Conseco Fund Group
Semi-Annual Report
June 30, 1997
Equity
Fund
Asset
Allocation
Fund
Fixed
Income
Fund
GSEMI 6/97
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CONSECO FUND GROUP
TABLE OF CONTENTS
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PAGE
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Report from the President.................................................................................................. 2
CONSECO FUND GROUP
Statement of Assets and Liabilities as of June 30, 1997.................................................................... 3
Statement of Operations for the period from inception (January 2, 1997) through June 30, 1997.............................. 4
Statement of Changes in Net Assets for the period from inception (January 2, 1997) through June 30, 1997................... 5
EQUITY FUND
Report from the Equity Fund Adviser........................................................................................ 6
Statement of Investments in Securities as of June 30, 1997................................................................. 7-8
ASSET ALLOCATION FUND
Report from the Asset Allocation Fund Advisers............................................................................. 9
Statement of Investments in Securities as of June 30, 1997................................................................. 10-11
FIXED INCOME FUND
Report from the Fixed Income Fund Adviser.................................................................................. 12
Statement of Investments in Securities as of June 30, 1997................................................................. 13-14
Notes to Financial Statements.............................................................................................. 15-18
Special Meeting of Shareholders--March 28, 1997............................................................................. 19
Board of Trustees and Fund Service Providers............................................................................... 20
This report is for the information of shareholders of the Conseco Fund Group. It is authorized for
distribution to other persons only when preceded or accompanied by a current prospectus which contains
more complete information, including charges and expenses.
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1
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CONSECO FUND GROUP
================================================================================
REPORT FROM
THE PRESIDENT
Dear Shareholder:
The performance of the Conseco Fund Group for the first six months of 1997 is
presented below:
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1997
FUND CLASS A SHARES(1) CLASS Y SHARES
================================================================================
Asset Allocation Fund............................. 6.65% 6.90%
Equity Fund....................................... 8.50% 8.80%
Fixed Income Fund................................. 3.41% 3.71%
- --------------------------------------------------------------------------------
Note: Past performance is not indicative of future results.
(1) Total return figures do not reflect deduction of sales charges.
The stock market continued on a torrid pace. After back-to-back returns of
37.54% and 22.95% for 1995 and 1996, by the Standard & Poor's 500 ("S&P 500"),
the first six months of 1997 has the S&P 500 up 20.60%. Yet the broad market,
while still showing solid returns, has not kept pace with the elusive S&P 500
benchmark. There is a significant gulf in returns between large capitalization
stocks and small capitalization stocks. This divergence has persisted for well
over a year and according to an article in Barron's magazine (May 5, 1997), we
have not seen such divergence since 1937.
What has occurred in our stock market is exactly what Federal Reserve
Chairman Greenspan feared when he was preparing the markets for an increase in
short-term interest rates last March: that the exuberance of an asset inflation
could work its way into the economy. In fact, one can argue that the inflation
of stock prices is helping to drive the economy. The stock market has become the
defining event of the 1990's, permeating every aspect of our lives. Consumer's
balance sheets have been significantly strengthened, and their retirement is
less dependent on the shrinking government safety net. When combined with the
cozy job and income picture, it should be no surprise that consumer confidence
is at 30-year highs.
Given the decline in the level of interest rates and the emphasis in the
stock market, we believe the financial markets are unprepared, both from a
fundamental and technical standpoint, for what the next couple of quarters will
bring. There is likely to be a re-assessment of market complacency in the months
ahead in response to an economic rebound following the pause in the second
quarter. We continue to believe that the next move in the Federal Funds interest
rate is likely to be upward, and that the case for a tightening could become
clear very quickly if the economy rebounds during the summer. However, at this
stage, we do not expect a repeat of 1994, where multiple increases by the
Federal Reserve Board had a significant impact on fixed income valuations.
Longer term, however, we are very encouraged by the position of the economy.
The catalyst in this expansion is capital investment--investment in information
technology which will continue to help in improvements in productivity. We
expect the consumer to remain very sound given the growth in wages and wealth
creation, decreased unemployment, and soaring consumer confidence levels.
Sincerely,
/s/Maxwell E. Bublitz
---------------------
Maxwell E. Bublitz
President
Conseco Capital Management, Inc.
2
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CONSECO FUND GROUP
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(unaudited)
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=============================================================================================================================
ASSET FIXED
EQUITY ALLOCATION INCOME
FUND FUND FUND
=========================================
Assets:
Investments in securities at value (cost: $43,347,022;
<S> <C> <C> <C>
$9,901,112; $18,294,048, respectively)........................................ $48,854,864 $10,656,716 $18,429,263
Accrued interest and dividends.................................................. 47,374 90,404 267,461
Receivable for securities sold.................................................. 2,462,653 895,089 1,045,440
Receivable for shares sold...................................................... 18,954 101 63
Receivable from Conseco, Inc. and subsidiaries.................................. -- 29,818 41,308
Cash............................................................................ 999,163 598,967 1,965,445
Organizational costs............................................................ 83,882 83,882 83,882
- ------------------------------------------------------------------------------------------------------------------------------
Total assets................................................................ 52,466,890 12,354,977 21,832,862
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities and net assets:
Payable to Conseco, Inc. and subsidiaries....................................... 120,540 93,000 93,000
Accrued expenses................................................................ 28,102 30,483 32,155
Distributions payable........................................................... 9 68,286 87,162
Payable for securities purchased................................................ 2,089,285 1,023,441 2,095,875
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities........................................................... 2,237,936 1,215,210 2,308,192
- ------------------------------------------------------------------------------------------------------------------------------
Net assets................................................................ $50,228,954 $11,139,767 $19,524,670
==============================================================================================================================
Net assets consist of:
Paid in capital................................................................. $44,170,268 $10,543,011 $19,322,654
Accumulated undistributed net investment income (loss).......................... (24,646) 6,118 16,750
Accumulated undistributed net realized gain (loss) on investments............... 575,490 (164,966) 50,052
Net unrealized appreciation on investments...................................... 5,507,842 755,604 135,214
- ------------------------------------------------------------------------------------------------------------------------------
Net assets................................................................ $50,228,954 $11,139,767 $19,524,670
==============================================================================================================================
Net asset value, redemption price and offering price per share:
Class A Shares:
Shares outstanding............................................................ 141,684 41,038 4,357
Net assets.................................................................... $1,537,971 $433,074 $43,817
Net asset value and redemption price per share................................ $10.85 $10.55 $10.06
Maximum sales charge per share (5 percent of offering price).................. .57 .56 .53
Maximum offering price per share.............................................. 11.42 11.11 10.59
Class Y Shares:
Shares outstanding............................................................ 4,474,639 1,012,757 1,933,502
Net assets.................................................................... $48,690,983 $10,706,693 $19,480,853
Net asset value, redemption price and offering price per share................ $10.88 $10.57 $10.08
The accompanying notes are an integral part of these financial statements.
3
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CONSECO FUND GROUP
STATEMENT OF OPERATIONS
For the period from inception (January 2, 1997) through June 30, 1997
(unaudited)
===============================================================================================================================
ASSET FIXED
EQUITY ALLOCATION INCOME
FUND FUND FUND
=======================================
Investment income:
<S> <C> <C> <C>
Interest..................................................................... $ -- $161,938 $430,617
Dividends.................................................................... 88,500 13,965 --
- -------------------------------------------------------------------------------------------------------------------------------
Total investment income.................................................. 88,500 175,903 430,617
- -------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees..................................................... 61,439 18,156 15,619
Transfer agent fee - Class A shares.......................................... 19,870 15,513 14,543
Transfer agent fee - Class Y shares.......................................... 17,862 17,984 17,974
Reports - printing........................................................... 12,874 12,874 12,874
Administration fee........................................................... 22,363 10,078 12,655
Audit fees................................................................... 9,807 9,807 9,807
Director fees and expenses................................................... 5,626 5,626 5,626
Legal fees................................................................... 3,972 3,972 3,972
Amortization of organizational costs......................................... 9,118 9,118 9,118
Insurance.................................................................... 4,905 4,905 4,905
Custody fees................................................................. 7,344 7,305 3,972
Distribution and service fees related to Class A shares...................... 1,082 310 63
Other........................................................................ 490 490 491
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses........................................................... 176,752 116,138 111,619
- -------------------------------------------------------------------------------------------------------------------------------
Less expense reductions:
Custody fee credits (note 1)................................................. 7,344 7,305 3,972
Fees waived and/or charged to subsidiaries of Conseco, Inc. (note 3)......... 56,262 58,051 69,583
- -------------------------------------------------------------------------------------------------------------------------------
Total expense reductions................................................. 63,606 65,356 73,555
- -------------------------------------------------------------------------------------------------------------------------------
Net expenses............................................................. 113,146 50,782 38,064
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)............................................. (24,646) 125,121 392,553
Net realized gains (losses) on sales of investments............................. 575,490 (164,966) 50,052
Net change in unrealized appreciation of investments............................ 5,507,842 755,604 135,214
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments................................ 6,083,332 590,638 185,266
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations...................................... $6,058,686 $715,759 $577,819
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<CAPTION>
CONSECO FUND GROUP
STATEMENT OF CHANGES IN NET ASSETS
For the period from inception (January 2, 1997) through June 30, 1997
(unaudited)
===============================================================================================================================
ASSET FIXED
EQUITY ALLOCATION INCOME
FUND FUND FUND
=========================================
Changes from operations:
<S> <C> <C> <C>
Net investment income (loss).................................................. $ (24,646) $ 125,121 $ 392,553
Net realized gains (losses) on sales of investments........................... 575,490 (164,966) 50,052
Net change in unrealized appreciation of investments.......................... 5,507,842 755,604 135,214
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations................................ 6,058,686 715,759 577,819
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A shares................................................................ -- (3,091) (894)
Class Y shares................................................................ -- 115,912) (374,909)
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net investment income................ -- (119,003) (375,803)
- ---------------------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sales of shares............................................. 45,975,615 10,460,177 19,309,559
Net asset value of shares issued from reinvestment of dividends
and distributions........................................................... -- 50,691 277,853
Cost of shares redeemed....................................................... (1,838,697) (1,207) (298,108)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from capital share transactions................ 44,136,918 10,509,661 19,289,304
- ---------------------------------------------------------------------------------------------------------------------------------
Total net increase in net assets.......................................... 50,195,604 11,106,417 19,491,320
Net assets, beginning of period......................................... 33,350 33,350 33,350
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (including accumulated undistributed investment
income (loss) of $(24,646), $6,118 and $16,750, respectively).................. $50,228,954 $11,139,767 $19,524,670
=================================================================================================================================
Share data:
Class A shares:
Sold........................................................................ 140,742 39,387 2,615
Issued in reinvestment of dividends......................................... -- 63 75
Redeemed.................................................................... (726) (80) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase............................................................ 140,016 39,370 2,690
=================================================================================================================================
Class Y shares:
Sold........................................................................ 4,652,917 1,005,930 1,933,837
Issued in reinvestment of dividends......................................... -- 5,195 27,780
Redeemed.................................................................... (179,945) (35) (29,783)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase............................................................ 4,472,972 1,011,090 1,931,834
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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CONSECO FUND GROUP
================================================================================
REPORT FROM THE
EQUITY FUND ADVISER
Having just completed the second quarter of 1997, we have to admit that even
from our fully-engaged vantage point, it was quite a ride! Seldom in the history
of the market have investors been able to witness such extreme divergence and
still been able to preserve (and even increase) the value of their portfolios.
To begin with, investor sentiment (as measured by Investor's Intelligence),
after indicating that 83% of all investors were bullish in mid-January,
plummeted to only 31.9% by April 18th. This was the lowest reading in this
popular survey in over 31/2 years and it came on the heels of the Federal
Reserve Board (the "Fed") rate hike in late March that led investors to fear the
Fed had begun a long and painful process of slowing the economy and the market.
In retrospect however, this excessive pessimism proved to be just another great
entry point as the market began a 20% rally for the balance of the quarter after
economic data pointed to a deceleration in Gross National Product led by
weakening consumer spending. Also as a continuation of a previously mentioned
anomaly, the performance of the Standard & Poor's 500 ("S&P 500") continued to
surge ahead of almost everything else in the market, led by the persistent
capital flows into index funds. As a point of reference, the Vanguard Index 500
Fund (one of the largest and more popular index mutual funds) experienced nearly
$9 billion in new inflows in the first six months of 1997. This inflow alone
exceeded the total invested assets of the fund five years ago when net assets
were $8.5 billion, well below the nearly $39 billion invested in the fund today.
It's no wonder we hear about one active manager after another throwing in the
towel and abandoning their long-standing investment strategy in favor of "index
hugging".
During the quarter, the S&P 500 returned 17.45%, slightly ahead of the
Russell 2000 return of 16.21%. As mentioned above, the solid performance posted
by the Russell 2000 mostly occurred in May after small cap stocks became
extremely over-sold in April. On a year-to-date basis, the S&P 500 is up 20.60%,
still well ahead of the Russell (+10.4%) and much of the broader market. The
Equity Fund, Class A shares, returned 14.20% for the quarter and 8.50%* for the
first half of the year, and Class Y shares returned 14.26% for the quarter and
8.80% for the first half of the year. The gains in the market in the large cap
sectors were mostly in cyclicals, such as truckers and machines, but strong
returns were also posted in technology and networking stocks which rebounded off
of April lows, and in software and the drug companies. The rally in small caps
in May was led by technology issues which bore the brunt of the March-April
sell-off and in health care, consumer and energy sectors. Some of the quarter's
worst returns were experienced in gold producers, oil exploration and production
companies, utilities and restaurants.
Our activity during the quarter was driven by our efforts to take advantage
of the weakness in April and increase our mix of more liquid names at depressed
levels. This resulted in a slightly larger capitalization mix by the quarter end
with 10% of our model portfolio in large cap names (mostly financials), 62% in
mid-cap and 28% in small-cap. This mix was up slightly from the 35% small-cap
held at the end of the last quarter. Some of the names added in the quarter were
energy issues such as BJ Services, Kinder Morgan Energy, technology issues such
as Andrew Corp., Kulicke & Soffa, Exar and Dynatech and other names such as
Great Lakes Chemical, Dentsply, Rouse and Hasbro. On the selling side, we exited
Cellstar, one of our larger holdings with a nearly 70% gain and used strength in
names such as Quantum Corp., Med Partners, and Apache to generate cash for new
commitments. Lastly, we exited Finish Line and Footstar after growing pains by
Nike caused the fundamentals in athletic footwear retailing to turn negative.
Going forward, we plan to stay diligently focused on our bottom-up discipline
of uncovering growing businesses that can still be purchased at reasonable
valuations. Although we are not going to concern ourselves with the direction of
the market over the balance of 1997, we have to admit that further progress in
the S&P 500 from here seems difficult. To continue to advance, the market must
rationalize even higher price to earnings ratios than we have today, which are
quite high by historical measures. Whatever the course of the second half, we
will keep a watchful eye for excessive speculation. If such conditions
materialize, we will not hesitate to take gains when our stocks become
overvalued and sit on the sidelines until more great buying opportunities
present themselves.
/s/Thomas J. Pence
------------------
Thomas J. Pence
Vice President
Portfolio Manager
Conseco Capital Management, Inc.
*Total return figures do not reflect deduction of sales charges.
6
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CONSECO FUND GROUP
EQUITY FUND
STATEMENT OF INVESTMENTS IN SECURITIES
June 30, 1997
(unaudited)
================================================================================
NUMBER
OF SHARES SECURITY VALUE
================================================================================
COMMON STOCKS
(97.62% OF TOTAL INVESTMENTS)
AIR TRANSPORTATION (3.88%)
27,500 Atlas Air Inc. (a)............................ $ 948,750
34,250 Comair Holdings, Inc.......................... 948,297
---------
1,897,047
---------
AMUSEMENT AND RECREATION SERVICES (2.54%)
28,400 Cedar Fair - LP............................... 1,242,500
---------
APPAREL AND ACCESSORY STORES (1.57%)
43,850 Claire's Stores, Inc.......................... 767,375
---------
BUSINESS SERVICES (14.52%)
36,250 Affiliated Computer Svcs - A (a).............. 1,015,000
28,700 Autodesk, Inc................................. 1,099,569
17,200 CDI Corporation (a)........................... 717,025
38,250 Comdisco Incorporated......................... 994,500
35,400 IKOS Systems Inc. (a)......................... 756,675
36,500 Renters Choice, Inc. (a)...................... 725,437
47,975 Software Artistry Inc. (a).................... 761,603
60,700 Sotheby's Holdings - Class A.................. 1,024,313
---------
7,094,122
---------
CHEMICALS AND ALLIED PRODUCTS (5.22%)
16,700 Goodrich (B.F.) Company....................... 723,319
17,600 Great Lakes Chemical Corp..................... 921,800
39,400 Serologicals Corporation (a).................. 906,200
---------
2,551,319
---------
COMMUNICATIONS BY PHONE,
TELEVISION, RADIO, CABLE (5.15%)
24,300 Emmis Broadcasting Corp. (a).................. 1,060,087
95,300 Tel-Save Holdings, Incorporated (a)........... 1,453,325
---------
2,513,412
---------
CONSTRUCTION - SPECIALIZED TRADES (1.37%)
18,700 Dynatech Corporation (a)...................... 668,525
---------
DEPOSITORY INSTITUTIONS (4.83%)
13,150 First Banking System Incorporated............. 1,122,681
21,950 Norwest Corp.................................. 1,234,688
---------
2,357,369
---------
DURABLE GOODS - WHOLESALE (2.66%)
15,100 Applied Industrial Tech Inc................... 543,600
26,600 Hasbro, Inc................................... 754,775
---------
1,298,375
---------
ELECTRIC, GAS, WATER, COGENERATION, SANITARY
SERVICES (.74%)
7,550 Kinder Morgan Energy Partners L.P............. 362,400
---------
ELECTRICAL EQUIPMENT, EXCEPT COMPUTERS (5.06%)
18,000 Andrew Corp. (a).............................. 506,250
103,865 Inter City Products Corp. (a)................. 564,766
25,450 SBS Technologies (a).......................... 588,531
22,250 Semtech Corporation (a)....................... 812,125
---------
2,471,672
---------
ENGINEERING SERVICES, ACCOUNTING,
MANAGEMENT (1.33%)
53,100 Physician Support Systems (a)................. 650,475
---------
FOOD STORES (2.01%)
45,500 Casey's General Stores Inc.................... 979,672
---------
FURNITURE AND FIXTURES (1.93%)
48,700 Furniture Brands International Inc. (a)....... 943,563
---------
GENERAL MERCHANDISE STORES (3.17%)
67,200 Ames Department Stores (a).................... 651,000
33,000 Family Dollar Stores.......................... 899,250
---------
1,550,250
---------
HEALTH SERVICES (2.13%)
29,100 Quorum Health Group, Inc. (a)................. 1,040,325
---------
INDUSTRIAL, COMMERCIAL MACHINERY,
COMPUTERS (1.93%)
24,200 EMC Corporation............................... 943,800
---------
MEASURING INSTRUMENTS, PHOTO GOODS,
WATCHES (5.41%)
33,200 Analogic Corporation.......................... 1,128,800
13,500 DENTSPLY International, Inc................... 749,700
12,000 Sci Systems Incorporated (a).................. 765,000
---------
2,643,500
---------
MISCELLANEOUS FURNITURE AND FIXTURES (.92%)
9,450 Hillenbrand Industries........................ 448,875
---------
MISCELLANEOUS RETAIL (2.03%)
25,650 Brylane Inc. (a).............................. 989,128
---------
MOTION PICTURES, FILMS (1.85%)
203,870 Video Update, Inc. Class A (a)................ 904,673
---------
MOTOR FREIGHT TRANSPORTATION,
WAREHOUSES (1.54%)
48,250 American Freightways, Incorporated (a)........ 753,906
---------
The accompanying notes are an integral part of these financial statements.
7
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CONSECO FUND GROUP
EQUITY FUND
STATEMENT OF INVESTMENTS IN SECURITIES - (CONTINUED)
June 30, 1997
(unaudited)
================================================================================
NUMBER
OF SHARES SECURITY VALUE
================================================================================
OIL AND GAS EXTRACTION (3.18%)
13,200 B.J. Services Company (a)..................... $ 707,850
39,900 Oryx Energy Co. (a)........................... 842,888
------------
1,550,738
------------
OPTICAL INSTRUMENTS AND LENSES (.43%)
4,250 KLA - Tencor Corp............................. 207,188
------------
PAPER AND ALLIED PRODUCTS (3.04%)
22,950 Schweitzer-Manduit Intl Inc................... 860,625
7,450 St. Joe Corporation........................... 623,937
------------
1,484,562
------------
PERSONAL SERVICES (1.52%)
28,800 CUC International Inc. (a).................... 743,400
------------
PRINTING, PUBLISHING AND ALLIED (2.07%)
38,500 New England Business Service.................. 1,013,031
------------
REAL ESTATE OPERATORS, AGENTS,
MANAGERS (3.15%)
23,700 Fairfield Communities Inc. (a)................ 796,913
25,100 Rouse Company................................. 740,450
------------
1,537,363
------------
RETAIL - CATALOG AND MAIL-ORDER HOUSES (.80%)
13,000 Insight Enterprises, Inc...................... 390,812
------------
RETAIL - SHOE STORES (1.41%)
12,600 Payless Shoesource Inc........................ 689,063
------------
RUBBER AND MISCELLANEOUS
PLASTIC PRODUCTS (1.64%)
17,100 Reebok International Ltd...................... 802,631
------------
SECURITY AND COMMODITY BROKERS (4.47%)
18,700 Franklin Resources Inc........................ 1,356,919
31,950 New England Investment Companies L.P.......... 826,706
------------
2,183,625
------------
TRANSPORTATION EQUIPMENT (3.11%)
47,800 Coltec Industries (a)......................... 932,100
37,350 Kellstrom Industries Inc. (a)................. 588,262
------------
1,520,362
------------
WHOLESALE - GROCERIES AND
RELATED PRODUCTS (1.01%)
19,700 International Multifoods Corporation.......... 494,962
------------
TOTAL COMMON STOCKS (COST - $42,176,727) .... 47,690,020
------------
PREFERRED STOCK - CONVERTIBLE
(2.38% OF TOTAL INVESTMENTS)
HOTELS, OTHER LODGING PLACES (2.38%)
53,250 La Quinta Inns Inc............................ $ 1,164,844
------------
TOTAL PREFERRED STOCK - CONVERTIBLE
(COST - $1,170,295) .......................... 1,164,844
------------
TOTAL STOCKS ................................. 48,854,864
------------
TOTAL INVESTMENTS IN SECURITIES
(COST - $43,347,022) ........................ $ 48,854,864
------------
- --------------------------------------------
(a) Non-dividend paying common stock.
The accompanying notes are an integral part of these financial statements.
8
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CONSECO FUND GROUP
================================================================================
REPORT FROM THE
ASSET ALLOCATION FUND ADVISERS
During the first half of 1997, we maintained roughly a 60-40 split between
stocks and bonds. While we have conceded that the equity market was not cheap
toward the end of 1996, we have not deviated significantly from the asset mix we
held throughout last year.
There is significant dispersion between performance of large capitalization
and small capitalization stocks, with the large caps outperforming so far this
year. Yet, we have continued to find opportunities to invest in the equity area.
If it becomes more difficult to uncover equity investment opportunities, we
would consider reducing our overall exposure to stocks.
Within the fixed income portion of the portfolio, we have had very strong
performance this year from the high yield sector. Our strategy is to use high
yield bonds in combination with investment grade securities to provide a higher
level of income to the portfolio. Looking ahead, we may increase the allocation
to convertible bonds as relative value improves and investment opportunities
within the sector are identified.
/s/Gregory J. Hahn /s/Thomas J. Pence
------------------ ------------------
Gregory J. Hahn, CFA Thomas J. Pence
Senior Vice President Vice President
Portfolio Manager Portfolio Manager
Conseco Capital Management, Inc. Conseco Capital Management, Inc.
9
<PAGE>
CONSECO FUND GROUP
ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS IN SECURITIES
June 30, 1997
(unaudited)
================================================================================
SHARES OR
PRINCIPAL
AMOUNT SECURITY VALUE
================================================================================
COMMON STOCKS
(58.03% OF TOTAL INVESTMENTS)
AIR TRANSPORTATION (2.30%)
3,100 Atlas Air Inc. (a)............................ $ 106,950
5,000 Comair Holdings, Inc.......................... 138,437
---------
245,387
---------
AMUSEMENT AND RECREATION SERVICES (1.60%)
3,900 Cedar Fair - LP............................... 170,625
---------
APPAREL AND ACCESSORY STORES (.97%)
5,900 Claire's Stores, Inc.......................... 103,250
---------
BUSINESS SERVICES (9.18%)
4,850 Affiliated Computer Svcs - A (a).............. 135,800
4,400 Autodesk, Inc................................. 168,575
1,600 CDI Corporation (a)........................... 66,700
5,100 Comdisco Incorporated......................... 132,600
5,400 IKOS Systems Inc. (a)......................... 115,425
4,900 Renters Choice, Inc. (a)...................... 97,387
7,600 Software Artistry Inc. (a).................... 120,650
8,350 Sotheby's Holdings - Class A.................. 140,906
---------
978,043
---------
CHEMICALS AND ALLIED PRODUCTS (3.31%)
2,300 Goodrich (B.F.) Company....................... 99,619
2,600 Great Lakes Chemical Corp..................... 136,175
5,100 Serologicals Corporation (a).................. 117,300
---------
353,094
---------
COMMUNICATIONS BY PHONE,
TELEVISION, RADIO, CABLE (3.20%)
3,550 Emmis Broadcasting Corp. (a).................. 154,869
12,200 Tel-Save Holdings, Incorporated (a)........... 186,050
---------
340,919
---------
CONSTRUCTION - SPECIALIZED TRADES (.84%)
2,500 Dynatech Corporation (a)...................... 89,375
---------
DEPOSITORY INSTITUTIONS (1.56%)
2,950 Norwest Corp.................................. 165,937
---------
DURABLE GOODS - WHOLESALE (1.24%)
950 Applied Industrial Tech Inc................... 34,200
3,450 Hasbro, Inc................................... 97,894
---------
132,094
---------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (.45%)
1,000 Kinder Morgan Energy Partners L.P............. 48,000
---------
ELECTRICAL EQUIPMENT, EXCEPT COMPUTERS (3.02%)
3,600 Andrew Corp. (a).............................. 101,250
6,500 Inter City Products Corp. (a)................. 35,344
3,450 SBS Technologies (a).......................... 79,781
2,900 Semtech Corporation (a)....................... 105,850
---------
322,225
---------
ENGINEERING SERVICES, ACCOUNTING,
MANAGEMENT (.84%)
7,300 Physician Support Systems (a)................. 89,425
---------
FOOD STORES (1.23%)
6,100 Casey's General Stores Inc.................... 131,341
---------
FURNITURE AND FIXTURES (1.17%)
6,450 Furniture Brands International Inc. (a)....... 124,969
---------
GENERAL MERCHANDISE STORES (2.02%)
9,450 Ames Department Stores (a).................... 91,547
4,550 Family Dollar Stores.......................... 123,988
---------
215,535
---------
HEALTH SERVICES (1.36%)
4,050 Quorum Health Group, Inc. (a)................. 144,788
---------
INDUSTRIAL, COMMERCIAL MACHINERY,
COMPUTERS (1.17%)
3,200 EMC Corporation............................... 124,800
---------
MEASURING INSTRUMENTS, PHOTO GOODS,
WATCHES (3.37%)
4,600 Analogic Corporation.......................... 156,400
2,050 DENTSPLY International, Inc................... 100,450
1,600 Sci Systems Incorporated (a).................. 102,000
---------
358,850
---------
MISCELLANEOUS FURNITURE AND FIXTURES (.27%)
600 Hillenbrand Industries........................ 28,500
---------
MISCELLANEOUS RETAIL (1.23%)
3,400 Brylane Inc. (a).............................. 131,112
---------
MOTION PICTURES, FILMS (1.16%)
27,780 Video Update, Inc. Class A (a)................ 123,274
---------
MOTOR FREIGHT TRANSPORTATION,
WAREHOUSES (.93%)
6,350 American Freightways, Incorporated (a)........ 99,219
---------
OIL AND GAS EXTRACTION (1.96%)
1,750 B.J. Services Company (a)..................... 93,844
5,450 Oryx Energy Co. (a)........................... 115,131
---------
208,975
---------
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
CONSECO FUND GROUP
ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS IN SECURITIES - (CONTINUED)
June 30, 1997
(unaudited)
================================================================================
SHARES OR
PRINCIPAL
AMOUNT SECURITY VALUE
================================================================================
OPTICAL INSTRUMENTS AND LENSES (1.14%)
2,500 KLA - Tencor Corp............................. $ 121,875
------------
PAPER AND ALLIED PRODUCTS (1.94%)
3,050 Schweitzer-Manduit Intl Inc................... 114,375
1,100 St. Joe Corporation........................... 92,125
------------
206,500
------------
PERSONAL SERVICES (.95%)
3,900 CUC International Inc. (a).................... 100,669
------------
PRINTING, PUBLISHING AND ALLIED (1.28%)
5,200 New England Business Service.................. 136,825
------------
REAL ESTATE OPERATORS, AGENTS,
MANAGERS (1.91%)
3,100 Fairfield Communities Inc. (a)................ 104,237
3,350 Rouse Company................................. 98,825
------------
203,062
------------
RUBBER AND MISCELLANEOUS
PLASTIC PRODUCTS (1.19%)
2,700 Reebok International Ltd...................... 126,731
------------
SECURITY AND COMMODITY BROKERS (2.76%)
2,500 Franklin Resources Inc........................ 181,406
4,350 New England Investment Companies L.P.......... 112,556
------------
293,962
------------
TRANSPORTATION EQUIPMENT (1.87%)
6,500 Coltec Industries (a)......................... 126,750
4,600 Kellstrom Industries Inc. (a)................. 72,450
------------
199,200
------------
WHOLESALE - GROCERIES AND RELATED
PRODUCTS (.61%)
2,600 International Multifoods Corporation.......... 65,325
------------
TOTAL COMMON STOCKS (COST - $5,454,530) ...... 6,183,886
------------
PREFERRED STOCK - CONVERTIBLE
(1.48% OF TOTAL INVESTMENTS)
HOTELS, OTHER LODGING PLACES (1.48%)
7,200 La Quinta Inns Inc............................ 157,500
------------
TOTAL PREFERRED STOCK - CONVERTIBLE
(COST - $160,683) ............................ 157,500
------------
CORPORATE BONDS
(40.49% OF TOTAL INVESTMENTS)
AUTO REPAIR AND PARKING (3.77%)
400,000 Amerco Inc., 7.47%, due 1/15/27............... 401,975
------------
DEPOSITORY INSTITUTIONS (6.83%)
200,000 Centura Bank Capital Trust I,
8.845%, due 6/1/27, Series 144A............. 205,212
500,000 Dime Capital Trust, 9.33%, due 5/6/27......... 522,251
------------
727,463
------------
DURABLE GOODS - WHOLESALE (1.00%)
100,000 Pioneer Standard Electronics, 8.5%, due 8/1/06 106,275
------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (2.82%)
300,000 MCN Financing VI, 6.85%, due 10/28/99......... 300,660
------------
FOOD AND KINDRED PRODUCTS (1.86%)
200,000 RJR Nabisco Inc., 8.25%, due 7/1/04........... 198,850
------------
HOME FURNITURE AND EQUIPMENT
STORES (4.72%)
500,000 Macsaver Financial, 7.875%, due 8/1/03........ 502,752
------------
LUMBER AND WOOD PRODUCTS,
EXCEPT FURNITURE (4.74%)
500,000 West Fraser Mill, 7.25%, due 9/15/02.......... 505,079
------------
NON-DEPOSITORY CREDIT INSTITUTIONS (4.83%)
500,000 First USA Bank, 7.65%, due 8/1/03............. 514,690
------------
REAL ESTATE INVESTMENT TRUSTS (2.81%)
300,000 Carramerica Realty Corp., 7.20%, due 7/1/04... 299,205
------------
SECURITY AND COMMODITY BROKERS (2.79%)
300,000 Paine Webber Grp, 7.625%, due 2/15/14......... 297,799
------------
STONE, CLAY, GLASS, CONCRETE (1.99%)
200,000 USG Corp., 9.25%, due 9/15/01................. 211,832
------------
TRANSIT AND PASSENGER
TRANSPORTATION (2.33%)
250,000 Coach USA Inc., 9.375%, due 7/1/07............ 248,750
------------
TOTAL CORPORATE BONDS (COST - $4,285,899) .... 4,315,330
------------
TOTAL INVESTMENTS IN SECURITIES
(COST - $9,901,112) .......................... $ 10,656,716
------------
- ------------------------------------------------------
(a) Non-dividend paying common stock.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
CONSECO FUND GROUP
================================================================================
REPORT FROM THE
FIXED INCOME FUND ADVISER
Through the first half of 1997, the fixed income markets have traded in a
very narrow range. In spite of strong economic growth, the downward trend in
bond yields has continued through the second quarter based on the market's
belief that inflation will not be a concern. The Federal Open Market Committee,
which raised short term rates 25 basis points in March, has left interest rates
to drift with the market's currents through the second quarter. However, given
the healthy economy, the very tight labor markets and fairly tame price
pressures, there is concern of the potential for a pick-up in inflation later in
the year.
The portfolio continues to maintain a healthy exposure to the Bank/Finance
and Industrial sectors. An example of the type of security we have been
investing in, we purchased the debt of First USA Bank based on its pending
merger with higher rated Banc One Corporation. We expect to see incremental
returns once First USA Bank is upgraded after the merger closes. Salomon
Brothers continues to be one of the largest holdings and our Brokerage analyst,
Rob Cook, is impressed with the string of profitable quarters which the company
has reported over the past two years. In the industrial sector, we purchased
TransOcean Offshore, an oil and gas exploration company we believe trades cheap
to its current ratings. In the utility area, we purchased NRG Energy, an
independent power producer which is a wholly-owned subsidiary of Northern States
Power.
While the mortgage-backed securities sector generally appears fully valued,
we have increased portfolio exposure to the Asset-Backed Securities (ABS)
sector. We continue to utilize ABS in the shorter portion of the portfolio where
we believe certain ABS offer excellent relative value. Recently, we invested in
GreenTree 97-B-B which is collateralized by consumer loans. We also added to our
position in New York City Tax Lien 96-1-B which continues to offer excellent
value shorter portion of the fixed income market.
While there is not a significant yield advantage in corporate securities
relative to U.S. Treasury yields, we believe there is value in certain taxable
municipal bonds. This sector has been a growing part of the portfolio and we
have recently added Mississippi Hospital Equipment and Facilities Authority and
Tulane University which is insured by the Mutual Bond Insurance Association.
Our style has been to maintain a level of interest rate exposure consistent
with the general market and add incremental return by investing in specific
securities which are considered to be undervalued. This style has held up well
over the past six months, as well as over longer time frames.
/s/Gregory J. Hahn
------------------
Gregory J. Hahn, CFA
Senior Vice President
Portfolio Manager
Conseco Capital Management, Inc.
12
<PAGE>
CONSECO FUND GROUP
FIXED INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES
June 30, 1997
(unaudited)
================================================================================
SHARES OR
PRINCIPAL
AMOUNT SECURITY VALUE
================================================================================
ASSET BACKED
(5.51% OF TOTAL INVESTMENTS)
229,607 Copelco Capital Funding Corp., 6.34%, due 7/20/04 $ 230,817
174,012 Lehman FHA Title I Loan Trust, 6.78%, due 3/25/08 174,766
153,999 Midland Realty Acceptance Corporation,
7.315%, due 8/25/28......................... 156,464
100,000 National Car Rental Financing LTD, 6.80%, due 4/20/00 99,812
342,002 New York City Tax Lien, 6.91%, due 5/25/05.... 353,513
------------
TOTAL ASSET BACKED (COST - $1,003,422) ....... 1,015,372
------------
CORPORATE BONDS
(61.10% OF TOTAL INVESTMENTS)
AUTO REPAIR AND PARKING (4.78%)
575,000 Amerco Inc., 7.47%, due 1/15/27............... 577,839
200,000 Amerco Inc., 7.44%, due 10/2/06............... 203,032
100,000 AMERCO, 6.71%, due 10/15/08 .................. 100,491
------------
881,362
------------
DEPOSITORY INSTITUTIONS (7.79%)
450,000 Dao Heng Bank LTD, 7.75%, due 1/24/07......... 450,867
650,000 Morgan Stanley Fin PLC, 8.03%, due 2/25/17.... 647,347
350,000 Republic NY Cap II-Stops, 7.53%, due 12/4/26.. 336,792
------------
1,435,006
------------
DURABLE GOODS - WHOLESALE (.58%)
100,000 Pioneer Standard Electronics, 8.5%, due 8/1/06 106,274
------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (2.43%)
450,000 NRG Energy Inc., 7.5%, due 6/15/07............ 447,800
------------
FIRE, MARINE AND CASUALTY INSURANCE (3.85%)
200,000 Horace Mann Educators, 6.625%, due 1/15/06.... 192,718
100,000 Integon Corp, 9.50%, due 10/15/01............. 108,500
150,000 Leucadia, 8.25%, due 6/15/05.................. 155,170
250,000 Leucadia National Corp., 7.785%, due 10/15/06. 253,085
------------
709,473
------------
FOOD AND KINDRED PRODUCTS (2.71%)
100,000 Panamerican Beverage Inc., 8.125%, due 4/1/03. 102,575
400,000 RJR Nabisco Inc., 8.25%, due 7/1/04........... 397,700
------------
500,275
------------
HOME FURNITURE AND EQUIPMENT STORES (2.73%)
500,000 Macsaver Financial, 7.875%, due 8/1/03........ 502,752
------------
LIFE INSURANCE (2.70%)
300,000 Delphi Financial, 8%, due 10/1/03............. 290,818
200,000 Delphi Funding LLC, 9.31%, due 3/25/27........ 206,124
------------
496,942
------------
LUMBER AND WOOD PRODUCTS,
EXCEPT FURNITURE (3.84%)
700,000 West Fraser Mill, 7.25%, due 9/15/02.......... 707,111
------------
MINING - METALS AND ORES (.54%)
100,000 Freeport McMoran C&G, 7.50%, due 11/15/06..... 99,771
------------
NATURAL GAS TRANSMISSION AND
DISTRIBUTION (1.51%)
250,000 Southwest Gas Company, 9.75%, due 6/15/02..... 278,390
------------
NON-DEPOSITORY CREDIT INSTITUTIONS (7.38%)
250,000 First USA Bank, 7.65%, due 8/1/03............. 257,345
700,000 MCN Financing VI, 6.85%, due 10/28/99......... 701,540
150,000 Nationsbank Corp, 7.80%, due 9/15/16.......... 154,200
250,000 St. Paul Bankcorp, 7.125%, due 2/15/04........ 246,772
------------
1,359,857
------------
OIL AND GAS EXTRACTION (5.57%)
200,000 Petrozuata Finance, 8.22%, due 4/1/17......... 199,454
150,000 Ras Laffan Liq Nat Gas, 8.29%, due 3/15/14.... 157,255
500,000 Transocean Offshore Inc., 8.0%, due 4/15/27... 520,942
150,000 Western Atlas Inc., 5.65%, due 7/13/97........ 149,952
------------
1,027,603
------------
PAPER AND ALLIED PRODUCTS (.58%)
100,000 Westavaco, 10.3%, due 1/15/19 ................ 106,770
------------
PETROLEUM REFINING (4.58%)
278,000 Pennzoil Company, 9.625%, due 11/15/99........ 295,699
400,000 Pennzoil Company, 10.625%, due 6/1/01......... 429,144
100,000 USX Corporation, 9.375%, due 2/15/12.......... 119,326
------------
844,169
------------
REAL ESTATE INVESTMENT TRUSTS (2.70%)
500,000 Carramerica Realty Corp, 7.20%, due 7/1/04.... 498,675
------------
SECURITY AND COMMODITY BROKERS (4.94%)
400,000 Paine Webber Grp, 7.625%, due 2/15/14......... 397,065
200,000 Paine Webber Grp, 9.25%, due 12/15/01......... 217,283
100,000 Salomon Inc., 6.50%, due 8/15/03.............. 97,034
200,000 Salomon Inc., 6.70%, due 7/5/00............... 199,555
------------
910,937
------------
MISCELLANEOUS REPAIR SERVICES (1.89%)
300,000 Greenwich Air, 10.50%, due 6/6/06............. 348,000
------------
TOTAL CORPORATE BONDS (COST - $11,177,941) ... 11,261,167
------------
COLLATERALIZED MORTGAGE OBLIGATIONS
(10.85% OF TOTAL INVESTMENTS)
500,000 CMO Iroquois Trust, 7.0%, due 12/15/06........ 494,150
230,878 JP Morgan Commercial Mortgage, 6.47%, due 11/25/27 224,697
527,544 JP Morgan Comm Mortg Finc, 6.939%, due 12/26/28 530,672
500,000 Paine Webber Mtg Accept Corp CMO, 6.90%, due 1/2/12 500,895
194,619 Rural Housing Trust 1987-1, 7.33%, due 4/1/26. 195,945
54,384 Structured Asset Securities Corp., 5.751%, due 2/25/28 54,085
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST - $2,002,958) ......................... 2,000,444
------------
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
CONSECO FUND GROUP
FIXED INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES - (CONTINUED)
June 30, 1997
(unaudited)
================================================================================
SHARES OR
PRINCIPAL
AMOUNT SECURITY VALUE
================================================================================
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(10.69% OF TOTAL INVESTMENTS)
1,159,227 FHLMC G00479, 9.0%, due 4/1/25................ $ 1,234,901
296,716 FHLMC Structured Pass Through, 7.63%, due 8/25/22 308,425
100,000 FNMA 7.0% Series 1994-63 Class PK, due 4/25/24 97,991
230,796 FNMA 7.5% Pool 250307, due 7/1/25............. 232,091
97,661 FNMA 7.0%, due 11/1/26........................ 95,901
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST - $1,942,681) .......................... 1,969,309
------------
MUNICIPAL BONDS
(11.85% OF TOTAL INVESTMENTS)
PUBLIC FINANCE, TAXATION (11.85%)
135,000 Augusta GA HSG Rehab Agy., 7.90%, due 3/1/99.. 138,097
100,000 Doylestown Pa Hosp Auth Hosp Rev, 8.375%, due 7/1/08 102,274
300,000 Fort Worth Tex Higher Ed Fin Rev, 7.50%, due 10/1/06 301,370
600,000 Mississippi Hosp Equip Facs Auth, 9.10%, due 4/1/06 609,223
400,000 Philadelphia PA Auth Indl Dev, 6.488%, due 6/15/04 400,000
350,000 Sisters of Providence Wa, 7.47%, due 10/1/07.. 360,033
270,000 Tulane Univ La, 7.30%, due 12/15/12........... 271,974
------------
TOTAL MUNICIPAL BONDS (COST - $2,167,046) .... 2,182,971
------------
TOTAL INVESTMENTS IN SECURITIES
(COST - $18,294,048) ......................... $ 18,429,263
------------
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
CONSECO FUND GROUP
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
================================================================================
(1) ORGANIZATION
Conseco Fund Group (the "Trust") is an open-end diversified management
investment company registered with the Securities and Exchange Commission under
the Investment Company Act of 1940 (the "1940 Act"). The Trust was organized as
a Massachusetts business trust on September 24, 1996. The Trust is a "series"
type of mutual fund which issues separate series of shares of beneficial
interest, each of which represents a separate diversified portfolio of
investments. The Trust consists of three series ("Funds"), each with its own
investment objective and investment policies. The Funds are the Equity Fund, the
Asset Allocation Fund and the Fixed Income Fund. The Trust's activities were
limited to organizational matters with no operating activities through January
1, 1997. The Funds became operational and available for sale on January 2, 1997.
Each Fund has distinct investment objectives. The Equity Fund invests in
selected equity securities and other securities having the investment
characteristics of common stocks. The Asset Allocation Fund invests in several
asset classes including debt securities, equity securities, and money market
instruments. The Fixed Income Fund invests primarily in investment grade debt
securities.
The Funds offer two classes of shares: Class A and Class Y. Sales of Class A
shares may be subject to a front-end sales charge. Class Y shares are available
with no sales charge to certain institutional investors and qualifying
individual investors. Prior to January 2, 1997, an affiliate, Conseco, Inc.
("Conseco"), held all of the outstanding shares of each class of the Funds. The
Funds are authorized to issue an unlimited number of shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION, TRANSACTIONS, AND RELATED INVESTMENT INCOME
The investments in each portfolio are valued at the end of each New York
Stock Exchange business day. Investment transactions are accounted for on the
trade date (the date the order to buy or sell is executed). Dividend income is
recorded on the ex-dividend date and interest income is accrued daily. The cost
of investments sold is determined on the specific identification basis. The
Trust does not hold any investments which are restricted as to resale, except
for the Centura Bank Capital Trust I bond held by the Asset Allocation Fund,
which is eligible for resale under Rule 144A of the Securities Act of 1933. This
security may be resold in transactions exempt from registration, normally to
qualified institutional buyers.
In each Fund of the Trust, Fund securities which are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued, or lacking any sales, at the mean between
the closing bid and asked prices. Securities traded in the over-the-counter
market are valued at the mid-day mean between the bid and asked prices or yield
equivalent as obtained from one or more dealers that make markets in the
securities. Fund securities which are traded both in the over-the-counter market
and on a stock exchange are valued according to the broadest and most
representative market, and it is expected that for debt securities this
ordinarily will be the over-the-counter market. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined under policies approved by the Board of Trustees of the Trust. Debt
securities with maturities of sixty (60) days or less are valued at amortized
cost.
DIVIDENDS TO SHAREHOLDERS
Dividends from the Fixed Income Fund will be declared and distributed
monthly. Dividends from the Equity Fund and the Asset Allocation Fund will be
declared and distributed quarterly. However, the Trustees may decide to declare
dividends at other intervals.
Dividends to shareholders from net investment income are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Permanent book and tax differences relating to dividends
to shareholders may result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized and
unrealized gain (loss). Any taxable income or gain of the Trust remaining at
fiscal year end will be declared and distributed in the following year to the
shareholders of the Fund or Funds to which such gains are attributable.
ORGANIZATIONAL COSTS
Costs incurred by the Funds in connection with their organization and public
offering of shares, estimated at $279,000 have been deferred and will be
amortized over a period of approximately 5 years beginning with the initial date
of sale of shares to the public. The costs were advanced by Conseco, and will be
reimbursed by the Funds over a period of approximately 5 years. The proceeds of
any redemption of the initial shares by any holder thereof will be reduced by
any unamortized organizational costs in the same proportion as the number of
initial shares being redeemed to the number of initial shares outstanding at the
time of such redemption.
FEDERAL INCOME TAXES
For federal income tax purposes, the Funds intend to comply in their initial
fiscal year and thereafter with Subchapter M of the Internal Revenue Code by
distributing substantially all of their taxable income and net capital gain to
their shareholders or otherwise complying with the requirements for regulated
investment companies, and therefore, no provision has been made for federal
income taxes.
CUSTODY FEES
The Funds receive credits from their custodian based on cash held by each
Fund at the custodian. These credits are used to reduce the custody fees payable
by each Fund. For the period from inception (January 2, 1997) through June 30,
1997, such credits totaled $7,344, $7,305 and $3,972 for the Equity Fund, Asset
Allocation Fund and Fixed Income Fund, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of income and expenses during the reporting period.Actual
results may differ from these estimates.
(3) AGREEMENTS WITH SUBSIDIARIES OF CONSECO
INVESTMENT ADVISORY AGREEMENT
Conseco Capital Management, Inc. (the "Adviser"), a wholly owned subsidiary
of Conseco, serves as investment adviser to the Funds pursuant to investment
advisory agreements. The Adviser supervises the Trust's management and
investment program, performs a variety of services in connection with management
and operation of the Funds and pays all compensation of officers and Trustees of
the Trust who are affiliated persons of the Adviser or the Trust. The total fees
paid to the Adviser for the period from inception (January 2, 1997) through June
30, 1997, were $61,439, $18,156 and $15,619 for the Equity Fund, Asset
Allocation Fund and Fixed Income Fund, respectively.
Under the investment advisory agreements, the Adviser receives an investment
advisory fee equal to an annual rate of .45% of the average daily net asset
value of the Fixed Income Fund, .70% of the average daily net asset value of the
Equity Fund, and .70% of the average daily net asset value of the Asset
Allocation Fund. The Adviser has voluntarily agreed to reduce its advisory fee
with respect to the Fixed Income Fund to .40% of such Fund's average daily net
assets until April 30, 1998. The Adviser also manages another registered
investment company and all of the invested assets of its parent company,
Conseco, which owns or manages several life insurance subsidiaries, and provides
investment and servicing functions to Conseco and affiliates. The Adviser has
voluntarily agreed to waive its investment advisory fee and/or reimburse the
Funds to the extent that the ratio of expenses to net assets on an annual basis
for Class A Shares exceeds: 1.50% for the Equity Fund, 1.50% for the Asset
Allocation Fund, and 1.25% for the Fixed Income Fund; and for Class Y Shares
exceeds: 1.00% for the Equity Fund, 1.00% for the Asset Allocation Fund, and
.60% for the Fixed Income Fund. These voluntary limits may be discontinued by
the Adviser at any time after April 30, 1998.
15
<PAGE>
CONSECO FUND GROUP
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
June 30, 1997 (Unaudited)
================================================================================
ADMINISTRATION AGREEMENT
Conseco Services, LLC (the "Administrator"), a wholly owned subsidiary of
Conseco, supervises the preparation and filing of all documents required for
compliance by the Funds with applicable laws and regulations, supervises the
maintenance of books and records of the Funds and provides other general and
administrative services. For providing these services, the Administrator
receives compensation at the annual rate of 0.20% of the average daily net
assets attributable to Class A and Class Y shares of each Fund. The
Administrator has voluntarily agreed to waive its fees and/or reimburse the
Funds to the extent that annual total operating expenses exceed 1.50% for Class
A shares of the Equity and Asset Allocation Funds and 1.25% for the Class A
shares of the Fixed Income Fund and 1.00% for Class Y shares of the Equity and
Asset Allocation Funds and 0.60% for Class Y shares of the Fixed Income Fund.
The total fees paid to the Administrator for the period from inception (January
2, 1997) through June 30, 1997, were $22,363, $10,078 and $12,655 for the Equity
Fund, Asset Allocation Fund and Fixed Income Fund, respectively.
DISTRIBUTION ARRANGEMENTS
Conseco Equity Sales, Inc. (the "Distributor"), a wholly owned subsidiary of
Conseco, serves as the principal underwriter for each Fund pursuant to an
Underwriting Agreement, dated January 2, 1997, initially approved by the Board
of Trustees. The Distributor is a registered broker-dealer and member of the
National Association of Securities Dealers, Inc. ("NASD"). Shares of each Fund
will be continuously offered and will be sold by selected brokers, dealers and
other financial intermediaries who have executed selling agreements with the
Distributor. The Distributor bears all the expenses of providing services
pursuant to the Underwriting Agreement including the payment of the expenses
relating to the distribution of Prospectuses for sales purposes as well as any
advertising or sales literature.
The Trust has adopted distribution and service plans (the "Plans"), dated
March 28, 1997, for Class A shares of each Fund in accordance with the
requirements of Rule 12b-1 under the 1940 Act and the requirements of the
applicable rules of the NASD regarding asset based sales charges.
Pursuant to the Plans, a Fund may compensate the Distributor for its
expenditures in financing any activity primarily intended to result in the sale
of Class A shares of the Fund and for maintenance and personal service provided
to existing Class A shareholders. The Equity Fund's Plan and the Asset
Allocation Fund's Plan authorize payments to the Distributor up to 0.50%, and
the Fixed Income Fund's Plan up to 0.65%, annually of each Fund's average daily
net assets attributable to its Class A shares. The Plans provide for periodic
payments by the Distributor to brokers, dealers and financial intermediaries for
providing shareholder services to accounts that hold Class A shares and for
promotional and other sales related costs. The Distributor has voluntarily
agreed to waive its fees and/or reimburse the Funds to the extent that annual
total operating expenses exceed 1.50% for Class A shares of the Equity and Asset
Allocation Funds and 1.25% for the Class A shares of the Fixed Income Fund. The
total fees paid to the Distributor for Class A shares for the period from
inception (January 2, 1997) through June 30, 1997, were $1,082, $310 and $63 for
the Equity Fund, Asset Allocation Fund and Fixed Income Fund, respectively.
(4) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION (JANUARY 2, 1997) THROUGH JUNE 30, 1997
==============================================================
ASSET FIXED
EQUITY ALLOCATION INCOME
CLASS A SHARES FUND FUND FUND
====================================================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning of period............................... $10.00 $10.00 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations (a):
Net investment income (loss).............................................. (.03) .10 .27
Net realized gains and change in unrealized appreciation
on investments.......................................................... .88 .65 .09
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations...................................... .85 .75 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net investment income and net realized short-term
capital gains (a)......................................................... -- (.20) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period................................ $10.85 $10.55 $10.06
====================================================================================================================================
Total return (not annualized) (b) (c)........................................ 8.50% 6.65% 3.41%
====================================================================================================================================
Ratios/supplemental data:
Net assets, end of period................................................. $1,537,971 $433,074 $43,817
Ratio of expenses to average net assets (b) (annualized).................. 1.50% 1.50% 1.25%
Ratio of net investment income (loss) to average net
assets (b) (annualized)................................................. (.66)% 2.06% 5.96%
</TABLE>
- ------------------------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding during the period from inception (January 2, 1997) through June
30, 1997.
(b) These ratios have been reduced due to an agreement with the Adviser that the
ratio of expenses to average net assets would not exceed on an annual basis
1.50 percent for the Equity Fund, 1.50 percent for the Asset Allocation Fund
and 1.25 percent for the Fixed Income Fund. These voluntary limits may be
discontinued by the Adviser at any time after April 30, 1998. If the
aforementioned agreement had not been in effect during the period, the
annualized ratio of expenses to average net assets would have been 9.33
percent for the Equity Fund, 23.20 percent for the Asset Allocation Fund and
102.86 percent for the Fixed Income Fund.
(c) Total return figures do not include sales charges; results would be lower if
sales charges were included.
16
<PAGE>
<TABLE>
<CAPTION>
CONSECO FUND GROUP
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
June 30, 1997 (Unaudited)
====================================================================================================================================
4. FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD FROM INCEPTION (JANUARY 2, 1997) THROUGH JUNE 30, 1997
==============================================================
ASSET FIXED
EQUITY ALLOCATION INCOME
CLASS Y SHARES FUND FUND FUND
====================================================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning of period.................................. $10.00 $10.00 $10.00
Income from investment operations (a):
Net investment income (loss)................................................. (.01) .06 .35
Net realized gains and change in unrealized appreciation
on investments............................................................. .89 .56 .06
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations......................................... .88 .62 .41
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net investment income and net realized short-term
capital gains (a)............................................................ -- (.05) (.33)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period................................... $10.88 $10.57 $10.08
====================================================================================================================================
Total return (not annualized) (b)............................................... 8.80% 6.90% 3.71%
====================================================================================================================================
Ratios/supplemental data:
Net assets, end of period................................................... $48,690,983 $10,706,693 $19,480,853
Ratio of expenses to average net assets (b) (annualized)..................... 1.00% 1.00% .60%
Ratio of net investment income (loss) to average net
assets (b) (annualized).................................................... (.24)% 2.85% 6.95%
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding during the period from inception (January 2, 1997) through June
30, 1997.
(b) These ratios have been reduced due to an agreement with the Adviser that the
ratio of expenses to average net assets would not exceed on an annual basis
1.00 percent for the Equity Fund, 1.00 percent for the Asset Allocation Fund
and .60 percent for the Fixed Income Fund. These voluntary limits may be
discontinued by the Adviser at any time after April 30, 1998. If the
aforementioned agreement had not been in effect during the period, the
annualized ratio of expenses to average net assets would have been 1.40
percent for the Equity Fund, 1.99 percent for the Asset Allocation Fund and
1.53 percent for the Fixed Income Fund.
ASSET FIXED
EQUITY ALLOCATION INCOME
FUND FUND FUND
==================================================================================================================================
Supplemental data for all classes:
Net assets, end of period....................................................... $50,228,954 $11,139,767 $19,524,670
Portfolio turnover rate......................................................... 97.331% 241.150% 220.808%
Average commission rate paid (a)................................................ $.06 $.06 $ --
- --------------------------
(a) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
CONSECO FUND GROUP
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
June 30, 1997 (Unaudited)
====================================================================================================================================
5. INVESTMENT TRANSACTIONS
Gross unrealized appreciation and depreciation of investments at June 30,
1997 are shown below:
ASSET FIXED
EQUITY ALLOCATION INCOME
FUND FUND FUND
====================================================================================================================================
<S> <C> <C> <C>
Gross unrealized appreciation................................................... $5,832,738 $836,268 $178,343
- ------------------------------------------------------------------------------------------------------------------------------------
Gross unrealized depreciation................................................... (324,896) (80,664) (43,128)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation..................................................... $5,507,842 $755,604 $135,215
====================================================================================================================================
The aggregate cost of purchases and the aggregate proceeds from sales of
investments for the period from inception (January 2, 1997) through June 30,
1997, are shown below:
ASSET FIXED
EQUITY ALLOCATION INCOME
FUND FUND FUND
====================================================================================================================================
Purchases:
Investments, excluding U.S. government securities and
short-term investments..................................................... $63,852,457 $29,966,309 $33,403,290
U.S. government securities................................................. -- 3,389,012 11,469,004
Sales:
Investments, excluding U.S. government securities and
short-term investments..................................................... $21,080,925 $19,903,176 $15,153,116
U.S. government securities.................................................... -- 3,386,813 11,477,982
</TABLE>
18
<PAGE>
CONSECO FUND GROUP
SPECIAL MEETING OF SHAREHOLDERS
MARCH 28, 1997
================================================================================
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS:
A special meeting of the Conseco Fund Group shareholders was held on March 28,
1997. The following proposals were voted upon and carried:
PROPOSAL 1--To approve investment advisory agreements between the Trust, on
behalf of each Fund, and Conseco Capital Management, Inc.:
(For all shareholders of the Equity Fund, the Asset Allocation Fund and the
Fixed Income Fund, voting separately)
AFFIRMATIVE NEGATIVE SHARES
FUND VOTES VOTES ABSTENTIONS OUTSTANDING
- --------------------------------------------------------------------------------
Equity 1,008,844 0 0 1,013,229
Asset Allocation 1,003,161 0 0 1,003,456
Fixed Income 954,401 0 0 1,004,754
PROPOSAL 2--To approve a distribution and service plan for each Fund's Class A
shares to increase distribution fees:
(For Class A shareholders only of the Equity Fund, the Asset Allocation Fund and
the Fixed Income Fund, voting separately)
AFFIRMATIVE NEGATIVE CLASS A SHARES
FUND VOTES VOTES ABSTENTIONS OUTSTANDING
- --------------------------------------------------------------------------------
Equity 10,330 0 0 14,714
Asset Allocation 3,161 0 0 3,457
Fixed Income 1,870 0 0 2,068
PROPOSAL 3--To ratify the selection of Coopers & Lybrand LLP as independent
accountants of the Trust:
(For all shareholders of the Equity Fund, the Asset Allocation Fund and the
Fixed Income Fund, voting together)
AFFIRMATIVE NEGATIVE SHARES
VOTES VOTES ABSTENTIONS OUTSTANDING
- --------------------------------------------------------------------------------
2,996,408 0 0 3,021,440
(Fractional shares not shown)
19
<PAGE>
BOARD OF TRUSTEES
WILLIAM P. DAVES, JR.
Chairman of the Board
Consultant to insurance and healthcare industries. Director,
President and Chief Executive Officer, FFG Insurance Co.
MAXWELL E. BUBLITZ
President
Chartered Financial Analyst. President and Director, Adviser.
GREGORY J. HAHN
Chartered Financial Analyst. Senior Vice President, Adviser.
Portfolio Manager of the fixed income portion of Asset
Allocation and Fixed Income Funds.
HAROLD W. HARTLEY
Retired. Chartered Financial Analyst. Previously, Executive
Vice President, Tenneco Financial Services, Inc.
DR. R. JAN LECROY
President, Dallas Citizens Council.
DR. JESSE H. PARRISH
Former President, Midland college. Higher Education Consultant.
INVESTMENT ADVISER
Conseco Capital Management, Inc. - Carmel, Indiana.
DISTRIBUTOR
Conseco Equity Sales, Inc. - Carmel, Indiana
TRANSFER AGENT
State Street Bank & Trust Company - Boston, Massachusetts
CUSTODIAN
The Bank of New York - New York, New York
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand, L.L.P. - Indianapolis, Indiana
LEGAL COUNSEL
Kirkpatrick & Lockhart L.L.P. - Washington, DC
20
