in the aggregate.
 
                                       70
<PAGE>   71
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
3. INVESTMENTS:
 
     At December 31, 1998, the amortized cost and estimated fair value of
actively managed fixed maturities and equity securities were as follows:
 
<TABLE>
<CAPTION>
                                                                      GROSS         GROSS       ESTIMATED
                                                       AMORTIZED    UNREALIZED    UNREALIZED      FAIR
                                                         COST         GAINS         LOSSES        VALUE
                                                       ---------    ----------    ----------    ---------
                                                                     (DOLLARS IN MILLIONS)
<S>                                                    <C>          <C>           <C>           <C>
Investment grade:
  Corporate securities.............................    $12,717.2      $287.7        $167.8      $12,837.1
  United States Treasury securities and obligations
     of United States government corporations and
     agencies......................................        364.7        17.6            .3          382.0
  States and political subdivisions................        103.2         2.3            .9          104.6
  Debt securities issued by foreign governments....        131.4         3.9           8.5          126.8
  Mortgage-backed securities.......................      6,294.7       100.1          17.6        6,377.2
Below-investment grade (primarily corporate
  securities)......................................      2,237.1        12.6         250.1        1,999.6
                                                       ---------      ------        ------      ---------
          Total actively managed fixed
            maturities.............................    $21,848.3      $424.2        $445.2      $21,827.3
                                                       =========      ======        ======      =========
Equity securities..................................    $   373.0      $ 15.8        $ 12.4      $   376.4
                                                       =========      ======        ======      =========
</TABLE>
 
     At December 31, 1997, the amortized cost and estimated fair value of
actively managed fixed maturities and equity securities were as follows:
 
<TABLE>
<CAPTION>
                                                                      GROSS         GROSS       ESTIMATED
                                                       AMORTIZED    UNREALIZED    UNREALIZED      FAIR
                                                         COST         GAINS         LOSSES        VALUE
                                                       ---------    ----------    ----------    ---------
                                                                     (DOLLARS IN MILLIONS)
<S>                                                    <C>          <C>           <C>           <C>
Investment grade:
  Corporate securities.............................    $13,107.9      $400.0        $ 58.1      $13,449.8
  United States Treasury securities and obligations
     of United States government corporations and
     agencies......................................        541.4        20.9            .1          562.2
  States and political subdivisions................        268.2         8.1            .8          275.5
  Debt securities issued by foreign governments....        168.5         4.2           6.4          166.3
  Mortgage-backed securities.......................      6,678.2       149.5           4.0        6,823.7
Below-investment grade (primarily corporate
  securities)......................................      1,525.1        28.8          57.7        1,496.2
                                                       ---------      ------        ------      ---------
          Total actively managed fixed
            maturities.............................    $22,289.3      $611.5        $127.1      $22,773.7
                                                       =========      ======        ======      =========
Equity securities..................................    $   227.6      $  7.3        $  6.0      $   228.9
                                                       =========      ======        ======      =========
</TABLE>
 
     Net unrealized gains (losses) on actively managed fixed maturity
investments included in shareholders' equity as of December 31, 1998 and 1997,
were as follows:
 
<TABLE>
<CAPTION>
                                                                 1998           1997
                                                                 ----           ----
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>           <C>
Net unrealized gains (losses) on actively managed fixed
  maturity investments......................................    $(21.0)       $ 484.4
Adjustments to cost of policies purchased and cost of
  policies produced.........................................      10.4         (207.3)
Deferred income tax (expense) benefit.......................       6.4          (95.5)
Other.......................................................      (7.7)          (4.4)
                                                                ------        -------
          Net unrealized (losses) on actively managed fixed
           maturity investments.............................    $(11.9)       $ 177.2
                                                                ======        =======
</TABLE>
 
                                       71
<PAGE>   72
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following table sets forth the amortized cost and estimated fair value
of actively managed fixed maturities at December 31, 1998, by contractual
maturity. Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Most of the mortgage-backed securities shown below
provide for periodic payments throughout their lives.
 
<TABLE>
<CAPTION>
                                                                             ESTIMATED
                                                                AMORTIZED      FAIR
                                                                  COST         VALUE
                                                                ---------    ---------
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>
Due in one year or less.....................................    $   388.1    $   389.7
Due after one year through five years.......................      2,605.8      2,509.1
Due after five years through ten years......................      4,722.7      4,740.7
Due after ten years.........................................      7,825.8      7,799.5
                                                                ---------    ---------
     Subtotal...............................................     15,542.4     15,439.0
Mortgage-backed securities..................................      6,305.9      6,388.3
                                                                ---------    ---------
          Total actively managed maturities.................    $21,848.3    $21,827.3
                                                                =========    =========
</TABLE>
 
     Net investment income consisted of the following:
 
<TABLE>
<CAPTION>
                                                                  1998        1997        1996
                                                                  ----        ----        ----
                                                                     (DOLLARS IN MILLIONS)
<S>                                                             <C>         <C>         <C>
Assets held by insurance subsidiaries:
  Fixed maturities..........................................    $1,628.5    $1,467.5    $1,109.5
  Equity securities.........................................        27.4        23.6         6.5
  Mortgage loans............................................        96.4        84.0        71.4
  Policy loans..............................................        44.1        38.6        25.9
  Equity-indexed products...................................       103.9        39.4          --
  Other invested assets.....................................       139.5        89.4        27.8
  Short-term investments....................................        57.0        39.6        15.6
  Separate accounts.........................................        51.0        70.3        48.4
                                                                --------    --------    --------
     Gross investment income................................     2,147.8     1,852.4     1,305.1
Investment expenses and amortization of the cost of S&P 500
  Call Options..............................................        69.7        27.1         2.6
                                                                --------    --------    --------
     Net investment income on assets held by insurance
       subsidiaries.........................................     2,078.1     1,825.3     1,302.5
Finance receivables and other...............................       251.3       194.6       125.6
Interest-only securities....................................       132.9       125.8        77.2
                                                                --------    --------    --------
          Net investment income.............................    $2,462.3    $2,145.7    $1,505.3
                                                                ========    ========    ========
</TABLE>
 
     The carrying value of fixed maturity investments and mortgage loans not
accruing investment income totaled $50.1 million, $3.1 million and $2.1 million
at December 31, 1998, 1997 and 1996, respectively.
 
                                       72
<PAGE>   73
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Investment gains (losses), net of investment gain expenses, were included
in revenue as follows:
 
<TABLE>
<CAPTION>
                                                                 1998       1997      1996
                                                                 ----       ----      ----
                                                                   (DOLLARS IN MILLIONS)
<S>                                                             <C>        <C>       <C>
Fixed maturities:
  Gross gains...............................................    $ 458.0    $342.6    $126.8
  Gross losses..............................................     (138.6)    (41.4)    (52.5)
  Other than temporary decline in fair value................      (11.7)     (1.2)      (.6)
                                                                -------    ------    ------
     Net investment gains from fixed maturities before
      expenses..............................................      307.7     300.0      73.7
Equity securities...........................................       (9.1)     13.2       2.6
Mortgages...................................................       (2.1)      (.8)      (.4)
Other than temporary decline in fair value of other invested
  assets....................................................      (20.7)       --      (8.3)
Other.......................................................        1.9      (1.2)     29.9
                                                                -------    ------    ------
     Net investment gains before expenses...................      277.7     311.2      97.5
Investment expenses.........................................       69.5      44.7      36.7
                                                                -------    ------    ------
     Net investment gains...................................    $ 208.2    $266.5    $ 60.8
                                                                =======    ======    ======
</TABLE>
 
     At December 31, 1998, the mortgage loan balance was primarily comprised of
commercial loans. Approximately 9 percent, 8 percent, 8 percent, 7 percent and 7
percent of the mortgage loan balance were on properties located in Texas, New
York, Florida, Ohio and California, respectively. No other state comprised
greater than 5 percent of the mortgage loan balance. Less than 1 percent of the
mortgage loan balance was noncurrent at December 31, 1998. At December 31, 1998,
our allowance for loss on mortgage loans was $9.2 million.
 
     Life insurance companies are required to maintain certain investments on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $191.9 million at December 31, 1998.
 
     Conseco had no investments in any single entity in excess of 10 percent of
shareholders' equity at December 31, 1998, other than investments issued or
guaranteed by the United States government or a United States government agency.
 
4. FINANCE RECEIVABLES, INTEREST-ONLY SECURITIES AND SERVICING RIGHTS OF FINANCE
   SUBSIDIARIES:
 
     Finance receivables, summarized by type, were as follows:
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1998         1997
                                                                ----         ----
                                                              (DOLLARS IN MILLIONS)
<S>                                                           <C>          <C>
Manufactured housing......................................    $  798.8     $  303.4
Mortgage services.........................................       603.5        568.6
Consumer/credit card......................................       587.3        187.0
Commercial................................................     1,352.9        931.8
                                                              --------     --------
                                                               3,342.5      1,990.8
Less allowance for doubtful accounts......................       (43.0)       (19.8)
                                                              --------     --------
  Net finance receivables.................................    $3,299.5     $1,971.0
                                                              ========     ========
</TABLE>
 
     We pool and securitize substantially all of the finance receivables we
originate. In a typical securitization, we establish a special purpose entity
for the limited purpose of purchasing the finance receivables. This
special-purpose entity issues and sells interest-bearing securities that
represent interests in the receivables,
 
                                       73
<PAGE>   74
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
collateralized by the underlying pool of finance receivables. We in turn,
receive the proceeds from the sale of the securities, which are typically sold
at the same amount as the principal balance of the receivables sold. We retain a
residual interest, which represents the right to receive, over the life of the
pool of receivables: (i) the excess of the principal and interest received on
the receivables transferred to the special purpose entity over the principal and
interest paid to the holders of other interests in the securitization; and (ii)
servicing fees.
 
     In some securitizations, we also retain certain lower-rated securities that
are senior in payment priority to the interest-only securities. Such securities
had a fair market value of $340.8 million at December 31, 1998, and were
classified as actively managed fixed maturity securities.
 
     During 1998, 1997 and 1996, the Company sold $13.4 billion, $10.7 billion
and $8.4 billion, respectively, of finance receivables in various securitized
transactions and recognized gains of $745.0 million, $779.0 million and $400.6
million, respectively. The 1996 gain reflects a charge of $200 million as a
result of adjustments necessary to fully consider the effects of partial
prepayments on projected future interest collections and the impact of changes
in projected future interest due to investors. Such adjustments were calculated
using the cash out method to measure the period of time for which projected cash
flows related to securitizations should be discounted.
 
     As explained in note 1, the interest-only security is initially recorded at
a value representing an allocated portion of the cost basis of the finance
receivables being sold. The account value was adjusted to estimated fair value
at December 31, 1998, using the following assumptions. The difference between
this estimated fair value and the security's book value is insignificant and is
included in unrealized depreciation of other investments.
 
<TABLE>
<CAPTION>
                                              MANUFACTURED     HOME EQUITY/     CONSUMER/
                                                HOUSING      HOME IMPROVEMENT   EQUIPMENT      TOTAL
                                              ------------   ----------------   ---------      -----
                                                               (DOLLARS IN MILLIONS)
<S>                                           <C>            <C>                <C>          <C>
Interest-only securities at fair value......   $   691.5         $  422.0       $  191.9     $ 1,305.4
Principal balance of sold finance
  receivables(a)............................    20,241.3          7,313.7        3,988.0      31,543.0
Weighted average customer interest rate on
  sold finance receivables(a)...............        10.2%            11.5%          10.9%
Expected weighted average annual constant
  prepayment rate as a percentage of
  principal balance of sold finance
  receivables(a)(b).........................        11.7%            26.0%          22.0%
Expected nondiscounted credit losses as a
  percentage of principal balance of sold
  finance receivables(a)(b).................         5.9%             3.4%           2.4%
Weighted average discount rate(a)...........        14.0%            14.0%          14.0%
</TABLE>
 
                                       74
<PAGE>   75
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The account value was adjusted to estimated fair value at December 31,
1997, using the following assumptions:
 
<TABLE>
<CAPTION>
                                              MANUFACTURED     HOME EQUITY/     CONSUMER/
                                                HOUSING      HOME IMPROVEMENT   EQUIPMENT      TOTAL
                                              ------------   ----------------   ---------      -----
                                                               (DOLLARS IN MILLIONS)
<S>                                           <C>            <C>                <C>          <C>
Interest-only securities at fair value......   $   892.8         $  335.1       $  170.8     $ 1,398.7
Principal balance of sold finance
  receivables(a)............................    17,558.2          4,251.6        2,467.5      24,277.3
Weighted average customer interest rate on
  sold finance receivables(a)...............        10.5%            11.8%          11.3%
Expected weighted average annual constant
  prepayment rate as a percentage of
  principal balance of sold finance
  receivables(a)(b).........................         9.5%            24.0%          22.0%
Expected nondiscounted credit losses as a
  percentage of principal balance of sold
  finance receivables(a)(b).................         6.2%             4.3%           2.1%
Weighted average discount rate(a)...........        11.5%            11.5%          11.5%
</TABLE>
 
---------------
(a) Excludes finance receivables sold in revolving trust securitizations.
 
(b) The valuation of interest-only securities is affected not only by the
    projected level of prepayments of principal and net credit losses, but also
    by the projected timing of such prepayments and net credit losses. Should
    the timing of projected prepayments of principal or net credit losses differ
    materially from the timing projected by the Company, such timing could have
    a material effect on the valuation of the interest-only securities.
 
     The following summarizes information with respect to the 60-days-and-over
contractual dollar delinquencies, loss experience and repossessed collateral
experience of our managed finance receivables:
 
<TABLE>
<CAPTION>
                                                              1998     1997
                                                              ----     ----
<S>                                                           <C>      <C>
60-days-and-over delinquencies as a percentage of managed
  finance receivables at period end.........................  1.19%    1.08%
Net credit losses incurred during each year as a percentage
  of average managed finance receivables during the
  period....................................................  1.03%    1.05%
Repossessed collateral inventory as a percentage of managed
  finance receivables at period end.........................  1.14%     .95%
</TABLE>
 
     Activity in the interest-only securities account during 1998 and 1997 is as
follows:
 
<TABLE>
<CAPTION>
                                                                  1998         1997
                                                                  ----         ----
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>
Balance, beginning of year..................................    $1,398.7     $1,014.8
  Additions resulting from securitizations during the
     period.................................................       719.6        679.0
  Investment income.........................................       132.9        125.8
  Cash received.............................................      (358.0)      (266.1)
  Impairment charge to reduce carrying value................      (544.4)      (190.0)
  Change in unrealized appreciation credited (charged) to
     shareholders' equity...................................       (43.4)        35.2
                                                                --------     --------
Balance, end of year........................................    $1,305.4     $1,398.7
                                                                ========     ========
</TABLE>
 
                                       75
<PAGE>   76
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The activity in the servicing rights account during 1998 and 1997 is as
follows:
 
<TABLE>
<CAPTION>
                                                                 1998          1997
                                                                 ----          ----
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>           <C>
Balance, beginning of year..................................    $ 77.0        $ 30.8
  Additions resulting from securitizations during the
     period.................................................      64.3          61.6
  Amortization..............................................     (19.9)        (15.4)
  Impairment charge to establish a valuation allowance......      (5.0)           --
                                                                ------        ------
Balance, end of year........................................    $116.4        $ 77.0
                                                                ======        ======
</TABLE>
 
5. LIABILITIES FOR INSURANCE AND ASSET ACCUMULATION PRODUCTS:
 
     These liabilities consisted of the following:
 
<TABLE>
<CAPTION>
                                                                       INTEREST
                                          WITHDRAWAL    MORTALITY        RATE
                                          ASSUMPTION    ASSUMPTION    ASSUMPTION      1998         1997
                                          ----------    ----------    ----------      ----         ----
                                                                                    (DOLLARS IN MILLIONS)
<S>                                       <C>           <C>           <C>           <C>          <C>
Future policy benefits:
  Interest-sensitive products:
     Investment contracts.............       N/A           N/A         (c)          $12,566.1    $12,724.0
     Universal life-type contracts....       N/A           N/A          5%            4,663.3      4,633.6
                                                                                    ---------    ---------
          Total interest-sensitive
            products..................                                               17,229.4     17,357.6
                                                                                    ---------    ---------
  Traditional products:
     Traditional life insurance
       contracts......................     Company
                                          experience       (a)          6%            1,950.2      1,925.0
     Limited-payment contracts........       None          (b)          5%              974.9        968.4
     Individual accident and health...     Company       Company
                                          experience    experience      6%            3,174.2      2,820.4
     Group life and health............       N/A           N/A         N/A              292.3         71.0
                                                                                    ---------    ---------
          Total traditional
            products..................                                                6,391.6      5,784.8
                                                                                    ---------    ---------
Claims payable and other policyholder
  funds...............................       N/A           N/A         N/A            1,491.5      1,615.5
Unearned premiums.....................       N/A           N/A         N/A              376.6        406.1
Liabilities related to separate
  accounts............................       N/A           N/A         N/A              899.4        682.8
Liabilities related to deposit
  products............................       N/A           N/A         N/A              541.7           --
                                                                                    ---------    ---------
          Total.......................                                              $26,930.2    $25,846.8
                                                                                    =========    =========
</TABLE>
 
-------------------------
(a) Principally modifications of the 1965 -- 70 and 1975 -- 80 Basic, Select and
    Ultimate Tables.
 
(b) Principally the 1984 United States Population Table and the NAIC 1983
    Individual Annuitant Mortality Table.
 
(c) In both 1998 and 1997: (i) approximately 95 percent of this liability
    represented account balances where future benefits are not guaranteed; and
    (ii) approximately 5 percent represented the present value of guaranteed
    future benefits determined using an average interest rate of approximately 6
    percent.
 
                                       76
<PAGE>   77
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6. INCOME TAXES:
 
     Income tax liabilities were comprised of the following:
 
<TABLE>
<CAPTION>
                                                                   1998         1997
                                                                   ----         ----
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>           <C>
Deferred income tax liabilities (assets):
  Actively managed fixed maturities.........................    $    59.5     $  95.9
  Interest-only securities..................................        573.3       737.2
  Cost of policies purchased and cost of policies
     produced...............................................        920.0       750.5
  Insurance liabilities.....................................     (1,028.9)     (898.9)
  Unrealized appreciation...................................        (19.0)       98.1
  Net operating loss carryforward...........................       (353.4)     (393.2)
  Other.....................................................         (6.5)      157.3
                                                                ---------     -------
       Deferred income tax liabilities......................        145.0       546.9
Current income tax liabilities (assets).....................         52.1       (14.1)
                                                                ---------     -------
       Income tax liabilities...............................    $   197.1     $ 532.8
                                                                =========     =======
</TABLE>
 
     Income tax expense was as follows:
 
<TABLE>
<CAPTION>
                                                                 1998      1997      1996
                                                                 ----      ----      ----
                                                                  (DOLLARS IN MILLIONS)
<S>                                                             <C>       <C>       <C>
Current tax provision.......................................    $235.7    $207.9    $165.4
Deferred tax provision......................................     209.9     352.2     136.8
                                                                ------    ------    ------
     Income tax expense.....................................    $445.6    $560.1    $302.2
                                                                ======    ======    ======
</TABLE>
 
     A reconciliation of the income tax provisions based on the U.S. statutory
corporate tax rate to the provisions reflected in the consolidated statement of
operations is as follows:
 
<TABLE>
<CAPTION>
                                                                1998      1997      1996
                                                                ----      ----      ----
<S>                                                             <C>       <C>       <C>
Tax on income before income taxes at statutory rate.........    35.0%     35.0%     35.0%
Goodwill....................................................     3.6       2.0       1.5
State taxes.................................................     1.4       1.8       2.1
Other.......................................................     2.6      (1.1)     (1.6)
                                                                ----      ----      ----
     Income tax expense.....................................    42.6%     37.7%     37.0%
                                                                ====      ====      ====
</TABLE>
 
     At December 31, 1998, Conseco had federal income tax loss carryforwards of
$1.0 billion available (subject to various statutory restrictions) for use on
future tax returns. Portions of these carryforwards begin expiring in 2002. The
following restrictions exist with respect to the utilization of portions of the
loss carryforwards: (i) $64.4 million may be used only to offset income from our
non-life insurance companies; (ii) $94.4 million (attributable to acquired
companies) may be used only to offset the income from those companies; and (iii)
$841.2 million is available to offset income from certain life insurance
subsidiaries and all the non-life insurance subsidiaries. None of the
carryforwards are available to reduce the tax provision for financial reporting
purposes.
 
                                       77
<PAGE>   78
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
7. NOTES PAYABLE AND COMMERCIAL PAPER:
 
CORPORATE NOTES PAYABLE AND COMMERCIAL PAPER
 
     Corporate notes payable and commercial paper at December 31, 1998 and 1997,
were as follows (interest rates as of December 31, 1998):
 
<TABLE>
<CAPTION>
                                                                  1998         1997
                                                                  ----         ----
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>
Commercial paper (5.8%).....................................    $  784.4     $  448.2
Bank credit facilities (5.86%)..............................       372.3      1,000.0
Notes payable (6.1%)........................................       400.0        400.0
6.4% notes due 2001.........................................       550.0           --
6.4% notes due 2003.........................................       250.0           --
6.5% convertible subordinated notes due 2003................        86.0         86.1
6.8% senior notes due 2005..................................       250.0           --
7.875% notes due 2000.......................................       150.0           --
8.125% senior notes due 2003................................        63.5        168.5
10.5% senior notes due 2004.................................        24.5        184.9
Other.......................................................        13.5         61.3
                                                                --------     --------
  Total principal amount....................................     2,944.2      2,349.0
Unamortized net premium (discount)..........................       (12.0)         5.9
                                                                --------     --------
  Total.....................................................    $2,932.2     $2,354.9
                                                                ========     ========
</TABLE>
 
     The Company's current bank credit facilities allow us to borrow up to $2.5
billion, of which $1.5 billion may be borrowed until 2003 and $1.0 billion may
be borrowed until 1999. Actual borrowings at December 31, 1998, totaled $1,250.0
million (of which $877.7 million was used to finance the purchase of finance
receivables classified as finance notes payable -- See "Finance Notes Payable
and Commercial Paper"). The credit facility requires us to maintain various
financial ratios, as defined in the agreement, including: (i) a debt-to-total
capitalization ratio less than .45:1 (such ratio was .39:1 at December 31,
1998); and (ii) an interest coverage ratio greater than 2.0:1 during the period
October 1, 1998 through September 30, 1999, greater than 2.25:1 for the period
October 1, 1999 through September 30, 2001 and greater than 2.50:1 thereafter
(such ratio was 5.40:1 for the period ended December 31, 1998). Our unsecured
bank credit facilities are used to support our commercial paper program.
 
                                       78
<PAGE>   79
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
FINANCE NOTES PAYABLE AND COMMERCIAL PAPER
 
     Notes payable and commercial paper related to our financing activities were
as follows (interest rates as of December 31, 1998):
 
<TABLE>
<CAPTION>
                                                                  1998         1997
                                                                  ----         ----
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>
Bank credit facilities (5.86%)..............................    $  877.7     $   35.0
Master repurchase agreements due 1999 (6.27%)...............       780.6           --
Medium term notes due 1999 to 2003 (6.58%)..................       238.7        246.6
Credit facility collateralized by interest-only securities
  due 2000 (7.60%)..........................................       300.0           --
10.25% senior subordinated notes due 2002...................       194.0        267.3
Commercial paper............................................          --      1,319.1
Other.......................................................         3.2          1.9
                                                                --------     --------
  Total principal amount....................................     2,394.2      1,869.9
Unamortized net discount....................................        (4.9)        (6.9)
                                                                --------     --------
  Total.....................................................    $2,389.3     $1,863.0
                                                                ========     ========
</TABLE>
 
     As of December 31, 1998, we had $4.0 billion of master repurchase
agreements with various investment banking firms, subject to the availability of
eligible collateral. The agreements generally provide for terms of one year,
which can be extended each quarter by mutual agreement of the parties for an
additional year, based upon the review of updated quarterly financial
information of the finance segment.
 
     The maturities of corporate and finance notes payable and commercial paper
at December 31, 1998, were as follows:
 
<TABLE>
<CAPTION>
                                                     CORPORATE NOTES
                                                       PAYABLE AND      FINANCE NOTES
MATURITY DATE                                        COMMERCIAL PAPER      PAYABLE
-------------                                        ----------------   -------------
                                                          (DOLLARS IN MILLIONS)
<S>                                                  <C>                <C>
1999...............................................      $  785.5         $  792.8
2000...............................................         151.1            300.2
2001...............................................         551.1              1.7
2002...............................................           2.0            414.0
2003...............................................       1,172.2            885.5
Thereafter.........................................         282.3               --
                                                         --------         --------
     Total par value at December 31, 1998..........      $2,944.2         $2,394.2
                                                         ========         ========
</TABLE>
 
                                       79
<PAGE>   80
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
8. OTHER DISCLOSURES:
 
LEASES
 
     The Company rents office space, equipment and computer software under
noncancellable operating leases. Rental expense was $50.6 million in 1998, $48.2
million in 1997 and $30.0 million in 1996. Future required minimum rental
payments as of December 31, 1998, were as follows (dollars in millions):
 
<TABLE>
<S>                                                             <C>
1999........................................................    $ 48.6
2000........................................................      41.6
2001........................................................      29.1
2002........................................................      22.8
2003........................................................      16.4
Thereafter..................................................      42.0
                                                                ------
     Total..................................................    $200.5
                                                                ======
</TABLE>
 
PENSION AND POSTRETIREMENT PLANS
 
     The Company provides certain pension, health care and life insurance
benefits for certain eligible retired employees under partially funded and
unfunded plans in existence at the date on which such subsidiaries were
acquired. Certain postretirement benefit plans are contributory, with
participants' contributions adjusted annually. Amounts related to the pension
and postretirement benefit plans were as follows:
 
<TABLE>
<CAPTION>
                                                                                     POSTRETIREMENT
                                                                PENSION BENEFITS        BENEFITS
                                                                ----------------    ----------------
                                                                 1998      1997      1998      1997
                                                                 ----      ----      ----      ----
                                                                       (DOLLARS IN MILLIONS)
<S>                                                             <C>       <C>       <C>       <C>
Benefit obligation, beginning of year.......................    $ 72.9    $ 39.8    $ 25.6    $  7.0
  Service cost..............................................       7.3       4.8        --        .1
  Interest cost.............................................       5.0       3.9       1.8       2.1
  Plan participants' contributions..........................        --        --       2.7       2.8
  Actuarial loss (gain).....................................       4.3      25.6       2.4      (4.1)
  Acquisitions..............................................        --        --        --      23.0
  Benefits paid.............................................      (1.0)     (1.2)     (6.6)     (5.3)
                                                                ------    ------    ------    ------
Benefit obligation, end of year.............................    $ 88.5    $ 72.9    $ 25.9    $ 25.6
                                                                ======    ======    ======    ======
Fair value of plan assets, beginning of year................    $  9.1    $  7.1    $  5.9    $   --
  Actual return on plan assets..............................       2.6       1.3        .3        --
  Acquisition...............................................        --        --        --       6.9
  Employer contributions....................................       4.4       1.9        --        --
  Plan participants' contributions..........................        --        --        .4        .4
  Benefits paid.............................................      (1.0)     (1.2)     (1.5)     (1.4)
                                                                ------    ------    ------    ------
Fair value of plan assets, end of year......................    $ 15.1    $  9.1    $  5.1    $  5.9
                                                                ======    ======    ======    ======
Funded status...............................................    $(73.4)   $(63.8)   $(20.8)   $(19.7)
Unrecognized net actuarial loss (gain)......................      43.4      43.1      (8.7)     (8.7)
Unrecognized prior service cost.............................       (.2)      (.1)      (.3)     (1.4)
                                                                ------    ------    ------    ------
     Accrued benefit liability..............................    $(30.2)   $(20.8)   $(29.8)   $(29.8)
                                                                ======    ======    ======    ======
</TABLE>
 
     We used the following weighted average assumptions to calculate benefit
obligations for our 1998 and 1997 valuations: discount rate of approximately 6.5
percent; an expected return on plan assets of approximately 7.5 percent; and an
assumed rate of compensation increase of 5.5 percent. For measurement
                                       80
<PAGE>   81
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
purposes, we assumed a 9.5 percent annual rate of increase in the per capita
cost of covered health care benefits for 1999, decreasing gradually to 5.0
percent in 2011 and remaining level thereafter.
 
     Components of the cost we recognized related to pension and postretirement
plans were as follows:
 
<TABLE>
<CAPTION>
                                                                                    POSTRETIREMENT
                                                                PENSION BENEFITS       BENEFITS
                                                                ----------------    --------------
                                                                 1998      1997     1998     1997
                                                                 ----      ----     ----     ----
                                                                      (DOLLARS IN MILLIONS)
<S>                                                             <C>       <C>       <C>      <C>
Service cost................................................    $ 7.3     $ 4.8     $  --    $  .1
Interest cost...............................................      5.0       3.9       1.8      2.1
Expected return of plan assets..............................      (.9)      (.7)      (.2)     (.3)
Amortization of prior service cost..........................       .2        .2      (1.6)    (1.3)
Recognized net actuarial loss...............................      2.2       1.8       (.2)     (.2)
                                                                -----     -----     -----    -----
     Net periodic benefit cost..............................    $13.8     $10.0     $ (.2)   $  .4
                                                                =====     =====     =====    =====
</TABLE>
 
     A one-percentage-point change in the assumed health care cost trend rates
would have an insignificant effect on the net periodic benefit cost of our
postretirement benefit obligation.
 
     The Company has qualified defined contribution plans for which
substantially all employees are eligible. Company contributions, which match
certain voluntary employee contributions to the plan, totaled $6.2 million in
1998, $6.3 million in 1997, and $3.3 million in 1996. Matching contributions may
be made either in cash or in Conseco common stock.
 
LITIGATION
 
     Green Tree has been served with various related lawsuits which were filed
in the United States District Court for the District of Minnesota. These
lawsuits were filed as purported class actions on behalf of persons or entities
who purchased common stock or options of Green Tree during the alleged class
periods that generally run from February 1995 to January 1998. One such action
did not include class action claims. In addition to Green Tree, certain current
and former officers and directors of Green Tree are named as defendants in one
or more of the lawsuits. Green Tree and other defendants have obtained an order
from the United States District Court for the District of Minnesota
consolidating the lawsuits seeking class action status into two actions: one
which pertains to a purported class of common stockholders and the other which
pertains to a purported class of stock option traders. Plaintiffs in the
lawsuits assert claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. In each case, plaintiffs allege that Green Tree and the other
defendants violated federal securities laws by, among other things, making false
and misleading statements about the current state and future prospects of Green
Tree (particularly with respect to prepayment assumptions and performance of
certain loan portfolios of Green Tree) which allegedly rendered Green Tree's
financial statements false and misleading. The Company believes that the
lawsuits are without merit and intends to defend such lawsuits vigorously. The
ultimate outcome of these lawsuits cannot be predicted with certainty. Green
Tree has filed motions, which are pending, to dismiss these lawsuits.
 
     In addition, the Company and its subsidiaries are involved on an ongoing
basis in lawsuits related to their operations. Although the ultimate outcome of
certain of such matters cannot be predicted, none of such lawsuits currently
pending against the Company or its subsidiaries is expected, individually or in
the aggregate, to have a material adverse effect on the Company's consolidated
financial condition, cash flows or results of operations.
 
GUARANTY FUND ASSESSMENTS
 
     The balance sheet at December 31, 1998, includes: (i) accruals of $31.5
million, representing our estimate of all known assessments that will be levied
against the Company's insurance subsidiaries by various
 
                                       81
<PAGE>   82
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
state guaranty associations based on premiums written through December 31, 1998;
and (ii) receivables of $12.8 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 $16.2 million
in 1998, $3.7 million in 1997 and $4.0 million in 1996.
 
GUARANTEES
 
     We have provided guarantees of approximately $1.8 billion at December 31,
1998, in conjunction with certain sales of finance receivables. In conjunction
with our investment in certain consumer financing companies, we have guaranteed
approximately $70 million of such companies' indebtedness. We believe a
significant loss from any such guarantee is remote.
 
     Conseco has guaranteed bank loans totaling $428.6 million to approximately
180 directors, officers and key employees. The funds were used by the
participants to purchase approximately 12.5 million Conseco shares in open
market on negotiated transactions with independent parties. Such shares are held
by the bank as collateral for the loans. At December 31, 1998, the guaranteed
bank loans exceeded the value of the common stock collateralizing the loans by
$74.6 million. All participants have agreed to indemnify Conseco for any loss
incurred on their note.
 
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS
 
     Certain wholly owned subsidiary trusts have issued preferred securities in
public offerings. The trusts used the proceeds from these offerings to purchase
subordinated debentures from Conseco. The terms of the preferred securities
parallel the terms of the debentures, which account for substantially all trust
assets. The preferred securities are to be redeemed on a pro rata basis, to the
same extent as the debentures are repaid. Under certain circumstances involving
a change in law or legal interpretation, the debentures may be distributed to
the holders of the preferred securities. Our obligations under the debentures
and related agreements, taken together, provide a full and unconditional
guarantee of payments due on the preferred securities. The debentures issued to
the subsidiary and the common securities purchased by Conseco from the
subsidiary are eliminated in the consolidated financial statements.
 
<TABLE>
<CAPTION>
                                               YEAR                  CARRYING    DIVIDEND    EARLIEST/MANDATORY
                                              ISSUED    PAR VALUE     VALUE        RATE       REDEMPTION DATES
                                              ------    ---------    --------    --------    ------------------
                                                        (DOLLARS IN MILLIONS)
<S>                                           <C>       <C>          <C>         <C>         <C>
Trust Originated Preferred Securities.....     1998     $  500.0     $  484.3     8.70%          2003/2047
Trust Originated Preferred Securities.....     1998        230.0        222.5      9.00          2003/2047
Trust Originated Preferred Securities.....     1996        275.0        275.0      9.16          2026/2045
Capital Trust Pass-through Securities (a).     1996        325.0        325.0      8.70               2026
Capital Securities (a)....................     1997        300.0        300.0      8.80               2027
FELINE PRIDES (b).........................     1997        503.6        490.1      6.75               2003
                                                        --------     --------
                                                        $2,133.6     $2,096.9
                                                        ========     ========
</TABLE>
 
-------------------------
(a) These securities may be redeemed anytime at: (i) the principal balance; plus
    (ii) a premium equal to the excess, if any, of the sum of the discounted
    present value of the remaining scheduled payments of principal and interest
    using a current market interest rate over the principal amount of securities
    to be redeemed.
 
(b) Each FELINE PRIDES includes: (a) a stock purchase contract under which the
    holder: (i) will purchase a number of shares of Conseco common stock on
    February 16, 2001 (ranging from .9363 and 1.1268 shares per FELINE PRIDES)
    under the terms specified in the stock purchase contract; and
                                       82
<PAGE>   83
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
    (ii) will receive a contract adjustment payment equal to .25 percent of the
    value of the security; and (b) a beneficial ownership of a 6.75 percent
    trust originated preferred security. Each holder will receive aggregate
    cumulative cash distributions at the annual rate of 7 percent of the $50
    stated amount per security, payable quarterly. The applicable distribution
    rate on the trust originated preferred securities that remain outstanding
    during the period February 16, 2001, through February 16, 2003, will be
    reset so that the market value of the trust originated preferred securities
    will be equal to 100.5 percent of the par value. Conseco may limit the
    market rate reset to be no higher than the rate on the two-year benchmark
    Treasury plus 200 basis points.
 
9. SHAREHOLDERS' EQUITY:
 
     We are authorized to issue up to 20 million shares of preferred stock. At
December 31, 1998, $105.5 million of PRIDES were outstanding, all of which were
redeemed by the Company in February 1999 in exchange for 5.9 million shares of
Conseco common stock.
 
     Changes in the number of shares of common stock outstanding during the
years ended December 31, 1998, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                                 1998       1997       1996
                                                                 ----       ----       ----
                                                                    (SHARES IN THOUSANDS)
<S>                                                             <C>        <C>        <C>
Balance, beginning of year..................................    310,012    293,359    205,202
  Stock options exercised...................................      9,125     12,825      5,990
  Stock warrants exercised..................................        862         --         --
  Shares issued in conjunction with acquired companies......         --     11,264     60,560
  Common shares converted from convertible debt and
     preferred stock........................................      2,824     13,601     22,018
  Shares issued under employee benefit compensation plans...         46      1,498      1,246
  Treasury stock purchased..................................     (7,025)   (22,535)    (1,657)
                                                                -------    -------    -------
Balance, end of year........................................    315,844    310,012    293,359
                                                                =======    =======    =======
</TABLE>
 
     Dividends declared on common stock for 1998, 1997 and 1996, were $.530,
$.313 and $.083 per common share, respectively. Our accrual for declared but
unpaid dividends was $44.2 million at December 31, 1998. Such dividends were
paid in January 1999.
 
     Conseco's 1994 Stock and Incentive Plan authorizes the granting of options
to employees and directors of the Company to purchase up to 24 million shares of
Conseco common stock at a price not less than its market value on the date the
option is granted. In 1997, the Company adopted the 1997 Non-qualified Stock
Option Plan, which authorizes the granting of non-qualified options to employees
of the Company to purchase shares of Conseco common stock. The aggregate number
of shares of common stock for which options may be granted under the 1997 plan,
when added to all outstanding, unexpired options under the Company's employee
benefit plans, shall not exceed 20 percent of the total of shares of common
stock outstanding plus the number of shares issuable upon conversion of any
outstanding convertible security on the date of grant (calculated in the manner
set forth in the 1997 plan). The options may become exercisable immediately or
over a period of time. The plans also permit granting of stock appreciation
rights and certain other awards.
 
                                       83
<PAGE>   84
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The stock option activity and related information includes the combined
activity and information of both Conseco and Green Tree for all periods. On
March 1, 1998, prior to the time a merger was contemplated, Green Tree repriced
certain of its employee stock options to the current market price. A summary of
the Company's stock option activity and related information for the years ended
December 31, 1998, 1997 and 1996, is presented below (shares in thousands):
 
<TABLE>
<CAPTION>
                                                   1998                  1997                   1996
                                            ------------------    -------------------    ------------------
                                                      WEIGHTED               WEIGHTED              WEIGHTED
                                                      AVERAGE                AVERAGE               AVERAGE
                                                      EXERCISE               EXERCISE              EXERCISE
                                            SHARES     PRICE      SHARES      PRICE      SHARES     PRICE
                                            ------    --------    ------     --------    ------    --------
<S>                                         <C>       <C>         <C>        <C>         <C>       <C>
Outstanding at the beginning of year....    33,511     $24.78      37,951     $17.98     31,221     $12.33
Options granted.........................    10,091      41.76       8,212      39.77      9,073      30.23
Options of Green Tree repriced prior to
  the merger............................     2,594      25.10          --         --         --         --
Options assumed in connection with
  mergers...............................        --         --       1,358      20.48      4,435      16.54
Exercised...............................    (9,125)     19.36     (12,825)     13.59     (5,990)      4.82
Forfeited...............................    (2,392)     21.80      (1,185)     26.94       (788)     24.10
Terminated in repricing program.........    (2,594)     37.13          --         --         --         --
                                            ------                -------                ------
Outstanding at the end of the year......    32,085      30.91      33,511      24.78     37,951      17.98
                                            ======                =======                ======
Options exercisable at year-end.........    16,213                 13,079                11,686
                                            ======                =======                ======
Available for future grant..............    32,873                 17,206                 2,933
                                            ======                =======                ======
</TABLE>
 
     As a result of the Green Tree Merger, all options previously issued by
Green Tree became immediately exercisable on June 30, 1998. The following table
summarizes information about stock options outstanding at December 31, 1998
(shares in thousands):
 
<TABLE>
<CAPTION>
                                                           OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
                                                 ----------------------------------------   ----------------------
                                                                  WEIGHTED
                                                                   AVERAGE       WEIGHTED                 WEIGHTED
                                                                  REMAINING      AVERAGE                  AVERAGE
RANGE OF                                           NUMBER           LIFE         EXERCISE     NUMBER      EXERCISE
EXERCISE PRICES                                  OUTSTANDING     (IN YEARS)       PRICE     EXERCISABLE    PRICE
---------------                                  -----------     ----------      --------   -----------   --------
<S>                                              <C>           <C>               <C>        <C>           <C>
$ 5.00 -- 16.57................................     7,580            4.8          $13.75       1,855       $11.58
 17.88 -- 26.19................................     5,220            8.1           24.67       5,169        24.70
 27.19 -- 30.41................................     2,485           13.3           29.98         839        29.31
 30.73 -- 45.84................................    12,247            8.4           37.23       7,044        37.29
 46.71 -- 51.28................................     4,553            9.3           49.97       1,306        48.20
                                                   ------                                     ------
                                                   32,085                                     16,213
                                                   ======                                     ======
</TABLE>
 
                                       84
<PAGE>   85
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for our stock
option plans. Accordingly, no compensation cost has been recognized for such
plans. Had compensation cost been determined based on the fair value at the
grant dates for awards granted after January 1, 1995, consistent with the method
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), the Company's pro forma net income and
pro forma earnings per share for the years ended December 31, 1998, 1997 and
1996 would have been as follows:
 
<TABLE>
<CAPTION>
                                           1998                        1997                        1996
                                 ------------------------    ------------------------    ------------------------
                                 AS REPORTED    PRO FORMA    AS REPORTED    PRO FORMA    AS REPORTED    PRO FORMA
                                 -----------    ---------    -----------    ---------    -----------    ---------
                                                 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                              <C>            <C>          <C>            <C>          <C>            <C>
Net income.....................    $467.1        $389.9        $866.4        $800.6        $452.2        $434.7
Basic earnings per share.......      1.47          1.23          2.72          2.50          1.85          1.77
Diluted earnings per share.....      1.40          1.17          2.52          2.32          1.69          1.62
</TABLE>
 
     We estimated the fair value of each option grant used to determine the pro
forma amounts summarized above using the Black-Scholes option valuation model
with the following weighted average assumptions for 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                                 1998      1997       1996
                                                                GRANTS    GRANTS     GRANTS
                                                                ------    ------     ------
<S>                                                             <C>       <C>       <C>
Weighted average risk-free interest rates...................       5.4%      6.4%       6.2%
Weighted average dividend yields............................       1.2%       .9%        .1%
Volatility factors..........................................        35%       28%        28%
Weighted average expected life..............................    4 years   4 years   10 years
Weighted average fair value per share.......................      12.16     12.15      12.35
</TABLE>
 
     At December 31, 1998, a total of 88.9 million shares of common stock were
reserved for issuance under the convertible subordinated debentures, PRIDES,
FELINE PRIDES, stock option, stock bonus and deferred compensation plans and for
warrants to buy 700,000 shares of Conseco common stock for $13.8 million at
anytime through September 29, 2006.
 
                                       85
<PAGE>   86
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     A reconciliation of income and shares used to calculate basic and diluted
earnings per share is as follows:
 
<TABLE>
<CAPTION>
                                                                  1998        1997        1996
                                                                  ----        ----        ----
                                                                (DOLLARS IN MILLIONS AND SHARES
                                                                         IN THOUSANDS)
<S>                                                             <C>         <C>         <C>
Income:
  Net income before extraordinary charge....................    $  509.7    $  873.3    $  478.7
  Preferred stock dividends and charge related to induced
     conversions of preferred stock.........................         7.8        21.9        27.4
                                                                --------    --------    --------
     Income before extraordinary charge applicable to common
       ownership for basic earnings per share...............       501.9       851.4       451.3
  Effect of dilutive securities:
     Preferred stock dividends..............................         7.8         8.7        27.4
                                                                --------    --------    --------
     Income before extraordinary charge applicable to common
       ownership and assumed conversions for diluted
       earnings per share...................................    $  509.7    $  860.1    $  478.7
                                                                ========    ========    ========
Shares:
  Weighted average shares outstanding for basic earnings per
     share..................................................     311,785     311,050     230,141
  Effect of dilutive securities on weighted average shares:
     Stock options..........................................       8,317      13,011       9,281
     Employee stock plans...................................       1,942       2,268       2,172
     PRIDES.................................................       6,141       6,936      14,042
     Convertible securities.................................       4,516       5,457      12,049
                                                                --------    --------    --------
          Weighted average shares outstanding for diluted
            earnings per share..............................     332,701     338,722     267,685
                                                                ========    ========    ========
</TABLE>
 
10. OTHER OPERATING STATEMENT DATA:
 
     Insurance policy income consisted of the following:
 
<TABLE>
<CAPTION>
                                                                  1998        1997        1996
                                                                  ----        ----        ----
                                                                     (DOLLARS IN MILLIONS)
<S>                                                             <C>         <C>         <C>
Traditional products:
  Direct premiums collected.................................    $6,189.5    $5,264.4    $3,528.2
  Reinsurance assumed.......................................       316.0       290.3        65.8
  Reinsurance ceded.........................................      (541.3)     (499.0)     (313.8)
                                                                --------    --------    --------
          Premiums collected, net of reinsurance............     5,964.2     5,055.7     3,280.2
  Change in unearned premiums...............................        29.5        (2.2)      (14.6)
  Less premiums on universal life and products without
     mortality and morbidity risk which are recorded as
     additions to insurance liabilities.....................     2,585.7     2,099.4     1,881.3
                                                                --------    --------    --------
          Premiums on traditional products with mortality or
            morbidity risk, recorded as insurance policy
            income..........................................     3,408.0     2,954.1     1,384.3
Fees and surrender charges on interest sensitive products...       540.8       456.7       269.9
                                                                --------    --------    --------
          Insurance policy income...........................    $3,948.8    $3,410.8    $1,654.2
                                                                ========    ========    ========
</TABLE>
 
                                       86
<PAGE>   87
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The five states with the largest shares of 1998 collected premiums were
Florida (9.5 percent), California (9.2 percent), Illinois (8.5 percent), Texas
(7.5 percent) and Michigan (4.5 percent). No other state accounted for more than
4 percent of total collected premiums.
 
     Changes in the cost of policies purchased were as follows:
 
<TABLE>
<CAPTION>
                                                                  1998        1997        1996
                                                                  ----        ----        ----
                                                                     (DOLLARS IN MILLIONS)
<S>                                                             <C>         <C>         <C>
Balance, beginning of year..................................    $2,466.4    $2,015.0    $1,030.7
  Additional acquisition expense on acquired policies.......        75.0        93.9          --
  Amortization..............................................      (369.2)     (413.2)     (188.6)
  Amounts related to fair value adjustment of actively
     managed fixed maturities...............................       167.7      (128.4)      141.6
  Amounts acquired in mergers and acquisitions..............          --       914.2     1,042.0
  Reinsurance and other.....................................        85.3       (15.1)      (10.7)
                                                                --------    --------    --------
Balance, end of year........................................    $2,425.2    $2,466.4    $2,015.0
                                                                ========    ========    ========
</TABLE>
 
     Based on current conditions and assumptions as to future events on all
policies in force, the Company expects to amortize approximately 11 percent of
the December 31, 1998, balance of cost of policies purchased in 1999, 10 percent
in 2000, 9 percent in 2001, 8 percent in 2002 and 7 percent in 2003. The
discount rates used to determine the amortization of the cost of policies
purchased averaged 7 percent in 1998, 7 percent in 1997 and 10 percent in 1996.
 
     Changes in the cost of policies produced were as follows:
 
<TABLE>
<CAPTION>
                                                                  1998       1997       1996
                                                                  ----       ----       ----
                                                                    (DOLLARS IN MILLIONS)
<S>                                                             <C>         <C>        <C>
Balance, beginning of year..................................    $  915.2    $ 544.3    $ 391.0
  Additions.................................................       707.0      550.7      331.5
  Amortization..............................................      (219.5)    (134.8)     (76.4)
  Amounts related to fair value adjustment of actively
     managed fixed maturities...............................        50.0      (36.4)      45.4
  Amounts related to purchases of additional interests in
     American Life Holdings, Inc. and Bankers Life Holding
     Corporation............................................          --         --     (151.2)
  Other.....................................................         1.2       (8.6)       4.0
                                                                --------    -------    -------
Balance, end of year........................................    $1,453.9    $ 915.2    $ 544.3
                                                                ========    =======    =======
</TABLE>
 
     Nonrecurring charges in 1997 included a $41.5 million increase to claim
reserves and a $20.9 million write-off of cost of policies produced and cost of
policies purchased related to premium deficiencies on our Medicare supplement
business in Massachusetts. Regulators in that state have not allowed premium
increases for Medicare supplement products needed to avoid losses on the
business. We are currently seeking such rate increases. We are no longer writing
new Medicare supplement business in Massachusetts. Nonrecurring charges in 1997
also included expenses of $9.3 million (net of proceeds from a life insurance
policy) related to the death of an executive officer.
 
                                       87
<PAGE>   88
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
11. CONSOLIDATED STATEMENT OF CASH FLOWS:
 
     The following disclosures supplement our consolidated statement of cash
flows:
 
<TABLE>
<CAPTION>
                                                                 1998       1997         1996
                                                                 ----       ----         ----
                                                                     (DOLLARS IN MILLIONS)
<S>                                                             <C>       <C>          <C>
Additional non-cash items not reflected in the consolidated
  statement of cash flows:
     Issuance of common stock under stock option and
       employee benefit plans...............................    $  9.2    $    70.9    $    35.7
     Tax benefit related to the issuance of common stock
       under employee benefit plans.........................      63.1         91.4         28.6
     Conversion of debt and preferred stock into common
       stock................................................      77.7        301.3        283.2
     Shares returned by former executive due to
       recomputation of bonus...............................      23.4           --           --
Cash paid for:
  Interest expense..........................................     453.6        315.9        199.7
  Income taxes..............................................     295.7        231.8        166.7
Impact of acquisition transactions (described in note 2) on
  the consolidated statement of cash flows:
     Total investments................................................    $ 4,716.6    $ 5,022.8
     Finance receivables..............................................           --        590.1
     Cost of policies purchased.......................................        914.2      1,042.0
     Goodwill.........................................................      1,133.9      1,806.4
     Income taxes.....................................................          6.4        134.9
     Insurance liabilities............................................     (5,193.8)    (5,943.6)
     Notes payable....................................................       (540.6)      (448.2)
     Minority interest................................................           --        210.4
     Common stock and additional paid-in capital......................       (471.5)    (1,568.6)
     Other............................................................        194.5       (203.9)
                                                                          ---------    ---------
          Net cash used...............................................    $   759.7    $   642.3
                                                                          =========    =========
</TABLE>
 
12. STATUTORY INFORMATION:
 
     Statutory accounting practices prescribed or permitted by regulatory
authorities for the Company's insurance subsidiaries differ from GAAP. Our life
insurance subsidiaries reported the following amounts to regulatory agencies,
after appropriate elimination of intercompany accounts:
 
<TABLE>
<CAPTION>
                                                                  1998         1997
                                                                  ----         ----
                                                                (DOLLARS IN MILLIONS)
<S>                                                             <C>          <C>
Statutory capital and surplus...............................    $1,850.0     $1,662.4
Asset valuation reserve.....................................       336.4        329.2
Interest maintenance reserve................................       568.0        414.9
Portion of surplus debenture carried as a liability.........        65.5         99.2
                                                                --------     --------
          Total.............................................    $2,819.9     $2,505.7
                                                                ========     ========
</TABLE>
 
     The statutory capital and surplus shown above included investments in
non-life affiliates, all of which were eliminated in the consolidated financial
statements prepared in accordance with GAAP, of $809.0 million at December 31,
1998 and $513.1 million at December 31, 1997.
 
                                       88
<PAGE>   89
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     State insurance laws generally restrict the ability of insurance companies
to pay dividends or make other distributions. Net assets of the Company's wholly
owned life insurance subsidiaries, determined in accordance with GAAP,
aggregated approximately $8.4 billion at December 31, 1998. After deducting
$205.1 million, $170.6 million and $140.5 million of fees and interest paid to
Conseco or non-life insurance subsidiaries in 1998, 1997 and 1996, respectively,
the remaining statutory operating earnings of our life insurance subsidiaries
were $276.0 million, $243.4 million and $215.0 million in 1998, 1997 and 1996,
respectively. Of such earnings, $202.5 million may be distributed to Conseco in
1999 without the permission of state regulatory authorities.
 
13. BUSINESS SEGMENTS:
 
     We manage our business operations through two segments, based on the
products offered.
 
     Finance segment. Our finance segment provides a variety of finance products
including: loans for the purchase of manufactured housing, home improvements and
various consumer products; private label credit card programs; and commercial
loans such as revolving credit agreements, asset-based lending and equipment
financing. These products are primarily marketed through intermediary channels
such as dealers, vendors, contractors and retailers.
 
     Insurance and fee-based segment. Our insurance and fee-based segment
provides supplemental health, annuity, life, and individual and group major
medical products to a broad spectrum of customers through multiple distribution
channels, each focused on a specific market segment. These products are
primarily marketed through career agents, professional independent producers and
direct marketing.
 
                                       89
<PAGE>   90
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Segment operating information was as follows:
 
<TABLE>
<CAPTION>
                                                                  1998        1997        1996
                                                                  ----        ----        ----
                                                                     (DOLLARS IN MILLIONS)
<S>                                                             <C>         <C>         <C>
Revenues:
  Insurance and fee-based segment:
     Insurance policy income................................    $3,948.8    $3,410.8    $1,654.2
     Net investment income..................................     2,081.9     1,825.3     1,302.5
     Fee and other revenue..................................        91.3        65.8        49.8
     Net investment gains...................................       208.2       266.5        60.8
     Eliminations...........................................        (3.8)         --          --
                                                                --------    --------    --------
       Total insurance and fee-based segment revenues.......     6,326.4     5,568.4     3,067.3
                                                                --------    --------    --------
  Finance segment:
     Net investment income..................................       384.2       320.4       202.8
     Gain on sale of finance receivables....................       745.0       779.0       400.6
     Fee revenue and other income...........................       260.4       178.6       119.1
                                                                --------    --------    --------
       Total finance segment revenues.......................     1,389.6     1,278.0       722.5
                                                                --------    --------    --------
          Total revenues....................................     7,716.0     6,846.4     3,789.8
                                                                --------    --------    --------
Expenses:
  Insurance and fee-based segment:
     Insurance policy benefits..............................     3,580.5     3,175.0     1,863.6
     Amortization...........................................       730.1       590.0       276.0
     Interest expense.......................................        65.3        42.0        22.0
     Nonrecurring charges...................................          --        62.4          --
     Other operating costs expenses.........................       614.8       559.8       299.7
                                                                --------    --------    --------
       Total insurance and fee-based segment expenses.......     4,990.7     4,429.2     2,461.3
                                                                --------    --------    --------
  Finance segment:
     Interest expense.......................................       213.7       160.9        70.1
     Impairment charge......................................       549.4       190.0          --
     Nonrecurring charges...................................       148.0          --          --
     Other operating costs and expenses.....................       591.9       444.5       330.2
                                                                --------    --------    --------
       Total finance segment expenses.......................     1,503.0       795.4       400.3
                                                                --------    --------    --------
  Not allocated to segments:
     Interest expense.......................................       165.4       109.4       108.1
     Non-recurring charges..................................          --         9.3          --
     Other operating costs and expenses.....................        15.0        17.4         4.3
     Eliminations...........................................        (3.8)         --          --
                                                                --------    --------    --------
       Total expenses not allocated to segments.............       176.6       136.1       112.4
                                                                --------    --------    --------
          Total expenses....................................     6,670.3     5,360.7     2,974.0
                                                                --------    --------    --------
Income before income taxes, minority interest and
  extraordinary charge:
     Insurance operations...................................     1,339.5     1,139.2       606.0
     Finance operations.....................................      (113.4)      482.6       322.2
     Corporate interest and other expenses..................      (180.4)     (136.1)     (112.4)
                                                                --------    --------    --------
          Income before income taxes, minority interest and
            extraordinary charge............................    $1,045.7    $1,485.7    $  815.8
                                                                ========    ========    ========
</TABLE>
 
                                       90
<PAGE>   91
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Segment balance sheet information was as follows:
 
<TABLE>
<CAPTION>
                                                                   1998         1997
                                                                   ----         ----
                                                                 (DOLLARS IN MILLIONS)
<S>                                                             <C>           <C>
Assets:
  Insurance and fee-based...................................    $ 36,431.1    $35,151.8
  Finance...................................................       6,600.1      4,916.6
  Corporate.................................................      12,003.6      9,619.7
  Eliminate intercompany amounts............................     (11,434.9)    (9,008.3)
                                                                ----------    ---------
       Total assets.........................................    $ 43,599.9    $40,679.8
                                                                ==========    =========
Liabilities:
  Insurance and fee-based...................................    $ 28,761.8    $27,903.6
  Finance...................................................       4,473.9      3,580.1
  Corporate.................................................       4,633.1      3,021.9
  Eliminate intercompany accounts...........................      (1,639.4)      (423.6)
                                                                ----------    ---------
       Total liabilities....................................    $ 36,229.4    $34,082.0
                                                                ==========    =========
</TABLE>
 
     This segment information is prepared in conformity with Financial
Accounting Standards Board Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which we adopted in 1998. We restated
certain previously reported segment information to comply with the new standard.
 
                                       91
<PAGE>   92
                         CONSECO, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
 
     We compute earnings per common share for each quarter independently of
earnings per share for the year. The sum of the quarterly earnings per share may
not equal the earnings per share for the year because of: (i) transactions
affecting the weighted average number of shares outstanding in each quarter; and
(ii) the uneven distribution of earnings during the year.
 
<TABLE>
<CAPTION>
                                                      1ST QUARTER    2ND QUARTER    3RD QUARTER    4TH QUARTER
                                                      -----------    -----------    -----------    -----------
                                                            (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                                   <C>            <C>            <C>            <C>
1998
  Revenues........................................     $1,984.8       $1,817.2       $1,921.7       $1,992.3
  Income (loss) before income taxes, minority
     interest and extraordinary charge............        420.6         (333.2)         474.2          484.1
  Net income (loss)...............................        214.6         (301.6)         270.5          283.6
  Net income (loss) per common share:
     Basic:
       Income (loss) before extraordinary
          charge..................................     $    .74       $  (1.02)      $    .90       $    .89
       Extraordinary charge.......................          .05            .04            .04             --
                                                       --------       --------       --------       --------
          Net income (loss).......................     $    .69       $   (.98)      $    .86       $    .89
                                                       ========       ========       ========       ========
     Diluted:
       Income (loss) before extraordinary
          charge..................................     $    .70       $  (1.02)      $    .85       $    .86
       Extraordinary charge.......................          .05            .04            .04             --
                                                       --------       --------       --------       --------
          Net income (loss).......................     $    .65       $   (.98)      $    .81       $    .86
                                                       ========       ========       ========       ========
1997
  Revenues........................................     $1,365.2       $1,676.8       $1,830.1       $1,974.3
  Income before income taxes, minority interest
     and extraordinary charge.....................        342.5          404.7          465.2          273.3
  Net income......................................        202.7          238.1          271.5          154.1
  Net income per common share:
     Basic:
       Income before extraordinary charge.........     $    .63       $    .76       $    .86       $    .49
       Extraordinary charge.......................          .01            .01             --             --
                                                       --------       --------       --------       --------
          Net income..............................     $    .62       $    .75       $    .86       $    .49
                                                       ========       ========       ========       ========
  Diluted:
     Income before extraordinary charge...........     $    .58       $    .70       $    .80       $    .45
     Extraordinary charge.........................          .01            .01             --             --
                                                       --------       --------       --------       --------
       Net income.................................     $    .57       $    .69       $    .80       $    .45
                                                       ========       ========       ========       ========
</TABLE>
 
     Our quarterly results of operations are based on numerous estimates,
principally related to policy reserves, amortization of cost of policies
purchased, amortization of cost of policies produced, valuation of the interest-
only securities and income taxes. We revise all such estimates each quarter and
we ultimately adjust them to year-end amounts. When we determine that revisions
are necessary, we report them as part of operations in the current quarter.
 
                                       92
<PAGE>   93
 
     We have restated amounts previously reported for the second quarter of 1998
to reflect a correction to the impairment charge we previously reported. This
change increased the previously reported net loss by $19.5 million ($.06 per
diluted share).
 
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
     None.
 
                                    PART III
 
     The information required by Part III is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after December 31, 1998 except that
the information required by Item 10 regarding Executive Officers is included
herein under a separate caption at the end of Part I.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
     (a) 1. Financial Statements. See Index to Consolidated Financial Statements
            on page 52 for a list of financial statements included in this
            Report.
 
        2. Financial Statement Schedules. The following financial statement
           schedules are included as part of this Report immediately following
           the signature page:
 
          Schedule II -- Condensed Financial Information of Registrant (Parent
Company)
 
          Schedule IV -- Reinsurance
 
     All other schedules are omitted, either because they are not applicable,
not required, or because the information they contain is included elsewhere in
the consolidated financial statements or notes.
 
        3. Exhibits. See Exhibit Index immediately preceding the Exhibits filed
with this report
 
     (b) Reports on Form 8-K
 
        A report on Form 8-K dated October 8, 1998, was filed with the
        Commission to report under Item 5, the public offering by Conseco
        Financing Trust VI of 9.2 million 9.0% Trust Originated Preferred
        Securities, including over-allotments of 1.2 million securities.
 
        A report on Form 8-K dated December 18, 1998, was filed with the
        Commission to report under Item 5, the completion of the offering of
        $150.0 million of 7.875 percent Notes due December 15, 2000.
 
                                       93
<PAGE>   94
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, this 30th day of March, 1999.
 
                                          CONSECO, INC.
 
                                          By:    /s/ STEPHEN C. HILBERT
 
                                            ------------------------------------
                                            Stephen C. Hilbert, President
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
 
<TABLE>
<CAPTION>
                  SIGNATURE                                TITLE (CAPACITY)                 DATE
                  ---------                                ----------------                 ----
<C>                                              <S>                                   <C>
           /s/ STEPHEN C. HILBERT                Chairman of the Board, President and  March 30, 1999
---------------------------------------------      Director (Principal Executive
             Stephen C. Hilbert                    Officer)
 
             /s/ ROLLIN M. DICK                  Executive Vice President and          March 30, 1999
---------------------------------------------      Director (Principal Financial
               Rollin M. Dick                      Officer)
 
             /s/ JAMES S. ADAMS                  Senior Vice President and Treasurer   March 30, 1999
---------------------------------------------      (Principal Accounting Officer)
               James S. Adams
 
             /s/ NGAIRE E. CUNEO                 Director                              March 30, 1999
---------------------------------------------
               Ngaire E. Cuneo
 
            /s/ LAWRENCE M. COSS                 Director                              March 30, 1999
---------------------------------------------
              Lawrence M. Coss
 
            /s/ DAVID R. DECATUR                 Director                              March 30, 1999
---------------------------------------------
              David R. Decatur
 
           /s/ DONALD F. GONGAWARE               Director                              March 30, 1999
---------------------------------------------
             Donald F. Gongaware
 
            /s/ M. PHIL HATHAWAY                 Director                              March 30, 1999
---------------------------------------------
              M. Phil Hathaway
 
             /s/ JAMES D. MASSEY                 Director                              March 30, 1999
---------------------------------------------
               James D. Massey
 
          /s/ DENNIS E. MURRAY, SR.              Director                              March 30, 1999
---------------------------------------------
            Dennis E. Murray, Sr.
 
              /s/ JOHN M. MUTZ                   Director                              March 30, 1999
---------------------------------------------
                John M. Mutz
 
           /s/ ROBERT S. NICKOLOFF               Director                              March 30, 1999
---------------------------------------------
             Robert S. Nickoloff
</TABLE>
 
                                       94
<PAGE>   95
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES
 
To the Shareholders and
Board of Directors
Conseco, Inc.
 
     Our report on the consolidated financial statements of Conseco, Inc. and
Subsidiaries is included on page 54 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in the index on page 93 of this Form 10-K.
 
     In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
 
                                          PricewaterhouseCoopers LLP
 
Indianapolis, Indiana
March 30, 1999
 
                                       95
<PAGE>   96
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                                  SCHEDULE II
 
         CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
                                 BALANCE SHEET
                        AS OF DECEMBER 31, 1998 AND 1997
                             (DOLLARS IN MILLIONS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                  1998         1997
                                                                  ----         ----
<S>                                                             <C>          <C>
Short-term investments......................................    $    19.7    $   17.4
Actively managed fixed maturities...........................         45.4        12.9
Equity securities...........................................         13.8        14.0
Other invested assets.......................................        186.6       128.1
Investment in wholly owned subsidiaries (eliminated in
  consolidation)............................................     10,008.4     8,058.4
Receivable from subsidiaries (eliminated in
  consolidation)............................................      1,426.5       949.9
Income taxes................................................        269.8       207.1
Other assets................................................         33.4       231.9
                                                                ---------    --------
          Total assets......................................    $12,003.6    $9,619.7
                                                                =========    ========
           LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Notes payable and commercial paper........................    $ 2,932.2    $2,354.9
  Notes and other payables due to subsidiaries (eliminated
     in consolidation)......................................      1,639.4       423.6
  Other liabilities.........................................         61.5       243.4
                                                                ---------    --------
          Total liabilities.................................      4,633.1     3,021.9
                                                                ---------    --------
Company-obligated mandatorily redeemable preferred
  securities of subsidiary trusts...........................      2,096.9     1,383.9
Shareholders' equity:
  Preferred stock...........................................        105.5       115.8
  Common stock and additional paid-in capital (no par value,
     1,000,000,000 shares authorized, shares issued and
     outstanding: 1998 -- 315,843,609, 1997 --
     310,011,669)...........................................      2,736.5     2,619.8
  Accumulated other comprehensive income:
     Unrealized appreciation (depreciation) of fixed
      maturity securities...................................        (11.9)      177.2
     Unrealized appreciation (depreciation) of other
      investments...........................................        (12.1)       26.6
     Minimum pension liability adjustment...................         (4.4)       (3.2)
  Retained earnings.........................................      2,460.0     2,277.7
                                                                ---------    --------
          Total shareholders' equity........................      5,273.6     5,213.9
                                                                ---------    --------
          Total liabilities and shareholders' equity........    $12,003.6    $9,619.7
                                                                =========    ========
</TABLE>
 
                   The accompanying note is an integral part
                    of the condensed financial information.
                                       96
<PAGE>   97
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                                  SCHEDULE II
         CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
                            STATEMENT OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                 1998      1997      1996
                                                                 ----      ----      ----
<S>                                                             <C>       <C>       <C>
Revenues:
  Net investment income.....................................    $ 74.3    $ 46.5    $  5.5
  Dividends from subsidiaries (eliminated in
     consolidation).........................................     173.4     185.2     146.9
  Fee and interest income from subsidiaries (eliminated in
     consolidation).........................................     111.0      93.9      30.9
  Net investment gains (losses).............................     (15.3)       --      30.1
  Other income..............................................      14.5       2.5       1.1
                                                                ------    ------    ------
       Total revenues.......................................     357.9     328.1     214.5
                                                                ------    ------    ------
Expenses:
  Interest expense on notes payable.........................     165.4     109.4      69.2
  Intercompany expenses (eliminated in consolidation).......      47.0      31.2       7.2
  Operating costs and expenses..............................      22.1      24.4      10.2
                                                                ------    ------    ------
       Total expenses.......................................     234.5     165.0      86.6
                                                                ------    ------    ------
       Income before income taxes, equity in undistributed
        earnings of subsidiaries, distributions on
        Company-obligated mandatorily redeemable preferred
        securities of subsidiary trusts and extraordinary
        charge..............................................     123.4     163.1     127.9
Income tax expense (benefit)................................      18.9      (5.5)      1.2
                                                                ------    ------    ------
       Income before equity in undistributed earnings of
        subsidiaries, distributions on Company-obligated
        mandatorily redeemable preferred securities of
        subsidiary trusts and extraordinary charge..........     104.5     168.6     126.7
Equity in undistributed earnings of subsidiaries (eliminated
  in consolidation).........................................     495.6     753.7     355.6
                                                                ------    ------    ------
       Income before distributions on Company-obligated
        mandatorily redeemable preferred securities of
        subsidiary trusts and extraordinary charge..........     600.1     922.3     482.3
Distributions on Company-obligated mandatorily redeemable
  preferred securities of subsidiary trusts.................      90.4      49.0       3.6
                                                                ------    ------    ------
       Income before extraordinary charge...................     509.7     873.3     478.7
Extraordinary charge on extinguishment of debt, net of
  tax.......................................................      42.6       6.9      26.5
                                                                ------    ------    ------
       Net income...........................................     467.1     866.4     452.2
Less amounts applicable to preferred stock:
  Charge related to induced conversions.....................        --      13.2        --
  Preferred stock dividends.................................       7.8       8.7      27.4
                                                                ------    ------    ------
       Earnings applicable to common stock..................    $459.3    $844.5    $424.8
                                                                ======    ======    ======
</TABLE>
 
      The accompanying note is an integral part of the condensed financial
                                  information.
                                       97
<PAGE>   98
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                                  SCHEDULE II
         CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
                            STATEMENT OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                  1998         1997         1996
                                                                  ----         ----         ----
<S>                                                             <C>          <C>          <C>
Cash flows from operating activities:
  Net income................................................    $   467.1    $   866.4    $   452.2
  Adjustments to reconcile net income to net cash provided
     by operating activities:
       Equity in undistributed earnings of consolidated
          subsidiaries*.....................................       (495.6)      (753.7)      (355.6)
       Net investment (gains) losses........................         15.3           --        (30.1)
       Income taxes.........................................        (79.7)       (62.0)        (3.2)
       Extraordinary charge on extinguishment of debt.......         65.3         10.6         36.9
       Distributions on Company-obligated mandatorily
          redeemable preferred securities of subsidiary
          trusts............................................        137.5         75.4          5.5
       Other................................................         53.1         20.2        (21.4)
                                                                ---------    ---------    ---------
          Net cash provided by operating activities.........        163.0        156.9         84.3
                                                                ---------    ---------    ---------
Cash flows from investing activities:
  Sales and maturities of investments.......................         68.8         70.0         45.0
  Investments in consolidated subsidiaries *................     (1,176.8)      (884.1)      (196.5)
  Purchases of investments..................................        (72.4)      (143.3)       (66.0)
  Cash held by subsidiaries prior to acquisition............           --          4.1         38.9
  Payments from subsidiaries*...............................         63.7         72.9         36.5
                                                                ---------    ---------    ---------
          Net cash used by investing activities.............     (1,116.7)      (880.4)      (142.1)
                                                                ---------    ---------    ---------
Cash flows from financing activities:
  Issuance of shares related to stock options and employee
     benefit plans..........................................        121.3         57.4         26.7
  Issuance of convertible preferred stock...................           --           --        257.7
  Issuance of Company-obligated mandatorily redeemable
     preferred securities of subsidiary trusts..............        710.8        780.4        587.7
  Issuance of notes payable and commercial paper............      4,122.0      3,025.2        856.0
  Payments on notes payable.................................     (3,401.1)    (2,217.7)    (1,467.2)
  Payments to repurchase equity securities of Conseco.......       (257.4)      (738.6)       (21.5)
  Charge related to induced conversion of convertible
     preferred stock........................................           --        (13.2)          --
  Dividends paid............................................       (152.0)      (108.0)       (70.3)
  Dividends to subsidiaries*................................        (56.7)       (53.8)       (38.1)
  Distributions on Company-obligated mandatorily redeemable
     preferred securities of subsidiary trusts..............       (130.9)       (65.7)        (2.9)
                                                                ---------    ---------    ---------
          Net cash provided by financing activities.........        956.0        666.0        128.1
                                                                ---------    ---------    ---------
          Net increase (decrease) in short-term
            investments.....................................          2.3        (57.5)        70.3
Short term investments, beginning of year...................         17.4         74.9          4.6
                                                                ---------    ---------    ---------
Short term investments, end of year.........................    $    19.7    $    17.4    $    74.9
                                                                =========    =========    =========
</TABLE>
 
-------------------------
* Eliminated in consolidation
 
      The accompanying note is an integral part of the condensed financial
                                  information.
                                       98
<PAGE>   99
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                                  SCHEDULE II
 
                    NOTE TO CONDENSED FINANCIAL INFORMATION
 
     BASIS OF PRESENTATION
 
     The condensed financial information should be read in conjunction with the
consolidated financial statements of Conseco, Inc. The condensed financial
information includes the accounts and activity of the parent company and its
wholly owned non-insurance subsidiaries which act as the holding companies for
the Company's life insurance subsidiaries.
 
                                       99
<PAGE>   100
 
                         CONSECO, INC. AND SUBSIDIARIES
 
                                  SCHEDULE IV
 
                                  REINSURANCE
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                1998          1997          1996
                                                                ----          ----          ----
<S>                                                          <C>           <C>           <C>
Life insurance in force:
  Direct.................................................    $132,546.5    $136,711.4    $ 98,835.5
  Assumed................................................       1,992.7       4,198.7       3,659.3
  Ceded..................................................     (30,768.1)    (36,765.6)    (22,345.3)
                                                             ----------    ----------    ----------
     Net insurance in force..............................    $103,771.1    $104,144.5    $ 80,149.5
                                                             ==========    ==========    ==========
     Percentage of assumed to net........................           1.9%          4.0%          4.6%
                                                             ==========    ==========    ==========
Premiums recorded as revenue for generally accepted
  accounting principles:
  Direct.................................................    $  3,633.3    $  3,162.8    $  1,632.3
  Assumed................................................         316.0         290.3          65.8
  Ceded..................................................        (541.3)       (499.0)       (313.8)
                                                             ----------    ----------    ----------
     Net premiums........................................    $  3,408.0    $  2,954.1    $  1,384.3
                                                             ==========    ==========    ==========
     Percentage of assumed to net........................           9.3%          9.8%          4.8%
                                                             ==========    ==========    ==========
</TABLE>
 
                                       100
<PAGE>   101
                                  EXHIBIT INDEX
                           Annual Report on Form 10-K
                                of Conseco, Inc.

Exhibit
  No.                                   Document


 2.10             Agreement and Plan of Merger dated as of April 6, 1998, as
                  amended, among the Registrant, Marble Acquisition Corp. and
                  Green Tree (composite conformed copy) was included as Annex A
                  to the Joint Proxy Statement - Prospectus of Conseco, Inc.
                  contained within the Registration Statement on Form S-4 (File
                  No. 333-51123), and is incorporated herein by this reference.

 3.1              Amended and Restated Articles of Incorporation of the
                  Registrant were filed with the Commission as Exhibit 3.1 to
                  the Registrant's Annual Report on Form 10-K for 1997, and are
                  incorporated herein by this reference.

 3.2              Amended and Restated By-Laws of the Registrant were filed with
                  the Commission as Exhibit 3.2 to the Registrant's Report on
                  Form 10-Q for the quarter ended June 30, 1998, and are
                  incorporated herein by this reference.

 4.8              Indenture dated as of February 18, 1993, between the
                  Registrant and Shawmut Bank Connecticut, National Association
                  (to which State Street Bank and Trust Company is successor),
                  as Trustee, for the 8 1/8 percent Senior Notes due 2003, was
                  filed with the Commission as Exhibit 4.8 to the Registrant's
                  Annual Report on Form 10-K for 1992, and is incorporated
                  herein by this reference.

 4.12             Indenture dated as of September 29, 1994 between ALHC Merger
                  Corporation and LTCB Trust Company and First Supplemental
                  Indenture dated as of September 29, 1994 between American Life
                  Holding Company and the Trustee for the 11 1/4% Senior
                  Subordinated Notes due 2004 were filed with the Commission as
                  Exhibit 4.12 to the Registrant's Report on Form 8-K dated
                  September 29, 1994, and are incorporated herein by this
                  reference.

 4.13             Indenture dated as of December 15, 1994, between CCP
                  Insurance, Inc., and LTCB Trust Company, as Trustee, for the
                  $200,000,000 aggregate principal amount of 10 1/2% Senior
                  Notes due 2004 was filed with the Commission as Exhibit 4.13
                  to the Registrant's Annual Report on Form 10-K for 1995, and
                  is incorporated herein by this reference.

 4.13.1           First Supplemental Indenture between Conseco, Inc., as Issuer,
                  and LTCB Trust Company as Trustee, dated as of August 31,
                  1995, was filed with the Commission as Exhibit 4.13.1 to the
                  Registrant's Report on Form 10-Q for the quarter ended
                  September 30, 1995, and is incorporated herein by this
                  reference.

 4.17.1           Subordinated Indenture, dated as of November 14, 1996, between
                  the Registrant and Fleet National Bank, as Trustee, was filed
                  with the Commission as Exhibit 4.17.1 to the Registrant's
                  Report on Form 8-K dated November 19, 1996, and is
                  incorporated herein by this reference.

 4.17.2           First Supplemental Indenture, dated as of November 14, 1996,
                  between the Registrant and Fleet National Bank, as Trustee,
                  was filed with the Commission as Exhibit 4.17.2 to the
                  Registrant's Report on Form 8-K dated November 19, 1996, and
                  is incorporated herein by this reference.

 4.17.3           9.16% Subordinated Deferrable Interest Debenture due 2006 was
                  filed with the Commission as Exhibit 4.17.3 to the
                  Registrant's Report on Form 8-K dated November 19, 1996, and
                  is incorporated herein by this reference.

 4.17.4           Second Supplemental Indenture, dated as of November 22, 1996,
                  between Conseco, Inc. and Fleet National Bank, as Trustee was
                  filed with the Commission as Exhibit 4.17.1 to the
                  Registrant's Report on Form 8-K dated November 27, 1996, and
                  is incorporated herein by this reference.

 4.17.5           8.70% Subordinated Deferrable Interest Debenture due 2026 was
                  filed with the Commission as Exhibit 4.17.4 to the
                  Registrant's Report on Form 8-K dated November 27, 1996, and
                  is incorporated herein by this reference.

 4.17.6           Third Supplemental Indenture, dated as of March 26, 1997
                  between the Registrant and Fleet National Bank, as Trustee,
                  was filed with the Commission as Exhibit 4.17.6 to the
                  Registrant's Report on Form 8-K dated April 1, 1997, and is
                  incorporated herein by this reference.


 4.17.7           8.796% Subordinated Deferrable Interest Debenture due 2027 was
                  filed with the Commission as Exhibit 4.17.7 to the
                  Registrant's Report on Form 8-K dated April 1, 1997, and is
                  incorporated herein by this reference.


<PAGE>   102

Exhibit
  No.                                   Document


 4.18.1           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust I, dated as of November 14, 1996, among Conseco, Inc.,
                  as sponsor, the Trustees named therein and the holders from
                  time to time of undivided beneficial interests in the assets
                  of Conseco Financing Trust I was filed with the Commission as
                  Exhibit 4.18.1 to the Registrant's Report on Form 8-K dated
                  November 19, 1996, and is incorporated herein by this
                  reference.

 4.18.2           Global Certificate for Preferred Security of Conseco Financing
                  Trust I was filed with the Commission as Exhibit 4.18.2 to the
                  Registrant's Report on Form 8-K dated November 19, 1996, and
                  is incorporated herein by this reference.

 4.18.3           Preferred Securities Guarantee Agreement, dated as of November
                  19, 1996, between the Registrant and Fleet National Bank was
                  filed with the Commission as Exhibit 4.18.3 to the
                  Registrant's Report on Form 8-K dated November 19, 1996, and
                  is incorporated herein by this reference.

 4.19.1           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust II, dated as of November 22, 1996, among Conseco, Inc.,
                  as sponsor, the Trustees named therein and the holders from
                  time to time of undivided beneficial interests in the assets
                  of Conseco Financing Trust II was filed with the Commission as
                  Exhibit 4.19.1 to the Registrant's Report on Form 8-K dated
                  November 27, 1996, and is incorporated herein by this
                  reference.

 4.19.2           Global Certificate for Preferred Security of Conseco Financing
                  Trust II was filed with the Commission as Exhibit 4.19.2 to
                  the Registrant's Report on Form 8-K dated November 27, 1996,
                  and is incorporated herein by this reference.

 4.19.3           Preferred Securities Guarantee Agreement, dated as of November
                  27, 1996, between Conseco, Inc. and Fleet National Bank was
                  filed with the Commission as Exhibit 4.19.3 to the
                  Registrant's Report on Form 8-K dated November 27, 1996, and
                  is incorporated herein by this reference.

 4.20             Indenture relating to the 6.5% Convertible Subordinated
                  Debentures due October 1, 2005 issued by American Travellers
                  Corporation was filed with the Commission as Exhibit 4(c) to
                  the Annual Report on Form 10-K of American Travellers
                  Corporation for the year ended December 31, 1995, and is
                  incorporated herein by this reference.

 4.20.1           First Supplemental Indenture between the Registrant and
                  Firstar Bank of Minnesota, N.A. Trustee, as Trustee, relating
                  to the 6.5% Convertible Subordinated Debentures due October 1,
                  2005 was filed with the Commission as Exhibit 4.20.1 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1996, and is incorporated herein by this
                  reference.

 4.21.1           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust III, dated as of March 26, 1997, among the Registrant,
                  as sponsor, the trustees named therein and the holders from
                  time to time of undivided beneficial interests in the assets
                  of Conseco Financing Trust III was filed with the Commission
                  as Exhibit 4.20.1 to the Registrant's Report on Form 8-K dated
                  April 1, 1997, and is incorporated herein by this reference.

 4.21.2           Global Certificate for Capital Security of Conseco Financing
                  Trust III was filed with the Commission as Exhibit 4.20.2 to
                  the Registrant's Report on Form 8-K dated April 1, 1997, and
                  is incorporated herein by this reference.

<PAGE>   103


Exhibit
  No.                                   Document


 4.21.3           Capital Securities Guarantee Agreement, dated as of April 1,
                  1997 between the Registrant and Fleet National Bank was filed
                  with the Commission as Exhibit 4.20.3 to the Registrant's
                  Report on Form 8-K dated April 1, 1997, and is incorporated
                  herein by this reference.

 4.22.1           Senior Indenture, dated November 13, 1997, by and between the
                  Registrant and LTCB Trust Company, as Trustee (the "Senior
                  Indenture"), was filed with the Commission as Exhibit 4.1 to
                  Post-Effective Amendment No. 1 to the Registrant's
                  Registration Statement on Form S-3, No. 333-27803, and is
                  incorporated herein by this reference.

 4.22.2           6.4% Note due February 10, 2003 issued under the Senior
                  Indenture (one of several identical notes aggregating $250
                  million) was filed with the Commission as Exhibit 4.22.2 to
                  the Registrant's Annual Report on Form 10-K for 1997 and is
                  incorporated herein by this reference.

 4.22.3           6.8% Note due June 15, 2005 issued under the Senior Indenture
                  (one of several identical notes aggregating $250 million) was
                  filed with the Commission as Exhibit 4.22.3 to the
                  Registrant's Report on Form 8-K dated June 4, 1998, and is
                  incorporated herein by this reference.

 4.22.4           6.4% MandatOry Par Put Remarketed Securities Note due June 15,
                  2011 issued under the Senior Indenture (one of several
                  identical notes aggregating $550 million) was filed with the
                  Commission as Exhibit 4.22.4 to the Registrant's Report on
                  Form 8-K dated June 4, 1998, and is incorporated herein by
                  this reference.

 4.22.5           7 7/8% Note due December 15, 2000 issued under the Senior
                  Indenture was filed with the Commission as Exhibit 4.22.5 to
                  the Registrant's Report on Form 8-K dated December 18, 1998,
                  and is incorporated herein by this reference.

 4.23.1           Subordinated Indenture between the Registrant and The First
                  National Bank of Chicago, as Trustee, was filed with the
                  Commission as Exhibit 4.2 to the Registrant's Registration
                  Statement on Form S-3, No. 333-40423, and is incorporated
                  herein by this reference.

 4.24.1           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust IV was filed with the Commission as Exhibit 4.12 to the
                  Registrant's Registration Statement on Form S-3, No.
                  333-40423, and is incorporated herein by this reference.

 4.24.2           Preferred Securities Guarantee of the Registrant for the
                  benefit of the holders of trust preferred securities of
                  Conseco Financing Trust IV was filed with the Commission as
                  Exhibit 4.13 to the Registrant's Registration Statement on
                  Form S-3, No. 333-40423, and is incorporated herein by
                  reference.

 4.24.3           Purchase Contract Agreement between the Registrant and The
                  First National Bank of Chicago, as Purchase Contract Agent,
                  was filed with the Commission as Exhibit 4.20 to the
                  Registrant's Registration Statement on Form S-3, No.
                  333-40423, and is incorporated herein by reference.

 4.24.4           Pledge Agreement among the Registrant, The Chase Manhattan
                  Bank, as Collateral Agent, and The First National Bank of
                  Chicago, as Purchase Contract Agent, was filed with the
                  Commission as Exhibit 4.21 to the Registrant's Registration
                  Statement on Form S-3, No. 333-40423, and is incorporated
                  herein by reference.

 4.25             Indenture dated as of March 15, 1992 relating to $287,500,000
                  of 10 1/4% Senior Subordinated Notes due June 1, 2002 of Green
                  Tree was filed with the Commission as an exhibit to Green
                  Tree's Registration Statement on Form S-4 (File No. 33-42249),
                  and is incorporated herein by this reference.

<PAGE>   104


Exhibit
  No.                                   Document


 4.26.1           Fourth Supplemental Indenture dated as of August 24, 1998,
                  between the Registrant and State Street Bank and Trust
                  Company, as Trustee, was filed with the Commission as Exhibit
                  4.25.1 to the Registrant's Report on Form 8-K dated August 24,
                  1998, and is incorporated herein by this reference.

 4.26.2           8.70% Subordinated Deferrable Interest Debenture due 2028 was
                  filed with the Commission as Exhibit 4.25.2 to the
                  Registrant's Report on Form 8-K dated August 24, 1998, and is
                  incorporated herein by this reference.

 4.26.3           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust V, dated as of August 24, 1998, among Conseco, Inc., as
                  sponsor, the Trustees named therein and the holders from time
                  to time of undivided beneficial interests in the assets of
                  Conseco Financing Trust V was filed with the Commission as
                  Exhibit 4.25.3 to the Registrant's Report on Form 8-K dated
                  August 24, 1998, and is incorporated herein by this reference.

 4.26.4           Global Certificate for Preferred Securities of Conseco
                  Financing Trust was filed with the Commission as Exhibit
                  4.25.4 to the Registrant's Report on Form 8-K dated August 24,
                  1998, and is incorporated herein by this reference.

 4.26.5           Preferred Securities Guarantee Agreement, dated as of August
                  24, 1998, between Conseco, Inc. and State Street Bank and
                  Trust Company was filed with the Commission as Exhibit 4.25.5
                  to the Registrant's Report on Form 8-K dated August 24, 1998,
                  and is incorporated herein by this reference.

 4.27.1           Fifth Supplemental Indenture, dated as of October 14, 1998,
                  between Conseco, Inc. and State Street Bank and Trust Company,
                  as Trustee, was filed with the Commission as Exhibit 4.26.1 to
                  the Registrant's Report on Form 8-K dated October 8, 1998, and
                  is incorporated herein by this reference.

 4.27.2           9% Subordinated Deferrable Interest Debenture due 2028 was
                  filed with the Commission as Exhibit 4.26.2 to the
                  Registrant's Report on Form 8-K dated October 8, 1998, and is
                  incorporated herein by this reference.

 4.27.3           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust VI, dated as of October 14, 1998, among Conseco, Inc.,
                  as sponsor, the Trustees named therein and the holders from
                  time to time of undivided beneficial interests in the assets
                  of Conseco Financing Trust VI was filed with the Commission as
                  Exhibit 4.26.3 to the Registrant's Report on Form 8-K dated
                  October 8, 1998, and is incorporated herein by this reference.

 4.27.4           Global certificate for Preferred Securities of Conseco
                  Financing Trust VI was filed with the Commission as Exhibit
                  4.26.4 to the Registrant's Report on Form 8-K dated October 8,
                  1998, and is incorporated herein by this reference.

 4.27.5           Preferred Securities Guarantee Agreement, dated as of October
                  14, 1998, between Conseco, Inc. and State Street Bank and
                  Trust Company was filed with the Commission as Exhibit 4.26.5
                  to the Registrant's Report on Form 8-K dated October 8, 1998,
                  and is incorporated herein by this reference.

                  The Registrant agrees to furnish the Commission upon its
                  request a copy of any instrument defining the rights of
                  holders of long-term debt of the Company and its consolidated
                  subsidiaries.


<PAGE>   105

Exhibit
  No.                                   Document


 10.1.2           Employment Agreement dated March 31, 1998, between the
                  Registrant and Stephen C. Hilbert was filed with the
                  Commission as Exhibit 10.1.2 to the Registrant's Report on
                  Form 10-Q for the quarter ended March 31, 1998, and is
                  incorporated herein by this reference.

 10.1.3           Employment Agreement amended and restated as of May 14, 1998,
                  between the Registrant and Rollin M. Dick was filed with the
                  Commission as Exhibit 10.1.3(c) to the Registrant's Report on
                  Form 10-Q for the quarter ended March 31, 1998, and is
                  incorporated herein by this reference.

 10.1.9           Unsecured Promissory Note of Stephen C. Hilbert dated May 13,
                  1996 was filed with the Commission as Exhibit 10.1.9 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1996, and is incorporated herein by this
                  reference.

 10.1.10          Employment Agreement amended and restated as of May 14, 1998,
                  between the Registrant and Ngaire E. Cuneo was filed with the
                  Commission as Exhibit 10.1.10(c) to the Registrant's Report on
                  Form 10-Q for the quarter ended March 31, 1998, and is
                  incorporated herein by this reference.

<PAGE>   106

Exhibit
  No.                                   Document


 10.1.11          Employment Agreement amended and restated as of May 14, 1998,
                  between the Registrant and John J. Sabl was filed with the
                  Commission as Exhibit 10.1.11(a) to the Registrant's Report on
                  Form 10-Q for the quarter ended March 31, 1998, and is
                  incorporated herein by this reference.

 10.1.12          Employment Agreement dated March 31, 1998 between the
                  Registrant and Thomas J. Kilian was filed with the Commission
                  as Exhibit 10.1.12 to the Registrant's Report on Form 10-Q for
                  the quarter ended March 31, 1998, and is incorporated herein
                  by this reference.

 10.1.13          Employment Agreement dated February 9, 1996 between Green Tree
                  and Lawrence Coss and related Noncompetition agreement dated
                  February 9, 1996, as amended by the Amendment Agreement dated
                  April 6, 1998 were filed with the Commission as an exhibit to
                  Green Tree's Registration Statement on Form S-3, and are
                  incorporated herein by this reference.

 10.8             The Registrant's Stock Option Plan was filed with the
                  Commission as Exhibit B to its definitive Proxy Statement
                  dated December 10, 1983; Amendment No. 1 thereto was filed
                  with the Commission as Exhibit 10.8.1 to its Report on Form
                  10-Q for the quarter ended June 30, 1985; Amendment No. 2
                  thereto was filed with the Commission as Exhibit 10.8.2 to its
                  Registration Statement on Form S-1, No. 33-4367; Amendment No.
                  3 thereto was filed with the Commission as Exhibit 10.8.3 to
                  the Registrant's Annual Report on Form 10-K for 1986;
                  Amendment No. 4 thereto was filed with the Commission as
                  Exhibit 10.8 to the Registrant's Annual Report on Form 10-K
                  for 1987; Amendment No. 5 thereto was filed with the
                  Commission as Exhibit 10.8 to the Registrant's Report on Form
                  10-Q for the quarter ended September 30, 1991; and are
                  incorporated herein by this reference.

 10.8.3           The Registrant's Cash Bonus Plan was filed with the Commission
                  as Exhibit 10.8.3 to the Registrant's Report on Form 10-Q for
                  the quarter ended March 31, 1989, and is incorporated herein
                  by this reference.

 10.8.4           Amended and Restated Conseco Stock Bonus and Deferred
                  Compensation Program was filed with the Commission as Exhibit
                  10.8.4 to the Registrant's Annual Report on Form 10-K for
                  1992, and is incorporated herein by this reference.

 10.8.6           Conseco Performance-Based Compensation Plan for Executive
                  Officers was filed with the Commission as Exhibit 10.8.15 to
                  the Registrant's Report on Form 10-Q for the quarter ended
                  March 31, 1998, and is incorporated herein by this reference.

 10.8.7           Conseco, Inc. Amended and Restated Deferred Compensation Plan
                  was filed with the Commission as Exhibit A to the Registrant's
                  definitive Proxy Statement dated April 26, 1995, and is
                  incorporated herein by this reference.

 10.8.8           Amendment to the Amended and Restated Conseco Stock Bonus and
                  Deferred Compensation Program was filed with the Commission as
                  Exhibit 10.8.8 to the Registrant's Annual Report on Form 10-K
                  for 1994, and is incorporated herein by this reference.

 10.8.9           Conseco 1994 Stock and Incentive Plan was filed as Exhibit A
                  to the Registrant's definitive Proxy Statement dated April 29,
                  1994 and is incorporated herein by this reference.

 10.8.10          Amendment Number 2 to the Amended and Restated Conseco Stock
                  Bonus and Deferred Compensation Program was filed with the
                  Commission as Exhibit 10.8.10 to the Registrant's Annual
                  Report on Form 10-K for 1995 and is incorporated herein by
                  reference.

 10.8.11          Amended and Restated Director, Officer and Key Employee Stock
                  Purchase Plan of Conseco was filed with the Commission as
                  Exhibit 10.8.11 to the Registrant's Report on Form 10-Q for
                  the quarter ended September 30, 1998, and is incorporated
                  herein by this reference.

 10.8.12          Guaranty regarding Director, Officer and Key Employee Stock
                  Purchase Plan was filed with the Commission as Exhibit 10.8.12
                  to the Registrant's Report on Form 10-Q for the quarter ended
                  June 30, 1996, and is incorporated herein by this reference.

*10.8.13          Form of Promissory Note payable to the Registrant relating to
                  the Registrant's Director, Officer and Key Employee Stock
                  Purchase Plan.

 10.8.14          Conseco, Inc. Amended And Restated 1997 Non-qualified Stock
                  Option Plan was filed with the Commission as Exhibit 10.8.14
                  to the Registrant's Annual Report on Form 10-K for 1997, and
                  is incorporated herein by this reference.


<PAGE>   107
Exhibit
  No.                                   Document

 10.8.15          Green Tree Financial Corporation 1987 Stock Option Plan was
                  filed with the Commission as an exhibit to Green Tree's
                  Registration Statement on Form S-4 (File No. 33-42249) and is
                  incorporated herein by this reference.

 10.8.16          Green Tree Financial Corporation Key Executive Stock Bonus
                  Plan was filed with the Commission as an exhibit to Green
                  Tree's Registration Statement on Form S-4 (File No. 33-42249)
                  and is incorporated herein by this reference.

 10.8.17          Green Tree Financial Corporation Restated 1992 Supplemental
                  Stock Option Plan was filed with the Commission as Exhibit
                  10.8.17 to the Registrant's Report on Form 10-Q for the
                  quarter ended June 30, 1992, and is incorporated herein by
                  this reference.

 10.8.18          Green Tree Financial Corporation Chief Executive Cash Bonus
                  and Stock Option Plan and related Stock Option Agreement dated
                  February 9, 1996 were filed with the Commission as an exhibit
                  to Green Tree's Report on Form 10-Q for the quarter ended June
                  30, 1996, and are incorporated herein by this reference.

 10.8.19          Green Tree Financial Corporation 1996 restated Supplemental
                  Pension Plan dated May 15, 1996 was filed with the Commission
                  as an exhibit to Green Tree's Annual Report on Form 10-K for
                  1997, and is incorporated herein by this reference.

 *10.8.20         Retention Agreement dated as of July 1, 1998 between Green
                  Tree Financial Corporation and Bruce A. Crittenden.

 *10.38           Split-Dollar Agreement dated December 18, 1998 among the
                  Registrant, Rollin M. Dick and Lawrence E. Dick, Trustee.

 *10.39           Split-Dollar Agreement dated December 18, 1998 among the
                  Registrant, Stephen C. Hilbert and Rollin M. Dick, Trustee.

 *10.40           Split-Dollar Agreement dated December 18, 1998 among the
                  Registrant, Stephen C. Hilbert and Rollin M. Dick, Trustee.

 *10.41           Split-Dollar Agreement among the Registrant, Stephen C.
                  Hilbert and Rollin M. Dick, Trustee.

 *10.42           Split-Dollar Agreement among the Registrant, Stephen C.
                  Hilbert and Rollin M. Dick, Trustee.

 *12.1            Computation of Ratio of Earnings to Fixed Charges, Preferred
                  Dividends and Distributions on Company-Obligated Mandatorily
                  Redeemable Preferred Securities of Subsidiary Trusts.

 *21              List of Subsidiaries.

 *23.1            Consent of PricewaterhouseCoopers LLP with respect to the
                  financial statements of Conseco, Inc.

 *23.2            Consent of KPMG Peat Marwick LLP with respect to the
                  financial statements of Green Tree Financial 
                  Corporation.

 *27              Financial data schedule for Conseco, Inc. dated December 31,
                  1998.

 *99              Report of KPMG Peat Marwick LLP with respect to historical
                  financial statements of Green Tree Financial Corporation.

                  *Filed herewith
<PAGE>   108
Exhibit
  No.                                   Document

Compensation Plans and Arrangements                  

 10.1.2           Employment Agreement dated March 31, 1998, between the
                  Registrant and Stephen C. Hilbert.

 10.1.3           Employment Agreement amended and restated as of May 14, 1998,
                  between the Registrant and Rollin M. Dick.

 10.1.9           Unsecured Promissory Note of Stephen C. Hilbert.

 10.1.10          Employment Agreement amended and restated as of May 14, 1998,
                  between the Registrant and Ngaire E. Cuneo.

 10.1.11          Employment Agreement amended and restated as of May 14, 1998,
                  between the Registrant and John J. Sabl.

 10.1.12          Employment Agreement dated March 31, 1998 between the
                  Registrant and Thomas J. Kilian.

 10.1.13          Employment Agreement dated February 9, 1996 between Green Tree
                  and Lawrence Coss and related Noncompetition Agreement dated
                  February 9, 1996, as amended by Amendment Agreement dated
                  April 6, 1998.

 10.8             The Registrant's Stock Option Plan; Amendment No. 1 thereto;
                  Amendment No. 2 thereto; Amendment No. 3 thereto; Amendment
                  No. 4 thereto; and Amendment No. 5 thereto.

 10.8.3           The Registrant's Cash Bonus Plan.

 10.8.4           Amended and Restated Conseco Stock Bonus and Deferred
                  Compensation Program.

 10.8.6           Conseco Performance - Based Compensation Plan for Executive
                  officers.

 10.8.7           Conseco, Inc. Amended and Restated Deferred Compensation Plan.

 10.8.8           Amendment to the Amended and Restated Conseco Stock Bonus and
                  Deferred Compensation Program.

 10.8.9           Conseco 1994 Stock and Incentive Plan.

 10.8.10          Amendment No. 2 to the Amended and Restated Stock Bonus and
                  Deferred Compensation Program.

 10.8.11          Amended and Restated Director, Officer and Key Employee Stock
                  Purchase Plan.

 10.8.12          Guaranty regarding Director, Officer and Key Employee Stock
                  Purchase Plan.

*10.8.13          Form of Promissory Note Payable to the Registrant relating to
                  the Registrant's Director, Officer and Key Employee Stock
                  Purchase Plan.

 10.8.14          Conseco, Inc. Amended and Restated 1997 Non-qualified Stock
                  Option Plan.


<PAGE>   109



Exhibit
  No.                                   Document


 10.8.15          Green Tree Financial Corporation 1987 Stock Option Plan.

 10.8.16          Green Tree Financial Corporation Key Executive Stock Bonus
                  Plan.

 10.8.17          Green Tree Financial Corporation Restated 1992 Supplemental
                  Stock Option Plan.

 10.8.18          Green Tree Financial Corporation Chief Executive Cash Bonus
                  and Stock Option Plan and related Stock Option Agreement.

 10.8.19          Green Tree Financial Corporation 1996 restated Supplemental
                  Pension Plan dated May 15, 1996.

*10.8.20          Retention Agreement dated as of July 1, 1998 between Green
                  Tree Financial Corporation and Bruce A. Crittenden.

*10.38            Split-Dollar Agreement dated December 18, 1998 among the
                  Registrant, Rollin M. Dick and Lawrence E. Dick, Trustee.

*10.39            Split-Dollar Agreement dated December 18, 1998 among the
                  Registrant, Stephen C. Hilbert and Rollin M. Dick, Trustee.

*10.40            Split-Dollar Agreement dated December 18, 1998 among the
                  Registrant, Stephen C. Hilbert and Rollin M. Dick, Trustee.

*10.41            Split-Dollar Agreement among the Registrant, Stephen C.
                  Hilbert and Rollin M. Dick, Trustee.

*10.42            Split-Dollar Agreement among the Registrant, Stephen C.
                  Hilbert and Rollin M. Dick, Trustee.