[LOGO](SM)
CONSECO(R)
CONSECO FUND GROUP
------------------
1998 ANNUAL REPORT
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In a word,
it's about performance.
CONSECO FIXED INCOME FUND * CONSECO HIGH YIELD FUND * CONSECO CONVERTIBLE
SECURITIES FUND * CONSECO BALANCED FUND * CONSECO EQUITY FUND * CONSECO 20 FUND
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Message from the President ................................................ 1
Conseco Fund Group ........................................................ 2
Our Investment Advisor .................................................... 3
Statement of Assets and Liabilities as of December 31, 1998 ............... 4
Statement of Operations for the year ended December 31, 1998,
except for the Conseco Convertible Securities Fund which is for the
period from commencement of operations (September 28, 1998)
through December 31, 1998. ................................................ 5
Statement of Changes in Net Assets for years ended
December 31, 1998 and 1997, except for the Conseco Convertible
Securities Fund which is for the period from commencement of
operations (September 28, 1998) through December 31, 1998. ................ 6
CONSECO FIXED INCOME FUND
PORTFOLIO MANAGER'S REVIEW ........................................... 8
STATEMENT OF INVESTMENTS IN SECURITIES AS OF DECEMBER 31, 1998 ....... 10
CONSECO HIGH YIELD FUND
PORTFOLIO MANAGER'S REVIEW ........................................... 14
STATEMENT OF INVESTMENTS IN SECURITIES AS OF DECEMBER 31, 1998 ....... 16
CONSECO CONVERTIBLE SECURITIES FUND
PORTFOLIO MANAGER'S REVIEW ........................................... 20
STATEMENT OF INVESTMENTS IN SECURITIES AS OF DECEMBER 31, 1998 ....... 22
CONSECO BALANCED FUND
PORTFOLIO MANAGER'S REVIEW ........................................... 24
STATEMENT OF INVESTMENTS IN SECURITIES AS OF DECEMBER 31, 1998 ....... 26
CONSECO EQUITY FUND
PORTFOLIO MANAGER'S REVIEW ........................................... 30
STATEMENT OF INVESTMENTS IN SECURITIES AS OF DECEMBER 31, 1998 ....... 32
CONSECO 20 FUND
PORTFOLIO MANAGER'S REVIEW ........................................... 34
STATEMENT OF INVESTMENTS IN SECURITIES AS OF DECEMBER 31, 1998 ....... 36
Notes to Financial Statements ............................................. 37
Report of Independent Accountants ......................................... 52
Board of Trustees and Fund Service Providers .............................. 53
This report is for the information of Conseco Fund Group shareholders.
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.
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
THE PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Fellow Shareholder:
During 1998, investors took quite a wild, historic roller coaster ride --
one that will be remembered with mixed feelings, if not hatred, by many for
quite some time.
America's financial market foundations were rigorously tested by foreign
and domestic events. Weathering a continuous series of financial shock waves,
the market displayed resilience and stamina and bolted to record-setting stock
appreciation levels. The Dow hit a record 9,374 before settling down and
finishing at 9,181, while the bond market saw the 30-year U.S.Treasury almost
reach a 17 percent return.
While the S&P 500 posted a return of 28.6 percent, and large-cap stocks
maintained lofty valuations, the average NYSE and NASDAQ stocks finished down
from earlier highs -- mid-cap and small-cap stocks lagged far behind in
performance. From our view, the overvalued, large-cap equity market is running
out of steam and you'll see the long-enjoyed run-up of the S&P 500 index funds
come to an end in 1999. Consequently, you can expect an increasingly volatile
equities market to emerge in 1999. This scenario favors our proprietary,
bottom-up, research-driven, total-return style which focuses on mid-cap stocks.
Working within this methodology, our portfolio managers are very disciplined
buyers, sellers -- and holders. This investment style has helped us avoid the
pitfalls of real estate, long-term capital, derivatives and foreign-influenced
junk bonds.
Corporate bonds, mortgage-backed securities and other fixed-income sectors
lagged behind the 30-year Treasury. In fact, this is the first time since 1994
that corporate bonds underperformed comparable government bonds. Going into
1999, corporate bond prices are relatively cheap, creating opportunities for our
fixed income investing style.
Although this was a tumultuous year, our funds performed admirably. The
Conseco Fixed Income Fund (Class A shares)* wrested a 7.57 percent return. The
Conseco Balanced Fund (Class A shares)* returned 12.45 percent, while the
Conseco Equity Fund (Class A shares)* returned 16.11 percent. The Conseco 20
Fund (Class A shares),* introduced in January, achieved a robust 28 percent
return. Debuting in late September, the Conseco Convertible Securities Fund
(Class A shares)* returned 12.28 percent in the fourth quarter. The Conseco High
Yield Fund (Class A shares)* returned 6.56 percent. The Fund was recognized as
Morningstar's Featured Rookie Fund and outperformed the competition to occupy
the #3 position in the Wall Street Journal and U.S. News & World Report's "1998
Best Funds."
In a volatile world of rapidly shifting opportunities demanding
split-second timing, we embrace the dynamics of a rapidly changing marketplace.
Within this arena, our disciplined, seamlessly integrated team of traders,
analysts and portfolio managers strive together to reach one goal -- to help you
reach your investment objectives through a diversified array of
performance-driven fixed income and equity mutual funds. We're looking forward
to taking that step with you in 1999.
Maxwell E. Bublitz, CFA
President & Chief Executive Officer
CONSECO CAPITAL MANAGEMENT, INC.
- ----------------------------------------------------------
* TOTAL RETURN DOES NOT REFLECT SALES LOAD DEDUCTION.
1
<PAGE>
CONSECO FUND GROUP
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Formed in late 1996, the CONSECO FUND GROUP (CFG) is headquartered in
Carmel, IN, and distributed through Conseco Equity Sales, Inc., a wholly-owned
subsidiary of Conseco, Inc. Shareholder investments in CFG's family of funds are
managed by Conseco Capital Management, Inc. As of December 31, 1998, CFG's
shareholders had purchased slightly more than $305.7 million in the funds.
A registered, open-end investment management company, CFG currently offers
a family of six actively-managed mutual funds. Each fund represents a separate
portfolio of stock and bond investments and offers four classes of shares: Class
A, Class B, Class C and Class Y.
Over the course of a year, the management team visits some 15,000 companies
annually and conducts weekly evaluations of some 9,000 companies.
Combining investigative skills with imagination, the managers focus
primarily on more accessible, mid-sized companies. When on-site, they endeavor
to immerse themselves in a target company's culture, philosophy and objectives.
Warehouse visits, off-line discussions with workers, careful review of financial
ledgers and management expertise, as well as probing conversations with company
executives all contribute to building a well-rounded profile of the company and
its growth prospects.
During 1997, CFG launched three mutual funds:
CONSECO FIXED INCOME FUND (COFAX)
SEARCHING FOR CAPITAL GROWTH AND CURRENT INCOME
CONSECO BALANCED FUND* (COAAX)
SEARCHING FOR INCOME CONSISTENT WITH CAPITAL PRESERVATION
CONSECO EQUITY FUND (CEYAX)
SEARCHING FOR HIGH EQUITY AND TOTAL RETURN
In 1998, CFG added three additional mutual funds:
CONSECO CONVERTIBLE SECURITIES FUND (CCSAX)
SEARCHING FOR CURRENT INCOME AND CAPITAL APPRECIATION
CONSECO HIGH YIELD FUND (CHYAX)
SEARCHING FOR HIGH INCOME AND CAPITAL APPRECIATION
CONSECO 20 FUND (CTWAX)
SEARCHING FOR GROWTH THROUGH A PORTFOLIO OF "BEST IDEAS"
For more information on how the CFG family of funds can help you meet your
financial objectives, please ask your financial consultant, or call us toll-free
at 800-986-3394. Also, you can now visit us on the Internet at our web site at
WWW.CONSECOFUNDS.COM.
- -------------------------------------------------------------------------------
* NAME CHANGED IN 1998. ORIGINALLY REGISTERED AND LISTED AS, "CONSECO ASSET
ALLOCATION FUND"
2
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
OUR INVESTMENT ADVISOR
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CONSECO CAPITAL MANAGEMENT, INC. ("CCM") is a wholly-owned subsidiary of
and the principal investment advisor for Conseco, Inc., a publicly-held,
financial services organization that represents one of the most dramatic
corporate success stories in recent business history.
Since going public in 1985 with $103 million in assets and a mission to
build value for customers and shareholders, Conseco, Inc. has become one of the
top-performing companies listed on the New York Stock Exchange (trading symbol:
CNC). Today, Conseco, Inc. ranks among the best in both the Fortune 500 and the
S&P 500 in terms of shareholder return which has averaged 52.3 percent since
inception.
Formed in 1988, CCM has supported the success of Conseco, Inc. by
maximizing returns on invested capital, making it possible to pursue growth and
retain principal without undue risk.
Additionally, at the close of 1998, CCM had $35.3 billion in taxable and
tax-exempt assets under management for:
o Public and corporate pension plans
o Insurance companies
o Endowments
o Foundations
o Taft-Hartley funds
o Hospitals
o Religious organizations
o Private individuals
During the past 10 years, CCM has produced a competitive, long-term
investment performance track record and a strong service track record for a wide
range of clients. CCM's record can be credited to four factors:
o Intensive independent research
o Disciplined investment process that
tightly integrates research, trading,
portfolio management and analytics
o Sharply focused and seamless
organizational structure that generates
timely decisions
o Swiftness in capturing, and creating, investment
opportunity
For more information on CCM, please call Tom Meyers, senior vice president
at (317) 817-2700, or contact him via e-mail at [email protected]. Also,
feel free to write him at Conseco Capital Management, Inc., 11825 N.
Pennsylvania St., Carmel, IN 46032.
3
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO CONSECO CONSECO
INCOME YIELD SECURITIES BALANCED EQUITY 20
FUND FUND FUND FUND FUND FUND
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments at value (cost: $47,906,395;
$44,134,527; $24,581,078, $29,152,725;
$72,736,293, $37,245,645,
respectively) ......................... $48,170,887 $43,208,282 $27,125,475 $31,801,973 $88,468,672 $45,026,244
Interest and dividends receivable ....... 597,735 875,765 149,552 210,692 20,390 19,208
Receivable for securities sold .......... 497,530 -- -- 346,421 1,747,267 571,395
Receivable for shares sold .............. 146,674 1,366,362 -- 51,537 896,125 45,629
Receivable from Conseco, Inc.,
and subsidiaries ...................... 119,355 -- -- 109,985 -- --
Cash .................................... 42,241 -- 1,000,372 611,441 467,785 346,729
Organization costs ...................... 56,828 99,931 -- 56,828 56,828 99,930
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets ........................ 49,631,250 45,550,340 28,275,399 33,188,877 91,657,067 46,109,135
===================================================================================================================================
LIABILITIES AND NET ASSETS:
Payable to Conseco, Inc., and subsidiaries -- 55,588 58,102 -- 521,315 209,823
Accrued expenses and payables ........... 69,768 84,810 16,936 49,876 146,326 11,535
Distributions payable ................... 421,577 165,096 78,907 83,674 12,003 --
Payable for shares redeemed 398,471 852,711 -- 31,230 -- --
Payable for securities purchased ........ 496,025 -- 507,000 324,324 1,707,824 1,618,647
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities ................... 1,385,841 1,158,205 660,945 489,104 2,387,468 1,840,005
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets .......................... $48,245,409 $44,392,135 $27,614,454 $32,699,773 $89,269,599 $44,269,130
===================================================================================================================================
Net assets consist of:
Paid-in capital ......................... $47,955,081 $46,295,684 $25,003,724 $30,806,276 $73,840,946 $37,996,876
Accumulated undistributed net
investment income (loss) .............. 39,008 11,376 1,424 -- 3,044 --
Accumulated undistributed net
realized gains (losses) on investments. (13,172) (988,680) 64,909 (755,751) (306,770) (1,508,345)
Net unrealized appreciation (depreciation)
on investments......................... 264,492 (926,245) 2,544,397 2,649,248 15,732,379 7,780,599
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets .......................... $48,245,409 $44,392,135 $27,614,454 $32,699,773 $89,269,599 $44,269,130
===================================================================================================================================
Net asset value, redemption price and offering
price per share:
Class A Shares:
Shares outstanding .................... 3,005,603 2,821,079 2,511,147 2,229,409 2,087,655 2,643,793
Net assets ............................ $30,683,950 $28,198,558 $27,610,625 $26,063,979 $26,202,633 $33,844,615
Net asset value and redemption
price per share ..................... $10.21 $10.00 $11.00 $11.69 $12.55 $12.80
Maximum sales charge per share
(5.75 percent of public offering price;
5.00 percent of public offering price
for the Conseco Fixed Income Fund) .. 0.54 0.61 0.67 0.71 0.77 0.78
Maximum offering price per share ...... $10.75 $10.61 $11.67 $12.40 $13.32 $13.58
- -----------------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Shares outstanding .................... 256,890 1,130,792 116 112,115 131,030 572,211
Net assets ............................ $ 2,618,891 $11,271,310 $ 1,276 $1,301,146 $ 1,634,491 $7,270,352
Net asset value, redemption price and
offering price per share (Note 1) ... $10.19 $9.97 $11.00 $11.61 $12.47 $12.71
- -----------------------------------------------------------------------------------------------------------------------------------
Class C Shares:
Shares outstanding .................... 52,700 370,362 116 102,592 49,140 233,843
Net assets ............................ $ 539,333 $3,684,808 $ 1,276 $1,196,716 $ 616,146 $2,981,825
Net asset value, redemption price and
offering price per share (Note 1) ..... $10.23 $9.95 $11.00 $11.66 $12.54 $12.75
- -----------------------------------------------------------------------------------------------------------------------------------
Class Y Shares:
Shares outstanding .................... 1,405,531 123,466 116 352,157 4,801,089 13,596
Net assets ............................ $14,403,235 $1,237,459 $ 1,277 $4,137,932 $60,816,329 $172,338
Net asset value and offering
price per share ..................... $10.25 $10.02 $11.00 $11.75 $12.67 $12.68
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO CONSECO CONSECO
INCOME YIELD SECURITIES BALANCED EQUITY 20
FUND FUND FUND FUND FUND FUND
--------- --------- ------------ --------- -------- ---------
PERIOD ENDED
1998 1998 1998(A) 1998 1998 1998
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest ............................... $2,160,766 $1,879,340 $ 292,460 $ 760,272 $ 382,439 $ 145,465
Dividends (net of $101, $829 and $350
in foreign taxes withheld in the
Conseco Balanced,
Conseco Equity and
Conseco 20 Funds, respectively) ...... 8,978 28,349 57,058 194,224 706,110 216,468
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment income ............ 2,169,744 1,907,689 349,518 954,496 1,088,549 361,933
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees ............... 146,274 145,966 55,482 166,164 534,249 166,646
Transfer agent fee ..................... 99,946 88,827 22,560 104,431 146,659 91,441
Reports--printing ...................... 11,837 10,250 2,350 9,447 58,203 12,640
Administration fee ..................... 65,007 41,707 13,055 47,477 152,515 47,614
Audit fees ............................. 16,490 6,875 1,410 14,339 61,183 11,894
Director fees and expenses ............. 15,927 7,265 940 15,927 15,926 7,265
Legal fees ............................. 25,682 8,250 2,820 23,402 66,436 11,505
Amortization of organization costs ..... 18,892 17,386 -- 18,892 18,892 17,386
Insurance .............................. 10,000 9,974 2,585 10,001 10,001 9,974
Custody fees ........................... 13,672 7,595 3,290 28,865 36,027 11,501
Distribution and service fees .......... 119,272 125,878 32,638 88,823 93,453 138,100
Registration and filing fees ........... 28,324 7,597 2,162 17,544 38,054 7,327
Other .................................. 1,001 997 282 1,001 1,004 997
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses ..................... 572,324 478,567 139,574 546,313 1,232,602 534,290
===================================================================================================================================
Less expense reductions--fees waived
and/or charged to subsidiaries of
Conseco, Inc. (Note 3) ................. (258,035) (165,005) (38,398) (219,425) (375,909) (98,505)
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses ....................... 314,289 313,562 101,176 326,888 856,693 435,785
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ....... 1,855,455 1,594,127 248,342 627,608 231,856 (73,852)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) on
sales of investments ................... 457,334 (988,680) 66,433 (744,651) (204,222) (1,508,345)
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments........... (31,519) (926,245) 2,544,397 2,078,143 10,904,206 7,780,599
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains
(losses) on investments................. 425,815 (1,914,925) 2,610,830 1,333,492 10,699,984 6,272,254
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ........................ $2,281,270 ($320,798) $2,859,172 $1,961,100 $10,931,840 $6,198,402
===================================================================================================================================
</TABLE>
(a) For the period from commencement of operations (September 28, 1998) through
December 31, 1998.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CONSECO
CONSECO CONSECO CONVERTIBLE CONSECO
FIXED INCOME HIGH YIELD SECURITIES BALANCED
FUND FUND FUND FUND
--------------------------- ------------ ---------------- --------------------------
PERIOD ENDED
1998 1997 1998 1998(a) 1998 1997
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income .................. $ 1,855,455 $ 1,068,505 $ 1,594,127 $ 248,342 $ 627,608 $ 319,054
Net realized gains (losses) on
sales of investments ................. 457,334 317,897 (988,680) 66,433 (744,651) 994,075
Net change in unrealized appreciation
(depreciation) on investments......... (31,519) 296,011 (926,245) 2,544,397 2,078,143 571,105
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations ......... 2,281,270 1,682,413 (320,798) 2,859,172 1,961,100 1,884,234
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A shares ......................... (984,919) (14,860) (1,211,452) (246,886) (451,549) (15,040)
- -----------------------------------------------------------------------------------------------------------------------------------
Class B shares ......................... (37,011) -- (268,669) (10) (12,843) --
Class C shares ......................... (7,683) -- (76,775) (10) (15,657) --
Class Y shares ......................... (797,817) (1,044,618) (25,855) (12) (155,142) (297,498)
- -----------------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders
from net investment income.......... (1,827,430) (1,059,478) (1,582,751) (246,918) (635,191) (312,538)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders of net capital gains:
Class A shares ......................... (295,438) (1,949) -- (1,524) (12,693) (66,425)
Class B shares ......................... (25,160) -- -- -- (892) --
Class C shares ......................... (5,012) -- -- -- (3,007) --
Class Y shares ......................... (181,165) (277,723) -- -- (134,519) (787,639)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders
of net capital gains................ (506,775) (279,672) -- (1,524) (151,111) (854,064)
- -----------------------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sales of shares ...... 44,590,036 22,099,349 48,519,084 25,003,691 33,119,398 12,406,174
Net asset value of shares issued from
reinvestment of dividends and
distributions......................... 819,112 437,535 174,888 33 374,761 118,954
Cost of shares redeemed ................ (19,140,030) (884,271) (2,398,388) -- (15,081,839) (163,455)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions.......... 26,269,118 21,652,613 46,295,584 25,003,724 18,412,320 12,361,673
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ......... 26,216,183 21,995,876 44,392,035 27,614,454 19,587,118 13,079,305
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, beginning of period .......... 22,029,226 33,350 100 -- 13,112,655 33,350
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ................ $48,245,409 $22,029,226 $44,392,135 $27,614,454 $32,699,773 $13,112,655
===================================================================================================================================
Share data:
Class A shares:
Sold ................................... 3,207,908 14,325 2,949,647 2,511,147 2,162,683 100,694
Issued in reinvestment of dividends
and distributions .................... 2,354 144 11,701 -- 22,097 293
Redeemed ............................... (219,807) (989) (140,279) -- (55,558) (2,468)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase ....................... 2,990,455 13,480 2,821,069 2,511,147 2,129,222 98,519
- -----------------------------------------------------------------------------------------------------------------------------------
Class B shares:
Sold ................................... 258,916 -- 1,165,361 115 115,703 --
Issued in reinvestment of dividends
and distributions .................... 770 -- 3,746 1 431 --
Redeemed ............................... (2,796) -- (38,315) -- (4,019) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase ....................... 256,890 -- 1,130,792 116 112,115 --
- -----------------------------------------------------------------------------------------------------------------------------------
Class C shares:
Sold ................................... 69,325 -- 370,869 115 122,271 --
Issued in reinvestment of dividends
and distributions .................... 202 -- 1,497 1 819 --
Redeemed ............................... (16,827) -- (2,004) -- (20,498) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase ....................... 52,700 -- 370,362 116 102,592 --
- -----------------------------------------------------------------------------------------------------------------------------------
Class Y shares:
Sold ..................................... 801,557 2,195,219 180,732 115 433,884 1,115,405
Issued in reinvestment of dividends
and distributions .................... 76,368 43,371 91 1 9,493 11,424
Redeemed ................................. (1,626,721) (85,930) (57,357) -- (1,207,918) (11,798)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) .................. (748,796) 2,152,660 123,466 116 (764,541) 1,115,031
===================================================================================================================================
(a) For the period from commencement of operations (September 28, 1998) through December 31, 1998.
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CONSECO CONSECO
EQUITY 20
FUND FUND
---------------------------------- -------------
1998 1997 1998
====================================================================================================================
<S> <C> <C> <C>
Operations:
Net investment income (loss) ...............................$ 231,856 $ 4,831 ($73,852)
Net realized gains (losses) on
sales of investments ..................................... (204,222) 8,301,910 (1,508,345)
Net change in unrealized appreciation
(depreciation) on investments............................. 10,904,206 4,828,172 7,780,599
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations ............................. 10,931,840 13,134,913 6,198,402
- --------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A shares ............................................. (17,399) -- --
Class B shares ............................................. (518) -- --
Class C shares ............................................. (138) -- --
Class Y shares ............................................. (215,587) -- --
- --------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders
from net investment income ............................. (233,642) -- --
- --------------------------------------------------------------------------------------------------------------------
Distributions to shareholders of net capital gains:
Class A shares ............................................. (139,921) (497,491) --
Class B shares ............................................. (5,654) -- --
Class C shares ............................................. (1,943) -- --
Class Y shares ............................................. (1,619,165) (6,140,284) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders
of net capital gains.................................... (1,766,683) (6,637,775) --
- --------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sales of shares .......................... 39,144,673 65,432,881 39,115,808
Net asset value of shares issued from
reinvestment of dividends and
distributions ............................................ 1,456,528 -- --
Cost of shares redeemed ....................................(25,473,746) (6,752,740) (1,045,180)
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions.............................. 15,127,455 58,680,141 38,070,628
- --------------------------------------------------------------------------------------------------------------------
Total increase in net assets ............................. 24,058,970 65,177,279 44,269,030
- --------------------------------------------------------------------------------------------------------------------
Net assets, beginning of period .............................. 65,210,629 33,350 100
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period ....................................$89,269,599 $65,210,629 $44,269,130
====================================================================================================================
Share data:
Class A shares:
- --------------------------------------------------------------------------------------------------------------------
Sold ....................................................... 1,805,294 455,408 2,669,274
Issued in reinvestment of dividends
and distributions ........................................ 8,911 -- --
Redeemed ................................................... (167,079) (16,547) (25,491)
- --------------------------------------------------------------------------------------------------------------------
Net increase ........................................... 1,647,126 438,861 2,643,783
- --------------------------------------------------------------------------------------------------------------------
Class B shares:
Sold ....................................................... 136,877 -- 611,056
Issued in reinvestment of dividends
and distributions......................................... 231 -- --
Redeemed ................................................... (6,078) -- (38,845)
- --------------------------------------------------------------------------------------------------------------------
Net increase ........................................... 131,030 -- 572,211
- --------------------------------------------------------------------------------------------------------------------
Class C shares:
Sold ....................................................... 55,670 -- 247,100
Issued in reinvestment of dividends
and distributions......................................... 4 -- --
Redeemed ................................................... (6,534) -- (13,257)
- --------------------------------------------------------------------------------------------------------------------
Net increase ........................................... 49,140 -- 233,843
- --------------------------------------------------------------------------------------------------------------------
Class Y shares:
Sold ....................................................... 1,233,846 5,992,638 31,701
Issued in reinvestment of dividends
and distributions......................................... 103,755 -- --
Redeemed ................................................... (1,955,498) (575,320) (18,105)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) ................................ (617,897) 5,417,318 13,596
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PORTFOLIO MANAGER'S REVIEW
CONSECO FIXED INCOME FUND
- --------------------------------------------------------------------------------
Investing in securities we perceive to be undervalued based upon our
proprietary research is central to Conseco Capital Management's fixed income
investment style. As a result, our portfolio of high-quality, intermediate-term
bonds tends to overweight the corporate sector and underweight investment in
United States Treasuries while providing returns comparable to long-term bonds.
Consequently, a significant challenge to our management approach emerged
during 1998 in the form of unprecedented volatility in the financial markets,
particularly the corporate bond arena.
While the first and second quarters were characterized by a relatively calm
treasury market and generally declining interest rates, corporate bond issues
were extremely heavy -- causing pressure on the spreads, or the yield premium
over treasuries.
In contrast, the third quarter was characterized by an eruption of a huge,
widening spread, forcing investors to reevaluate the required risk premium
across all quality, maturity and sectors.
A BOND MARKET NOT SEEN IN EIGHT YEARS
Concurrently, a global financial crisis rooted in Japan's struggling
economy culminated in Russia defaulting on its bonds in August. In late
September, at the Fed's urging, a consortium of brokerage firms bailed out Long
Term Capital Management, a highly leveraged hedge fund with heavy overseas
investments, to the tune of $3.5 billion.
These combined events resulted in virtually all fixed income sectors
under-performing, with the exception of U.S. Treasury bonds. The world's
financial markets tend to move towards extremes and the third quarter saw a bond
market move to spread levels not seen in eight years.
All totaled, at year-end your fund (Class A shares)* returned a reasonable
7.57 percent.
FEDERAL RESERVE BOARD'S IMPACT
The fourth quarter experienced a welcomed spread contraction, thanks to the
Federal Reserve Board's three successive 25 basis point cuts in short-term
interest rates. Liquidity came back to the corporate bond market after several
new issue deals -- led by the Associates Corp. (A2/A) -- were well received. The
result was over $30 billion in high grade debt bond issues in November, the
largest single month all year. However, the corporate bond market remains a
two-tiered market with the top-tier issuers achieving substantially more
liquidity.
In many regards, the events which forced a revaluation of risk in our fixed
income markets this year have not disappeared. Some foreign economies -- Japan,
Korea and Thailand -- are showing improvement. Other economies -- Brazil and
China specifically -- remain under the microscope. Early in 1999, Brazil already
has devalued its currency and there is speculation that China may follow. These
actions may significantly impact world financial markets and ultimately the U.S.
economy.
At the end of 1998, investors saw U.S. stock prices soaring and hitting new
records, calling into question the valuation and rationality of our stock
market. What does this mean for our investment strategy as we maneuver our way
through 1999?
- ---------------------------------------------------------
* TOTAL RETURN DOES NOT REFLECT SALES LOAD DEDUCTION.
8
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
MARKET OVERREACTED
First, while the market has totally revalued risk, we believe it has
overreacted -- as markets sometimes do. Consequently, our portfolio structure
will remain fairly consistent with the fourth quarter of 1998 and we'll continue
to emphasize the corporate and MBS/ABS sectors.
Second, we do not foresee a near future spike in interest rates. We do see
a slowing in the global economy coupled with a potentially gradual slowing of
the U.S. economy. These events will help put a ceiling on interest rates.
LOOKING FORWARD TO SEIZING OPPORTUNITIES
Finally, we are encouraged that we will find more investment opportunities
in this market. Based on our proprietary research, we believe companies such as
Sprint (Baa1/A-), Worldcom (Baa2/BBB+), Illinova (Baa3/BBB-) and Union Planters
Bank (Baa1/BBB) offer excellent relative value in this type of market.
Moving forward into the new year and the new millenium, we earnestly
believe our bottom-up, research-driven, total-return investment style positions
the fund to take full advantage of the opportunities available in the 1999
market.
Gregory J. Hahn, CFA
Senior Vice President
Portfolio Manager
CONSECO CAPITAL MANAGEMENT, INC.
[The following table represents a line chart in the printed report.]
Conseco Fixed Income Fund Lehman Brother
Class A Aggregate Bond Index
1/2/97 9.497 10.000
12/31/97 10.320 10.965
12/31/98 11.1 11.919
AVERAGE TOTAL RETURN
-------------------------
1 YEAR SINCE INCEPTION
-------------------------
Class A (INCEPTION 1/2/97) 2.19% 11.00%
Class B (INCEPTION 3/20/98) n/a -0.22%
Class C (INCEPTION 3/5/98) n/a 5.38%
Class Y (INCEPTION 1/2/97) 8.32% 18.27%
- ---------------------------------
CLASS A SHARE PERFORMANCE REFLECTS THE DEDUCTION OF THE MAXIMUM SALES LOAD FROM
THE INITIAL $10,000 INVESTMENT. CLASS B AND C SHARE PERFORMANCE REFLECTS THE
DEDUCTION OF EACH CLASS'S RESPECTIVE MAXIMUM CONTINGENT DEFERRED SALES LOAD.
AVERAGE TOTAL RETURN IS PROVIDED IN ACCORDANCE WITH SEC GUIDELINES FOR
COMPARATIVE PURPOSES AND REFLECTS CERTAIN VOLUNTARY FEE WAIVERS AND/OR EXPENSE
REIMBURSEMENTS THROUGH APRIL 30, 1999. IF THE WAIVERS WERE NOT IN PLACE, THE
FUND'S RETURNS WOULD HAVE BEEN LOWER.
9
<PAGE>
================================================================================
CONSECO FIXED INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
PRINCIPAL
AMOUNT SECURITY VALUE
----------- --------- -------
CORPORATE BONDS (50.68% of total investments) (a)
APPAREL AND OTHER FINISHED PRODUCTS (.51%)
250,000 Tommy Hilfiger Corporation,
6.500%, due 06/01/2003 $246,712
-------------
AUTO REPAIR AND PARKING (1.93%)
200,000 Amerco-MTN, 7.440%,
due 10/02/2006 213,057
100,000 Amerco-MTN, 6.710%,
due 10/15/2008 103,888
575,000 Amerco-MTN, 7.470%,
due 01/15/2027 612,529
-------------
929,474
-------------
BUSINESS SERVICES (.31%)
250,000 Pinnacle Holdings, Inc.,
0.000%, due 03/15/2008 146,875
-------------
CHEMICALS AND ALLIED PRODUCTS (.64%)
300,000 Smith International, Inc.,
7.000%, due 09/15/2007 307,525
-------------
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (10.00%)
100,000 Cable and Wireless
Communications PLC,
6.625%, due 03/06/2005 101,080
400,000 CSC Holdings, Inc.,
7.250%, due 07/15/2008 401,720
350,000 Lenfest Communications, Inc.,
10.500%, due 06/15/2006 411,250
468,000 News America Holdings, Inc.
8.625,% due 02/01/2003 515,650
300,000 SK Telecom Co., Ltd.,
7.750%, due 04/29/2004 269,441
800,000 Sprint Capital Corporation,
6.875%, due 11/15/2028 833,392
300,000 Telecommunications, Inc.,
9.800%, due 02/01/2012 401,258
250,000 Telecommunications, Inc.,
10.125%, due 04/15/2022 355,878
450,000 US West Cap Funding Inc.,
6.875%, due 07/15/2028 482,222
250,000 Viacom, Inc., 7.750%,
due 06/01/2005 273,327
500,000 Viacom, Inc., 8.250%,
due 08/01/2022 521,250
250,000 Worldcom, Inc., 6.125%,
due 08/15/2001 254,342
-------------
4,820,810
-------------
DEPOSITORY INSTITUTIONS (4.90%)
250,000 Korea Development Bank,
6.250%, due 05/01/2000 239,746
100,000 Mellon Financial Co.,
5.750%, due 11/15/2003 100,691
250,000 St. Paul Bancorp,
7.125%, due 02/15/2004 261,490
750,000 Union Planters Bank,
National Association,
6.500%, due 03/15/2008 764,446
1,000,000 U.S. Bank NA, 5.700%,
due 12/15/2008 994,781
-------------
2,361,154
-------------
EATING AND DRINKING PLACES (.42%)
200,000 MARRIOTT INTERNATIONAL,
6.625%, DUE 11/15/2003 (b)
COST - $199,616;
ACQUIRED - 11/10/1998 199,961
-------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (5.65%)
500,000 AEP Resources Inc.,
6.500%, due 12/01/2003 (b)
Cost - $505,215;
Acquired - 12/15/1998 504,039
500,000 Illinova Corporation,
7.125%, due 02/01/2004 516,034
500,000 MCN Investment Corporation,
6.350%, due 04/02/2012 504,439
250,000 Southwest Gas Company,
9.750%, due 06/15/2002 279,043
500,000 USA Waste Services, Inc.,
6.125%, due 07/15/2001 506,091
400,000 Waste Management, Inc.,
6.625%, due 07/15/2002 412,343
-------------
2,721,989
-------------
FOOD AND KINDRED PRODUCTS (1.03%)
500,000 Nabisco, Inc.,
6.000%, due 02/15/2001 497,721
-------------
FOOD STORES (2.91%)
1,000,000 Kroger Co.,
6.000%, due 07/01/2000 1,004,206
400,000 Safeway, Inc., 5.750%,
due 11/15/2000 401,196
-------------
1,405,402
-------------
GENERAL MERCHANDISE STORES (.74%)
350,000 Shopko Stores, Inc.,
6.500%, Due 08/15/2003 358,142
-------------
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
CONSECO FIXED INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
PRINCIPAL
AMOUNT SECURITY VALUE
----------- --------- -------
HEALTH SERVICES (.52%)
250,000 HEALTHSOUTH Corporation,
7.000%, due 06/15/2008 $ 248,359
-------------
HOTELS, OTHER LODGING PLACES (1.04%)
500,000 HMH Properties, Inc.,
8.450%, due 12/01/2008 502,500
-------------
INSURANCE COMPANIES (3.13%)
300,000 Delphi Financial, 8.000%,
due 10/01/2003 308,952
200,000 Delphi Funding LLC
9.310%, due 03/25/2027 224,465
500,000 Farmers Exchange Capital,
7.050%, due 07/15/2028 (b)
Cost - $498,720;
Acquired - 07/08/1998 504,627
200,000 Horace Mann Educators,
6.625%, due 01/15/2006 209,494
250,000 Terra Nova Insurance
(UK) Holdings PLC, 7.000%,
due 05/15/2008 257,574
-------------
1,505,112
-------------
LUMBER AND WOOD PRODUCTS,
EXCEPT FURNITURE (1.52%)
700,000 West Fraser Mill,
7.250%, due 09/15/2002 (b)
Cost - $695,920;
Acquired - 01/06/1997
and 04/30/1997 731,090
-------------
MISCELLANEOUS RETAIL (.22%)
100,000 Michaels Stores, Inc.,
10.875%, due 06/15/2006 104,750
-------------
NON-DEPOSITORY CREDIT INSTITUTIONS (1.70%)
500,000 General Motors Acceptance
Corporation, 7.125%,
due 05/01/2001 516,900
300,000 Key Bank USA, National
Association, Banknote 6.500%,
due 10/15/2027 303,856
-------------
820,756
-------------
OIL AND GAS EXTRACTION (4.31%)
200,000 Cerro Negro Finance, Ltd.,
Series B, 7.900%,
due 12/01/2020 (b)
Cost - $194,464;
Acquired - 06/16/1998 156,000
500,000 ENSCO International, Inc.,
7.200%, due 11/15/2027 507,893
450,000 NGC Corporation, Series B,
8.316%, due 06/01/2027 $ 460,684
500,000 Occidental Petroleum,
Corporation, 6.750%,
due 11/15/2002 502,776
150,000 Vastar Resources, Inc.,
6.000%, due 04/20/2000 150,259
300,000 Williams Holdings of
Delaware, Inc., 6.500%,
due 12/01/2008 297,222
-------------
2,074,834
-------------
PAPER AND ALLIED PRODUCTS (.22%)
100,000 Westvaco Corporation,
10.300%, due 01/15/2019 106,237
-------------
PETROLEUM REFINING (1.67%)
278,000 Pennzoil Company,
9.625%, due 11/15/1999 284,717
400,000 Pennzoil Company,
10.625%, due 06/01/2001 399,438
100,000 USX Corporation,
9.375%, due 02/15/2012 122,265
-------------
806,420
-------------
REAL ESTATE OPERATORS, AGENTS, MANAGERS (.45%)
200,000 Corporate Property Investment
9.000%, due 03/15/2002 (b)
Cost - $219,360;
Acquired - 03/17/1998 217,014
-------------
REAL ESTATE INVESTMENT TRUSTS (REITS) (2.89%)
400,000 Chelsea GCA Realty
Partnership, L.P., 7.250%,
due 10/21/2007 364,533
300,000 Colonial Realty Limited
Partnership, 7.000%,
due 07/14/2007 287,578
250,000 EOP Operating Limited
Partnership, 6.763%,
due 06/15/2007 246,798
500,000 Simon Debartolo Group, L.P.,
6.750%, due 06/15/2005 492,027
-------------
1,390,936
-------------
SECURITY AND COMMODITY BROKERS (3.35%)
550,000 Lehman Brothers Holdings Inc.,
6.330%, due 08/01/2000 550,375
300,000 Lehman Brothers Holdings Inc.,
6.625%, due 12/27/2002 300,422
400,000 Lehman Brothers Holdings Inc.,
8.500%, due 05/01/2007 446,301
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
================================================================================
CONSECO FIXED INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
PRINCIPAL
AMOUNT SECURITY VALUE
----------- --------- -------
200,000 Paine Webber Group,
9.250%, Due 12/15/2001 $ 215,576
100,000 Salomon, Smith Barney Inc.,
Series C -- MTN, 6.500%,
due 08/15/2003 102,455
------------
1,615,129
------------
STONE, CLAY, GLASS, CONCRETE (.43%)
200,000 Owens Corning,
7.500%, due 05/01/2005 205,887
------------
TRANSPORTATION EQUIPMENT (.19%)
100,000 Stena Line AB, 10.625%,
due 06/01/2008 90,500
------------
TOTAL CORPORATE BONDS
(COST $24,241,409) 24,415,289
============
MUNICIPAL BONDS (5.02% OF TOTAL INVESTMENTS) (a)
500,000 Alaska Individual
Development & Authority
Lease, 6.375%,
due 05/01/2003 508,629
135,000 Augusta GA HSG
Rehab Agency, 7.900%,
due 03/01/1999 135,388
90,000 Doylestown Pennsylvania,
Hospital Authority, Revenue,
8.375%, due 07/01/2008 97,059
280,000 Fort Worth Texas,
Higher Education, Finance
Corporation, Revenue,
7.500%, due 10/01/2006 294,048
200,000 Louisiana Dept. of
Public Safety, 6.650%,
due 11/01/2008 214,745
600,000 Mississippi Development Bank,
Special Obligation, Series 1998
8.500%, due 12/01/2018 600,000
362,522 Philadelphia Pennsylvania,
Authority for Industrial
Development, Revenue,
6.488%, due 06/15/2004 385,721
180,000 Reeves County Texas
Certificates of Participation,
6.700%, due 03/31/2005 182,990
------------
2,418,580
------------
TOTAL MUNICIPAL BONDS
(COST $2,353,380) $ 2,418,580
============
ASSET BACKED SECURITIES
(6.78% OF TOTAL INVESTMENTS) (a)
300,000 COMED Transitional
Funding Trust 1998-1 A7,
5.740%, due 12/25/2010 301,913
500,000 Contimortgage Home
Equity Loan Trust 1998-3 A4,
5.760%, due 05/15/2025 496,250
400,000 Copelco Capital Funding Corp.,
Series -- 1998-A, 5.780%,
due 08/15/2000 401,650
98,235 Copelco Capital Funding Corp.,
1996-A A, 6.340%,
due 07/20/2004 98,895
500,000 Green Tree Recreational
Equipment & Consumer Trust,
1998-C A5, 6.280%,
due 02/15/2014 (c)
Cost - $499,997;
Acquired - 9/28/98 499,433
319,612 Green Tree Recreational
Equipment & Consumer Trust,
1997-C B, 6.750%,
due 02/15/2018 (c)
Cost - $319,538;
Acquired - 9/25/97 300,885
100,000 National Car Rental Financing
Limited Partnership 1996-1
A2, 6.800%, due 04/20/2000 100,000
994,780 Nationslink Funding Corporation
1998-2 A1, 6.001%,
due 11/20/2007 1,000,065
64,702 New York City Tax
Lien 1996-1 B, 6.910%,
due 05/25/2005 64,864
------------
TOTAL ASSET BACKED SECURITIES
(COST $3,282,192) $ 3,263,955
============
COLLATERALIZED MORTGAGE OBLIGATIONS
(6.09% OF TOTAL INVESTMENTS) (a)
124,657 FHLMC Structured Pass Through
Securities T-4 A1, 7.625%,
due 08/25/2022 125,358
100,000 Federal National Mortgage
Assn., 1994 - 63, 7.000%,
due 04/25/2024 103,446
500,000 Iroquois Trust, 1997-1A,
7.000%, due 12/15/2006 505,391
417,004 JP Morgan Commercial Mortgage
Finance Corporation 1997-
C4 A1,6.939%, due 12/26/2028 426,234
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
CONSECO FIXED INCOME FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
PRINCIPAL
AMOUNT SECURITY VALUE
----------- --------- -------
109,380 Midland Realty Acceptance
Corporation, 7.315%,
due 08/25/2028 $ 113,188
970,559 Mortgage Capital Funding Inc.,
1998 - MC2 A1, 6.325%,
due 10/18/2007 995,138
500,000 Paine Webber Mortgage
Acceptance Corporation,
1996 - M1 A2, 6.900%,
due 01/02/2012 517,968
143,063 Rural Housing Trust 1987-1 3B,
7.330%, due 04/01/2026 145,914
-----------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $2,870,439) $ 2,932,637
===========
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(21.41% OF TOTAL INVESTMENTS) (a)
973,099 Federal Home Loan
Mortgage Corp.,
Gold Pool #E00570,
6.000%, due 09/01/2013 978,187
2,722,500 Federal Home Loan
Mortgage Corp., #E00592,
6.000%, due 12/01/2013 2,728,272
591,188 Federal Home Loan
Mortgage Corp., #G00479,
9.000%, due 04/01/2025 625,208
502,688 Federal Home Loan
Mortgage Corp., #G00943,
6.000%, due 07/01/2028 497,139
503,334 Federal National
Mortgage Assn., #E73076,
6.000%, due 11/01/2013 506,011
131,721 Federal National
Mortgage Assn., #250307,
7.500%, due 07/01/2025 135,467
73,104 Federal National
Mortgage Assn., #250758,
7.000%, due 11/01/2026 74,710
750,000 U.S. Treasury Note, 5.625%,
due 04/30/2000 759,375
200,000 U.S. Treasury Note, 6.375%,
due 09/30/2001 208,750
100,000 U.S. Treasury Note, 5.375%,
due 06/30/2003 102,875
750,000 U.S. Treasury Note, 5.250%,
due 08/15/2003 768,985
500,000 U.S. Treasury Note, 5.750%,
due 08/15/2003 522,031
500,000 U.S. Treasury Note, 7.250%,
due 05/15/2004 560,469
500,000 U.S. Treasury Note,
5.625%, due 05/15/2008 533,594
1,250,000 U.S. Treasury Note, 5.500%,
due 08/15/2028 1,310,548
-----------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(COST $10,301,977) $10,311,621
===========
NUMBER OF
SHARES
-----------
PREFERRED STOCK (2.97% OF TOTAL INVESTMENTS) (a)
INSURANCE COMPANIES (1.08%)
20,000 Lincoln National Corp.,
TOPrS (d), 6.400% 518,750
-------------
MEASURING INSTRUMENTS,
PHOTO GOODS, WATCHES (.26%)
2,120 River Holding Corp.,
PIK (d) 11.500%,
due 04/15/2010 127,737
-------------
NON-DEPOSITORY CREDIT INSTITUTIONS (1.63%)
7,500 Centaur Funding Corp.,
9.080%, (B)
Cost - $750,000;
Acquired - 12/09/1998 784,220
-------------
TOTAL PREFERRED STOCK
(COST $1,458,978) $ 1,430,707
=============
PRINCIPAL
AMOUNT
-----------
COMMERCIAL PAPER (7.05% OF TOTAL INVESTMENTS) (a)
CHEMICALS AND ALLIED PRODUCTS (2.07%)
1,000,000 Dow Chemical, Inc.,
5.220%, due 01/04/1999 999,420
-------------
OIL AND GAS EXTRACTION (4.98%)
2,400,000 Koch Industries, Inc.,
5.250%, due 01/04/1999 2,398,678
-------------
TOTAL COMMERCIAL PAPER
(COST $3,398,020) $ 3,398,098
-------------
TOTAL INVESTMENTS IN
SECURITIES
(COST $47,906,395) $48,170,887
=============
- --------------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications.
(b) Restricted under Rule 144A of the Securities Act of 1933.
(c) Green Tree Financial Corporation, a wholly owned subsidiary of Conseco,
Inc., effective June 30, 1998, is the seller to and servicer for the Trust
issuing the Certificates.
(d) PIK -- Payment In Kind.
TOPrS -- Trust Originated Preferred Securities.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
PORTFOLIO MANAGER'S REVIEW
CONSECO HIGH YIELD FUND
- --------------------------------------------------------------------------------
Your fund invests for high current income and capital appreciation,
primarily through higher-risk securities rated below investment grade, but
providing higher interest payments and potentially higher returns. Successfully
navigating the risky waters of the 1998 high yield marketplace and achieving
true performance demanded a nimble and creative approach.
TOP-TIER FUND PERFORMANCE
If you selected one year in which to launch a high yield fund -- one that
would serve as a true performance litmus test -- 1998 would rank among the
toughest. It was a year in which we experienced a full range of business
conditions.
Despite this exceptional volatility, your fund (Class A shares)* performed
strongly, returning a healthy 6.56 percent -- compared to the Lipper Analytical
Services average of a negative .44 percent.
A number of our portfolio securities contributed to this top-rung
performance. For example, proprietary research generated by our analytical team
led us to purchase USA Mobil Communications (an operating subsidiary of Arch
Communication Group) on perceived credit weakness, then selling when the market
began to realize the pricing inefficiency. We exploited another pricing
inefficiency by purchasing Gaylord Container, a shipping cardboard producer. It
sold when the market realized Gaylord was positioned to capitalize on a strong
labor environment.
High yield was very active during the first half of 1998 and investor
demand was robust. Through June, there was $97.2 billion in new bond issues
compared with $55.3 billion during the same period in 1997 -- a 75.8 percent
increase. The market's fundamentals were positive, with $8.5 billion in cash
flows supporting this torrid pace. Supply and demand were relatively balanced as
a result of increased mutual fund, insurance company and institutional manager
buying.
Although excess supply sent up warning flares in April and May, investor
demand remained strong until June, when slowing cash flows negatively impacted
the market, weakening investor's appetites.
Additionally, the first and second quarters were characterized by a
relatively calm treasury market and generally declining interest rates. However,
new issues were hitting the market at a heavy rate causing pressure on prices.
Even companies with strong histories faced a tough road, often pricing their
bonds at an above-average premium to prevailing rates. Also, many early-stage
telecommunications companies -- less attractive to investors due to their thin
operating histories -- came to the market.
THIRD QUARTER: A UNIQUE CONFLUENCE OF EVENTS
During the third quarter, a unique confluence of international events
erupted, generating dramatic investment challenges. First, prices decreased
substantially -- forcing investors to reevaluate the required risk premium
across all quality and maturity sectors. Then, a global financial crisis rooted
in Japan's struggling economy culminated with Russia defaulting on its bonds in
August. In late September, a brokerage firm consortium bailed out Long Term
Capital Management, a highly leveraged hedge fund. These combined events
resulted in virtually all fixed income sectors under-performing, with the
exception of United States Treasury bonds. Financial markets moved to extremes
and spreads were at levels not seen in eight years.
Reacting to this broad market turmoil, the high yield market weakened
dramatically and we got a sharp spike in the high yield bond spreads -- the
yield premium over treasuries -- which increased sharply to historic
proportions. Investors reacted by fleeing to the safety of U.S. Treasury bonds.
The result -- high yield mutual funds were forced to sell holdings to meet
shareholder redemption
- ---------------------------------------------------------
* TOTAL RETURN DOES NOT REFLECT SALES LOAD DEDUCTION.
14
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
demands, further driving down prices and stressing market liquidity. Equally
stunning was the rapid rate at which the high yield market deteriorated in both
price quality and bond liquidity levels. Many of the people who got spooked by
this asset class last July haven't returned.
However, by third quarter end, this downward slide subsided and the high
yield segment began to rapidly recover. Primary and secondary markets robustly
rebounded during October and November and liquidity returned to the marketplace
as yields rapidly adjusted to more reasonable levels.
Unfortunately, during 1998 the high yield market has suffered unfairly from
"guilt by association" this year. While some high-yield issuers have risky
international exposure, a lot of the bond issues are from American companies
only doing business in the United States.
SLOW GROWTH AHEAD
1999 will be far calmer than 1998 -- the probability of encountering a
similar string of international events is very low. Consequently, expect slow to
minimal U.S. economic growth and a favorable high yield environment, largely
because it's mainly focused on the domestic economy and relatively insulated
from foreign economic factors.
Peter C. Andersen, CFA
Vice President
Portfolio Manager
CONSECO CAPITAL MANAGEMENT, INC.
[The following table represents a line chart in the printed report.]
Conseco High Yield Fund - Merrill Lynch
Class A High Yield Index
1/1/98 9.426 10.000
12/31/98 10.043 10.366
AVERAGE TOTAL RETURN
-------------------
SINCE INCEPTION
-------------------
Class A (INCEPTION 1/1/98) 0.43%
Class B (INCEPTION 2/19/98) -3.92%
Class C (INCEPTION 2/19/98) -0.12%
Class Y (INCEPTION 3/2/98) 1.36%
- ------------------------------
CLASS A SHARE PERFORMANCE REFLECTS THE DEDUCTION OF THE MAXIMUM SALES LOAD FROM
THE INITIAL $10,000 INVESTMENT. CLASS B AND C SHARE PERFORMANCE REFLECTS THE
DEDUCTION OF EACH CLASS'S RESPECTIVE MAXIMUM CONTINGENT DEFERRED SALES LOAD.
AVERAGE TOTAL RETURN IS PROVIDED IN ACCORDANCE WITH SECGUIDELINES FOR
COMPARATIVE PURPOSES AND REFLECTS CERTAIN VOLUNTARY FEE WAIVERS AND/OR EXPENSE
REIMBURSEMENTS THROUGH APRIL 30, 1999. IF THE WAIVERS WERE NOT IN PLACE, THE
FUND'S RETURNS WOULD HAVE BEEN LOWER.
15
<PAGE>
================================================================================
CONSECO HIGH YIELD FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
PRINCIPAL
AMOUNT SECURITY VALUE
----------- --------- -------
CORPORATE BONDS (95.28% OF TOTAL INVESTMENTS) (a)
AMUSEMENT AND RECREATIONS SERVICES (1.07%)
170,000 AMF Bowling Worldwide,
Series B, 10.875%,
due 03/15/2006 ......................... $ 138,550
300,000 Players International, Inc.,
10.875%, due 04/15/2005 ................ 323,250
------------
461,800
------------
APPAREL AND OTHER FINISHED PRODUCTS (1.48%)
750,000 Norton McNaughton, Inc.,
12.500%, due 06/01/2005 ................ 641,250
------------
BUILDING CONSTRUCTION, GENERAL CONTRACTORS, OPERATIVE
BUILDERS (6.62%)
750,000 D.R. Horton, 8.375%,
due 06/15/2004 ......................... 746,250
500,000 Hovnanian Enterprises,
9.750%, due 06/01/2005 ................. 482,500
1,950,000 Pinnacle, Holdings Inc, Step (c)
0.000%/10.000%,
due 03/15/2008 ......................... 1,145,625
500,000 Schuler Homes,
9.000%, due 04/15/2008 ................. 487,500
------------
2,861,875
------------
BUSINESS SERVICES (1.99%)
850,000 Advanstar Communications, Inc.,
9.250%, due 05/01/2008 ................. 858,500
------------
CABLE AND OTHER PAY TELEVISION STATIONS (11.85%)
800,000 Avalon Cable of Michigan,
9.375%, due 12/01/2008 (b)
Cost - $800,000;
Acquired - 12/03/1998 .................. 822,000
750,000 Cencall Communications,
STEP (c) 0.000%/10.125%,
due 01/15/2004 ......................... 738,750
300,000 Classic Cable, Inc., 9.875%,
due 08/01/2008 (b)
Cost - $291,750;
Acquired - 09/03/1998 .................. 313,500
300,000 Classic Communications, Inc.
13.250%, due 08/01/2009 (b)
Cost - $174,750;
Acquired - 11/10/1998 .................. 183,000
900,000 Coaxial Communication Phoenix,
10.000%, due 08/15/2006 (b)
Cost - $900,000;
Acquired - 08/17/1998 .................. 933,750
500,000 Echostar Satellite Broadcast,
STEP (c) 0.000%/13.125%,
due 03/15/2004 ......................... 501,250
185,000 Fox Liberty Networks LLC,
STEP (c), 0.000%/9.750%,
due 08/15/2007 ......................... 126,725
500,000 Regional Independent Media,
10.500%, due 07/01/2008 (b)
Cost - $499,375;
Acquired - 11/06/1998 .................. 507,500
750,000 Rifkin Acquisition Partners LP,
11.125%, due 01/15/2006 ................ 823,125
500,000 TCI Satellite Entertainment, Inc.
10.875%, due 02/15/2007 ................ 167,500
------------
5,117,100
------------
COMMUNICATIONS BY PHONE,
TELEVISION, RADIO, CABLE (3.88%)
650,000 CSC Holdings, Inc., 7.250%,
due 07/15/2008 ......................... 652,795
300,000 CSC Holdings, Inc.,
7.625%, due 07/15/2018 ................. 295,680
850,000 Park N View Inc., 13.000%,
due 05/15/2008 (b)
Cost -$745,000;
Acquired - 11/13/1998 .................. 726,750
------------
1,675,225
------------
CHEMICALS AND ALLIED PRODUCTS (1.18%)
500,000 Agriculture Minerals &
Chemicals, Inc. 10.750%,
due 09/30/2003 ......................... 510,000
------------
COAL MINING (.28%)
150,000 Lodestar Holdings, Inc.,
11.500%, due 05/15/2005 (b)
Cost - $149,625;
Acquired - 5/12/1998 ................... 120,750
------------
EATING AND DRINKING PLACES (1.18%)
500,000 Friendly Ice Cream, 10.500%,
due 12/01/2007 ......................... 508,750
------------
ELECTRIC, GAS, COGENERATION, SANITARY SERVICE (1.78%)
250,000 GNI Group, Inc., Series B,
10.875%, DUE 07/15/2005 (b)
Cost - $256,875;
Acquired - 08/06/1998 .................. 221,250
500,000 Niagara Mohawk Power,
7.750%, due 10/01/2008 ................. 549,419
------------
770,669
------------
ELECTRICAL EQUIPMENT, EXCEPT COMPUTERS (.80%)
350,000 Level 3 Communications, Inc.,
9.125%, due 05/01/2008 ................. 347,375
------------
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
CONSECO HIGH YIELD FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
PRINCIPAL
AMOUNT SECURITY VALUE
----------- --------- -------
ENGINEERING, MANAGEMENT, RELATED SERVICES (.12%)
100,000 ATC Group Services, Inc.,
12.000%, due 01/15/2008 ................ $ 51,500
------------
FOOD STORES (1.19%)
500,000 Jitney-Jungle Stores of America, Inc.,
10.375%, due 09/15/2007 ................ 515,000
------------
FOOD & KINDRED PRODUCTS (1.64%)
750,000 Fresh Food Inc.,
10.750%, due 06/01/2006 ................ 708,750
------------
FURNITURE & FIXTURES (.74%)
300,000 BE Aerospace, Inc.,
9.500%, due 11/01/2008 (b)
Cost - 300,000;
Acquired - 10/28/1998 .................. 319,500
------------
GENERAL MERCHANDISE STORES (1.16%)
400,000 Kmart Corp.,
12.500%, due 03/01/2005 ................ 502,638
------------
HEALTH SERVICES (3.57%)
500,000 Hudson Respiratory Care, Inc.,
9.125%, due 04/15/2008 ................. 412,500
100,000 Medpartners, Inc., 7.375%,
due 10/01/2006 ......................... 80,500
500,000 Tenet Healthcare Corp.,
7.625%, due 06/01/2008 (b)
Cost - $497,500;
Acquired - 10/21/1998 .................. 521,971
500,000 Tenet Healthcare Corp.,
8.625%, due 12/01/2003 ................. 528,100
------------
1,543,071
------------
HOLDING, OTHER INVESTMENT OFFICES (1.09%)
750,000 CRIIMI Mae, Inc.,
9.125%, due 12/01/2002 ................. 468,750
------------
HOME FURNITURE & EQUIPMENT STORE (1.35%)
600,000 Musicland Group, Inc.,
9.000%, due 06/15/2003 ................. 582,000
------------
HOTELS, OTHER LODGING PLACES (3.30%)
900,000 HMH Properties, Inc.,
8.450%, due 12/1/2008 .................. 904,500
500,000 Sun International Hotels,
9.000%, due 03/15/2007 ................. 522,500
------------
1,427,000
------------
INDUSTRIAL, COMMERCIAL MACHINERY,
COMPUTER EQUIPMENT (1.92%)
750,000 Bayard Drilling Technology, Inc.,
Series B, 11.000%,
due 06/30/2005 ......................... $828,750
-------------
INSURANCE CARRIERS (.98%)
450,000 Oxford Health Plans, Inc.,
11.000%, due 05/15/2005 (b)
Cost - $465,750;
Acquired - 06/12/1998 ................. 425,250
-------------
MISCELLANEOUS MANUFACTURING INDUSTRIES (2.45%)
300,000 Bell Sports, Inc.,
11.000%, due 08/15/2008 (b)
Cost - $300,000;
Acquired - 08/10/1998 .................. 306,000
750,000 True Temper Sports, Inc.,
10.875%, due 12/01/2008 (b)
Cost - $750,000;
Acquired - 11/18/1998 .................. 750,000
-------------
1,056,000
-------------
MISCELLANEOUS RETAIL (.49%)
200,000 Michaels Stores, Inc.,
10.875%, due 06/15/2006 ................ 209,500
-------------
MOTION PICTURES (4.31%)
600,000 Hollywood Entertainment,
Series B, 10.625%,
due 08/15/2004 ......................... 609,000
1,200,000 Regal Cinemas, Inc.,
9.500%, due 06/01/2008 ................. 1,254,000
-------------
1,863,000
-------------
NON-DEPOSITORY CREDIT INSTITUTIONS (.75%)
500,000 Aames Financial Corp.,
9.125%, due 11/01/2003 ................. 325,000
-------------
NON-DURABLE GOODS-WHOLESALE (1.21%)
500,000 Aurora Foods, Inc.,
Series B, 8.750%,
due 07/01/2008 ......................... 522,500
-------------
OIL AND GAS EXTRACTION (5.83%)
50,000 CLIFFS DRILLING CO. SERIES D,
10.250,% DUE 05/15/2003 ................ 53,000
1,050,000 Gulf Canada Resources,
8.375%, due 11/15/2005 ................. 1,050,000
200,000 Ocean Energy, Inc., 7.625%,
due 07/01/2005 ......................... 192,000
250,000 Parker Drilling Corp. Series D,
9.750%, due 11/15/2006 ................. 223,750
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
================================================================================
CONSECO HIGH YIELD FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
PRINCIPAL
AMOUNT SECURITY VALUE
----------- --------- -------
OIL AND GAS EXTRACTION - CONTINUED
250,000 Pride Petroleum Services, Inc.,
9.375%, due 05/01/2007 ................. $ 233,750
750,000 Veritas DGC, Inc., 9.750%,
due 10/15/2003 (b)
Cost - $750,000;
Acquired - 10/23/1998 .................. 765,000
------------
2,517,500
------------
PAPER AND ALLIED PRODUCTS (1.90%)
950,000 Gaylord Container Corp.,
Series B, 9.750%,
due 06/15/2007 ......................... 821,750
------------
PERSONAL SERVICE (.67%)
300,000 Loewen Group, Inc., PATS (c),
6.700%, due 10/01/1999 (b)
Cost - $291,000;
Acquired - 09/03/1998 .................. 289,500
------------
PHONE COMMUNICATION, EXCEPT
RADIOTELEPHONE (7.48%)
500,000 Metromedia Fiber Network, Inc.,
10.000%, Due 11/15/2008 (b)
Cost - $500,000;
Acquired - 11/20/1998 .................. 516,250
750,000 Qwest Communications
International, 7.500%,
due 11/01/2008 (b)
Cost - $744,930;
Acquired - 10/28/1998 .................. 778,125
750,000 Rogers Cablesystems Ltd,
11.000%, due 12/01/2015 ................ 881,250
500,000 Rogers Cantel, Inc., 9.375%,
due 06/01/2008 ......................... 530,000
500,000 Time Warner
Telecommunication LLC,
9.750%, due 07/15/2008 ................. 527,500
------------
3,233,125
------------
PRIMARY METAL INDUSTRIES (.62%)
250,000 NS Group, Inc.,
13.500%, due 07/15/2003 ................ 268,750
------------
RADIOTELEPHONE COMMUNICATION (9.62%)
1,000,000 Arch Communications, Inc.,
12.750%, due 07/01/2007 (b)
Cost - $975,625;
Acquired - 06/24/1998 .................. 1,005,000
500,000 Comcast Cellular Holdings,
9.505%, due 05/01/2007 ................. 532,500
750,000 ICO Global Communication
Holdings, 15.000%,
due 08/01/2005 ......................... 562,500
250,000 Iridium Capital Corporation,
LLC, Series B, 14.000%,
due 07/15/2005 ......................... 238,750
750,000 Microcell Telecommunications
Technology Corp., STEP (c)
0.000%/14.000%,
due 06/01/2006 ......................... 560,625
750,000 Mobile Telecommunications
Technology Corp.,13.500%,
due 12/15/2002 ......................... 853,125
870,000 Pagemart Wireless, Inc., STEP (c)
0.000%/11.250,
due 02/01/2008 ......................... 404,550
------------
4,157,050
------------
TELEVISION AND RADIO BROADCAST STATIONS (8.11%)
500,000 Adelphia Communications,
8.375% DUE 02/01/2008 (b)
Cost - $512,500;
Acquired - 12/07/1998 .................. 517,500
500,000 Aircraft Service
International Group,
11.000%, due 08/15/2005 (b)
Cost - $500,000;
Acquired - 08/13/1998 .................. 497,500
700,000 Antenna TV SA, 9.000%,
due 08/01/2007 ......................... 616,000
600,000 Benedek Broadcasting,
11.875%, due 03/01/2005 ................ 642,000
300,000 Benedek Communications, STEP
(c) 0.000%/13.250%,
due 05/15/2006 ......................... 211,500
660,000 Lin Holdings Corporation, STEP
(c) 0.000%/10.000%,
due 03/01/2008 ......................... 465,300
1,000,000 Telemundo Holdings, Inc., STEP
(c) 0.000%/11.500%,
due 08/15/2008 (b)
Cost - $592,500;
Acquired - 11/17/1998 .................. 555,000
-------------
3,504,800
-------------
TRANSPORTATION EQUIPMENT (2.67%)
500,000 Federal-Mogul Corp.,
8.800%, due 04/15/2007 ................. 537,493
300,000 Hermes Europe Railtel
BV Industrial, 11.500%,
due 08/15/2007 ......................... 319,500
200,000 Stena Line AB, 10.625%,
due 06/01/2008 ......................... 181,000
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
CONSECO HIGH YIELD FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
PRINCIPAL
AMOUNT SECURITY VALUE
----------- --------- -------
TRANSPORTATION EQUIPMENT - CONTINUED
140,000 Tata Engineering & Locom,
7.875%, due 07/15/2007 (b)
Cost - $125,593;
Acquired - 03/05/1998 $ 116,589
-----------
1,154,582
-----------
TOTAL CORPORATE BONDS
(COST $41,907,797) 41,168,560
===========
NUMBER OF
Shares
-----------
PREFERRED STOCK (.56% of total investments) (a)
NON-DEPOSITORY CREDIT INSTITUTIONS(.45%)
3,180 River Holding Corp, PIK (c),
11.500%, due 04/15/2010 191,605
-----------
TEXTILE MILL PRODUCTS (.10%)
4,291 Anvil Holdings,
Series B, 13.000% 43,983
-----------
TELEVISION AND RADIO BROADCAST STATIONS (.01%)
5 IXC Communications, Inc.,
Series B, PIK (c), 12.500%,
due 08/15/2009 5,125
-----------
Total preferred stock
(cost $427,780) 240,713
===========
COMMERCIAL PAPER
(4.16% of total investments) (a)
NON DURABLE GOODS -- WHOLESALE (4.16%)
1,800,000 Koch Industries, Inc.,
5.250%, due 01/04/1999 1,799,009
-----------
TOTAL COMMERCIAL PAPER
(COST $1,798,950) $ 1,799,009
-----------
TOTAL INVESTMENTS IN
SECURITIES
(COST $44,134,527) $43,208,282
===========
- --------------------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications.
(b) Restricted under Rule 144A of the Securities Act of 1933.
(c) PATS -- Putable Assets Trust Securities.
PIK -- Payment In Kind.
STEP -- Bonds where the coupon increases or steps up at a predetermined
rate.
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
PORTFOLIO MANAGER'S REVIEW
CONSECO CONVERTIBLE SECURITIES FUND
- --------------------------------------------------------------------------------
Designed to provide income and growth benefits during both up and down
markets, your fund primarily invests in convertible securities and also may
invest a significant amount in lower-rated, high yield securities.
When we debuted on September 28, the S&P 500 was down 14 percent and
investors were contemplating sizeable losses. Ultimately, the market posted a
strong fourth quarter -- leading many to blissfully block out the acute risk
they faced just 60 days earlier.
CANDID RISK APPRAISAL IS CRITICAL
Yet, in spite of the market's strong fourth quarter finish, risk certainly
remains and there never will be an "all clear" signal. That doesn't mean
investors should huddle in a risk-free portfolio. Instead, the vagaries of 1998
and the market's rebound provided an excellent opportunity to candidly reassess
and adjust investors' risk-comfort level for downturns, as well as upturns.
Constant risk appraisal is a key aspect of this fund. Convertible
securities -- by nature -- are moderate risk creatures. This was reflected in
our performance during the year.
From inception through year-end, total return (Class A shares)* was 11.04
percent. During this period, the S&P 500 returned 17.64 percent and the Dow
Jones was at 13.73 percent.
FOURTH QUARTER PERFORMANCE STEPS-UP
Fourth quarter performance (Class A shares)* improved to 12.28 percent.
During this quarter, the S&P 500 returned 20.87 percent, the Dow Jones 17.58
percent and for the Merrill Lynch Corporate Bond Index 0.97 percent.
Additionally, Merrill Lynch's Convertible Securities Index was up 13.22 percent,
while Salomon Smith Barney's Convertible Securities Index was up 12.95 percent.
BE WARY OF OVERHEATED INTERNET STOCKS
Moving into 1999, it appears many investors have cast risk aside, devouring
Internet stocks as if they can deliver bountiful returns overnight. Granted, the
Internet will help revolutionize distribution of information, entertainment,
products and services. But, beware. These are uncertain times when hype often
exceeds reality and expectations exceed hype. Most internet stocks are
overheated, overvalued and overblown at best.
However, there are many prudent ways to invest in the "digital age." Here
are profiles of some of your fund's larger holdings and a rationale for owning
them:
ANTEC CORP. (SYMBOL: ANTC) COMMON STOCK. SUPPLIES EQUIPMENT THAT UPGRADES
EXISTING CABLE FACILITIES AND ENABLES VOICE AND DATA TRANSMISSION. POSITIONED TO
MEET CABLE COMPANIES INCREASING NEED TO PROVIDE TELEPHONIC AND INTERNET ACCESS
TO THEIR SUBSCRIBERS.
INTEL CORP. (SYMBOL: INTC) COMMON STOCK. THE DOMINANT SUPPLIER OF PERSONAL
COMPUTER MICROPROCESSORS. EXPLOITS LARGE ECONOMIES OF SCALE TO REMAIN DOMINANT.
LIFE RE CAPITAL 6 PERCENT CONVERTIBLE PREFERRED. LIFE RE WAS ACQUIRED BY
SWISS RE, A AAA-RATED INSURER. SWISS RE CREDIT QUALITY GIVES YOUR PREFERRED
SHARES A LOW-RISK PROFILE WITH AN ABOVE-AVERAGE YIELD.
- ----------------
* TOTAL RETURN DOES NOT REFLECT SALES LOAD DEDUCTIONS.
20
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
MEDIAONE/AIRTOUCH COMMUNICATIONS (SYMBOL: ATI) 6.25 PERCENT CONVERTIBLE
PREFERRED. ISSUED BY MEDIAONE, BUT CONVERTIBLE INTO AIRTOUCH COMMON STOCK. VALUE
IS PRIMARILY DETERMINED BY AIRTOUCH COMMON STOCK VALUE. AIRTOUCH IS ONE OF THE
LARGEST U.S. MOBILE PHONE SERVICES PROVIDERS. JUST BEFORE THE END OF THE YEAR,
BELL ATLANTIC INDICATED AN INTEREST IN PURCHASING AIRTOUCH. REGARDLESS, WE
BELIEVE THAT AIRTOUCH'S BUSINESS HAS GOOD PROSPECTS ON A STAND-ALONE BASIS.
RITE AID (SYMBOL:RAD) 5.25 PERCENT CONVERTIBLE BOND. NATIONWIDE RETAIL
DRUGSTORE CHAIN STORES. STANDS TO BENEFIT FROM INDUSTRY CONSOLIDATION TREND AND
AGING POPULATION THAT'S INCREASING PRESCRIPTION DRUG PURCHASES.
WASTE MANAGEMENT (SYMBOL: WMI) 4 PERCENT CONVERTIBLE BOND AND 4.5 PERCENT
CONVERTIBLE BOND. OPERATES WASTE COLLECTION AND DISPOSAL SERVICES ACROSS THE
NATION. A MATURE BUSINESS WITH FAIRLY STABLE FUNDAMENTALS AND STOCK PRICE THAT
APPEARS UNDERVALUED EVEN IF MANAGEMENT IS ONLY MODERATELY SUCCESSFUL IN CUTTING
COSTS IN 1999.
Your fund has -- and fully expects to retain -- a balanced exposure to risk
and potential return.
Andrew S. Chow, CFA
Vice President
Portfolio Manager
CONSECO CAPITAL MANAGEMENT, INC.
21
<PAGE>
================================================================================
CONSECO CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1998
NUMBER OF
SHARES SECURITY VALUE
----------- --------- -------
COMMON STOCKS (13.00% OF TOTAL INVESTMENTS) (a)
BUSINESS SERVICES (3.07%)
6,000 Microsoft Corp. (b) ..................... $ 832,125
-----------
ELECTRICAL EQUIPMENT, EXCEPT COMPUTERS (9.93%)
75,000 Antec Corp. (b) ......................... 1,509,375
10,000 Intel Corporation ....................... 1,185,625
-----------
2,695,000
-----------
TOTAL COMMON STOCKS
(COST $2,860,842) ..................... $ 3,527,125
===========
PREFERRED STOCKS (3.78% of total investments) (a)
INSURANCE CARRIERS (3.78%)
13,500 Life Re Capital Trust II, 6.00% ......... 1,026,000
-----------
TOTAL PREFERRED STOCKS
(COST $1,002,498) ..................... $ 1,026,000
===========
PREFERRED STOCKS -- CONVERTIBLE
(25.90% OF TOTAL INVESTMENTS) (a)
COMMUNICATIONS (12.15%)
20,000 MediaOne Group (b), conv
into ATI common stock ................. 1,330,000
10,000 MediaOne Group Inc., Series D,
conv into UMG
common stock .......................... 950,000
4,000 Nextel Communications (b) ............... 1,014,700
-----------
3,294,700
-----------
DEPOSITORY INSTITUTIONS (6.94%)
20,000 Merrill Lynch, 6.000% (b),
conv into COX
common stock .......................... 1,142,500
23,450 WBK STRYPES Trust (d), (b) .............. 740,141
-----------
1,882,641
-----------
GENERAL MERCHANDISE STORES (2.14%)
10,000 Kmart Financing, Inc., I,
conv into KM common stock ............. 579,375
-----------
INDUSTRIAL, COMMERCIAL MACHINERY,
COMPUTER EQUIPMENT (.98%)
6,000 Coltec Capital Trust (b), conv
into COT common stock ................. 265,500
-----------
MISCELLANEOUS RETAIL (3.69%)
10,000 CVS Corp., 6.000%, (b), due
05/15/2001, conv into
CVS common stock ...................... 1,001,875
-----------
PRINCIPAL
AMOUNT
- ------------
TOTAL PREFERRED STOCKS --
CONVERTIBLE
(COST $6,330,955) .................... 7,024,091
===========
CONVERTIBLE BONDS (53.56% OF TOTAL INVESTMENTS) (A)
BUILDING MATERIAL, HARDWARE, GARDEN RENTAL (6.94%)
500,000 Home Depot Inc., 3.250%,
due 10/01/2001, conv into
HD common stock ....................... 1,320,000
1,000,000 Elan International Financial,
conv into ELN common stock
(c) Cost - $524,780;
Acquired - 12/09/1998 ................. 562,500
-------------
1,882,500
-------------
CHEMICALS AND ALLIED PRODUCTS (2.67%)
500,000 Alza Corporation, 5.000%,
due 05/01/2006, conv into
AZA common stock ...................... 723,125
-------------
COMMUNICATIONS (4.11%)
1,000,000 Global Telesystems Inc.,
5.750%, due 07/01/2010,
conv into GTSG
common stock .......................... 1,115,000
-------------
DURABLE GOODS - WHOLESALES (3.84%)
3,000,000 Ingram Micro, Inc., 0.000%,
due 06/09/2018, conv
into IM common stock .................. 1,042,500
-------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (4.55%)
235,000 United Waste Systems, Inc.,
4.500%, due 06/01/2001,
conv into WMI common stock ............ 368,656
720,000 Waste Management, Inc., 4.000%,
due 02/01/2002, conv into
WMI common stock ...................... 863,100
-------------
1,231,756
-------------
ELECTRICAL EQUIPMENT, EXCEPT COMPUTERS (6.16%)
1,000,000 Advances Micro Devices, 6.000%,
due 05/15/2005, conv
into AMD common stock ................. 1,026,250
600,000 Micron Technology, Inc., 7.000%,
due 07/01/2004, conv
into MU common stock .................. 644,250
-------------
1,670,500
-------------
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
CONSECO CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1998
PRINCIPAL
AMOUNT SECURITY VALUE
----------- --------- -------
GENERAL MERCHANDISE STORES (4.60%)
1,500,000 Costco Companies, Inc.,
0.000%, due 08/19/2017,
conv into COST
common stock .......................... $ 1,248,749
-----------
HEALTH SERVICES (3.15%)
1,000,000 HEALTHSOUTH Corporation,
3.250%, due 04/01/2003,
conv into HRC
common stock .......................... 855,000
-----------
INDUSTRIAL, COMMERCIAL MACHINERY,
COMPUTER EQUIPMENT (7.61%)
1,000,000 Quantum Corporation, 7.000%, due
08/01/2004, conv into QNTM
common stock .......................... 955,000
2,000,000 Hewlett Packard, 0.000%
due 10/14/2007, conv into
HWP common stock ...................... 1,110,000
-----------
2,065,000
-----------
MISCELLANEOUS RETAIL (4.26%)
800,000 Rite Aid Corp., 5.250%, Due
09/15/2002, Conv into
Rad commom stock ...................... 1,154,000
-----------
OIL AND GAS EXTRACTION (4.07%)
4,000,000 Pride International Inc.,
0.000%, due 04/24/2018,
conv into PDE
common stock .......................... 1,105,000
-----------
PAPER AND ALLIED PRODUCTS (1.60%)
600,000 Asia Pulp & Paper, 2.000%,
due 07/25/2000, conv into
PAP common stock (c)
Cost - $507,000;
Acquired - 11/25/1998 ................. 432,750
-----------
TOTAL CONVERTIBLE BONDS
(COST $13,363,841) .................... $14,525,880
===========
CORPORATE BONDS (3.76% of total investments) (a)
DEPOSITORY INSTITUTIONS (2.29%)
587,000 Republic New York Corp.,
8.250%, due 11/01/2001 ................ 622,635
-----------
NON-DEPOSITORY INSTITUTIONS (1.47%)
400,000 Chrysler Financial Corp.,
5.250%, Due 10/19/2000 ................ 399,744
-----------
TOTAL CORPORATE BONDS
(COST $1,022,942) ..................... 1,022,379
-----------
TOTAL INVESTMENTS IN
SECURITIES
(COST $24,581,078) .................... $27,125,475
===========
- ----------------------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications.
(b) Non-dividend paying common stock.
(c) Restricted under Rule 144A of the Securities Act of 1933.
(d) STRYPES -- Structured Yield Product Exchangeable for stock.
Zero Coupon -- Bonds which makes no interest payments.
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
PORTFOLIO MANAGER'S REVIEW
CONSECO BALANCED FUND
- --------------------------------------------------------------------------------
Your fund is designed to take advantage of the benefits of asset allocation
- -- allowing for immediate diversification between two major investment sectors
through a predetermined mix of stocks and bonds.
With the close of 1998, we say goodbye to one of the most volatile years in
the history of the stock and bond markets. Given our focus on investing in both
equity and fixed income securities that we consider to be undervalued, Conseco
Capital Management shared in this volatility as both mid-cap stocks and
corporate bonds struggled to keep up with the broader market averages.
Working within this hectic and volatile market environment, your fund
(Class A shares)* returned 12.45 percent.
DEFINING THE BOTTOM OF THE EQUITY MARKET
As we began the fourth quarter, the financial markets were discounting huge
uncertainties with respect to deflation, slowing economic growth, the
possibility of a collapse of the credit markets and political uncertainty.
Such uncertainty was quickly erased with not one, but three interest rate
cuts by the Federal Reserve. The second cut, which came only sixteen days after
the first, defined the bottom in the equity markets and set up a strong rally in
many of our stocks which had been extremely oversold during August and
September.
The fixed income markets were slower to benefit from the Federal Reserve
moves. While much of the equity market has recouped all or more of its third
quarter losses, fixed income spreads are still at historically wide levels.
INVESTMENT STRATEGY GOING FORWARD
What does this mean for our ongoing fixed-income investment strategy?
First, while the market has totally revalued risk, we believe it has
overreacted -- as markets sometimes do. We expect the portfolio structure will
remain fairly consistent with the previous quarter and we will continue to
emphasize the corporate and MBS/ABS sectors.
Second, we do not foresee a spike in interest rates in the near future.
Rather, with a slowing in the global economy, a gradual slowing in the American
economy will help to put a ceiling on interest rates.
Finally, we're finding more opportunities for investment in this market.
Based on our research, we believe companies such as Sprint (Baa1/A-), Worldcom
(Baa2/BBB+), Illinova (Baa3/BBB-) and Union Planters Bank (Baa1/BBB) will offer
excellent relative value in this market.
INCREASING INVESTOR ATTENTION FOR MID-CAP
Looking ahead for 1999, we see several things in store for the equity
market that will forge our strategy as it relates to your fund. First, with 18
percent earnings growth expected for the Mid-Cap 400 and a forward
price-earnings (P/E) ratio of 18.7, we think the mid-cap sector will receive an
increasing amount of investor attention. This will be especially true, if the
market finds itself struggling with low or flat earnings growth for the S&P 500
stocks which trade at a forward P/E ratio of 26.
This kind of environment also will increase the probability that active
management will outpace passive indexing, because many managers most likely own
a higher percentage of mid-caps in their portfolios.
- ----------------
* TOTAL RETURN DOES NOT REFLECT SALES LOAD DEDUCTION
24
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
Also, actively managed portfolios will benefit from a Fed committed to
keeping interest rates low enough to maintain rational credit markets, a healthy
consumer and a stable, non-inflating U.S. economy.
CONTINUED EARNINGS GROWTH IN CONSUMER-ORIENTED SECTORS
With this bias, the Fed's actions should serve as a driver for continued
earnings growth in consumer-oriented industries such as retail, durables,
textiles, foods, media and financial services.
Finally, we see a market that is admittedly expensive overall, but with
pockets of value which will allow for the possibility of out-performance by
bottom-up, research-driven managers like us.
Our strategy will be to remain committed to our mid-cap growth discipline
by focusing on opportunities available in a core group of high quality names
which we can build upon through the periods of volatility that lie ahead.
Thomas J. Pence, CFA Gregory J. Hahn, CFA
Senior Vice President, Equity Investments Senior Vice President
Portfolio Manager Portfolio Manager
CONSECO CAPITAL MANAGEMENT, INC. CONSECO CAPITAL MANAGEMENT, INC.
[The following table represents a line chart in the printed report.]
Conseco Balanced Fund LB Aggregate Bond Index S&P 400 Micap
1/2/97 9.426 10.000 10
12/31/97 11.045 10.965 13.225
12/31/98 12.42 11.919 15.754
AVERAGE TOTAL RETURN
-------------------------
1 YEAR SINCE INCEPTION
-------------------------
Class A (INCEPTION 1/2/97) 5.98% 24.20%
Class B (INCEPTION 2/10/98) n/a 1.52%
Class C (INCEPTION 2/13/98) n/a 5.04%
Class Y (INCEPTION 1/2/97) 12.90% 33.07%
- --------------------------------
CLASS A SHARE PERFORMANCE REFLECTS THE DEDUCTION OF THE MAXIMUM SALES LOAD FROM
THE INITIAL $10,000 INVESTMENT. CLASS B AND C SHARE PERFORMANCE REFLECTS THE
DEDUCTION OF EACH CLASS'S RESPECTIVE MAXIMUM CONTINGENT DEFERRED SALES LOAD.
AVERAGE TOTAL RETURN IS PROVIDED IN ACCORDANCE WITH SECGUIDELINES FOR
COMPARATIVE PURPOSES AND REFLECTS CERTAIN VOLUNTARY FEE WAIVERS AND/OR EXPENSE
REIMBURSEMENTS THROUGH APRIL 30, 1999. IF THE WAIVERS WERE NOT IN PLACE, THE
FUND'S RETURNS WOULD HAVE BEEN LOWER.
25
<PAGE>
================================================================================
CONSECO BALANCED FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
NUMBER OF
SHARES SECURITY VALUE
----------- --------- -------
COMMON STOCKS (50.62% OF TOTAL INVESTMENTS) (a)
APPAREL AND ACCESSORY STORES (1.07%)
4,250 Abercrombie & Fitch
Company (b) ........................... $ 300,687
800 Payless Shoesource, Inc. (b) ............ 37,900
-----------
338,587
-----------
APPAREL AND OTHER FINISHED PRODUCTS (.54%)
2,850 Tommy Hilfiger Corporation, (b) ......... 171,000
-----------
AUTO REPAIR AND PARKING (.40%)
2,800 The Hertz Corporation ................... 127,750
-----------
BUSINESS SERVICES (10.44%)
9,500 Affiliated Computer
Services, Inc. (b) ................... 427,500
2,750 America Online, Inc. .................... 440,000
4,700 Applied Graphics
Technologies, Inc. (b) ................ 77,550
7,650 Cadence Design
Systems, Inc. (b) ..................... 227,588
1,450 Citrix Systems, Inc. (b) ................ 140,741
8,850 Compuware Corporation (b) ............... 691,406
5,900 Equifax, Inc. ........................... 201,706
3,400 IMS Health, Inc. ........................ 256,488
6,250 Keane, Inc. (b) ......................... 249,609
8,000 Nova Corporation (b) .................... 277,500
8,350 Sungard Data
Systems, Inc. (b) ..................... 331,391
-----------
3,321,479
-----------
CHEMICALS AND ALLIED PRODUCTS (.94%)
500 Biogen, Inc. (b) ........................ 41,500
4,300 IDEXX Laboratories, Inc. (b) ............ 115,697
2,250 Watson Pharmaceutical, Inc. (b) ......... 141,469
------------
298,666
-----------
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (.77%)
5,650 Brightpoint, Inc. (b) ................... 77,688
2,400 Century Telephone
Enterprise, Inc. ...................... 162,000
221 Intermedia
Communications, Inc. (b) .............. 3,812
-----------
243,500
-----------
DEPOSITORY INSTITUTIONS (1.63%)
2,700 Dime Bancorp, Inc. ...................... 71,381
3,950 First Union Corporation ................. 240,209
5,150 Wells Fargo & Co. ....................... 205,678
-----------
517,268
-----------
DURABLE GOODS - WHOLESALES (.52%)
2,800 Federal - Mogul Corporation ............. 166,600
-----------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (4.99%)
5,300 Energy East Corporation ................. 299,450
2,300 GPU, Inc. ............................... 101,631
6,750 Kinder Morgan Energy
Partners, L.P. ........................ 244,687
7,250 The Montana Power Company ............... 410,078
2,600 New Century Energies, Inc. .............. 126,750
8,700 Waste Management, Inc. .................. 405,638
-----------
1,588,234
-----------
ELECTRICAL EQUIPMENT, EXCEPT COMPUTERS (1.76%)
2,450 ADC
Telecommunications, Inc. (b) .......... 85,137
2,250 Comverse Technology, Inc. (b) ........... 159,750
1,650 The DII Group, Inc. (b) ................. 37,950
10,000 SMART Modular
Technologies, Inc. (b) ................ 277,500
-----------
560,337
-----------
ENGINEERING SERVICES, ACCOUNTING MANAGEMENT (.26%)
4,800 Corrections Corporation
of America (b) ........................ 84,600
-----------
FOOD AND KINDRED PRODUCTS (1.50%)
2,000 Hershey Foods Corporation ............... 124,375
2,650 Suiza Foods Corporation (b) ............. 134,984
4,000 Tyson Foods, Inc. ....................... 85,000
5,250 Whitman Corporation ..................... 133,219
-----------
477,578
-----------
FOOD STORES (1.82%)
7,350 Albertson's Inc. ........................ 468,103
8,550 Casey's General Stores, Inc. ............ 111,417
-----------
579,520
-----------
GENERAL MERCHANDISE STORES (3.74%)
4,000 Ames Department
Stores, Inc. (b) ...................... 108,000
2,900 BJ's Wholesale Club, Inc. (b) ........... 134,306
35,600 Family Dollar Stores, Inc. .............. 783,200
4,700 Kmart Corporation (b) ................... 71,969
2,900 Saks, Incorporated (b) .................. 91,531
-----------
1,189,006
-----------
HEALTH SERVICES (1.39%)
6,250 Columbia/HCA
Healthcare Corporation ................ 154,688
6,600 Health Management
Associates, Inc. (b) .................. 142,725
9,400 HEALTHSOUTH
Corporation (b) ....................... 145,113
-----------
442,526
-----------
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
CONSECO BALANCED FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
NUMBER OF
SHARES SECURITY VALUE
----------- --------- -------
HOME FURNITURE AND EQUIPMENT STORES (.35%)
1,800 Best Buy Co., Inc. (b) .................. $ 110,475
-----------
HOTELS, OTHER LODGING PLACES (.91%)
26,100 Fairfield Communities, Inc. (b) ......... 288,731
-----------
INDUSTRIAL COMMERCIAL MACHINERY, COMPUTERS (4.99%)
2,000 The Black & Decker Corporation .......... 112,125
10,250 Ceridian Corporation .................... 715,578
1,300 EMC Corporation (b) ..................... 110,500
1,300 Lexmark International
Group, Inc. (b) ....................... 130,650
9,150 Mettler - Toledo
International, Inc. (b) ............... 256,772
3,950 Pitney Bowes, Inc. ...................... 260,947
-----------
1,586,572
-----------
INSURANCE COMPANIES (1.56%)
2,050 Ambac Financial Group, Inc. ............. 123,384
1,500 The MONY Group, Inc. (b) ................ 46,968
2,350 Nationwide Financial
Services, Inc. ........................ 121,466
4,900 Provident Companies, Inc. ............... 203,350
-----------
495,168
-----------
MEASURING INSTRUMENTS, PHOTO GOODS, WATCHES (3.20%)
1,350 Guidant Corporation ..................... 148,838
7,600 SCI Systems, Inc. (b) ................... 438,900
6,050 Sybron International
Corporation (b) ....................... 164,484
3,050 Waters Corporation (b) .................. 266,113
-----------
1,018,335
-----------
MISCELLANEOUS RETAIL (.55%)
5,000 Omnicare, Inc. .......................... 173,750
-----------
NON-DEPOSITORY CREDIT INSTITUTIONS (.59%)
1,050 Capital One Financial Corporation ....... 120,750
900 Providian Financial Corporation ......... 67,500
-----------
188,250
-----------
NON-DURABLE GOODS WHOLESALE (2.71%)
6,200 Bergen Brunswig
Corporation ........................... 216,225
2,700 Enron Corporation ....................... 154,069
3,800 RICHFOOD HOLDINGS, INC. ................. 78,850
8,450 U.S. Foodservice (b) .................... 414,050
-----------
863,194
-----------
PERSONAL SERVICES (.94%)
6,650 H & R Block, Inc. ....................... 299,250
-----------
PRINTING, PUBLISHING AND ALLIED LINES (.52%)
4,000 American
Greetings Corporation ................. $ 164,250
-----------
SOCIAL SERVICES (.36%)
3,900 Covance, Inc . (b) ...................... 113,587
-----------
STONE, CLAY, GLASS, CONCRETE (.30%)
1,600 Southdown, Inc. ......................... 94,700
-----------
TEXTILE MILL PRODUCTS (.86%)
11,300 Shaw Industries, Inc. ................... 274,025
-----------
TRANSIT AND PASSENGER TRANSPORTATION (1.01%)
9,300 Coach USA, Inc. (b) ..................... 322,594
-----------
TOTAL COMMON STOCKS
(COST $13,153,436) .................... $16,099,532
===========
PREFERRED STOCKS (2.40% OF TOTAL INVESTMENTS) (a)
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (.75%)
18 IXC Communications, Inc.,
Series B, PIK (d) 12.500%,
due 08/15/2009 ........................ 18,450
12,000 Intermedia
Communications, Inc.,
7.000% (c) Cost - $300,000;
Acquired - 10/24/1997 ................. 219,000
------------
237,450
------------
INSURANCE CARRIERS (.65%)
8,000 Lincoln National Corp.
TOPrS (d), 6.400%, .................... 207,500
------------
MEASURING INSTRUMENTS, PHOTO GOODS,
WATCHES (1.00%)
5,300 River Holding Corp., 11.500% ............ 319,325
------------
TOTAL PREFERRED STOCKS
(COST $1,042,505) ..................... 764,275
============
PREFERRED STOCKS -- CONVERTIBLE
(.94% OF TOTAL INVESTMENTS) (a)
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (.94%)
6,000 The AES Corporation Trust II,
5.500%, (c) Cost - $300,000;
Acquired - 10/24/1997 ................. 297,750
-------------
TOTAL PREFERRED STOCKS --
CONVERTIBLE
(COST $300,000) $ 297,750
=============
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
================================================================================
CONSECO BALANCED FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
NUMBER OF
SHARES SECURITY VALUE
----------- --------- -------
CORPORATE BONDS (27.92% OF TOTAL INVESTMENTS) (a)
AIR TRANSPORTATION (.50%)
150,000 CHC Helicopter Corporation,
11.500%, DUE 07/15/2002 ............... $ 158,250
-----------
APPAREL AND OTHER FINISHED PRODUCTS (.31%)
100,000 Tommy Hilfiger Corporation,
6.500%, due 06/01/2003 ................ 98,685
-----------
AUTO REPAIR AND PARKING (1.34%)
400,000 Amerco-MTN, 7.470%,
due 01/15/2027 ........................ 426,107
-----------
BUILDING CONSTRUCTION, GENERAL CONTRACTORS, OPERATIVE
BUILDERS (.77%)
100,000 D.R. Horton, Inc., 8.375%,
due 06/15/2004 ........................ 99,500
150,000 K. Hovnanian Enterprises, Inc.,
9.750%, due 06/01/2005 ................ 144,750
-----------
244,250
-----------
BUSINESS SERVICES (.46%)
250,000 Pinnacle Holdings, Inc.,
0.000%, due 03/15/2008 ................ 146,875
-----------
COAL MINING (.38%)
150,000 Lodestar Holdings, Inc.,
11.500%, due 05/15/2005 (c)
Cost - $150,000;
Acquired - 05/12/1998 ................. 120,750
-----------
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (4.12%)
150,000 Cable and Wireless
Communications PLC, 6.375%,
due 03/06/2003 ........................ 150,513
300,000 CSC Holdings, Inc., 7.250%,
due 07/15/2008 ........................ 301,290
200,000 Lenfest Communications, Inc.,
8.375%, due 11/01/2005 ................ 217,000
100,000 Park N View Inc.,
13.000%, due 05/15/2008 (c)
Cost - $100,000;
Acquired - 11/13/1998 ................. 78,500
100,000 SK Telecom Co., Ltd.,
7.750%, due 04/29/2004 ................ 89,814
350,000 Sprint Capital Corporation,
6.875%, due 11/15/2028 ................ 364,609
100,000 Viacom, Inc., 7.750%,
due 06/01/2005 ........................ 109,331
-----------
1,311,057
-----------
DEPOSITORY INSTITUTIONS(.48%)
150,000 Union Planters Bank, National
Association, 6.500%,
due 03/15/2008 ........................ $ 152,889
-----------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (2.27%)
700,000 Waste Management, Inc.,
6.625%, due 07/15/2002 ................ 721,601
-----------
FOOD STORES (1.42%)
300,000 Kroger Co., 6.000%,
DUE 07/01/2000 ........................ 301,262
150,000 Safeway, Inc., 5.750%,
due 11/15/2000 ........................ 150,448
-----------
451,710
-----------
GENERAL MERCHANDISE STORES (.48%)
150,000 Shopko Stores, Inc., 6.500%,
due 08/15/2003 ........................ 153,489
-----------
HOTELS, OTHER LODGING PLACES (1.11%)
350,000 HMH Properties, Inc., 8.450%,
due 12/01/2008 ........................ 351,750
-----------
INSURANCE COMPANIES (.32%)
100,000 Terra Nova Insurance (UK)
Holdings PLC, 7.000%,
due 05/18/2008 ........................ 103,030
-----------
LUMBER AND WOOD PRODUCTS, EXCEPT FURNITURE (1.64%)
500,000 West Fraser Mill, 7.250%,
due 09/15/2002 (C)
Cost - $499,920;
Acquired - 01/06/1997 ................. 522,207
-----------
MEASURING INSTRUMENTS, PHOTO GOODS, WATCHES (1.11%)
350,000 Bausch & Lomb, Inc., 6.150%,
due 08/01/2001 ........................ 351,791
-----------
MISCELLANEOUS MANUFACTURING (.29%)
200,000 V2 Music Holdings,
0.000%/14.000%, STEP (d),
due 04/15/2008 (c)
Cost - $102,402;
Acquired - 05/07/1998 ................. 93,000
-----------
MISCELLANEOUS RETAIL (.33%)
100,000 Michaels Stores, Inc.,
10.875%, due 06/15/2006 ............... 104,750
-----------
NON-DEPOSITORY CREDIT INSTITUTIONS (.48%)
150,000 Key Bank USA, National
Association, Bank note,
6.500%, due 10/15/2027 ................ 151,928
-----------
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
CONSECO BALANCED FUND
STATEMENT OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1998
NUMBER OF
SHARES SECURITY VALUE
----------- --------- -------
OIL AND GAS EXTRACTION (2.50%)
100,000 Parker Drilling Company, 9.750%,
Due 11/15/2006 ........................ $ 89,500
500,000 Triton Energy Ltd., 9.250%,
due 04/15/2005 ........................ 457,500
100,000 Vastar Resources, Inc., 6.000%,
due 04/20/2000 ........................ 100,173
150,000 Williams Holdings of Delaware,
Inc., 6.500%, due 12/01/2008 .......... 148,611
------------
795,784
------------
REAL ESTATE INVESTMENT TRUSTS (REITS) (4.19%)
250,000 Avalonbay Communities, Inc.
6.500%, due 07/15/2003 ................ 246,462
300,000 Colonial Realty Limited
Partnership, 7.000%,
due 07/14/2007 ........................ 287,578
150,000 EOP Operating Limited
Partnership, 6.763%,
due 06/15/2007 ........................ 148,079
150,000 Simon Debartolo Group, L.P.,
6.750%, due 06/15/2005 ................ 147,608
500,000 United Dominion Realty
Trust, Inc., 8.125%,
due 11/15/2000 ........................ 502,288
------------
1,332,015
------------
REAL ESTATE OPERATORS, AGENTS, MANAGERS (.83%)
100,000 Corporate Property Investment,
9.000%, due 03/15/2002 (c)
Cost - $109,680;
Acquired -03/17/1998 .................. 108,507
150,000 Toll Corp., 8.750%,
due 11/15/2006 ........................ 154,500
------------
263,007
------------
SECURITY AND COMMODITY BROKERS (1.98%)
350,000 Lehman Brothers Holdings, Inc.,
6.330%, Due 08/01/2000 ................ 350,239
250,000 Lehman Brothers Holdings, Inc.,
8.500%, due 05/01/2007 ................ 278,938
------------
629,177
------------
STONE, CLAY, GLASS, CONCRETE (.32%)
100,000 Owens Corning,
7.500%, due 05/01/2005 ................ 102,943
------------
TRANSPORTATION EQUIPMENT (.29%)
100,000 Stena Line AB, 10.625%,
due 06/01/2008 ........................ 90,500
------------
TOTAL CORPORATE BONDS
(COST $9,009,165) ..................... $ 8,877,545
============
MUNICIPAL BONDS (2.74% of total investments) (a)
250,000 Capital Projects Finance
Authority, Florida Revenue,
8.000%, Due 12/01/2001 ................ $ 252,741
250,000 Louisiana Department of
Public Safety, 6.650%,
due 11/01/2008 ........................ 268,432
350,000 Mississippi Development Bank,
Special Obligation, Series 1998,
8.500% due 12/01/2018 ................. 350,000
------------
TOTAL MUNICIPAL BONDS
(COST $850,000) ....................... 871,173
============
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(10.35% OF TOTAL INVESTMENTS) (a)
400,000 U.S. Treasury Note, 5.750%,
due 04/30/2003 ........................ 416,250
250,000 U.S. Treasury Note, 5.375%,
due 06/30/2003 ........................ 257,188
200,000 U.S. Treasury Note, 7.250%,
due 05/15/2004 ........................ 224,188
1,850,000 U.S. Treasury Note, 6.500%,
due 05/15/2005 ........................ 2,028,063
75,000 U.S. Treasury Note, 4.750%,
due 11/15/2008 ........................ 75,609
260,000 U.S. Treasury Note, 6.125%,
due 11/15/2027 ........................ 291,281
------------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(COST $3,198,552) ..................... 3,292,579
============
COMMERCIAL PAPER (5.03% OF TOTAL INVESTMENTS) (a)
OIL AND GAS EXTRACTION (5.03%)
1,600,000 KOCH INDUSTRIES, INC.,
5.250% DUE 01/04/1999 ................. 1,599,119
------------
TOTAL COMMERCIAL PAPER
(COST $1,599,067) ..................... 1,599,119
------------
TOTAL INVESTMENTS IN
SECURITIES
(COST $29,152,725) ................... $ 31,801,973
============
- -------------------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications.
(b) Non-dividend paying common stock.
(c) Restricted under Rule 144A of the Securities Act of 1933.
(d) PIK -- Payment In Kind.
TOPrS -- Trust Originated Preferred Securities.
STEP -- Bonds where the coupon increases or steps up at a predetermined
rate.
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
PORTFOLIO MANAGER'S REVIEW
CONSECO EQUITY FUND
- --------------------------------------------------------------------------------
Your portfolio provides a value-oriented, broadly-diversified way to invest
in some of America's most profitable mid-sized companies with the objective of
earning potentially higher returns over the long-term.
With the close of 1998, we said goodbye to one of the most volatile years
in the history of the stock market. Given our focus on mid-cap growth stocks,
your fund shared in this volatility as mid-cap and small-cap stocks struggled to
keep up with their larger counterparts.
However, despite this widening gap in earnings growth and valuations
between these two groups, we believe a period of significant out-performance by
high quality, mid-cap growth stocks may be in store, during 1999.
AMERICAN INVESTORS MAINTAINED COMPOSURE
1998 opened up with strong negative sentiment surrounding foreign markets
and their potential to adversely affect the United States economy. However, true
to form, the American consumer maintained a relatively high level of composure
during this down period. By the end of January, the market heated up and began
to expand, reinforced by lower rates and a wave of refinancings. By mid-summer,
investor confidence levels were at a record high.
As we entered the second half of the year, extreme valuations particularly
in the larger capitalization stocks were setting the stage for a material
correction. A confluence of overseas economic downturns led to the Long Term
Capital Management debacle (which led to a Fed-assisted, $3.5 billion bailout),
when coupled with a slowing of earnings reported by American companies, combined
to drive the market down. In hindsight, this period definitely was a bear market
which lasted from September to late October.
FED CUTS RESTORE CONSUMER CONFIDENCE
Within a period of just over two months, nearly every major index had
corrected by 20 percent or more. Just as consumer confidence had been the
keystone for the market in the early part of the year, the Federal Reserve acted
quickly to restore the erosion in this vital component. Three quick rate cuts
resulted in restored consumer and market confidence.
Consequently, the year's final stanza opened with financial managers
holding high cash levels in portfolios. These managers felt compelled to put
much of this money to work -- even with growth concerns still on the front
burner -- in large cap growth stocks which bolted to new highs and returned
historically high valuation levels.
However, our proprietary, bottom-up research told us these stocks were
overvalued and our disciplined style enabled us to hold our strategic, mid-cap
course. As a result, within this volatile market, your fund returned a solid
16.11 percent (Class A shares)* on its investments for the year.
1999 INVESTMENT STRATEGY
Looking ahead to 1999, we see several events unfolding the market that will
reinforce our investment strategy.
First -- with 18 percent earnings growth expected for the Mid-Cap 400 and a
forward price-earnings ratio (P/E) of 18.7 -- we believe the mid-cap sector will
receive an increasing amount of
- ------------------------------
* TOTAL RETURN DOES NOT REFLECT SALES LOAD DEDUCTION.
30
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
investor attention. This will be especially true if the market struggles with
low or flat earnings growth for the S&P 500 stocks which trade at an average
forward P/E ratio of 26.
Given that many portfolio managers likely own a higher percentage of
mid-caps, this kind of environment will favor our management style and increase
the probability that actively managed funds -- such as yours -- will outpace
passive indexing.
Secondly, we see a Fed committed to keeping interest rates low enough to
maintain rational credit markets, a healthy consumer and a stable, non-inflating
U.S. economy. Given this bias, the Fed's actions should serve as a driver for
continued earnings growth in consumer oriented industries such as retail,
durables, textiles, foods, media and financial services.
In fact, there's a real possibility we are still in the midst of that
earnings trough that could actually turn out to be quite positive for consumer
related stocks -- given high and stable wages and employment coupled with lower
interest rates. With no central overriding concerns (such as inflation vs.
deflation) dictating current Fed policy, Fed governors should be poised to
deliver whatever antidote is necessary to keep markets healthy amid a widespread
earnings malaise.
POCKETS OF POTENTIAL VALUE EMERGING
Finally, we see a market that is admittedly expensive overall, but with
pockets of value which will allow for the possibility of out-performance by
bottom-up, research-driven portfolio managers like us. Our strategy will be to
remain committed to our mid-cap growth discipline by focusing on a core group of
high-quality company names upon which we can build through the inevitable
periods of volatility which lie ahead.
Thomas J. Pence, CFA
Senior Vice President, Equity Investments
Portfolio Manager
CONSECO CAPITAL MANAGEMENT, INC.
[The following table represents a line chart in the printed report.]
Conseco Equity Fund S&P 400 Midcap S&P 500
Class A
1/2/97 9.426 10.000 10
12/31/97 11.583 13.225 13.336
12/31/98 13.45 15.754 17.146
AVERAGE TOTAL RETURN
-------------------------
1 YEAR SINCE INCEPTION
-------------------------
Class A (INCEPTION 1/2/97) 9.43% 34.50%
Class B (INCEPTION 1/28/98) n/a 9.44%
Class C (INCEPTION 2/19/98) n/a 6.14%
Class Y (INCEPTION 1/2/97) 16.82% 44.28%
- ------------------------
CLASS A SHARE PERFORMANCE REFLECTS THE DEDUCTION OF THE MAXIMUM SALES LOAD FROM
THE INITIAL $10,000 INVESTMENT. CLASS B AND C SHARE PERFORMANCE REFLECTS THE
DEDUCTION OF EACH CLASS'S RESPECTIVE MAXIMUM CONTINGENT DEFERRED SALES LOAD.
AVERAGE TOTAL RETURN IS PROVIDED IN ACCORDANCE WITH SECGUIDELINES FOR
COMPARATIVE PURPOSES AND REFLECTS CERTAIN VOLUNTARY FEE WAIVERS AND/OR EXPENSE
REIMBURSEMENTS THROUGH APRIL 30, 1999. IF THE WAIVERS WERE NOT IN PLACE, THE
FUND'S RETURNS WOULD HAVE BEEN LOWER.
31
<PAGE>
================================================================================
CONSECO EQUITY FUND
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1998
NUMBER OF
SHARES SECURITY VALUE
----------- --------- -------
COMMON STOCKS (95.14% OF TOTAL INVESTMENTS) (a)
APPAREL AND ACCESSORY STORES (1.98%)
22,000 Abercrombie & Fitch Co. (b) ............. $ 1,556,500
4,200 Payless Shoesource, Inc. (b) ............ 198,975
-----------
1,755,475
-----------
APPAREL AND OTHER FINISHED PRODUCTS (1.00%)
14,700 Tommy Hilfiger Corporation, ............. 882,000
-----------
AUTO REPAIR AND PARKING (.76%)
14,750 The Hertz Corporation ................... 672,969
-----------
BUSINESS SERVICES (19.78%)
50,050 Affiliated Computer
Services, Inc. (b) .................... 2,252,250
14,850 America Online, Inc. .................... 2,376,000
24,300 Applied Graphics
Technologies, Inc. (b) ................ 400,950
40,150 Cadence Design
Systems, Inc. (b) ..................... 1,194,462
7,050 Citrix Systems, Inc. (b) ................ 684,291
47,350 Compuware Corporation ................... 3,699,219
32,250 Equifax, Inc. ........................... 1,102,547
17,550 IMS HEALTH, Inc. ........................ 1,323,928
32,800 Keane, Inc. (b) ......................... 1,309,950
42,150 Nova Corporation (b) .................... 1,462,078
42,700 Sungard Data Systems, Inc. (b) .......... 1,694,656
-----------
17,500,331
-----------
CHEMICALS AND ALLIED PRODUCTS (1.78%)
2,700 Biogen, Inc. (b) ........................ 224,100
22,850 IDEXX Laboratories, Inc. (b) ............ 614,808
11,650 Watson
Pharmaceutical, Inc. (b) .............. 732,494
-----------
1,571,402
-----------
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (1.45%)
29,500 Brightpoint, Inc. (b) ................... 405,625
13,050 Century Telephone
Enterprise, Inc. ...................... 880,875
-----------
1,286,500
-----------
DEPOSITORY INSTITUTIONS (3.10%)
13,350 DIME BANCORP, INC. ...................... 352,941
21,400 First Union Corporation ................. 1,301,387
27,300 Wells Fargo & Co. ....................... 1,090,294
-----------
2,744,622
-----------
DURABLE GOODS - WHOLESALE (.96%)
14,200 Federal-Mogul Corp ...................... 844,900
-----------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (9.32%)
27,850 Energy East Corporation ................. 1,573,525
11,100 GPU, Inc. ............................... 490,481
36,050 Kinder Morgan
Energy Partners, L.P. ................. 1,306,812
38,000 The Montana Power Company ............... 2,149,375
12,250 New Century Energies, Inc. .............. 597,188
45,550 Waste Management, Inc. .................. 2,123,769
-----------
8,241,150
-----------
ELECTRICAL EQUIPMENT, EXCEPT COMPUTERS (3.31%)
12,900 ADC
Telecommunications, Inc. (b) .......... 448,275
11,550 Comverse Technology, Inc. (b) ........... 820,050
8,800 The DII Group, Inc. (b) ................. 202,400
52,500 SMART Modular
Technologies, Inc. (b) ................ 1,456,875
-----------
2,927,600
-----------
ENGINEERING SERVICES, ACCOUNTING MANAGEMENT (.49%)
24,700 Corrections Corporation
of America (b) ........................ 435,338
-----------
FOOD AND KINDRED PRODUCTS (2.79%)
10,400 Hershey Foods Corporation ............... 646,750
14,100 Suiza Foods Corporation (b) ............. 718,219
20,500 Tyson Foods, Inc. ....................... 435,625
26,350 Whitman Corporation ..................... 668,631
-----------
2,469,225
-----------
FOOD STORES (3.38%)
38,000 Albertson's, Inc. ....................... 2,420,125
43,650 Casey's General Store, Inc. ............. 568,814
-----------
2,988,939
-----------
GENERAL MERCHANDISE STORES (6.91%)
20,200 Ames Department
Stores, Inc. (b) ...................... 545,400
14,650 BJ's Wholesale Club, Inc. (b) ........... 678,478
183,650 Family Dollar Stores, Inc. .............. 4,040,300
24,450 Kmart Corporation (b) ................... 374,391
15,050 Saks Incorporated (b) ................... 475,016
-----------
6,113,585
-----------
HEALTH SERVICES (2.66%)
33,900 Columbia/HCA
Healthcare Corporation ................ 839,025
34,550 Health Management
Associates, Inc. (b) .................. 747,144
49,800 HEALTHSOUTH Corporation (b) ............. 768,787
-----------
2,354,956
-----------
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
CONSECO EQUITY FUND
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1998
NUMBER OF
SHARES SECURITY VALUE
----------- --------- -------
HOME FURNITURE AND EQUIPMENT STORES (.68%)
9,750 Best Buy Co., Inc. (b) .................. $ 598,406
-----------
HOTELS, OTHER LODGING PLACES (1.58%)
126,770 Fairfield Communities, Inc. (b) ......... 1,402,393
-----------
INDUSTRIAL, COMMERCIAL MACHINERY, COMPUTERS (9.34%)
10,050 The Black &
Decker Corporation .................... 563,428
53,450 Ceridian Corporation .................... 3,731,478
6,800 EMC Corporation (b) ..................... 578,000
6,650 Lexmark International
Group, Inc. (b) ....................... 668,325
47,700 Mettler - Toledo
International, Inc. (b) ............... 1,338,581
20,900 Pitney Bowes, Inc. ...................... 1,380,706
-----------
8,260,518
-----------
INSURANCE COMPANIES (2.97%)
11,000 Ambac Financial Group, Inc. ............. 662,062
7,900 The MONY Group, Inc. (b) ................ 247,369
12,750 Nationwide Financial
Services, Inc. ........................ 659,016
25,650 Provident Companies, Inc. ............... 1,064,475
-----------
2,632,922
-----------
MEASURING INSTRUMENTS, PHOTO GOODS, WATCHES (6.12%)
7,100 Guidant Corporation ..................... 782,775
40,600 SCI Systems, Inc. (b) ................... 2,344,650
32,700 Sybron International
Corporation (b) ....................... 889,031
16,050 Waters Corporation (b) .................. 1,400,362
-----------
5,416,818
-----------
MISCELLANEOUS RETAIL (1.03%)
26,250 Omnicare, Inc. .......................... 912,187
-----------
NON-DEPOSITORY CREDIT INSTITUTIONS (1.11%)
5,450 Capital One
Financial Corporation ................. 626,750
4,800 Providian
Financial Corporation ................. 360,000
-----------
986,750
-----------
NON-DURABLE GOODS WHOLESALE (5.14%)
33,700 Bergen Brunswig Corporation ............. 1,175,287
13,500 Enron Corp. ............................. 770,344
20,300 Richfood Holdings, Inc. ................. 421,225
44,450 U.S. Foodservice (b) .................... 2,178,050
-----------
4,544,906
-----------
PERSONAL SERVICE (1.73%)
34,000 H & R Block, Inc. ....................... 1,530,000
-----------
PRINTING, PUBLISHING AND ALLIED LINES (1.01%)
21,650 American
Greetings Corporation ................. 889,003
-----------
SOCIAL SERVICES (.67%)
20,350 Covance, Inc. (b) ....................... 592,694
-----------
STONE, CLAY, GLASS, CONCRETE PRODUCTS (.55%)
8,250 SOUTHDOWN, INC. ......................... 488,297
-----------
TEXTILE MILL PRODUCTS (1.61%)
58,650 Shaw Industries, Inc. ................... 1,422,263
-----------
TRANSIT AND PASSENGER TRANSPORTATION (1.93%)
49,150 Coach USA, Inc. (b) ..................... 1,704,891
-----------
TOTAL COMMON STOCKS
(COST $68,438,801) .................... $84,171,040
===========
Principal
Amount
-----------
COMMERCIAL PAPER (4.86% of total investments) (a)
OIL & GAS EXTRACTION (4.86%)
4,300,000 Koch Industries, Inc., 5.250%
due 01/04/1999 ........................ 4,297,632
-----------
TOTAL COMMERCIAL PAPER
(COST $4,297,492) ..................... $ 4,297,632
-----------
TOTAL INVESTMENTS IN
SECURITIES
(COST $72,736,293) .................... $88,468,672
===========
- ------------------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications.
(b) Non-dividend paying common stock.
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
PORTFOLIO MANAGER'S REVIEW
CONSECO 20 FUND
- --------------------------------------------------------------------------------
Total return-oriented, your fund invests at least 65 percent of its assets
in a concentrated portfolio of approximately 20 to 30 common stocks with
attractive growth prospects.
In light of the year's volatile international and domestic market
environment, we were pleased with our portfolio's overall performance. The fund
finished the year with a strong fourth quarter, delivering a 29.7 percent (Class
A shares)* return -- more than eight percent ahead of the S&P 500 which finished
at 21.3 percent for the fourth quarter.
This strong performance enabled us to close out the year with an annual
return of 28 percent (Class A shares),* as compared to the S&P 500 return of
28.6 percent.
S&P 500 DOESN'T REVEAL THE BIG PICTURE
This was an unusual year characterized by poor performance among energy and
financial stocks and out-performance primarily by the largest companies reported
in the S&P 500 and the NASDAQ indices.
This view is further supported by the 39.63 percent return of the
technology-heavy NASDAQ composite and even more dramatically by the performance
of the largest 100 companies in that index (NASDAQ 100) which returned 85.3
percent for the year.
However, these statistics really provide only a partial snapshot of the
market rather than the full story. In spite of the strong performance of the S&P
500 and the NASDAQ, broader markets were on a roller coaster of world events and
reacting to an overwhelming diet of news media coverage of corporate earnings,
political struggles, international economic upheavals, and movement within our
own economy.
EVENTS AND NEWS COVERAGE IMPACTED CONFIDENCE
We saw negative sentiment climax at the end of the third quarter and the
beginning of the fourth quarter as several incidents transpired to generate
significant volatility and uncertainty.
These episodes ranged from the near collapse of Long Term Capital
Management (which survived thanks to a private $3.5 billion bailout engineered
by the Fed), to the lurid details rolling out from the Clinton purjury
investigations and impeachment hearings -- to escalating fears about both the
Japanese banking crisis, Russian defaults and Brazilian currency devaluations.
In addition, fears of declining earnings in S&P 500, coupled with the
possibility of a United States economic recession, led to a severe decline in
investor sentiment until the Federal Reserve stepped in with three rapid rate
cuts that restored confidence.
TALENTED ANALYSTS UNCOVER OPPORTUNITIES
Our fourth quarter performance benefited greatly from the ongoing
proprietary research carried out by our experienced and talented analysts. We're
pleased with our staff's efforts to exploit the market's volatility by locating
several high quality investments, trading at valuations which didn't reflect the
fundamentals of the company.
Among our best performers were the shares of MCI Worldcom, Compuware, EMC
and Pitney Bowes -- all purchased when their stocks were down during the market
correction.
- -----------------------------------
* TOTAL RETURN DOES NOT REFLECT SALES LOAD DEDUCTION.
34
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
FED MAY HAVE TO KEEP BAILING
The 1999 market environment presents us with several major uncertainties.
As we prepare and write this year-end report to you, the world markets are
reacting to the unexpected resignation of Brazil's finance minister and the
devaluation of its currency. Furthermore, Japan's market appears headed for new
lows and the crunch time for the year 2000 and associated Y2K issues will be
quickly upon us.
And finally, early in the new year consensus earnings growth for the S&P
500 composite is lackluster at best while valuations are at all-time highs. So,
while the iceberg that hit the market in September and October of last year
didn't push the market off the course for new highs, we think even the venerable
Fed chairman may need to keep bailing in order for the markets to continue their
progress in 1999.
WELL POSITIONED WITH HIGH QUALITY
Your fund is well-positioned with investments in high quality companies
exhibiting strong and highly visible earnings growth that we feel will
successfully weather any ongoing market volatility.
Erik J. Voss, CFA
Assistant Vice President
Portfolio Manager
CONSECO CAPITAL MANAGEMENT, INC.
Conseco 20 Fund
Class A S&P 400 Midcap S&P 500
--------------- -------------- -------
1/1/98 9.426 10.000 10
12/31/98 12.064 11.911 12.857
AVERAGE TOTAL RETURN
-------------------------
SINCE INCEPTION
-------------------------
Class A (INCEPTION 1/1/98) 20.64%
Class B (INCEPTION 2/18/98) 7.71%
Class C (INCEPTION 3/10/98) 2.76%
Class Y (INCEPTION 4/6/98) 2.84%
CLASS A SHARE PERFORMANCE REFLECTS THE DEDUCTION OF THE MAXIMUM SALES LOAD FROM
THE INITIAL $10,000 INVESTMENT. CLASS B AND C SHARE PERFORMANCE REFLECTS THE
DEDUCTION OF EACH CLASS'S RESPECTIVE MAXIMUM CONTINGENT DEFERRED SALES LOAD.
AVERAGE TOTAL RETURN IS PROVIDED IN ACCORDANCE WITH SECGUIDELINES FOR
COMPARATIVE PURPOSES AND REFLECTS CERTAIN VOLUNTARY FEE WAIVERS AND/OR EXPENSE
REIMBURSEMENTS THROUGH APRIL 30, 1999. IF THE WAIVERS WERE NOT IN PLACE, THE
FUND'S RETURNS WOULD HAVE BEEN LOWER.
35
<PAGE>
================================================================================
CONSECO 20 FUND
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1998
NUMBER
OF SHARES SECURITY VALUE
----------- --------- -------
COMMON STOCKS (90.68% of total investments) (a)
APPAREL AND ACCESSORY STORES (3.60%)
18,500 Abercrombie & Fitch Co. (b) ............. $ 1,308,875
19,100 Burlington Coat
Factory Warehouse ..................... 311,569
-----------
1,620,444
-----------
BUSINESS SERVICES (24.32%)
59,400 Affiliated Computer
Services, Inc. (b) .................... 2,673,000
28,850 Compuware Corporation (b) ............... 2,253,906
36,400 Equifax, Inc. ........................... 1,244,425
21,900 IMS HEALTH, Inc. ........................ 1,652,081
21,600 Keane, Inc. (b) ......................... 862,650
21,150 Nova Corporation (b) .................... 733,641
38,550 Sungard Data Systems, Inc. (b) .......... 1,529,953
-----------
10,949,656
-----------
CHEMICALS AND ALLIED PRODUCTS (1.97%)
11,800 Warner - Lambert, Co. ................... 887,212
-----------
COMMUNICATIONS BY PHONE, TELEVISION, RADIO, CABLE
(4.15%)
26,050 MCI Worldcom, Inc. ...................... 1,869,087
-----------
DEPOSITORY INSTITUTIONS (3.57%)
40,250 Wells Fargo & Co. ....................... 1,607,484
-----------
ELECTRIC, GAS, WATER, COGENERATION, SANITARY SERVICES
(10.35%)
28,350 The Montana Power Company ............... 1,603,547
65,550 Waste Management, Inc. .................. 3,056,269
-----------
4,659,816
-----------
FOOD STORES (3.69%)
20,000 Albertson's, Inc. ....................... 1,273,750
29,900 Casey's General Store, Inc. ............. 389,634
-----------
1,663,384
-----------
GENERAL MERCHANDISE STORES (1.91%)
15,850 Dayton - Hudson Corporation ............. 859,863
-----------
HEALTH SERVICES (3.32%)
46,450 Columbia/HCA
Healthcare Corporation ................ 1,149,637
22,300 HEALTHSOUTH Corporation (b) ............. 344,256
-----------
1,493,893
-----------
INDUSTRIAL, COMMERCIAL MACHINERY,
COMPUTERS (14.79%)
37,100 Ceridian Corporation .................... 2,590,044
4,800 EMC Corporation (b) ..................... 408,000
39,350 Mettler - Toledo
International, Inc. (b) ............... 1,104,259
38,700 Pitney Bowes, Inc. ...................... 2,556,619
-----------
6,658,922
-----------
INSURANCE COMPANIES (3.11%)
20 Berkshire Hathaway, Inc. ................ 1,400,000
-----------
MEASURING INSTRUMENTS, PHOTO GOODS, WATCHES (5.20%)
20,700 SCI Systems, Inc. (b) ................... 1,195,425
13,150 Waters Corporation (b) .................. 1,147,338
-----------
2,342,763
-----------
NON-DURABLE GOODS WHOLESALE (2.94%)
3,300 Richfood Holdings, Inc. ................. 68,475
25,600 U.S. Foodservice (b) .................... 1,254,400
-----------
1,322,875
-----------
PERSONAL SERVICE (5.35%)
53,500 H & R Block, Inc. ....................... 2,407,500
-----------
TRANSIT AND PASSENGER TRANSPORTATION (2.41%)
31,300 Coach USA, Inc. (b) ..................... 1,085,719
-----------
TOTAL COMMON STOCKS
(COST $33,048,088) .................... $40,828,618
===========
PRINCIPAL
AMOUNT
-----------
COMMERCIAL PAPER (9.32% OF TOTAL INVESTMENTS) (a)
CHEMICALS AND ALLIED PRODUCTS (4.66%)
2,100,000 Dow Chemical, Inc., 5.220%,
due 01/04/1999 ........................ 2,098,782
-----------
OIL AND GAS EXTRACTION (4.66%)
2,100,000 Koch Industries, Inc., 5.250%,
due 01/04/1999 ........................ 2,098,844
-----------
TOTAL COMMERCIAL PAPER
(COST $4,197,557) ..................... $ 4,197,626
-----------
TOTAL INVESTMENTS IN
SECURITIES
(COST $37,245,645) .................... $45,026,244
===========
- ----------------------------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications.
(b) Non-dividend paying common stock.
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 portfolio of investments. The
Trust consists of seven series ("Funds"), each with its own investment objective
and investment policies. The Funds are the Conseco Fixed Income Fund, Conseco
High Yield Fund, Conseco Convertible Securities Fund, Conseco Balanced Fund,
Conseco Equity Fund, Conseco International Fund and Conseco 20 Fund. The Conseco
Fixed Income, Conseco Balanced and Conseco Equity Funds became operational and
available for sale on January 2, 1997. The Conseco High Yield, Conseco
International and Conseco 20 Funds commenced operations on January 1, 1998. The
Conseco Convertible Securities Fund became operational and available for sale on
September 28, 1998.
Each one of the Funds has distinct investment objectives. The Conseco Fixed
Income Fund invests primarily in investment grade debt securities. The Conseco
High Yield Fund invests primarily in below investment grade securities, commonly
known as "junk bonds" or high yield securities. The Conseco Convertible
Securities Fund invests primarily in below investment grade securities that are
convertible into common stock. The Conseco Balanced Fund invests in several
asset classes including debt securities, equity securities, and money market
instruments. The Conseco Equity Fund invests in selected equity securities and
other securities having the investment characteristics of common stocks. The
Conseco International Fund invests all of its investable assets in the
International Equity Portfolio of AMR Investment Services Trust (the "AMR
Trust"), which invests primarily in equity securities of issuers based outside
the United States. This "master-feeder" structure is different from that of many
other investment companies which directly acquire and manage their own
portfolios of securities. The financial statements for the Conseco International
Fund are filed based upon the fiscal year end (October 31) of the AMR Trust and
are not included in this report. The Conseco 20 Fund concentrates its
investments in a core position of approximately 20 to 30 common stocks believed
to have above average growth prospects.
The Funds offer four classes of shares: Class A, Class B, Class C and Class
Y. Effective January 2, 1998, the Trust offered Class B and Class C shares.
Sales of Class A shares may be subject to a front-end sales charge. Redemptions
of Class B and Class C shares may be subject to a contingent deferred sales
charge (as a percentage of the offering price or net asset value at the time of
sale, whichever is less). Class Y shares are available with no sales charge to
certain institutional investors and qualifying individual investors. The Funds
are authorized to issue an unlimited number of shares.
Class B shares have a contingent deferred sales charge for redemptions
occurring within six years of their purchase. The contingent deferred sales
charge is a percentage of the net asset value of the shares at the date of
purchase or the net asset value of the shares at the date of redemption,
whichever is less. These charges are 5% in year one, 4% in year two, 3% in year
three, 3% in year four, 2% in year five and 1% in year six. Class B will
automatically convert to a number of Class A shares of equal dollar value eight
years after purchase. This conversion feature benefits shareholders because
Class A shares have lower ongoing expenses than Class B shares. Class C shares
which are held for less than one year are subject to a contingent deferred sales
charge upon redemption in an amount equal to 1% of the lower of the net asset
value of the shares at the date of purchase or the net asset value of the shares
at the date of redemption. Class C shares held one year or longer are not
subject to this contingent deferred sales charge. The contingent deferred sales
charge will not apply to shares acquired due to reinvestment of dividends or
capital gains distributions.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION, TRANSACTIONS, AND RELATED INVESTMENT INCOME
The investments in each portfolio are valued at the close of regular trading
on the New York Stock Exchange on each 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. All Funds may invest in U.S. dollar denominated corporate
debt securities of domestic issuers, and all Funds except the Conseco Equity
Fund may invest in debt securities of foreign issuers that may or may not be
U.S. dollar denominated.
The following summarizes the investments, which carry certain restrictions as
to resale from the Trust to certain qualified buyers:
FUND COST MARKET VALUE % OF FUND
----- ----- ------------ ----------
Conseco Fixed Income-- bonds $ 2,313,295 $ 2,312,731 4.80%
Conseco Fixed Income--
preferred stock 750,000 784,219 1.63%
Conseco High Yield-- bonds 11,122,773 11,191,685 25.90%
Conseco Convertible
Securities -- bonds 1,031,780 995,250 3.67%
Conseco Balanced -- bonds 962,002 922,964 2.90%
Conseco Balanced- preferred stocks 600,000 516,750 1.62%
37
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
These securities are eligible for resale to qualified institutional buyers in
transactions exempt from registration under Rule 144A of the Securities Act of
1933.
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 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 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 Conseco Fixed Income, Conseco High Yield and Conseco
Convertible Securities Funds will be declared and distributed monthly. Dividends
from the Conseco Balanced, Conseco Equity and Conseco 20 Funds 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. The
following summarizes the amount taxable income exceeds net book income:
FUND AMOUNT
------- -----------
Conseco Fixed Income $ 2,187
Conseco High Yield 300,919
Conseco Convertible Securities --
Conseco Balanced 96,962
Conseco Equity 386,220
Conseco 20 310,478
ORGANIZATION COSTS
Costs incurred by all Funds, except the Conseco Convertible Securities Fund,
in connection with their organization and public offering of shares totaling
$461,794 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. Such
costs were advanced by Conseco, Inc. ("Conseco") and were reimbursed by the
Funds. The proceeds of any redemption of the initial shares (purchased by a
subsidiaries of Conseco) by any holder thereof will be reduced by any
unamortized organization 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.
Statement of Position 98-5 ("SOP 98-5") states that organization costs may no
longer be capitalized and carried as assets with ratable reduction through
amortization. SOP 98-5, as it pertains to the Trust, permits capitalization of
organization costs only if the investment company shares are sold to independent
third parties prior to June 30, 1998. Due to the commencement of operations of
the Conseco Convertible Securities Fund on September 28, 1998, organization
costs, related to such Fund, were not capitalized. These costs were incurred by
Conseco Capital Management, Inc., (the "Advisor"), a wholly owned subsidiary of
Conseco, which serves as investment advisor to the Funds pursuant to investment
advisory agreements. The Conseco Convertible Securities Fund is not obligated to
reimburse the Advisor for such costs.
FEDERAL INCOME TAXES
For federal income tax purposes, the Funds intend to qualify as regulated
investment companies under Subchapter M of the Internal Revenue Code by
distributing substantially all of their taxable income and net capital gains to
their shareholders annually and otherwise complying with the requirements for
regulated investment companies. Therefore, no provision has been made for
federal income taxes.
EXPENSES
Expenses directly attributable to a Fund are charged to operations. Expenses
directly attributable to a Class of shares are charged to that Class. The Fund
pays the expenses of its Trustees who are not affiliated persons of the Advisor
or Trust.
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 the disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results may differ from these estimates.
38
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. AGREEMENTS WITH SUBSIDIARIES
OF CONSECO
INVESTMENT ADVISORY AGREEMENT
The Advisor supervises the Trust's management and investment program,
performs a variety of services in connection with the management and operation
of the Funds and pays all compensation of officers and Trustees of the Trust who
are affiliated persons of the Advisor or the Trust. The following summarizes the
total fees incurred for such services for year ended December 31, 1998, except
for the Conseco Convertible Securities Fund which is for the period from
commencement of operations (September 28, 1998) through December 31, 1998:
FUND AMOUNT
----- ----------
Conseco Fixed Income $146,274
Conseco High Yield 145,966
Conseco Convertible Securities 55,482
Conseco Balanced 166,164
Conseco Equity 534,249
Conseco 20 166,646
Under the investment advisory agreements, the Advisor receives an investment
advisory fee equal to an annual rate of .45% of the average daily net asset
value of the Conseco Fixed Income Fund, .85% of the average daily net asset
value of the Conseco Convertible Securities Fund and .70% of the average daily
net asset value of the Conseco High Yield, Conseco Balanced, Conseco Equity and
Conseco 20 Funds. The Advisor has agreed to reduce its advisory fee to .40%,
.60%, and .75% of the average daily net assets of the Conseco Fixed Income,
Conseco High Yield, and Conseco Convertible Securities Funds, respectively,
until April 30, 1999. The Advisor also manages other registered investment
companies and 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 Advisor 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 exceeds the
following:
FUND CLASS A CLASS B CLASS C CLASS Y
------ ------- ------- ------- -------
Conseco Fixed Income 1.25% 1.60% 1.60% .60%
Conseco High Yield 1.40% 1.90% 1.90% .90%
Conseco Convertible Securities 1.55% 2.05% 2.05% 1.05%
Conseco Balanced 1.50% 2.00% 2.00% 1.00%
Conseco Equity 1.50% 2.00% 2.00% 1.00%
Conseco 20 1.75% 2.25% 2.25% 1.25%
The Advisor may discontinue these limits at any time after April 30, 1999.
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 of each Fund. The Administrator has voluntarily agreed to waive its fees
and/or reimburse the Funds to the extent that the ratio of expenses to net
assets on an annual basis exceeds the expense limitations as stated above for
the investment advisory agreements. The Administrator may discontinue these
limits at any time after April 30, 1999. The following summarizes the total fees
incurred for such services for the year ended December 31, 1998, except for the
Conseco Convertible Securities Fund which is for the period from commencement of
operations (September 28, 1998) through December 31, 1998:
FUND AMOUNT
----- -----------
Conseco Fixed Income $ 65,007
Conseco High Yield 41,707
Conseco Convertible Securities 13,055
Conseco Balanced 47,477
Conseco Equity 152,515
Conseco 20 47,614
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, 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 are 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 for the Conseco Fixed Income, Conseco Balanced
and Conseco Equity Funds and December 31, 1997 for Class B and Class C shares
for the Conseco Fixed Income, Conseco Balanced and Conseco Equity Funds and
Class A, Class B and Class C shares for the Conseco High Yield, Conseco
Convertible Securities and Conseco 20 Funds in accordance with the
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
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,
Class B and Class C shares of the Fund and for account maintenance provided to
existing Class A, Class B and Class C shareholders. The Conseco Fixed Income
Fund's Plan authorizes payments to the Distributor up to 0.65%, and the Conseco
High Yield, Conseco Convertible Securities, Conseco Balanced, Conseco Equity,
and Conseco 20 Fund's Plan up to .50%, annually of each Fund's average daily net
assets attributable to its Class A shares. Class B and Class C share's Plan
authorizes payments to the Distributor up to 1.00% annually for each Fund's
average daily net assets attributable to their respective class. 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, Class B and Class C 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 the ratio of expenses to net assets on an
annual basis exceeds the expense limitations as stated above for the investment
advisory agreements. The Distributor may discontinue these limits at any time
after April 30, 1999. The following summarizes the total fees incurred for such
services for Class A, Class B, and Class C shares for the year ended December
31, 1998, except for the Conseco Convertible Securities Fund which is for the
period from commencement of operations (September 28, 1998) through December 31,
1998:
FUND AMOUNT
----- -----------
Conseco Fixed Income $119,272
Conseco High Yield 125,878
Conseco Convertible Securities 32,638
Conseco Balanced 88,823
Conseco Equity 93,453
Conseco 20 138,100
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. INVESTMENT TRANSACTIONS
Cost basis, gross unrealized appreciation and depreciation of investments at
December 31, 1998 and 1997 for federal income tax purposes are shown below:
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
-------------------------------------------------------------------------------------------
PERIOD ENDED
1998 1997 1998 1998(a) 1998 1997
--------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cost basis ............................. $47,908,582 $20,746,520 $44,435,446 $24,581,078 $29,263,568 $12,793,791
- ---------------------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation .......... $599,257 $473,266 $ 485,138 $2,835,825 $3,329,856 $947,785
Gross unrealized depreciation .......... (336,952) (177,255) (1,712,302) (291,428) (791,451) (390,561)
- ---------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $262,305 $296,011 ($1,227,164) $2,544,397 $2,538,405 $557,224
=================================================================================================================================
<CAPTION>
CONSECO CONSECO
EQUITY 20
FUND FUND
----------------------------------------------
1998 1997 1998
----------- ----------- -------------
<S> <C> <C> <C>
Cost basis.............................. $73,228,683 $62,116,012 $37,556,123
- --------------------------------------------------------------------------------------
Gross unrealized appreciation .......... $16,752,897 $6,855,043 $7,802,791
Gross unrealized depreciation .......... (1,512,908) (2,133,041) (332,670)
- ---------------------------------------------------------------------------------------
Net unrealized appreciation ............ $15,239,989 $4,722,002 $7,470,121
=======================================================================================
</TABLE>
The aggregate cost of purchases and the aggregate proceeds from sales of
investments for the year ended December 31, 1998 are shown below:
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
-------------- ------------ ----------------- -----------
PERIOD ENDED
1998 1998 1998(a) 1998
-------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C>
Purchases:
Investments, excluding U.S. government securities and
short-term investments ................................ $95,176,143 $127,929,098 $26,676,638 $74,768,890
U.S. government securities .............................. 52,478,656 3,059,531 -- 13,791,818
Sales:
Investments, excluding U.S. government securities and
short-term investments................................. $74,995,317 $84,609,489 $2,161,993 $62,373,903
U.S. government securities ................................ 48,355,142 3,054,883 -- 10,668,406
<CAPTION>
CONSECO CONSECO
EQUITY 20
FUND FUND
---------- -----------
1998 1998
----------- -----------
<S> <C> <C>
Purchases:
Investments, excluding U.S. government securities and
short-term investments ................................ $253,621,687 $127,475,186
U.S. government securities .............................. -- --
Sales:
Investments, excluding U.S. government securities and
short-term investments................................. $243,889,615 $92,918,753
U.S. government securities ................................ -- --
</TABLE>
- ----------------
(a) For the period from commencement of operations (September 28, 1998) through
December 31, 1998.
41
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. FEDERAL INCOME TAXES (UNAUDITED)
As of December 31, 1998, the following Funds have capital loss carryforwards
available to offset capital gains in the future, if any:
AMOUNT EXPIRES
----------- -------------
Conseco High Yield..................... $ 687,761 2006
Conseco Balanced....................... 647,689 2006
Conseco 20............................. 1,197,867 2006
42
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
FINANCIAL HIGHLIGHTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
---------------------------- ----------- -------------------------------------------
FOR THE
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
(SEPTEMBER 28, 1998)
YEAR ENDED YEAR ENDED THROUGH YEAR ENDED
CLASS A SHARES 1998 1997 1998 DECEMBER 31, 1998 1998 1997
---------- --------- -------- ----------------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period $10.13 $10.00 $10.00 $10.00 $10.73 $10.00
Income from investment operations (a):
Net investment income (loss) ........ 0.55 0.66 0.76 0.10 0.30 0.28
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments .................... 0.20 0.18 (0.10) 1.00 1.03 1.43
- ----------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.75 0.84 0.66 1.10 1.33 1.71
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.55) (0.58) (0.66) (0.10) (0.24) (0.27)
Distribution of net capital gains ... (0.12) (0.13) -- -- (0.13) (0.71)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions ................... (0.67) (0.71) (0.66) (0.10) (0.37) (0.98)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $10.21 $10.13 $10.00 $11.00 $11.69 $10.73
===================================================================================================================================
Total return (b) (c) .................. 7.57% 8.66% 6.56% 11.04%(d) 12.45% 17.19%
===================================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands), end of
period $30,684 $153 $28,199 $27,611 $26,064 $1,076
Ratio of expenses to average net assets (b) 1.25% 1.25% 1.40% 1.55% 1.50% 1.50%
Ratio of net investment income (loss)
to average net assets (annualized) (b) 5.28% 5.51% 7.76% 3.80% 2.66% 2.50%
</TABLE>
- ----------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to
waive their fees and/or reimburse Fund expenses to the extent that the
ratio of expenses to average net assets exceeds on an annual basis 1.25%
for the Conseco Fixed Income, 1.40% for the Conseco High Yield, 1.55% for
the Conseco Convertible Securities, 1.50% for the Conseco Balanced and
Conseco Equity and 1.75% for the Conseco 20 Funds. These limits may be
discontinued by the Advisor, Administrator and Distributor at any time
after April 30, 1999. If the aforementioned agreements had not been in
effect during the period, the annualized ratio of expenses to average net
assets would have been 1.94% for the Conseco Fixed Income, 2.12% for the
Conseco High Yield, 2.12% for the Conseco Convertible Securities, 2.26%
for the Conseco Balanced, 2.10% for the Conseco Equity and 2.15% for the
Conseco 20 Funds. If the aforementioned agreements had not been in effect
for the year ended December 31, 1997, the annualized ratio of expenses to
average net assets would have been 13.67 % for the Conseco Fixed Income,
12.44 % for the Conseco Balanced and 4.85 % for the Conseco Equity Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
(d) Not annualized
43
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO
EQUITY 20
FUND FUND
---------------------------- -----------
YEAR ENDED YEAR ENDED
CLASS A SHARES 1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value per share, beginning of period ................... $11.07 $10.00 $10.00
Income from investment operations (a):
Net investment income (loss) ................................... -- (0.04) (0.02)
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments ............................................... 1.79 2.33 2.82
- -----------------------------------------------------------------------------------------------------------------------
Total income from investment operations ...................... 1.79 2.29 2.80
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income ........................... (0.01) -- --
Distribution of net capital gains .............................. (0.30) (1.22) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions .............................................. (0.31) (1.22) --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ..................... $12.55 $11.07 $12.80
=======================================================================================================================
Total return (b) (c) ............................................. 16.11% 22.90% 28.00%
=======================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands), end of period................ $26,203 $4,877 $33,845
Ratio of expenses to average net assets (b) .................... 1.50% 1.50% 1.75%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ....................... -- (0.35%) (0.22%)
</TABLE>
- ------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to
waive their fees and/or reimburse Fund expenses to the extent that the
ratio of expenses to average net assets exceeds on an annual basis 1.25%
for the Conseco Fixed Income, 1.40% for the Conseco High Yield, 1.55% for
the Conseco Convertible Securities, 1.50% for the Conseco Balanced and
Conseco Equity and 1.75% for the Conseco 20 Funds. These limits may be
discontinued by the Advisor, Administrator and Distributor at any time
after April 30, 1999. If the aforementioned agreements had not been in
effect during the period, the annualized ratio of expenses to average net
assets would have been 1.94% for the Conseco Fixed Income, 2.12% for the
Conseco High Yield, 2.12% for the Conseco Convertible Securities, 2.26%
for the Conseco Balanced, 2.10% for the Conseco Equity and 2.15% for the
Conseco 20 Funds. If the aforementioned agreements had not been in effect
for the year ended December 31, 1997, the annualized ratio of expenses to
average net assets would have been 13.67 % for the Conseco Fixed Income,
12.44 % for the Conseco Balanced and 4.85 % for the Conseco Equity Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
(d) Not annualized
44
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
FINANCIAL HIGHLIGHTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
------------- --------------- -------------------- --------------
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM
COMMENCEMENT COMMENCEMENT COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS OF OPERATIONS OF OPERATIONS
(MARCH 20, 1998) (FEBRUARY 19, 1998) (SEPTEMBER 28, 1998) (FEBRUARY 10, 1998)
THROUGH THROUGH THROUGH THROUGH
CLASS B SHARES DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
----------------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Net asset value per share, beginning of period ... $10.24 $10.44 $10.00 $11.20
Income from investment operations (a):
Net investment income (loss) ................... 0.36 0.60 0.08 0.19
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments................................ 0.14 (0.48) 1.00 0.57
- ----------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations ..... 0.50 0.12 1.08 0.76
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income .......... (0.45) (0.59) (0.08) (0.22)
Distribution of net capital gains ............. (0.10) -- -- (0.13)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions ............................. (0.55) (0.59) (0.08) (0.35)
Net asset value per share, end of period .... $10.19 $9.97 $11.00 $11.61
==================================================================================================================================
Total return (b) (c) (d) ........................ 4.97% 1.12% 10.89% 6.83%
==================================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands), end of
period ...................................... $2,619 $11,271 $1 $1,301
Ratio of expenses to average net assets (b) ... 1.60% 1.90% 2.05% 2.00%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ...... 4.83% 7.27% 3.02% 2.09%
</TABLE>
- --------------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to
waive their fees and/or reimburse Fund expenses to the extent that the
ratio of expenses to average net assets exceeds on an annual basis 1.60%
for the Conseco Fixed Income, 1.90% for the Conseco High Yield, 2.05% for
the Conseco Convertible Securities, 2.00% for the Conseco Balanced and
Conseco Equity and 2.25% for the Conseco 20 Funds. These limits may be
discontinued by the Advisor, Administrator and Distributor at any time
after April 30, 1999. If the aforementioned agreements had not been in
effect during the period, the annualized ratio of expenses to average net
assets would have been 2.77% for the Conseco Fixed Income, 2.75% for the
Conseco High Yield, 154.76% for the Conseco Convertible Securities, 3.93%
for the Conseco Balanced, 4.85% for the Conseco Equity and 2.73% for the
Conseco 20 Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
(d) Not annualized.
45
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO
EQUITY 20
FUND FUND
----------------------- --------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS
(JANUARY 28, 1998) (FEBRUARY 18, 1998)
THROUGH THROUGH
CLASS B SHARES DECEMBER 31, 1998 DECEMBER 31, 1998
---------------------- ----------------------
<S> <C> <C>
Net asset value per share, beginning of period .......................... $11.09 $11.21
Income from investment operations (a):
Net investment income (loss) .......................................... (0.06) (0.07)
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments....................................................... 1.75 1.57
- -----------------------------------------------------------------------------------------------------------------------
Total income from investment operations ........................... 1.69 1.50
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income .................................. (0.01) --
Distribution of net capital gains ..................................... (0.30) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions ..................................................... (0.31) --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period .......................... $12.47 $12.71
=======================================================================================================================
Total return (b) (c) (d) ................................................ 15.20% 13.38%
=======================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands), end of period ...................... $1,634 $7,270
Ratio of expenses to average net assets (b) ........................... 2.00% 2.25%
Ratio of net investment income (loss)
to average net assets (annualized) (b) .............................. (0.60%) (0.78%)
</TABLE>
- --------------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to
waive their fees and/or reimburse Fund expenses to the extent that the
ratio of expenses to average net assets exceeds on an annual basis 1.60%
for the Conseco Fixed Income, 1.90% for the Conseco High Yield, 2.05% for
the Conseco Convertible Securities, 2.00% for the Conseco Balanced and
Conseco Equity and 2.25% for the Conseco 20 Funds. These limits may be
discontinued by the Advisor, Administrator and Distributor at any time
after April 30, 1999. If the aforementioned agreements had not been in
effect during the period, the annualized ratio of expenses to average net
assets would have been 2.77% for the Conseco Fixed Income, 2.75% for the
Conseco High Yield, 154.76% for the Conseco Convertible Securities, 3.93%
for the Conseco Balanced, 4.85% for the Conseco Equity and 2.73% for the
Conseco 20 Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included. (d) Not annualized.
46
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
FINANCIAL HIGHLIGHTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
------------------ ------------------- ------------------ -------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM
COMMENCEMENT COMMENCEMENT COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS OF OPERATIONS OF OPERATIONS
(MARCH 5, 1998) (FEBRUARY 19, 1998) (SEPTEMBER 28, 1998) (FEBRUARY 13, 1998)
THROUGH THROUGH THROUGH THROUGH
CLASS C SHARES DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
----------------- ----------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Net asset value per share, beginning of period ........ $10.13 $10.44 $10.00 $11.31
Income from investment operations (a):
Net investment income (loss) ........................ 0.38 0.59 0.08 0.20
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments..................................... 0.26 (0.50) 1.00 0.48
- ----------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations ........... 0.64 0.09 1.08 0.68
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income ................ (0.44) (0.58) (0.08) (0.20)
Distribution of net capital gains ................... (0.10) -- -- (0.13)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions ................................... (0.54) (0.58) (0.08) (0.33)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period .......... $10.23 $9.95 $11.00 $11.66
- ----------------------------------------------------------------------------------------------------------------------------------
Total return (b) (c) (d) .............................. 6.44% 0.88% 10.89% 6.10%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets (dollars in thousands), end of period .... $539 $3,685 $1 $1,197
Ratio of expenses to average net assets (b) ......... 1.60% 1.90% 2.05% 2.00%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ............ 4.98% 7.22% 3.02% 2.08%
</TABLE>
- --------------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to
waive their fees and/or reimburse Fund expenses to the extent that the
ratio of expenses to average net assets exceeds on an annual basis 1.60%
for the Conseco Fixed Income, 1.90% for the Conseco High Yield, 2.05% for
the Conseco Convertible Securities, 2.00% for the Conseco Balanced and
Conseco Equity and 2.25% for the Conseco 20 Funds. These limits may be
discontinued by the Advisor, Administrator and Distributor at any time
after April 30, 1999. If the aforementioned agreements had not been in
effect during the period, the annualized ratio of expenses to average net
assets would have been 5.91% for the Conseco Fixed Income, 3.03% for the
Conseco High Yield, 154.76% for the Conseco Convertible Securities, 3.40%
for the Conseco Balanced, 8.51% for the Conseco Equity and 2.72% for the
Conseco 20 Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
(d) Not annualized.
47
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO
EQUITY 20
FUND FUND
--------------------- -------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS
(FEBRUARY 19, 1998) (MARCH 10, 1998)
THROUGH THROUGH
CLASS C SHARES DECEMBER 31, 1998 DECEMBER 31, 1998
--------------------- --------------------
<S> <C> <C>
Net asset value per share, beginning of period ......................... $11.98 $11.82
Income from investment operations (a):
Net investment income (loss) ......................................... (0.06) (0.07)
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments...................................................... 0.93 1.00
- --------------------------------------------------------------------------------------------------------------------
Total income from investment operations .......................... 0.87 0.93
- --------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income ................................. (0.01) --
Distribution of net capital gains .................................... (0.30) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions .................................................... (0.31) --
- --------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ......................... $12.54 $12.75
====================================================================================================================
Total return (b) (c) (d) ............................................... 7.21% 7.87%
====================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands), end of period ..................... $616 $2,982
Ratio of expenses to average net assets (b) .......................... 2.00% 2.25%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ............................. (0.68%) (0.81%)
</TABLE>
- --------------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated. (b) The Advisor,
Administrator and Distributor have voluntarily agreed to waive their fees
and/or reimburse Fund expenses to the extent that the ratio of expenses to
average net assets exceeds on an annual basis 1.60% for the Conseco Fixed
Income, 1.90% for the Conseco High Yield, 2.05% for the Conseco
Convertible Securities, 2.00% for the Conseco Balanced and Conseco Equity
and 2.25% for the Conseco 20 Funds. These limits may be discontinued by
the Advisor, Administrator and Distributor at any time after April 30,
1999. If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would have
been 5.91% for the Conseco Fixed Income, 3.03% for the Conseco High Yield,
154.76% for the Conseco Convertible Securities, 3.40% for the Conseco
Balanced, 8.51% for the Conseco Equity and 2.72% for the Conseco 20 Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included. (d) Not annualized.
48
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
FINANCIAL HIGHLIGHTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
------------ ----------- ---------------- ---------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS
(MARCH 2, 1998) (SEPTEMBER 28, 1998)
YEAR ENDED THROUGH THROUGH YEAR ENDED
CLASS Y SHARES 1998 1997 DECEMBER 31, 1998 DECEMBER 31, 1998 1998 1997
------ ----- ----------------- ------------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period $10.15 $10.00 $10.49 $10.00 $10.78 $10.00
Income from investment operations (a):
Net investment income .............. 0.65 0.68 0.62 0.11 0.32 0.19
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments .................... 0.17 0.21 (0.48) 1.00 1.06 1.58
- -----------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.82 0.89 0.14 1.11 1.38 1.77
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.60) (0.61) (0.61) (0.11) (0.28) (0.28)
Distribution of net capital gains ... (0.12) (0.13) -- -- (0.13) (0.71)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions ................... (0.72) (0.74) (0.61) (0.11) (0.41) (0.99)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $10.25 $10.15 $10.02 $11.00 $11.75 $10.78
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (b) (c) .................. 8.32% 9.18% 1.36%(c) 11.17%(c) 12.90% 17.87%
Ratios/supplemental data:
Net assets (dollars in thousands), end of
period $14,403 $21,876 $1,237 $1 $4,138 $12,037
Ratio of expenses to average net assets (b) 0.60% 0.60% 0.90% 1.05% 1.00% 1.00%
Ratio of net investment income (loss)
to average net assets (annualized) (b) 6.26% 6.28% 7.66% 3.87% 2.67% 2.76%
</TABLE>
- --------------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor and Administrator have voluntarily agreed to waive their fees
and/or reimburse Fund expenses to the extent that the ratio of expenses to
average net assets exceeds on an annual basis .60% for the Conseco Fixed
Income, .90% for the Conseco High Yield, 1.05% for the Conseco Convertible
Securities, 1.00% for the Conseco Balanced and Conseco Equity and 1.25%
for the Conseco 20 Funds. These limits may be discontinued by the Advisor
and Administrator at any time after April 30, 1999. If the forementioned
agreements had not been in effect during the period, the annualized ratio
of expenses to average net assets would have been 1.46% for the Conseco
Fixed Income, 3.24% for the Conseco High Yield, 149.31% for the Conseco
Convertible Securities, 2.19% for the Conseco Balanced, 1.42% for the
Conseco Equity and 3.77% for the Conseco 20 Funds. If the aforementioned,
agreements had not been in effect for the year ended December 31, 1997,
the annualized ratio of expense to average net assets would have been
1.44% for Conseco Fixed Income, 2.14% for the Conseco Balanced and 1.24%
for the Conseco Equity Funds.
(c) Not annualized.
49
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO
EQUITY 20
FUND FUND
----------------------------- -----------
FOR THE
PERIOD FROM
COMMENCEMENT OF
OPERATIONS
(APRIL 6, 1998)
YEAR ENDED THROUGH
CLASS Y SHARES 1998 1997 DECEMBER 31, 1998
-------- -------- -------------------
<S> <C> <C> <C>
Net asset value per share, beginning of period ................. $11.13 $10.00 $12.33
Income from investment operations (a):
Net investment income (loss) ................................. 0.05 -- 0.04
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments ............................................. 1.83 2.35 0.31
- ----------------------------------------------------------------------------------------------------------------------
Total income from investment operations .................... 1.88 2.35 0.35
- ----------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income ......................... (0.04) -- --
Distribution of net capital gains ............................ (0.30) (1.22) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions ............................................ (0.34) (1.22) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ................... $12.67 $11.13 $12.68
======================================================================================================================
Total return (b) (c) ........................................... 16.82% 23.50% 2.84%(c)
======================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands), end of period.............. $60,816 $60,334 $172
Ratio of expenses to average net assets (b) .................. 1.00% 1.00% 1.25%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ..................... 0.40% 0.03% 0.62%
</TABLE>
- --------------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor and Administrator have voluntarily agreed to waive their fees
and/or reimburse Fund expenses to the extent that the ratio of expenses to
average net assets exceeds on an annual basis .60% for the Conseco Fixed
Income, .90% for the Conseco High Yield, 1.05% for the Conseco Convertible
Securities, 1.00% for the Conseco Balanced and Conseco Equity and 1.25%
for the Conseco 20 Funds. These limits may be discontinued by the Advisor
and Administrator at any time after April 30, 1999. If the aforementioned
agreements had not been in effect during the period, the annualized ratio
of expenses to average net assets would have been 1.46% for the Conseco
Fixed Income, 3.24% for the Conseco High Yield, 149.31% for the Conseco
Convertible Securities, 2.19% for the Conseco Balanced, 1.42% for the
Conseco Equity and 3.77% for the Conseco 20 Funds. If the aforementioned
agreements had not been in effect for the year ended December 31, 1997,
the annualized ratio of expense to average net assets would have been 1.44
% for the Conseco Fixed Income, 2.14 % for the Conseco Balanced and 1.24 %
for the Conseco Equity Funds.
(c) Not Annualized.
50
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
================================================================================
FINANCIAL HIGHLIGHTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
-------------------------- ------------ --------------- ----------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
1998 1997 1998 1998(A) 1998 1997
--------- -------- ----------- -------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Supplemental date for all classes:
Net assets (dollars in thousands),
end of period ........................ $48,245 $22,029 $44,392 $27,614 $32,700 $13,113
Portfolio turnover rate ................ 420.83% 367.82% 432.08% 12.95% 341.20% 506.64%
<CAPTION>
CONSECO CONSECO
EQUITY 20
FUND FUND
------------------------------- --------------
YEAR ENDED YEAR ENDED
1998 1997 1998
----------- ------------- ---------------
Supplemental date for all classes:
Net assets (dollars in thousands),
end of period ...................................................... $89,270 $65,211 $44,269
Portfolio turnover rate .............................................. 350.13% 199.12% 411.71%
</TABLE>
- --------------------
(a) For the period from commencement of operations (September 28, 1998) through
December 31, 1998.
51
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
To The Board of Directors and Shareholders of the
Conseco Fund Group
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments in securities, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Conseco Fixed Income
Fund, Conseco High Yield Fund, Conseco Convertible Securities Fund, Conseco
Balanced Fund, Conseco Equity Fund, and Conseco 20 Fund (six of the portfolios
constituting the Conseco Fund Group, hereafter referred to as the "Fund") at
December 31, 1998, and the results of each of their operations, the changes in
each of their net assets and the financial highlights for the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
[GRAPHIC OMITTED]
Indianapolis, Indiana
February 26, 1999
52
<PAGE>
CONSECO FUND GROUP
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
<TABLE>
<S> <C>
WILLIAM P. DAVES, JR. MAXWELL E. BUBLITZ, CFA
CHAIRMAN OF THE BOARD PRESIDENT
Consultant to the insurance President, Conseco Capital Management, Inc.
and healthcare industries. Executive VP, Conseco, Inc.
Director, President and CEO, FFG Insurance Co.
GREGORY J. HAHN, CFA HAROLD W. HARTLEY, CFA (RET.)
Senior VP, Portfolio Analytics Former Executive VP, Tenneco Financial Services
Conseco Capital Management, Inc. Former Director, Ennis Business Forms, Inc.
DR. R. JAN LECROY (RET.) DR. JESSE H. PARRISH
Former Director, Southwest Securities Group, Inc. Higher education consultant.
Former President, Dallas Citizens Council Former President, Midland College
DAVID N. WALTHALL
President, Chief Executive Officer and Director,
Lyrick Corporation
INVESTMENT ADVISOR DISTRIBUTOR
CONSECO CAPITAL MANAGEMENT, INC. CONSECO EQUITY SALES, INC.
Carmel, IN Carmel, IN
TRANSFER AGENT CUSTODIAN
STATE STREET BANK & TRUST CO. THE BANK OF NEW YORK
Boston, MA New York, NY
INDEPENDENT PUBLIC ACCOUNTANT LEGAL COUNSEL
PRICEWATERHOUSECOOPERS, LLP KIRKPATRICK & LOCKHART, LLP
Indianapolis, IN Washington, DC
</TABLE>
<PAGE>
CONSECO FUND GROUP
11825 North Pennsylvania Street, Carmel, IN 46032
800-986-3384
WWW.CONSECOFUNDS.COM
CFG-2-2/99
