As filed with the Securities and Exchange Commission on April 30, 1997
Registration Nos. 811-3641/2-80455
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 21 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23 [X]
(Check appropriate box or boxes)
CONSECO SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
11815 N. Pennsylvania Street, Carmel, Indiana 46032
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (317) 817-6300
William P. Latimer, Esq.
Conseco Series Trust
11815 N. Pennsylvania Street
Carmel, Indiana 46032
(Name and Address of Agent for Service)
With a copy to:
Michael Berenson, Esq.
Jorden, Burt, Berenson & Johnson
Suite 400 East
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007-0805
Approximate date of proposed public Offering: As soon as practicable following
the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate space):
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 1997 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) (1) of Rule 485
_____ on [DATE] pursuant to paragraph (a) (1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a) (2) of Rule 485
_____ on [DATE] pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Pursuant to the provisions of Rule 24f-2(a)(1) under the Investment Company Act
of 1940, Registrant has registered an indefinite number or amount of its
securities under the Securities Act of 1933 and filed a Rule 24f-2 notice for
its recent fiscal year on February 28, 1997.
<PAGE>
CONSECO SERIES TRUST
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
<S> <C> <C>
FORM N-1A
ITEM NO. PART A - PROSPECTUS
- --------- -------------------
1. Cover Page .................................................... Cover Page
2. Synopsis ...................................................... Summary; Trust Annual Expenses
After Reimbursement
3. Condensed Financial Information ............................... Financial Highlights; Investment
Performance
4. General Description of Registrant ............................. Summary; Investment Objectives
and Policies of the Portfolios
5. Management of the Fund ........................................ Management; Management
Discussion and Analysis
6. Capital Stock and Other Securities ............................ Cover Page; Summary; Dividends,
Distribution and Taxes
7. Purchase of Securities Being Offered .......................... Summary; Purchase and Redemption
of Shares
8. Redemption or Repurchase ...................................... Purchase and Redemption of Shares
9. Legal Proceedings ............................................. Not Applicable
PART B - STATEMENT OF
ADDITIONAL INFORMATION
----------------------
10. Cover page ..................................................... Cover Page of Statement of
Additional Information
11. Table of Contents ............................................. Table of Contents
12. General Information and History ............................... General; (Prospectus)
13. Investment Objective and Policies ............................. Description of Securities and
Investment Techniques
14. Management of the Registrant .................................. Management
15. Control Persons and Principal Holders of Securities ........... Not Applicable
16. Investment Advisory and Other Services ........................ Management; Financial Statements;
(Prospectus)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
FORM N-1A PART B - STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION (con't)
- -------- ------------------------------
17. Brokerage Allocation .......................................... Portfolio Turnover and
Securities Transactions;
Investment Restrictions
18. Capital Stock and Other Securities ............................ Not Applicable
19. Purchase, Redemption and Pricing of Securities Being Offered .. General; Net Asset Values of
the Shares of the Portfolios
20. Tax Status .................................................... Not Applicable
21. Underwriters .................................................. Not Applicable
22. Calculation of Performance Data ............................... Investment Performance
23. Financial Statements .......................................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PART A
<PAGE>
CONSECO SERIES TRUST
Administrative Office: 11815 N. Pennsylvania Street, Carmel, Indiana 46032
(317) 817-6300
- --------------------------------------------------------------------------------
PROSPECTUS
Conseco Series Trust (the "Trust") is an investment company presently
consisting of five separate portfolios (the "Portfolios") each having different
objectives, assets, liabilities and net asset values per share.
The investment objectives of the Portfolios are as follows:
COMMON STOCK PORTFOLIO seeks to provide a high total return consistent with
preservation of capital and a prudent level of risk primarily by investing in
selected equity securities and other securities having the investment
characteristics of common stocks.
ASSET ALLOCATION PORTFOLIO seeks a high total investment return, consistent
with the preservation of capital and prudent investment risk. The Portfolio
seeks to achieve this objective by pursuing an active asset allocation strategy
whereby investments are allocated, based upon thorough investment research,
valuation and analysis of market trends and the anticipated relative total
return available, among various asset classes including debt securities, equity
securities, and money market instruments.
GOVERNMENT SECURITIES PORTFOLIO seeks safety of capital, liquidity and
current income by investing primarily in securities issued by the U.S.
government or an agency or instrumentality of the U.S. government, including
mortgage-related securities.
CORPORATE BOND PORTFOLIO seeks the highest level of income as is consistent
with preservation of capital by investing primarily in investment grade debt
securities.
MONEY MARKET PORTFOLIO seeks current income consistent with stability of
capital and liquidity. AN INVESTMENT IN THIS PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The various Portfolios may be used independently or in combination. The
investment policies of the respective Portfolios are fundamental and cannot be
changed without a vote of their respective shareholders. The purpose of the
Trust is to serve as the investment medium for variable annuity contracts
("Contracts") offered by insurance companies (see "Purchase and Redemption of
Shares"). The Portfolios' shares will not be offered directly to the public.
There is no assurance that any of the Portfolios will achieve their investment
objectives.
Within the limitations described in the Prospectus for the applicable
Contract, a contract owner of a Contract (the "Owner") may allocate premiums and
reallocate investment value under his or her Contract among various divisions of
the separate account, which, in turn, invest in the various Portfolios. The
assets of each Portfolio are segregated and an Owner's interest is limited to
the Portfolio(s) selected.
This Prospectus sets forth concisely the information about the Trust that
an investor should know before investing. A Statement of Additional Information
(the "SAI") dated May 1, 1997, containing additional information about the
Trust, has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus in its entirety. You may obtain a
copy of the SAI without charge by calling or writing the Trust.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
i
<PAGE>
CONSECO SERIES TRUST
1997
PROSPECTUS
- --------------------------------------------------------------------------------
SUMMARY
The Conseco Series Trust (the "Trust") was organized as a Massachusetts
business trust on November 15, 1982. The Trust is a no-load, open-end management
investment company registered with the Securities and Exchange Commission under
the Investment Company Act of 1940. The Trust is a "series" type of mutual fund
which issues separate classes (or series) of stock, each of which currently
represents a separate diversified portfolio of investments. The Trust's classes
of shares are issued and redeemed at net asset value without a sales load. This
Prospectus offers shares of five portfolios ("Portfolios") of the Trust, each
with its own investment objective or objectives and investment policies.
The shares of the Portfolios are offered to insurance companies in order
to fund certain of their separate accounts used to support various variable
annuity contracts (the "Contracts"). The rights of an insurance company holding
Trust shares for a separate account are different from the rights of the owner
of a Contract. The terms "shareholder" or "shareholders" in this Prospectus
shall refer to the insurance companies, and not to any Contract owner.
The Trust serves as the underlying investment medium for sums invested in
Contracts issued by Bankers National Life Insurance Company ("Bankers National")
and Great American Reserve Insurance Company ("Great American Reserve"). The
Trust may, however, be used for other purposes in the future, such as funding
Contracts issued by other insurance companies. Trust shares are not offered
directly to and may not be purchased directly by members of the public.
Conseco Capital Management, Inc. (the "Adviser") serves as the Trust's
investment adviser. The Adviser supervises the Trust's management and investment
program, performs a variety of administrative services on behalf of the Trust,
and pays all compensation of officers and Trustees of the Trust who are
affiliated persons of the Adviser or the Trust. The Trust pays all other
expenses incurred in the operation of the Trust, including fees and expenses of
Trustees who are unaffiliated persons of the Adviser or the Trust.
The Adviser has agreed to limit the operating expenses of the Portfolios
so that the ratio of expenses to net assets on an annual basis for the Common
Stock Portfolio shall not exceed 0.80 percent; the Asset Allocation Portfolio
shall not exceed 0.75 percent; the Government Securities and Corporate Bond
Portfolios shall not exceed 0.70 percent; and the Money Market Portfolio shall
not exceed 0.45 percent.
Certain Contract values will vary with the investment performance of the
Portfolios of the Trust. Because Contract owners will allocate their investments
among the Portfolios, pprospective purchasers should carefully consider the
information about the Trust and its Portfolios presented in this Prospectus
before purchasing such a Contract.
Trust Annual Expenses After Reimbursement (as a percentage of average net
assets):
<TABLE>
<CAPTION>
PORTFOLIOS MANAGEMENT FEES OTHER EXPENSES TOTAL EXPENSES (1)
===========================================================================================================
<S> <C> <C> <C>
Common Stock (2) .60% .20% .80%
Asset Allocation (2) .55% .20% .75%
Government Securities .50% .20% .70%
Corporate Bond .50% .20% .70%
Money Market (2) .25% .20% .45%
==========================================================================================================
</TABLE>
(1) The Trust's Adviser has voluntarily agreed to reimburse all expenses,
including management fees, in excess of the following percentage of the
average annual net assets of each listed Portfolio, so long as such
reimbursement would not result in the Portfolio's inability to qualify as
a regulated investment company under the Internal Revenue Code: 0.80
percent for Common Stock; 0.75 percent for Asset Allocation; 0.70 percent
for Government Securities and Corporate Bond; and 0.45 percent for Money
Market. The total percentage in the table is after any expense
reimbursement. In the absence of expense reimbursement, the total fees and
expenses in 1996 would have totaled: 0.81 percent for the Common Stock
Portfolio; 0.95 percent for the Asset Allocation Portfolio; 0.91 percent
for the Government Securities Portfolio; 0.77 percent for the Corporate
Bond Portfolio; and 0.58 percent for the Money Market Portfolio.
(2) The Trust's Adviser, since January 1, 1993, has voluntarily waived its
Management Fees in excess of the annual rates set forth above. Absent such
fee waivers, the Management Fees would be: .65% for the Common Stock
Portfolio; .65% for the Asset Allocation Portfolio; and .50% for the Money
Market Portfolio.
The above table reflects estimates of expenses of the Trust's Portfolios.
1
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
COMMON STOCK PORTFOLIO 1996 1995 1994
=================================================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning of year $ 18.840 $ 16.540 $ 16.690
Income from investment operations (a):
Net investment income 0.013 0.340 0.240
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments 8.169 5.675 0.072
- ---------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 8.182 6.015 0.312
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (4.209) (2.807) (0.327)
Distribution of net realized long-term capital gains (0.963) (0.908) (0.135)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (5.172) (3.715) (0.462)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 21.850 $ 18.840 $ 16.540
=================================================================================================================================
Total return (b) (d) 44.99% 36.30% 1.92%
Ratios/supplemental data
Net assets, end of year (c) $171,332,49 $109,635,525 $74,759,728
Ratio of expenses to average net assets (d) 0.80% 0.80% 0.80%
Ratio of net investment income to average net assets (d) 0.06% 1.80% 1.47%
Portfolio turnover rate 177.03% 172.55% 213.67%
Average commission paid (e) $ 0.0600 N/A N/A
=================================================================================================================================
</TABLE>
(a) Per-share amounts presented are based on an average of monthly shares
outstanding for the periods indicated.
(b) Total return represents performance of the Trust Portfolios only and does
not include mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1,1993,
and July 24, 1994, respectivly.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common
Stock Portfolio and 0.45 percent for the Money Market Portfolio for the
years ended December 31, 1996, 1995, 1994 and 1993, and 1.25 percent for
each of the six years ended December 31, 1992.
(e) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was
a commission. This disclosure is required by the Securities and Exchange
Commission beginning in 1996.
(f) Lexington Management Corporation was Sub-adviser to the Common Stock,
Asset Allocation and Government Securities Portfolios prior to November
19, 1991.
2
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<TABLE>
<CAPTION>
CONSECO SERIES TRUST
1997
PROSPECTUS
- -------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
1993 1992 1991(F)
===============================================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning of year $ 16. 880 $ 16.290 $ 13.870
Income from investment operations (a):
Net investment income 0.232 0.292 0.347
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments 0.920 2.787 3.311
- -------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 1.152 3.079 3.658
- -------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (1.181) (1.101) (0.186)
Distribution of net realized long-term capital gains (0.161) (1.388) (1.052)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.342) (2.489) (1.238)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $16.690 $ 16.880 $ 16.290
===============================================================================================================================
Total return (b) (d) 8.35% 18.34% 25.77%
Ratios/supplemental data
Net assets, end of year (c) $66,799,824 $8,307,023 $8,379,781
Ratio of expenses to average net assets (d) 0.80% 1.25% 1.25%
Ratio of net investment income to average net assets (d) 1.40% 1.73% 2.19%
Portfolio turnover rate 205.81% 461.05% 100.39%
Average commission paid (e) N/A N/A N/A
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31
COMMON STOCK PORTFOLIO 1990 1989 1988 1987
==================================================================================================================================
<S> <C> <C> <C> <C>
Net asset value per share, beginning of year $ 15.800 $ 13.870 $ 12.680 $ 13.380
Income from investment operations (a):
Net investment income 0.672 0.347 0.369 0.336
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments (1.930) 3.957 0.932 (0.003)
- ----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations (1.258) 4.304 1.301 0.333
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (0.167) (0.443) (0.111) (1.033)
Distribution of net realized long-term capital gains (0.505) (1.931) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.672) (2.374) (0.111) (1.033)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 13.870 $ 15.800 $ 31.870 $ 12.680
==================================================================================================================================
Total return (b) (d) (8.68)% 30.75% 9.38% 2.36%
Ratios/supplemental data
Net assets, end of year (c) $7,958,678 $11,191,613 $12,736,978 $15,239,041
Ratio of expenses to average net assets (d) 1.25% 1.25% 1.04% 0.86%
Ratio of net investment income to average net assets (d) 4.50% 2.10% 2.74% 2.28%
Portfolio turnover rate 45.12% 47.22% 71.51% 104.19%
Average commission paid (e) N/A N/A N/A N/A
==================================================================================================================================
</TABLE>
3
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
ASSET ALLOCATION PORTFOLIO (E) 1996 1995 1994
======================================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning
of period $ 12.390 $ 11.040 $ 11.400
Income from investment operations (a):
Net investment income 0.419 0.508 0.463
Net realized gain (loss) and change
in unrealized appreciation
(depreciation) on investments 2.774 2.976 (0.526)
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 3.193 3.484 (0.063)
- ---------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment
income and net realized short-term
capital gains (2.075) (1.827) (0.266)
Distribution of net realized long-term
capital gains (0.038) (0.307) (0.031)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (2.113) (2.134) (0.297)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 13.470 $ 12.390 $ 11.040
=====================================================================================================================
Total return (b) (d) 28.30% 31.49% (0.55)%
Ratios/supplemental data
Net assets, end of period (c) $16,732,206 $9,583,375 $6,172,390
Ratio of expenses to average net assets (d) 0.75% 0.75% 0.75%
Ratio of net investment income to average
net assets (d) 3.15% 4.11% 4.20%
Portfolio turnover rate 208.13% 194.16% 223.92%
Average commission paid (f) $ 0.0600 N/A N/A
=====================================================================================================================
(a) Per-share amounts presented are based on an average of monthly shares
outstanding for the periods indicated.
(b) Total return represents performance of the Trust only and does not
include mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993
and July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common
Stock Portfolio and 0.45 percent for the Money Market Portfolio for the
years ended December 31, 1996, 1995, 1994 and 1993 and 1.25 percent for
each portfolio for each of the six years ended December 31, 1992.
(e) The BNL High Yield and BNL Convertible Portfolios were merged into the
Asset Allocation Portfolio (formerly the BNL Multiple Strategies
Portfolio) effective March 11, 1992.
(f) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was
a commission. This disclosure is required by the Securities and Exchange
Commission beginning in 1996.
(g) Lexington Management Corporation was Sub-adviser to the Common Stock,
Asset Allocation, and Government Securities Portfolios prior to November
19, 1991.
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSECO SERIES TRUST
1997
PROSPECTUS
- -----------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
1993 1992 (e) 1991 (g)
=======================================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning
of period $ 11.630 $ 11.740 $ 11.050
Income from investment operations (a):
Net investment income 0.410 0.633 0.210
Net realized gain (loss) and change
in unrealized appreciation
(depreciation) on investments 0.218 0.867 2.094
- -----------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 0.628 1.500 2.304
- -----------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment
income and net realized short-term
capital gains (0.570) (1.463) (0.532)
Distribution of net realized long-term
capital gains (0.288) (0.147) (1.082)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (0.858) (1.610) (1.614)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 11.400 $ 11.630 $ 11.740
=======================================================================================================================
Total return (b) (d) 10.38% 10.36% 21.57%
Ratios/supplemental data
Net assets, end of period (c) $6,161,924 $4,308,251 $1,373,327
Ratio of expenses to average net assets (d) 0.75% 1.25% 1.25%
Ratio of net investment income to average
net assets (d) 3.55% 5.46% 1.69%
Portfolio turnover rate 539.90% 690.17% 128.46%
Average commission paid (f) NA N/A N/A
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED MAY 1, 1987 TO
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
ASSET ALLOCATION PORTFOLIO (E) 1990 1989 1988 1987
=================================================================================================================================
<S> <C> <C> <C> <C>
Net asset value per share, beginning
of period $ 12.050 $ 10.050 $ 9.310 $ 10.000
Income from investment operations (a):
Net investment income 0.211 0.180 0.186 0.146
Net realized gain (loss) and change
in unrealized appreciation
(depreciation) on investments (0.891) 1.953 0.614 (0.469)
- ---------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations (0.680) 2.133 0.800 (0.323)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment
income and net realized short-term
capital gains (0.320) (0.133) (0.060) (0.367)
Distribution of net realized long-term
capital gains -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.320) (0.133) (0.060) (0.367)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 11.050 $ 12.050 $ 10.050 $ 9.310
=================================================================================================================================
Total return (b) (d) (5.59)% 21.27% 8.55% (5.47)% (h)
Ratios/supplemental data
Net assets, end of period (c) $1,520,532 $2,365,652 $3,108,433 $3,403,768
Ratio of expenses to average net assets (d) 1.25% 1.25% 1.25% 1.25% (h)
Ratio of net investment income to average
net assets (d) 1.86% 1.66% 1.88% 2.19% (h)
Portfolio turnover rate 26.04% 24.49% 29.61% 58.77% (h)
Average commission paid (f) N/A N/A N/A N/A
==================================================================================================================================
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
GOVERNMENT SECURITIES PORTFOLIO (E) 1996 1995 1994
====================================================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning of year $ 12.380 $ 11.090 $ 11.450
Income from investment operations (a):
Net investment income 0.722 0.754 0.720
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments (0.409) 1.119 (1.031)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.313 1.873 (0.311)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (0.707) (0.583) (0.049)
Distribution of net realized long-term capital gains (0.046) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.753) (0.583) (0.049)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 11.940 $ 12.380 $ 11.090
====================================================================================================================================
Total return (b) (d) 2.75% 17.35% (2.79)%
Ratios/supplemental data
Net assets, end of year (c) $4,023,691 $4,612,607 $4,712,785
Ratio of expenses to average net assets (d) 0.70% 0.70% 0.70%
Ratio of net investment income to average net assets (d) 6.02% 6.27% 6.45%
Portfolio turnover rate 157.62% 284.31% 421.05%
====================================================================================================================================
</TABLE>
(a) Per-share amounts presented are based on an average of monthly shares
outstanding for the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993
and July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common
Stock Portfolio and 0.45 percent for the Money Market Portfolio for the
years ended December 31, 1996, 1995, 1994 and 1993 and 1.25 percent for
each of the six years ended December 31, 1992.
(e) The BNL Mortgage-Backed Securities Portfolio was merged into the
Government Securities Portfolio (formerly the BNL Government Securities
Portfolio) effective March 11, 1992.
(f) Lexington Management Corporation was Sub-adviser to the Common Stock,
Asset Allocation, and Government Securities Portfolios prior to November
19, 1991.
6
<PAGE>
<TABLE>
<CAPTION>
CONSECO SERIES TRUST
1997
PROSPECTUS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
1993 1992 (E) 1991(F)
===============================================================================================================================
Net asset value per share, beginning of year $ 11.610 $ 12.000 $ 11.220
Income from investment operations (a):
Net investment income 0.738 0.679 0.830
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments 0.281 0.219 0.856
- -------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 1.019 0.898 1.686
- -------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (1.179) (1.094) (0.906)
Distribution of net realized long-term capital gains -- (0.194) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.179) (1.288) (0.906)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 11.450 $ 11.610 $ 12.000
===============================================================================================================================
Total return (b) (d) 8.91% 6.62% 15.01%
Ratios/supplemental data
Net assets, end of year (c) $7,579,366 $10,220,193 $5,780,442
Ratio of expenses to average net assets (d) 0.70% 1.25% 1.25%
Ratio of net investment income to average net assets (d) 6.30% 5.77% 7.24%
Portfolio turnover rate 397.42% 742.09% 55.85%
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
GOVERNMENT SECURITIES PORTFOLIO (E) 1990 1989 1988 1987
===================================================================================================================================
<S> <C> <C> <C> <C>
Net asset value per share, beginning of year $ 11.180 $ 10.590 $ 10.410 $ 10.560
Income from investment operations (a):
Net investment income 0.861 0.876 0.893 0.833
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments 0.033 0.389 (0.193) (0.167)
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.894 1.265 0.700 0.666
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (0.854) (0.675) (0.520) (0.816)
Distribution of net realized long-term capital gains -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.854) (0.675) (0.520) (0.816)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 11.220 $ 11.180 $ 10.590 $ 10.410
===================================================================================================================================
Total return (b) (d) 7.96% 12.28% 6.38% 2.94%
Ratios/supplemental data
Net assets, end of year (c) $5,639,371 $5,946,269 $6,648,484 $7,012,154
Ratio of expenses to average net assets (d) 1.25% 1.25% 0.93% 0.71%
Ratio of net investment income to average net assets (d) 7.79% 8.04% 8.30% 8.01%
Portfolio turnover rate 57.04% 127.19% 156.73% 128.88%
===================================================================================================================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
MONEY MARKET PORTFOLIO 1996 1995 1994
====================================================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning of year $ 1.000 $ 1.000 $ 1.000
Income from investment operations (a):
Net investment income 0.050 0.055 0.038
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.050 0.055 0.038
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (0.050) (0.055) (0.038)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.050) (0.055) (0.038)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 1.000 $ 1.000 $ 1.000
====================================================================================================================================
Total return (b) (d) 5.13% 5.46% 3.78%
Ratios/supplemental data
Net assets, end of year (c) $6,984.663 $5,395,877 $5,105,367
Ratio of expenses to average net assets (d) 0.45% 0.45% 0.45%
Ratio of net investment income to average net assets (d) 5.03% 5.46% 3.78%
Portfolio turnover rate N/A N/A N/A
====================================================================================================================================
</TABLE>
(a) Per-share amounts presented are based on an average of monthly shares
outstanding for the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993
and July 25,1994, respectively.
(d) These ratios have been favorably affected by a guarantee by the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common
Stock Portfolio and 0.45 percent for the Money Market Portfolio for the
years ended December 31, 1996, 1995, 1994 and 1993 and 1.25 percent for
each of the six years ended December 31, 1992.
8
<PAGE>
<TABLE>
<CAPTION>
CONSECO SERIES TRUST
1997
PROSPECTUS
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
1993 1992 1991
=================================================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning of year $ 1.000 $ 1.000 $ 1.000
Income from investment operations (a):
Net investment income 0.029 0.026 0.050
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments -- 0.001 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.029 0.027 0.050
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (0.029) (0.027) (0.050)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.029) (0.027) (0.050)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 1.000 $ 1.000 $ 1.000
=================================================================================================================================
Total return (b) (d) 2.86% 2.66% 5.06%
Ratios/supplemental data
Net assets, end of year (c) $5,229,641 $3,111,264 $5,010,336
Ratio of expenses to average net assets (d) 0.45% 1.25% 1.25%
Ratio of net investment income to average net assets (d) 2.86% 2.66% 5.06%
Portfolio turnover rate N/A N/A N/A
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
MONEY MARKET PORTFOLIO 1990 1989 1988 1987
=================================================================================================================================
<S> <C> <C> <C> <C>
Net asset value per share, beginning of year $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from investment operations (a):
Net investment income 0.070 0.081 0.066 0.058
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.070 0.081 0.066 0.058
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (0.070) (0.081) (0.066) (0.058)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.070) (0.081) (0.066) (0.058)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000
=================================================================================================================================
Total return (b) (d) 6.97% 8.06% 6.56% 5.84%
Ratios/supplemental data
Net assets, end of year (c) $6,451,442 $15,962,894 $8,534,156 $8,176,364
Ratio of expenses to average net assets (d) 1.25% 1.25% 1.04% 0.90%
Ratio of net investment income to average net assets (d) 6.97% 8.06% 6.56% 5.84%
Portfolio turnover rate N/A N/A N/A N/A
=================================================================================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR PERIOD FROM
ENDED ENDED ENDED MAY 1, 1993,
DEC. 31, DEC. 31, DEC. 31, DEC. 31, TO
CORPORATE BOND PORTFOLIO 1996 1995 1994 1993
====================================================================================================================================
<S> <C> <C> <C> <C>
Net asset value per share, beginning of period $ 10.150 $ 9.450 $9.980 $ 10.000
Income from investment operations (a):
Net investment income 0.662 0.680 0.649 0.417
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments (0.179) 0.990 (0.912) 0.173
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 0.483 1.670 (0.263) 0.590
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income
and net realized short-term
capital gains (0.663) (0.970) (0.267) (0.610)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.663) (0.970) (0.267) (0.610)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 9.970 $ 10.150 $ 9.450 $ (9.980)
====================================================================================================================================
Total return (b) (d) 4.97% 18.25% (2.65%) 8.84% (f)
Ratios/supplemental data
Net assets, end of period (c) $17,463,340 $16,046,368 $12,903,063 $13,577,440
Ratio of expenses to average net assets (d) 0.70% 0.70% 0.70% 0.70% (f)
Ratio of net investment income to average
net assets (d) 6.65% 6.78% 6.78% 6.22% (f)
Portfolio turnover rate 276.35% 225.41% 198.48% 406.24% (f)
====================================================================================================================================
</TABLE>
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993
and July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common
Stock Portfolio and 0.45 percent for the Money Market Portfolio for the
years ended December 31, 1996, 1995, 1994 and 1993 and 1.25 percent for
each of the six years ended December 31, 1992.
(e) The Corporate Bond Portfolio became an available investment option
effective May 1, 1993, with an initial offering price of $10.00.
(f) Annualized.
10
<PAGE>
CONSECO SERIES TRUST
1997
PROSPECTUS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Each of the Portfolios has a different investment objective or objectives
as described below. Each Portfolio is managed by the Adviser. There can be no
assurance that any of the Portfolios will achieve their investment objective or
objectives. Each Portfolio is subject to the risk of changing economic
conditions, as well as the risk inherent in the ability of the Adviser to make
changes in a Portfolio's investments in anticipation of changes in economic,
business, and financial conditions.
The different types of securities and investment techniques common to one
or more Portfolios all have attendant risks of varying degrees. For example,
with respect to equity securities, there can be no assurance of capital
appreciation and there is a substantial risk of decline. With respect to debt
securities, there can be no assurance that the issuer of such securities will be
able to meet its obligations on interest or principal payments in a timely
manner. In addition, the value of debt instruments generally rises and falls
inversely with interest rates.
The investments and investment techniques common to one or more Portfolios
are described in greater detail, including the risks of each, in the
"Description of Securities and Investment Techniques" in the SAI.
The Portfolios are subject to investment restrictions that are described
under "Investment Restrictions" in the SAI. The investment restrictions are
"fundamental policies," which means that they may not be changed without a
majority vote of shareholders of the affected Portfolios. In addition, the
Investment Company Act of 1940 (the "1940 Act") sets forth certain requirements
for open-end, diversified, management investment companies such as the Trust
which are also "fundamental policies." The more important of these restrictions
prohibits each Portfolio, with respect to 75 percent of its total assets, from
(i) investing more than 5 percent of its assets in the securities of any one
issuer (except U.S. government securities defined below); and (ii) investing
more than 25 percent of its assets in the securities of issuers in the same
industry (except cash equivalent items and U.S. government securities). Except
for fundamental policies imposed either by the Trust's investment restrictions
or by the 1940 Act, all investment policies and practices described in this
Prospectus and in the SAI are not fundamental, meaning that the Board of
Trustees may change them without shareholder approval. See "Description of
Securities and Investment Techniques" and "Investment Restrictions" in the SAI
for further information.
COMMON STOCK PORTFOLIO
In seeking its objective of providing a high equity total return, the
Common Stock Portfolio will attempt to achieve a total return (i.e., price
appreciation plus potential dividend yield) primarily through investment in
selected equities (i.e., common stocks and other securities having the
investment characteristics of common stocks, such as convertible debentures and
warrants). However, if market conditions indicate their desirability, the
Adviser may, for defensive purposes, temporarily invest all or a part of the
assets of the Common Stock Portfolio in money market instruments. See "Money
Market Portfolio" below, and "Debt Securities" under "Description of Securities
and Investment Techniques" in the SAI for further information.
The Adviser expects that the equity portion of the Portfolio will be widely
diversified by both industry and number of issuers. The Adviser's stock
selection methods will be based in part upon the analysis of variables which it
believes significantly relate to the future market performance of a stock, such
as recent changes in earnings per share and their deviations from analysts'
expectations, past growth trends, price action of the stock itself, publicly
recorded trading transactions by corporate insiders, and relative price-earnings
ratios. The Adviser expects that investment opportunities will often be sought
among securities of larger, established companies, although securities of
smaller, less well- known companies may also be selected.
By investing in securities that are subject to market risk, the Common
Stock Portfolio is also subject to greater fluctuations in its market value and
involves the assumption of a higher degree of risk as compared to a portfolio
seeking stability of principal, such as a money market portfolio or a portfolio
investing primarily in obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities (these obligations are referred to in this
Prospectus as "U.S. government securities"). To maximize potential return, the
Adviser may utilize a variety of investment techniques and strategies including
but not limited to: writing "covered" and "secured" listed put and call options,
including options on stock indices, and purchasing such options; purchasing and
selling, for hedging purposes, stock index, interest rate, and other futures
11
<PAGE>
- --------------------------------------------------------------------------------
contracts, and purchasing options on such futures contracts; purchasing warrants
and preferred and convertible preferred stocks; borrowing from banks to purchase
securities; purchasing foreign securities in the form of American Depository
Receipts; purchasing securities of other investment companies; entering into
repurchase agreements; purchasing restricted securities; investing in
when-issued or delayed delivery securities; and selling securities short
"against the box." See "Description of Securities and Investment Techniques" in
the SAI for further information. The Common Stock Portfolio may also invest in
high yield, high risk, lower-rated debt securities. See "Risks Associated With
High Yield Debt Securities" in the SAI for further information.
ASSET ALLOCATION PORTFOLIO
The investment objective of the Asset Allocation Portfolio is to seek a
high total investment return consistent with the preservation of capital and
prudent investment risk. The Portfolio seeks to achieve this objective by
pursuing an active asset allocation strategy whereby investments are allocated
based upon thorough investment research, valuation and analysis of market trends
and the anticipated relative total return available among various asset classes,
including debt securities, equity securities and money market instruments. Total
investment return consists of current income, including dividends, interest, and
discount accruals, and capital appreciation. Achieving this objective depends on
the Adviser's ability to assess the effect of economic and market trends on
different sectors of the market. In seeking to maximize total return, the Asset
Allocation Portfolio will follow an asset allocation strategy contemplating
shifts (which may be frequent) among a wide range of investments and market
sectors. The Portfolio's investments will be designed to maximize total return
during all economic and financial environments, consistent with prudent risk as
determined by the Adviser.
The Asset Allocation Portfolio will invest in U.S. government securities,
intermediate and long-term debt securities and equity securities of domestic and
foreign issuers, including common and preferred stocks, convertible debt
securities, and warrants. If the Adviser deems stock market conditions to be
favorable or debt market conditions to be uncertain or unfavorable, a
substantially higher percentage of the Portfolio's total assets may be invested
in equity securities. If, however, the Adviser believes that the equity
environment is uncertain or unfavorable, the Portfolio may decrease its
investments in equity securities and increase its investments in debt
securities. Furthermore, if the Adviser believes that inflationary or monetary
conditions warrant a significant investment in companies involved in precious
metals, the Portfolio may invest up to 10 percent of its total assets in the
equity securities of companies exploring, mining, developing, producing, or
distributing gold or other precious metals. Additionally, the Asset Allocation
Portfolio may make temporary defensive investments (i.e., money market
instruments) without limit if it is believed that market conditions warrant a
more conservative investment strategy.
The Asset Allocation Portfolio may use various investment strategies and
techniques when the Adviser determines that such use is appropriate in an effort
to meet the Portfolio's investment objective, including but not limited to:
writing "covered" and "secured" listed put and call options, including options
on stock indices, and purchasing such options; purchasing and selling, for
hedging purposes, stock index, interest rate, gold, and other futures contracts,
and purchasing options on such futures contracts; purchasing warrants and
preferred and convertible preferred stocks; purchasing foreign securities;
entering into foreign currency transactions and options on foreign currencies;
borrowing from banks to purchase securities; purchasing securities of other
investment companies; entering into repurchase agreements; purchasing restricted
securities; investing in when-issued or delayed delivery securities; and selling
securities short "against the box." See "Description of Securities and
Investment Techniques" in the SAI for further information.
The maturities of the debt securities in the Asset Allocation Portfolio
will vary based in large part on the Adviser's expectations as to future changes
in interest rates. However, the Adviser anticipates that the debt component of
the Portfolio will generally be invested primarily in intermediate debt
securities, and/or long-term debt securities. The Adviser anticipates that the
equity portion of the Portfolio will be widely diversified by both industry and
number of issuers. The Adviser's stock selection methods will be based in part
upon variables which it believes significantly relate to the future market
performance of a stock, such as recent changes in earnings per share and their
deviations from analysts' expectations, past growth trends, price movement of
the stock itself, publicly recorded trading transactions by corporate insiders,
12
<PAGE>
CONSECO SERIES TRUST
1997
PROSPECTUS
- --------------------------------------------------------------------------------
and price-earnings ratios. The Adviser anticipates that investment opportunities
will often be sought among securities of larger, established companies, although
securities of smaller, less well- known companies may also be selected.
The Asset Allocation Portfolio may also invest in high yield, high risk,
lower-rated fixed income debt securities, which are not believed to involve
undue risk to income or principal. Generally, higher yielding bonds carry
ratings assigned by Moody's Investor Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P") that are lower than those assigned to investment
grade debt securities, or are unrated, and thus carry higher investment risk
than investment grade debt securities. The market values of lower-rated
securities generally fluctuate more widely than those of higher-rated
securities. In addition, changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity for such securities to make
principal and interest payments than is generally the case for higher grade debt
securities. The lowest rating categories in which the Portfolio will invest are
CCC/Caa. Securities in these categories are considered to be of poor standing
and are predominantly speculative. See "Appendix A" to this Prospectus for
further discussion regarding securities ratings and "Risks Associated With High
Yield Debt Securities" under "Description of Securities and Investment
Techniques" in the SAI.
The Asset Allocation Portfolio may also invest in zero coupon securities
and payment-in-kind securities. A zero coupon security pays no interest to its
holders prior to maturity and a payment-in-kind security pays interest in the
form of additional securities. These securities will be subject to greater
fluctuation in market value in response to changing interest rates than
securities of comparable maturities that make periodic cash distributions of
interest.
The Asset Allocation Portfolio may also invest in equity and debt
securities of foreign issuers, including non-U.S. dollar-denominated debt
securities, Eurodollar securities and securities issued, assumed or guaranteed
by foreign governments or political subdivisions or instrumentalities thereof.
As a non-fundamental operating policy, the Asset Allocation Portfolio will not
invest more than 50 percent of its total assets (measured at the time of
investment) in foreign securities. See "Foreign Securities" under "Description
of Securities and Investment Techniques" in the SAI for further information.
GOVERNMENT SECURITIES PORTFOLIO
In seeking its objective of safety of capital, liquidity and current
income, the Government Securities Portfolio will invest primarily in securities
issued by the U.S. government or an agency or instrumentality of the U.S.
government, including mortgage-related securities. The U.S. government
securities which may be purchased by the Government Securities Portfolio include
direct obligations issued by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds. The Government Securities
Portfolio may also purchase instruments issued or guaranteed by agencies or
instrumentalities of the United States government, including mortgage-related
securities.
Among the mortgage-related securities that may be purchased by the
Government Securities Portfolio are "mortgage-backed securities" of the
Government National Mortgage Association ("GNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association
("FNMA"). These mortgage-backed securities include "pass-through" securities and
"participation certificates," both of which are similar, representing pools of
mortgages that are assembled, with interests sold in each pool. Payments of
principal (including prepayments) and interest by individual mortgagors are
"passed through" to the holders of the interests in each pool; thus, each
payment to holders may contain varying amounts of principal and interest.
Another type of mortgage-backed security is the "collateralized mortgage
obligation." Collateralized mortgage obligations are similar to conventional
bonds in that they have fixed maturities and interest rates but are secured by
groups of individual mortgages. Timely payment of principal and interest on GNMA
pass-throughs is guaranteed by the full faith and credit of the United States.
FHLMC and FNMA are both instrumentalities of the U.S. government, but their
obligations are not backed by the full faith and credit of the United States.
See "Mortgage-Backed Securities" under "Description of Securities and Investment
Techniques" in the SAI for further information.
Also included within the term "U.S. government securities" are deposits in
banks to the extent that such deposits (including accrued interest) are
federally insured ("Insured Deposits"). Such insurance is currently limited to
$100,000 per bank. The Government Securities Portfolio will not permit any
Insured Deposit, including any interest thereon, to exceed the insured amount.
Insured Deposits may have limited marketability.
13
<PAGE>
- --------------------------------------------------------------------------------
The Government Securities Portfolio may purchase mortgage-related
securities not issued by the U.S. government or any agency or instrumentality
thereof. The Government Securities Portfolio may also invest in investment grade
corporate debt securities. Debt securities purchased by the Portfolio may be of
any maturity. It is anticipated that the weighted average maturity of the debt
portfolio generally will be between four and 15 years, but may be shorter or
longer under unusual market circumstances. That portion of the investment
Portfolio which is not invested in U.S. government securities will be invested
in high rated debt securities that the Adviser believes will not expose the
Portfolio to undue risk. While non-U.S. government securities may present
greater credit risk than U.S. government securities, they also tend to afford
higher yields than U.S. government securities.
The Government Securities Portfolio may use various investment strategies
and techniques when the Adviser determines that such use is appropriate in an
effort to meet the Portfolio's investment objective. Such strategies and
techniques include, but are not limited to, writing "covered" and "secured"
listed put and call options and purchasing such options; purchasing and selling,
for hedging purposes, interest rate and other futures contracts, and purchasing
options on such futures contracts; borrowing from banks to purchase securities;
investing in securities of other investment companies; entering into repurchase
agreements; investing in when-issued or delayed delivery securities; and selling
securities short "against the box." See "Description of Securities and
Investment Techniques" in the SAI for further information.
There is minimal credit risk involved in the purchase of government or
government-guaranteed securities. However, as with any fixed income investment,
when interest rates decline, the market value of a portfolio invested at higher
yields can be expected to rise. Conversely, when interest rates rise, the market
value of a portfolio invested at lower yields can be expected to decline.
Therefore, the Trust may engage in portfolio trading to take advantage of market
developments and yield disparities, for example, shortening the average maturity
of the Portfolio in anticipation of a rise in interest rates so as to minimize
depreciation of principal, or lengthening the average maturity of the Portfolio
in anticipation of a decline in interest rates so as to maximize appreciation of
principal. However, the Adviser does not pursue interest rate anticipation
strategies within its style of investment management.
CORPORATE BOND PORTFOLIO
In seeking its investment objective of providing the highest level of
income as is consistent with the preservation of capital, the Corporate Bond
Portfolio invests primarily in investment grade debt securities. The Adviser
seeks to reduce risk, increase income, and preserve or enhance total return by
actively managing the Portfolio in light of market conditions and trends. The
Adviser seeks to enhance total return specifically through purchasing securities
which the Adviser believes are undervalued and selling, when appropriate, those
securities the Adviser believes are overvalued. In order to determine value, the
Adviser utilizes independent fundamental analysis of the issuer as well as an
analysis of the specific structure of the security. A debt security will be
considered "investment grade" if it is rated in one of the four highest rating
categories by at least one nationally recognized statistical rating organization
("NRSRO"), or, in the case of an unrated security, if the Adviser determines
such security is of comparable quality to securities rated in one of the four
highest rating categories. The Corporate Bond Portfolio may invest in debt
securities issued by publicly and privately held U.S. and foreign companies, the
U.S. government and agencies and instrumentalities thereof, and foreign
governments and their agencies and instrumentalities. The Corporate Bond
Portfolio may also invest in mortgage-related debt securities, other types of
asset-backed debt securities, and other forms of debt securities. See "Debt
Securities" in the SAI. In addition, up to 15 percent of the Portfolio may be
invested directly in equity securities, including preferred and common stocks,
convertible debt securities and debt securities carrying warrants to purchase
equity securities, and up to 10 percent of the Portfolio may be invested in debt
securities below investment grade.
Debt securities purchased by the Corporate Bond Portfolio may be of any
maturity. It is anticipated that the weighted average life of the debt portfolio
will be between seven and 15 years, but may be shorter or longer depending on
market conditions. While the Corporate Bond Portfolio intends to invest in fixed
income securities in order to achieve its investment objective of obtaining the
highest level of income consistent with preservation of capital, it may from
time to time invest in fixed income securities which offer higher capital
appreciation potential. Such investments would be in addition to that portion of
the Portfolio which may be invested in common stocks and other types of equity
securities.
14
<PAGE>
CONSECO SERIES TRUST
1997
PROSPECTUS
- --------------------------------------------------------------------------------
With respect to the Portfolio's investment in fixed income securities, such
securities will be affected by changes in interest rates. When interest rates
decline, the market value of a portfolio invested at higher yields can be
expected to rise. Conversely, when interest rates rise, the market value of a
portfolio invested at lower yields can be expected to decline. Therefore, the
Portfolio may engage in portfolio trading to take advantage of market
developments and yield disparities; for example, shortening the average maturity
of the Portfolio in anticipation of a rise in interest rates so as to minimize
depreciation of principal, or lengthening the average maturity of the Portfolio
in anticipation of a decline in interest rates so as to maximize appreciation of
principal. However, the Adviser does not pursue interest rate anticipation
strategies within its style of investment management.
The Corporate Bond Portfolio may use various investment strategies and
techniques when the Adviser determines that such use is appropriate in an effort
to meet the Portfolio's investment objective. Such strategies and techniques
include, but are not limited to, writing "covered" and "secured" listed put and
call options and purchasing such options; purchasing and selling, for hedging
purposes, interest rate and other futures contracts, and purchasing options on
such futures contracts; borrowing from banks to purchase securities; investing
in securities of other investment companies; entering into repurchase
agreements; investing in when-issued or delayed delivery securities; and selling
securities short "against the box." See "Description of Securities and
Investment Techniques" in the SAI for further information.
MONEY MARKET PORTFOLIO
In seeking its objective of current income consistent with stability of
capital and liquidity, the Money Market Portfolio may invest only in the
following kinds of money market securities:
(1) U.S. GOVERNMENT SECURITIES: Obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities;
(2) BANK OBLIGATIONS: Time deposits, certificates of deposit, bankers'
acceptances and other bank obligations if they are obligations of banks
having total assets in excess of $1 billion that are subject to regulation
by the U.S. government, including (i) U.S. subsidiaries of foreign banks,
(ii) London branches of domestic banks, and (iii) foreign branches of
domestic commercial banks and foreign banks so long as the securities are
U.S. dollar-denominated. There can be no assurance that, in the future,
exchange control or other regulations might not be adopted which would
adversely affect the payment of principal and interest on the obligations
of foreign branches of domestic commercial banks and foreign banks (See
"Foreign Securities" and "Banking Industry and Savings Industry
Obligations" under "Description of Securities and Investment Techniques"
in the SAI for further information, and note that in this Prospectus, a
"bank" includes commercial banks, savings banks and savings and loan
associations);
(3) COMMERCIAL PAPER OBLIGATIONS: Commercial paper, including variable and
floating rate securities of U.S. corporations, rated A-1 or A-2 by S&P or
Prime-1 or Prime-2 by Moody's or, if not rated, of a comparable quality as
determined by the Adviser under supervision of the Board of Trustees as
described below (See "Variable and Floating Rate Securities" under
"Description of Securities and Investment Techniques" in the SAI for
further information and see Appendix A for a description of the securities
ratings); and
(4) SHORT-TERM CORPORATE DEBT SECURITIES: Corporate debt securities (other
than commercial paper) maturing in 13 months or less.
Money Market instruments are generally described as short-term debt
obligations having maturities of 13 months or less. Yields on such instruments
are very sensitive to short-term lending conditions. The principal value of such
instruments tends to decline as interest rates rise and conversely tends to rise
as interest rates decline. In addition, there is an element of risk in money
market instruments that the issuer may become insolvent and may not make timely
payment of interest and principal obligations.
15
<PAGE>
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The Money Market Portfolio may invest only in U.S. dollar-denominated money
market instruments that present "minimal credit risk." At least 95 percent of
the Money Market Portfolio's total assets, as measured at the time of
investment, must be of the "highest quality." The Adviser shall determine
whether a security presents minimal credit risk under procedures adopted by the
Board of Trustees. A money market instrument will be considered to be of the
highest quality (1) if it is rated in the highest rating category by (i) any two
NRSROs or, (ii) by the only NRSRO that rated the security; (2) if, in the case
of an instrument with a remaining maturity of 13 months or less that was
long-term at the time of issuance, the issuer thereof has short-term debt
obligations comparable in priority and security to such security, and that are
rated in the highest rating category by (i) any two NRSROs or, (ii) the only
NRSRO that has rated the security; or (3) in the case of an unrated security,
such security is of comparable quality to a security in the highest rating
category as determined by the Adviser. At present, current procedures require
that the acquisition of such securities that are unrated or are rated by only
one NRSRO be approved or ratified by the Board of Trustees; however, as is
permitted by current regulation, the Board of Trustees may choose to eliminate
this procedural requirement concerning such securities. With respect to no more
than 5 percent of its total assets, measured at the time of investment, the
Portfolio may also invest in money market instruments that are in the
second-highest rating category for short-term debt obligations. A money market
instrument will be considered to be in the second-highest rating category under
the procedures described above for determining whether an instrument is
considered highest quality, as applied to instruments in the second-highest
rating category.
The Money Market Portfolio may not invest more than 5 percent of its total
assets, measured at the time of investment, in securities of any one issuer,
except that this limitation shall not apply to U.S. government securities and
repurchase agreements thereon and except that the Portfolio may invest more than
5 percent of its total assets in securities of a single issuer that are of the
highest quality for a period of up to three business days. The Portfolio may not
invest more than the greater of 1 percent of its total assets or $1,000,000,
measured at the time of investment, in securities of any one issuer that are in
the second-highest rating category, except that this limitation shall not apply
to U.S. government securities. In the event that an instrument acquired by the
Money Market Portfolio is downgraded or otherwise ceases to be of the quality
that is eligible for the Portfolio, the Adviser, under procedures approved by
the Board of Trustees, shall promptly re-assess whether such security presents
minimal credit risk and determine whether or not to retain the instrument.
From time to time, the Money Market Portfolio may purchase securities on a
when-issued or delayed delivery basis. The Portfolio may also enter into
repurchase agreements. See "Description of Securities and Investment Techniques"
in the SAI for further information.
The Money Market Portfolio uses the "amortized cost" method of valuation
and seeks to maintain a net asset value of $1.00 per share for purposes of
purchases and redemptions; however, an investment in this Portfolio is neither
insured nor guaranteed by the U.S. government, and there can be no assurance
that the Portfolio will be able to maintain a stable net asset value. The
Portfolio will be affected by general changes in interest rates resulting in
increases or decreases in the value of the obligations held by the Portfolio.
MANAGEMENT
The Trustees of the Trust decide upon matters of general policy for the
Trust. In addition, the Trustees review the actions of the Trust's investment
manager, as set forth below. The Trust's officers supervise the daily business
operations of the Trust.
Conseco Capital Management, Inc. (the "Adviser"), 11825 N. Pennsylvania
Street, Carmel, Indiana 46032, has been retained under Investment Advisory
Agreements with the Trust, to provide investment advice, and in general to
supervise the management and investment program of the Trust and each Portfolio.
In addition, the Adviser generally manages the affairs of the Trust, subject to
the supervision of the Board of Trustees. For information about the Board of
Trustees and the Trust's officers, see "Management" in the SAI. Under the
Investment Advisory Agreements, the Adviser receives an investment advisory fee
equal to an annual rate of 0.25 percent of the daily net asset value of the
Money Market Portfolio, 0.50 percent of the daily net asset value of the
Government Securities and Corporate Bond Portfolios, 0.60 percent of the daily
net asset value of the Common Stock Portfolio, and 0.55 percent of the daily net
asset value of the Asset Allocation Portfolio. The Adviser also manages all of
the invested assets of its parent company, Conseco, Inc., which owns or manages
several life insurance subsidiaries, and provides investment and servicing
functions to the Conseco companies and affiliates. The Adviser also provides
investment advice to Conseco Fund Group, a registered open-end management
investment company. The Adviser has been the investment adviser to the Trust
since the Trust's inception. The Adviser has agreed that the ratio of expenses
to net assets on an annual basis for the Common Stock Portfolio shall not exceed
0.80 percent, the Asset Allocation Portfolio shall not exceed 0.75 percent, the
Government Securities and the Corporate Bond Portfolios shall not exceed 0.70
16
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CONSECO SERIES TRUST
1997
PROSPECTUS
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percent, and the Money Market Portfolio shall not exceed 0.45 percent. For the
years ended December 31, 1996, 1995, and 1994, the Adviser's fees before
reimbursement totaled $1,008,557, $695,347, and $560,765, respectively, which
was 0.58 percent, 0.57 percent, and 0.64 percent of average net assets for 1996,
1995, and 1994, respectively. Total expenses of the average annual net assets of
each Portfolio for the years ended 1996, 1995 and 1994; were as follows: Common
Stock, 0.80 percent Asset Allocation, 0.75 percent; Government Securities, 0.70
percent; Corporate Bond, 0.70 percent; Money Market, 0.45 percent.
Prior to November 19, 1991, Lexington Management Corporation ("the
Sub-Adviser") had been retained by the Adviser pursuant to Sub-Advisory
Agreements with the Adviser. Pursuant to the Sub-Advisory Agreements, the
Sub-Adviser furnished the Adviser, on behalf of the Government Securities
Portfolio, Common Stock Portfolio, and Asset Allocation Portfolio, such
investment advice, statistical and other factual information as the Adviser
reasonably requested. The Sub-Advisory Agreements have been terminated and,
since the termination, the Adviser has performed all services previously
provided by the Sub-Adviser. However, the Adviser may employ one or more
sub-advisers in the future.
The investment professionals primarily responsible for the management of
each Portfolio, with the respective responsibilities and business experience for
the past five years are as follows:
COMMON STOCK: Thomas J. Pence, Vice President for the Adviser. He is
responsible for the management of the Adviser's equity portfolios and oversight
of the equity investment process. Prior to joining the Adviser, Mr. Pence worked
for five years as a securities analyst in the field of real estate acquisition
and development in which he specialized in residential development and
construction finance and was responsible for overseeing a project portfolio of
$750 million in real estate assets.
ASSET ALLOCATION: Gregory J. Hahn, Portfolio Manager of the fixed income
portion of the Portfolio and Senior Vice President, Portfolio Analytics for the
Adviser. He is responsible for the portfolio analysis and management of the
tax-exempt client accounts and analytical support for taxable portfolios. In
addition, he has responsibility for the registered products as well as
investments in the insurance industry.
Prior to joining the Adviser, Mr. Hahn was a fixed income portfolio manager
for Unified Management, Inc., where he was responsible for over $700 million in
money market, municipal, and corporate bond mutual funds. Among the funds Mr.
Hahn was responsible for were the Liquid Green Trust and the highly rated Liquid
Green Tax Free Trust. Before joining Unified, he was a fixed income portfolio
manager and municipal bond trader for Indiana National Bank.
Thomas J. Pence, Portfolio Manager of the equity portion of the Portfolio.
See Mr. Pence's business experience above.
GOVERNMENT SECURITIES: Joseph F. DeMichele, Vice President for the Adviser.
He is responsible for mortgage, pass-through and derivative trading, and
residential and portfolio management. Mr. DeMichele was previously employed by
Salomon Brothers. During his four years at Salomon, he worked as an assistant
trader involved with security valuation and portfolio management. Prior to
working at Salomon Brothers, he traded stock index futures on the floor of the
New York Futures Exchange.
CORPORATE BOND: Gregory J. Hahn. See Mr. Hahn's business experience above.
MONEY MARKET: Darren Meyer, Trader for the Adviser. He is responsible for
money market trading for the Adviser. Mr. Meyer has been a trader for the
Adviser since 1994. He was previously employed by the Adviser's parent
corporation in its accounting department since 1992.
17
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MANAGEMENT DISCUSSION AND ANALYSIS
COMMON STOCK PORTFOLIO
As we look back upon the second half of 1996, we have to keep things in
perspective by reminding ourselves how long we have been in the midst of
economic expansion relative to historical market cycles. This is already the
fourth longest expansion of the twentieth century. This is significant because
in the three longer cycles, corporate earnings peaked out well in advance of
each cycle's demise. Thus, if history offers any clues here, we are probably
pretty close to some degree of deceleration in corporate profits. Happily, we
can look back upon 1996 as another banner year of unabated growth in corporate
profits and equity returns.
As for returns during the second half of the year, the Standard & Poor's
500 (S & P 500) gained 11.68% and the Dow Jones Industrial Average gained
15.38%. Market performance was mostly led by a strong showing in the
semiconductor and energy sectors with stocks such as Intel and Helmrich & Payne
leading the way. Some of the worst performers for the period included trucking,
broadcasting and manufactured housing.
During the period we continued to stay focused on our bottom up research
intensive approach. With this in mind, energy continued to play a prominent role
in our portfolio with names such as Tosco, Apache and Forest Oil. In the areas
of telecommunications and networking equipment, two of our more successful
positions were Network General and Brightpoint. Capital goods also put in strong
results in our portfolio with Miller Industries, which performed well throughout
the period. Finally, technology had its role in the second half of the year with
names such as GenRad and Ultrak.
Looking into 1997, investor uncertainty on the overall market remains quite
high. Excessive valuations and sentiment readings as well as the ultimate
duration of this profit cycle all cause us to question whether we can continue
much longer without a significant correction. However, in spite of this
tentative outlook on the performance of the market averages such as the S&P 500
and the Dow Jones Industrial Average, we remain committed to finding great
businesses and great management teams that can grow their earnings significantly
in excess of the average company in the market. To this end, we will continue to
focus our research efforts in the months ahead on companies in the technology,
energy and business services sectors. Additionally, we are intrigued by the
opportunities for profit growth that exist in the textile, aerospace, healthcare
and gold producer industries where we still see attractive valuations and
developing insider buying patterns. We think that the possibility of a stronger
dollar in 1997 could result in a significant leadership change in this market as
domestically focused companies enjoy less pressure on unit volumes and profit
margins than their international counterparts. Finally, we expect to continue to
reduce our exposure to higher-end consumer products and services where we feel
the overabundance of capital investment in this cycle has created over-capacity
and excessive competition.
[The following table represents a chart in the printed piece.]
Comparison of Change in Value of $10,000 Investment in the Common Stock
Portfolio and the S&P 500 Index.
Accumulated Values
------------------
Common Stock Portfolio Standard & Poor
---------------------- ---------------
12/31/86 $10,000 $10,000
12/31/87 10,111 10,517
12/31/88 11,060 12,253
12/31/89 14,461 16,104
12/31/90 13,205 15,590
12/31/91 16,609 20,352
12/31/92 19,698 21,916
12/31/93 21,386 24,107
12/31/94 21,814 24,428
12/31/95 29,733 33,598
12/31/96 43,112 41,309
Average Annual Total Return
1 Year - 44.99 percent
5 Years - 26.70 percent
10 Years - 15.73 percent
Past performance is not predictive of future performance. Performance does not
include separate account expenses.
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CONSECO SERIES TRUST
1997
PROSPECTUS
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ASSET ALLOCATION PORTFOLIO
Our strategy in the Asset Allocation Portfolio has been to emphasize our
growth equity style of investing which has represented approximately 55% of the
total portfolio. Within the fixed-income portion of the portfolio, we have seen
very strong performance during the second half of the year from the high yield
sector, which includes our investments in UNYSIS, Peoples Telephone and
Phar-Mor. In addition, we are finding value in Yankee issues as well as domestic
bank/finance issues.
Concerning the equity portion of the portfolio, we feel it is important to
make several observations which have impacted our investment decisions. The
general market did not exit 1996 cheap by any calculation. Much has been said
about stock buybacks, lower dividend payouts and the attractiveness of U.S.
equities versus those abroad. We think much of this is just noise. The current
price/earnings ratio of around 22 times 1997 earnings is quite high, even after
giving consideration to such
aforementioned factors. Much of this profit cycle has been driven by the
positive impact of lower interest rates and taxes on corporate profit margins.
These factors, along with restrictions and technological advances, have expanded
profit margins to levels which are going to be hard to improve upon in 1997.
Despite the excess valuations in many segments of the market, we continue
to find opportunities in selected areas. Our bottom up, research intensive
approach during this period identified values in selected issues in energy,
telecommunications, and technology, as well as in the capital goods sector.
Tosco, Apache and Forest Oil were prominent in our portfolio and accounted for
much of our energy holdings. Network General, Brightpoint, Ultrak, and GenRad
all contributed as strong performers in telecommunications related holdings.
Also, Miller Industries was significant as an investment in the capital goods
sector and performed well during the period.
[The following table represents a chart in the printed piece.]
Comparison of Change in Value of $10,000 Investment in the Asset Allocation
Portfolio, the S&P 500 Index and the Lehman Brothers Government/Corporate Index.
Accumulated Values
------------------
Asset Allocation LB Govt/
Portfolio S&P 500 Index Corporate Index
----------------- ------------- ---------------
5/1/87 $10,000 $10,000 $10,000
12/31/87 9,594 8,670 10,081
12/31/88 10,414 10,100 10,846
12/31/89 12,636 13,275 12,391
12/31/90 11,938 12,851 13,417
12/31/91 14,556 16,777 15,581
12/31/92 16,169 18,066 16,762
12/31/93 17,916 19,872 18,611
12/31/94 17,824 20,136 17,958
12/31/95 23,437 27,695 21,413
12/31/96 30,069 34,051 22,034
Average Annual Total Return
1 Year - 28.30 percent
5 Years - 20.29 percent
10 Years - N/A (1)
(1) The inception date of this Portfolio was May 1, 1987.
Past performance is not predictive of future performance. Performance does not
include separate account expenses.
19
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GOVERNMENT SECURITIES PORTFOLIO
The rising interest rate environment of the first half of 1996 changed
dramatically in the third quarter. The unemployment report in early July showed
signs of a weakening economy and interest rates reversed their course and began
trending lower. The 30 year U.S. Treasury bond peaked on July 5th at 7.19%. Some
market participants actually began looking toward an easing of monetary policy
by the Federal Reserve Board and short term interest rates also began falling.
The two year U.S. Treasury note peaked a few days later at 6.43%. Indications of
a sluggish economic environment continued into the fourth quarter. The 30 year
U.S. Treasury reached a low yield of 6.35% while the two year U.S. Treasury
bottomed at 5.58%. Perceptions changed in early December. Fueled by Fed Chairman
Alan Greenspan's now famous "irrational exuberance" comments, fears of a
tightening of monetary policy were reawakened and sent interest rates rising.
The year ended with long rates, as measured by the 30 year bond, at 6.64%. Short
rates, as measured by the two year note, closed at 5.87%.
Spread sectors were the best performers of 1996. Very strong demand for
investments that provided incremental yield over U.S. Treasuries led to higher
performance by the mortgage-backed securities (MBS), asset-backed securities
(ABS), and corporate bond markets. The Lehman Brothers Government Index returned
2.77% for 1996. In contrast, the Lehman Brothers Mortgage Index posted a return
of 5.35%, and the Lehman Brothers Asset-Backed Index returned 5.05%. Even
adjusting for the shorter duration of the Lehman mortgage and asset-backed
indices, both outpaced U.S. Treasury securities by between 70 and 80 basis
points. In addition to investors' appetite for extra yield, securities with
embedded options such as MBS and callable agencies benefited from falling
volatility over the last half of 1996.
Looking toward 1997, the market seems to be at a crossroads. Demand for
both fixed income securities and equities is strong as money continues to pour
in from retail mutual funds and institutional investors. Additionally, demand
for U.S. Treasury securities from overseas continues to be strong. A risk here
would be if the dollar cannot sustain its continued strength in the foreign
exchange market. Other risks are lurking as well. Some investors are concerned
that the strong showing of the economy in the fourth quarter will continue and
lead to tighter monetary policy from the Federal Reserve. Expectations for Gross
Domestic Product (GDP) growth for the fourth quarter are around four percent.
With the current tightness in the labor markets, continued growth of this sort
in 1997 will most certainly lead to increased inflationary pressures on the wage
front. Energy prices also remain high furthering inflationary concerns. However,
many economists feel that GDP growth in the fourth quarter was an aberration and
look for sustainable growth in the range of 2.0% to 2.5%. Economic indicators in
the early part of 1997 will hopefully give investors a clearer picture of the
economic environment to be expected.
We expect demand for spread products such as MBS and ABS to continue to be
strong in 1997. The Government Securities Portfolio will continue to benefit
from diversification with selective investments in these sectors. As is our
strategy, we will invest in high-quality, liquid securities that provide
superior relative value.
[The following table represents a chart in the printed piece.]
Comparison of Change in Value of $10,000 Investment in Government Securities
Portfolio and the Lehman Brothers Government and MBS Indexes.
Accumulated Values
------------------
Government
Securities Lehman Brothers Lehman Brothers
Portfolio Government Index MBS Index
--------- ---------------- ---------
12/31/86 $10,000 $10,000 $10,000
12/31/87 10,303 10,220 10,430
12/31/88 10,964 10,938 11,340
12/31/89 12,349 12,495 13,081
12/31/90 13,389 13,585 14,483
12/31/91 15,494 15,666 16,760
12/31/92 16,571 16,798 17,927
12/31/93 18,087 18,589 19,154
12/31/94 17,581 17,961 18,845
12/31/95 20,630 21,255 22,011
12/31/96 21,197 21,844 23,189
Average Annual Total Return
1 Year - 2.15 percent
5 Years - 6.47 percent
10 Years - 7.80 percent
Past performance is not predictive of future performance. Performance does not
include separate account expenses.
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CONSECO SERIES TRUST
1997
PROSPECTUS
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CORPORATE BOND PORTFOLIO
With interest rates declining over the last six months of the year, the
fixed income markets provided good performance and a plethora of investment
opportunities over the period. Returns in the second half of the year more than
erased the negative returns during the first half of the year. For the year of
1996, the general market, measured by the Lehman Brothers Aggregate Index,
returned 3.63% and was led by solid performance in the corporate mortgage-backed
and asset-backed securities sectors.
Even though spreads to treasuries remain tight, the bank and finance sector
provided some of the better relative value opportunities. Heavy issuance toward
year-end of Trust Preferred Securities provided investment opportunities in the
long part of the yield curve. We invested in the issues of Morgan Stanley
(A2/A-), Wells Fargo (A1/BBB), and First Chicago (A1/A-). Also, Standard Federal
Bancorp (Baa3/BBB-) was acquired by ABN AMRO (Aa2/AA-) and spreads narrowed by
over 40 basis points in anticipation of an upgrade to ABN AMRO's ratings.
In the industrial sector, we continued to add to our position in Safeway
(Ba2/BBB-) which we anticipate will be upgraded given the merger with Vons.
We have selectively increased our exposure to Yankee securities given the
improved liquidity and the relative value opportunities in the sector. During
the period we invested in Ras Laffan Gas (A3/BBB+) and Southern Investments UK
(Baa1/A) which both offer excellent relative value in the intermediate part of
the yield curve. We also invested in the bonds of the Republic of South Africa
(Baa3/BB-) which we believed were cheap at spreads of 195 basis points over U.S.
Treasuries.
The portfolio continues to emphasize a diverse group of corporate
securities which we consider to be undervalued currently in the market. Also,
while we consider the market for mortgage-backed securities fairly valued, we
continue to look for opportunities in asset-backed securities and commercial
mortgage-backed securities, particularly in the short end of the yield curve.
[The following table represents a chart in the printed piece.]
Comparison of Change in Value of $10,000 Investment in the Corporate Bond
Portfolio and the Lehman Brothers Government/Corporate Index.
Accumulated Values
------------------
Corporate Bond Lehman Brothers Government
Portfolio /Corporate Index
--------- ----------------
5/31/93 $10,000 $10,000
12/31/93 10,599 10,602
12/31/94 10,314 10,230
12/31/95 12,196 12,198
12/31/96 12,802 12,552
Average Annual Total Return
1 Year - 4.97 percent
5 Years - N/A (1)
10 Years - N/A (1)
(1) The inception date of this Portfolio was May 1, 1993.
Past performance is not predictive of future performance. Performance does not
include separate account expenses.
21
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PURCHASE AND REDEMPTION OF SHARES
Bankers National and Great American Reserve are the sponsors for the
separate accounts that are funding the Trust's shares. Shares of each Portfolio
are purchased or redeemed at their respective net asset values next computed
(without a sales charge) after receipt of an order as required by the 1940 Act.
The net asset value of shares of each Portfolio is determined on each
Monday through Friday, except customary national business holidays on which the
New York Stock Exchange is not open for trading and days during which no shares
of the Portfolio were tendered for redemption and no order to purchase or sell
such shares was received. The net asset value of shares for each Portfolio is
determined by adding up the value of its securities (determined as set forth
below) and other assets, subtracting the liabilities, and dividing by the number
of shares outstanding. The valuations of each Portfolio are based on the normal
closing of the New York Stock Exchange.
The Board of Trustees has determined that the best method currently
available for valuing the securities of the Money Market Portfolio is the
amortized cost method. This method values a security at the time of its purchase
at cost and thereafter assumes a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. This method does not take into account
unrealized gains and losses. The Money Market Portfolio will attempt to maintain
a constant net asset value of $1.00 per share.
Securities held by all Portfolios other than the Money Market Portfolio are
valued based upon readily available market quotations. Where such market
quotations are not available, securities are valued at fair value as determined
by or under the general supervision of the Board of Trustees. See "Net Asset
Values of the Shares of the Portfolios" in the SAI for details.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Investors should understand that, as Owners, they will not receive directly
any dividends or distributions from the Trust or any of the Portfolios. All such
dividends and distributions are declared to, and reinvested by, the separate
accounts of the insurance company.
Each Portfolio of the Trust is treated as a separate taxable entity and
qualifies as a "regulated investment company" under applicable provisions of the
Internal Revenue Code of 1986 (the "Code"). As such, the Trust is not subject to
federal income tax on such part of its net ordinary income and net realized
capital gains which it distributes to shareholders. To qualify for treatment as
a "regulated investment company," each Portfolio must, among other things,
derive in each taxable year at least 90 percent of its gross income from
dividends, interest and gains from the sale or other disposition of securities,
and derive less than 30 percent of its gross income in each taxable year from
the gains (without deduction for losses) from the sale or other disposition of
securities held for less than three months.
It is the Trust's intention to distribute sufficient net investment income
to avoid the application of federal income tax on the Trust. The Trust also
intends to distribute sufficient income to avoid the application of any federal
excise tax. For dividend purposes, the net investment income of each Portfolio,
other than the Money Market Portfolio, will consist of all payments of dividends
or interest received and any net short-term gains or losses from the sale of its
investments less its estimated expenses (including fees payable to the Adviser).
Net investment income of the Money Market Portfolio (from the last determination
thereof) consists of interest accrued (i) plus or minus amortized discounts or
premiums, (ii) plus or minus all realized net short- term gains and losses on
the portfolio securities, (iii) less the estimated expenses of that Portfolio
applicable to that dividend period. The Asset Allocation Portfolio is also
required to include in its taxable income each year a portion of the original
issue discount at which it acquires zero coupon securities, even though the
Portfolio receives no interest payment on the security during the year.
Similarly, the Portfolio must include in its taxable income each year any
interest distributed in the form of additional securities by payment-in-kind
securities. Accordingly, to continue to qualify for treatment as a regulated
investment company under the Code, the Portfolio may be required to distribute
as a dividend an amount that is greater than the total amount of cash the
Portfolio actually received. Those distributions will be made from the
Portfolio's cash assets or the proceeds from sales of portfolio securities, if
necessary.
Dividends from the Government Securities Portfolio and Corporate Bond
Portfolio will be declared and reinvested monthly in additional full and
fractional shares of those respective Portfolios. Dividends from the Common
Stock Portfolio and the Asset Allocation Portfolio will be declared and
22
<PAGE>
reinvested quarterly in additional full and fractional shares of those
respective Portfolios. Dividends from the Money Market Portfolio will be
declared and reinvested daily in additional full and fractional shares of that
Portfolio. However, the Trustees may decide to declare dividends at other
intervals.
All net realized long-term capital gains of the Trust, if any, are declared
and distributed annually after the close of the Trust's fiscal year to the
shareholders of the Portfolio or Portfolios to which such gains are
attributable.
INVESTMENT PERFORMANCE
Each of the Portfolios may from time to time advertise certain investment
performance information. Performance information may consist of yield, effective
yield, and average annual total return quotations reflecting the deduction of
all applicable charges over a period of time. A Portfolio also may use aggregate
total return figures for various periods, representing the cumulative change in
value of an investment in a Portfolio for the specific period. Performance
information may be shown in schedules, charts or graphs. These figures are based
on historical earnings and are not intended to indicate future performance.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
PAGE
Investment Performance..............................................B-01
Description of Securities and Investment
Techniques..........................................................B-02
Investment Restrictions............................................ B-15
Portfolio Turnover and Securities Transactions......................B-16
Management..........................................................B-17
Net Asset Values of the Shares of the Portfolios....................B-19
General.............................................................B-19
Independent Accountants.............................................B-20
Financial Statements................................................F-01
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CONSECO SERIES TRUST
1997
PROSPECTUS
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If you would like a free copy of the Statement of Additional Information for
this Prospectus, please complete this form, detach, and mail to:
Conseco Series Trust
Attn: Variable Annuity Department
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Gentlemen:
Please send me a free copy of the Statement of Additional Information for
the Conseco Series Trust at the following address:
Name:_____________________________________________________________________
Mailing Address:__________________________________________________________
__________________________________________________________
__________________________________________________________
Sincerely,
(Signature)
__________________________________________________
Signature
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CONSECO SERIES TRUST
1997
PROSPECTUS
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APPENDIX A--SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND
RATINGS
MOODY'S INVESTOR SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa--Bonds which are rated Aaa by Moody's Investor Service, Inc.
("Moody's") are judged to be the best quality and carry the smallest degree of
investment risk. Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA--This is the highest rating assigned by Standard & Poor's ("S&P") to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB/B/CCC/CC--Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
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CI--The rating CI is reserved for income bonds on which no interest is
being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from AA to B may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PREFERRED STOCK RATINGS:
Both Moody's and S&P use the same designations for corporate bonds as they
do for preferred stock, except that in the case of Moody's preferred stock
ratings, the initial letter rating is not capitalized. While the descriptions
are tailored for preferred stocks and relative quality, distinctions are
comparable to those described above for corporate bonds.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Among the factors considered by Moody's in assigning commercial paper
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of 10 years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative differences in
strengths and weaknesses in respect of these criteria establish a rating in one
of three classifications. The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Its other two ratings, Prime-2 and Prime-3 are
designated Higher Quality and High Quality, respectively. Issuers rated Prime-2
have a strong capacity for repayment of short-term promissory obligations.
Commercial paper rated A by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated A or better, although in some cases BBB credits may be allowed. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management are unquestioned. The rating A is described by S&P as the investment
grade category, the highest rating classification. Relative strengths and
weaknesses of the above factors determine whether the issuer's commercial paper
is rated A-1, A-2 or A-3. The A-1 designation indicates that the degree of
safety regarding timely payment is very strong. Issues rated A-1+ are those of
an overwhelming degree of credit protection. The A-2 designation indicates that
the capacity for timely payment is strong.
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CONSECO SERIES TRUST
1997
PROSPECTUS
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CONSECO SERIES TRUST
ADMINISTRATIVE OFFICE
11815 N. PENNSYLVANIA STREET
CARMEL, INDIANA 46032
VP-100 (5/97) MAY 1, 1997
30
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PART B
<PAGE>
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CONSECO SERIES TRUST
STATEMENT OF
ADDITIONAL
INFORMATION
MAY 1, 1997
This Statement of Additional Information is not a prospectus. It contains
additional information about the Conseco Series Trust (the "Trust") and should
be read in conjunction with the Trust's Prospectus dated May 1, 1997. You can
obtain a copy by contacting the Trust's Administrative Office, 11815 N.
Pennsylvania Street, Carmel, Indiana 46032.
TABLE OF CONTENTS
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
Investment Performance..................................B-1 23
Description of Securities
and Investment Techniques.............................B-2 11
Investment Restrictions................................B-13 11
Portfolio Turnover and
Securities Transactions..............................B-14 2
Management.............................................B-15 16
Net Asset Values of the Shares
of the Portfolios....................................B-17 22
General................................................B-17 1
Independent Accountants................................B-18 -
Financial Statements....................................F-1 2
CCM INVESTMENT ADVISER
-----
Conseco Capital Management
<PAGE>
INVESTMENT PERFORMANCE
The methods by which the investment performance of the Money Market
Portfolio (see the Prospectus) are calculated for a specified period of time are
described below.
The first method, which results in an amount referred to as the "current
yield," assumes an account containing exactly one share at the beginning of the
period. (The net asset value of this share will be $1.00 except under
extraordinary circumstances.) The net change in the value of the account during
the period is then determined by subtracting this beginning value from the value
of the account at the end of the period; however, capital changes (i.e.,
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation) are excluded from the calculation.
This net change in the account value is then divided by the value of the
account at the beginning of the period (i.e., normally $1.00 as discussed above)
and the resulting figure (referred to as the "base period return") is then
annualized by multiplying it by 365 and dividing by the number of days in the
period; the result is the "current yield." Normally a seven-day period will be
used in determining yields (both the current yield and the effective yield
discussed below) in published or mailed advertisements.
The second method results in an amount referred to as the "compounded
effective yield." This represents an annualization of the current yield with
dividends reinvested daily. This compounded effective yield is calculated for a
seven-day period by compounding the unannualized base period return by adding
one to the base period return, raising the sum to a power equal to 365 divided
by seven and subtracting one from the result.
Yield information may be useful to investors in reviewing the performance
of the Money Market Portfolio. However, a number of factors should be taken into
account before using yield information as a basis for comparison with
alternative investments. An investment in the Money Market Portfolio is not
insured and its yields are not guaranteed. The yields normally will fluctuate on
a daily basis. The yields for any given past period are not an indication or
representation by the Trust of future yields or rates of return on the shares of
the Money Market Portfolio and, therefore, they cannot be compared to yields on
savings accounts or other investment alternatives which often provide a
guaranteed fixed yield for a stated period of time, and may be insured by a
government agency. In comparing the yields of one money market fund to another,
consideration should be given to each fund's investment policy, portfolio
quality, portfolio maturity, type of instruments held and operating expenses. In
addition, the yield of the Money Market Portfolio as well as the yield of the
Corporate Bond, Government Securities, Common Stock and Asset Allocation
Portfolios will each be affected by charges imposed by the separate accounts
that invest in the Portfolios. See the Prospectus of the applicable separate
account for details.
The Corporate Bond Portfolio, Government Securities Portfolio, Common Stock
Portfolio, and Asset Allocation Portfolio may advertise investment performance
figures, including yield. Each Portfolio's yield will be based upon a stated
30-day period and will be computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
YIELD = 2 ((A-B/CD)+1)6-1
Where:
A = the dividends and interest earned during the period.
B = the expenses accrued for the period (net of reimbursements, if any).
C = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
D = the maximum offering prices (which is the net asset value) per share
on the last day of the period.
Each of the Portfolios may advertise its total return and its cumulative
total return. The total return will be based upon a stated period and will be
computed by finding the average annual compounded rate of return over the stated
period that would equate an initial amount invested to the ending redeemable
value of the investment (assuming reinvestment of all distributions), according
to the following formula:
P (1+T)n=ERV
Where:
P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value at the end of the stated period of a
hypothetical $1,000 payment made at the beginning of the stated
period.
The cumulative total return will be based upon a stated period and will be
computed by dividing the ending redeemable value of a hypothetical investment by
the value of the initial investment (assuming reinvestment of all
B-1
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distributions).
Each investment performance figure will be carried to the nearest hundredth
of one percent.
DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES
The following discussion describes in greater detail different types of
securities and investment techniques used by the individual Portfolios, as
described in "Investment Objectives and Policies of the Portfolios" in the
Prospectus, as well as the risks associated with such securities and techniques.
U.S. GOVERNMENT SECURITIES
All of the Portfolios may invest in U.S. government securities as described
in the Prospectus.
All Portfolios may also purchase obligations of the World Bank, the
Inter-American Development Bank, the Asian Development Bank and the
International Bank for Reconstruction and Development, which, while technically
not U.S. government agencies or instrumentalities, have the right to borrow from
the participating countries, including the United States.
MORTGAGE-BACKED SECURITIES
Each Portfolio other than the Money Market Portfolio may invest in
mortgage-backed securities.
MORTGAGE PASS-THROUGH SECURITIES. These are securities representing
interests in "pools" of mortgages in which periodic payments of both interest
and principal on the securities are made by "passing through" periodic payments
made by the individual borrowers on the residential mortgage loans underlying
such securities (net of fees paid to the issuer or guarantor of the securities
and possibly other costs). Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Portfolio to a lower rate of return upon reinvestment of
principal. Payment of principal and interest on some mortgage pass-through
securities may be guaranteed by the full faith and credit of the U.S. government
(in the case of securities guaranteed by the Government National Mortgage
Association, "GNMA"), or guaranteed by agencies or instrumentalities of the U.S.
government (in the case of securities guaranteed by the Federal National
Mortgage Association, "FNMA," or the Federal Home Loan Mortgage Corporation,
"FHLMC"). Mortgage pass-through securities created by non-governmental issuers
(such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers, and other secondary market issuers) may
be uninsured or may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance, and letters of
credit, which may be issued by governmental entities, private insurers, or the
mortgage poolers.
GNMA CERTIFICATES. GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
Government. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Although GNMA guarantees timely payment even if homeowners delay or
default, tracking the "pass-through" payments may, at times, be difficult.
Expected payments may be delayed due to the delays in registering the newly
traded paper securities. The custodian's policies for crediting missed payments
while errant receipts are tracked down may vary. Other mortgage-backed
securities, such as those of FHLMC and FNMA, trade in book-entry form and are
not subject to this risk of delays in timely payment of income. Although the
mortgage loans in the pool will have maturities of up to 30 years, the actual
average life of the GNMA certificates typically will be substantially less
because the mortgages may be purchased at any time prior to maturity, will be
subject to normal principal amortization, and may be prepaid prior to maturity.
Reinvestment of prepayments may occur at higher or lower rates than the original
yield on the certificates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS. FNMA, a federally chartered and
privately owned corporation, issues pass-through securities representing
interests in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not backed by the full
faith and credit of the U.S. government. FNMA also issues REMIC certificates,
which represent interests in a trust funded with FNMA certificates. REMIC
certificates are guaranteed by FNMA and not by the full faith and credit of the
U.S. Government.
FHLMC, a corporate instrumentality of the U.S. government, issues
participation certificates which represent an interest in a pool of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but these securities are not backed by the full faith and
credit of the U.S. government. As is the case with GNMA certificates, the actual
maturity of and realized yield on particular FNMA and FHLMC pass-through
securities will vary based on the prepayment experience of the underlying pool
of mortgages.
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OTHER MORTGAGE-BACKED SECURITIES. All Portfolios other than the Money
Market Portfolio may purchase mortgage-backed securities issued by financial
institutions such as commercial banks, savings and loan associations, mortgage
banks, and securities broker-dealers (or affiliates of such institutions
established to issue these securities) in the form of either collateralized
mortgage obligations ("CMOs") or mortgage-backed bonds. CMOs are obligations
fully collateralized directly or indirectly by a pool of mortgages on which
payments of principal and interest are dedicated to payment of principal and
interest on the CMOs. Payments are passed through to the holders on the same
schedule as they are received. Mortgage-backed bonds are general obligations of
the issuer fully collateralized directly or indirectly by a pool of mortgages.
The mortgages serve as collateral for the issuer's payment obligations on the
bonds but interest and principal payments on the mortgages are not passed
through either directly (as with GNMA certificates and FNMA and FHLMC
pass-through securities) or on a modified basis (as with CMOs). Accordingly, a
change in the rate of prepayments on the pool of mortgages could change the
effective maturity of a CMO but not that of a mortgage-backed bond (although,
like many bonds, mortgage-backed bonds may be callable by the issuer prior to
maturity). Although the mortgage-related securities securing these obligations
may be subject to a government guarantee or third-party support, the obligation
itself is not so guaranteed. Therefore, if the collateral securing the
obligation is insufficient to make payment on the obligation, a holder could
sustain a loss. It is expected that governmental, government-related, or private
entities may create mortgage loan pools and other mortgage-backed securities
offering mortgage pass-through and mortgage-backed securities. If such
securities are developed and offered to other types of investors, investments in
such new types of mortgage-related securities will be considered.
RISKS OF MORTGAGE-BACKED SECURITIES. In the case of mortgage pass-through
securities, such as GNMA certificates or FNMA and FHLMC mortgage-backed
obligations, or modified pass-through securities, such as CMOs issued by various
financial institutions, early repayment of principal arising from prepayments of
principal on the underlying mortgage loans due to the sale of the underlying
property, the refinancing of the loan, or foreclosure may expose a Portfolio to
a lower rate of return upon reinvestment of the principal. Prepayment rates vary
widely and may be affected by changes in market interest rates and other
economic trends and factors. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of the
mortgage-backed security. Conversely, when interest rates are rising, the rate
of prepayment tends to decrease, thereby lengthening the actual average life of
the mortgage-backed security. Accordingly, it is not possible to accurately
predict the average life of a particular pool. Reinvestment of prepayments may
occur at higher or lower rates than the original yield on the securities.
Therefore, the actual maturity and realized yield on pass-through or modified
pass-through mortgage-backed securities will vary based upon the prepayment
experience of the underlying pool of mortgages.
OTHER ASSET-BACKED SECURITIES
Each Portfolio other than the Money Market Portfolio may purchase other
asset-backed securities (unrelated to mortgage loans) such as "CARs"
("Certificates for Automobile Receivables") and Credit Card Receivable
Securities and any other asset-backed securities that may be developed in the
future.
DEBT SECURITIES
All Portfolios may invest in U.S. dollar-denominated corporate debt
securities of domestic issuers, and the Asset Allocation Portfolio and the
Corporate Bond Portfolio may invest in debt securities of foreign issuers that
may or may not be U.S. dollar-denominated.
The investment return on a corporate debt security reflects interest
earnings and changes in the market value of the security. The market value of
corporate debt obligations may be expected to rise and fall inversely with
interest rates generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on interest or principal
payments at the time called for by an instrument. Debt securities rated BBB or
Baa, which are considered medium-grade category debt securities, do not have
economic characteristics that provide the high degree of security with respect
to payment of principal and interest associated with higher rated debt
securities, and generally have some speculative characteristics. A debt security
will be placed in this rating category where interest payments and principal
security appear adequate for the present, but economic characteristics that
provide longer term protection may be lacking. Any debt security, and
particularly those rated BBB or Baa (or below), may be susceptible to changing
conditions, particularly to economic downturns, which could lead to a weakened
capacity to pay interest and principal.
New issues of certain debt securities are often offered on a when-issued or
delayed delivery basis; that is, the payment obligation and the interest rate
are fixed at the time the buyer enters into the commitment, but delivery and
payment for the securities normally take place after the customary settlement
time. The value of when-issued or delayed delivery securities may vary prior to
and after delivery depending on market conditions and changes in interest rate
levels. However, a
B-3
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Portfolio will not accrue any income on these securities prior to delivery. A
Portfolio will maintain in a segregated account with the Trust's custodian an
amount of cash or high quality debt securities equal (on a daily mark-to-market
basis) to the amount of its commitment to purchase the when-issued or delayed
delivery securities.
As discussed more fully in the Prospectus, the Money Market Portfolio may
invest in rated debt securities only if they are rated in one of the two highest
short-term ratings categories. The Corporate Bond Portfolio and Government
Securities Portfolio will invest in rated debt securities only if they are rated
"investment grade," except that the Corporate Bond Portfolio may invest up to 10
percent of the Portfolio's assets in non-investment grade debt securities. The
Common Stock and Asset Allocation Portfolios will not invest in rated debt
securities which are rated below CCC/Caa. All Portfolios may invest in unrated
securities as long as the Adviser determines that such securities have
investment characteristics comparable to securities that would be eligible for
investment by a Portfolio by virtue of a rating. Many securities of foreign
issuers are not rated by Moody's or Standard & Poor's; therefore, the selection
of such issuers depends, to a large extent, on the credit analysis performed or
used by the Adviser.
RISKS ASSOCIATED WITH HIGH YIELD DEBT SECURITIES. The Asset Allocation
Portfolio and the Common Stock Portfolio may invest in high yield, high risk,
lower-rated debt securities. High yield debt securities are subject to all risks
inherent in any investment in debt securities. As discussed below, these risks
are significantly greater in the case of high yield debt securities.
Lower-rated debt securities generally offer a higher current yield than
that available from higher-rated issues. However, lower-rated securities involve
higher risks in that they are especially subject to (1) adverse changes in
general economic conditions and in the industries in which the issuers are
engaged, (2) changes in the financial condition of the issuers and (3) price
fluctuation in response to changes in interest rates. Accordingly, the yield on
lower-rated debt securities will fluctuate over time. During periods of economic
downturn or rising interest rates, highly leveraged issuers may experience
financial stress which could adversely affect their ability to make payments of
principal and interest, and increase the possibility of default. In addition,
the market for lower-rated securities has expanded rapidly in recent years, and
this expanded market has not been tested in a period of extended economic
downturn. This market may be thinner and less active than the market for higher
quality securities, which may limit the ability to sell such securities at their
fair value in response to changes in the economy or the financial markets.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower-rated securities,
especially in a thinly traded market.
Differing yields on fixed income securities of the same maturity are a
function of several factors, including the relative financial strength of the
issuers. Higher yields are generally available from securities rated below
investment grade categories of recognized rating agencies: Ba1 or lower by
Moody's or BB+ or lower by Standard & Poor's. Debt securities rated below
investment grade are deemed by these agencies to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal and
may involve major risk exposure to adverse conditions.
Although the Adviser considers security ratings when making investment
decisions, it performs its own investment analysis and does not rely principally
on the ratings assigned by the rating services. The Adviser's analysis may
include consideration of the issuer's experience and managerial strength,
changing financial condition, borrowing requirements or debt maturity schedules,
and the issuer's responsiveness to changes in business conditions and interest
rates. It also considers relative values based on anticipated cash flow,
interest or dividend coverage, asset coverage and earnings prospects.
Also, the Adviser buys and sells debt securities principally in response to
its evaluation of an issuer's continuing ability to meet its obligations, the
availability of better investment opportunities, and its assessment of changes
in business conditions and interest rates. From time to time, consistent with
the Common Stock Portfolio's and the Asset Allocation Portfolio's investment
objectives, the Adviser may also trade high yield debt securities for the
purpose of seeking short-term profits. These securities may be sold in
anticipation of a market decline or bought in anticipation of a market rise.
They may also be traded for securities of comparable quality and maturity to
take advantage of perceived short-term disparities in market values or yields.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Trust may, on behalf of each Portfolio, purchase securities on a
when-issued or delayed delivery basis. When-issued and delayed delivery
transactions arise when securities are bought with payment and delivery taking
place in the future. The settlement dates of these transactions, which may be a
month or more after entering into the transaction, are determined by mutual
agreement of the parties. The Trust bears the risk that, on the settlement date,
the market value of the securities may vary from the purchase price. At the time
the Trust makes a commitment to purchase securities on a when- issued or delayed
delivery basis, it will record the transaction and reflect the value each day of
such securities in
B-4
<PAGE>
determining the net asset value of the Portfolio in question. There are no fees
or other expenses associated with these types of transactions other than normal
transaction costs. To the extent the Trust engages in when-issued and delayed
delivery transactions, it will do so for the purpose of acquiring portfolio
instruments consistent with the investment objective and policies of the
respective Portfolio and not for the purpose of investment leverage or to
speculate on interest rate changes. When effecting when-issued and delayed
delivery transactions, cash and high quality instruments of a Portfolio in an
amount sufficient to make payment for the obligations to be purchased will be
segregated at the trade date and maintained until the transaction has been
settled. The Adviser will ensure that such assets are segregated at all times
and are sufficient to satisfy these obligations. The Portfolio may dispose of
these securities before the issuance thereof. However, absent extraordinary
circumstances not presently foreseen, it is the Trust's policy not to divest
itself of its right to acquire these securities prior to the settlement date
thereof.
VARIABLE AND FLOATING RATE SECURITIES
Each Portfolio may invest in variable and floating rate securities.
Variable rate securities provide for automatic establishment of a new interest
rate at fixed intervals (i.e., daily, monthly, semi-annually, etc.). Floating
rate securities provide for automatic adjustment of the interest rate whenever
some specified interest rate index changes. The interest rate on variable or
floating rate securities is ordinarily determined by reference to, or is a
percentage of, a bank's prime rate, the 90-day U.S. Treasury bill rate, the rate
of return on commercial paper or bank certificates of deposit, an index of
short-term interest rates, or some other objective measure.
Variable or floating rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par value. In many
cases, the demand feature can be exercised at any time on seven days' notice; in
other cases, the demand feature is exercisable at any time on 30 days' notice or
on similar notice at intervals of not more than one year.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
Each Portfolio may invest in certificates of deposit, time deposits,
bankers' acceptances, and other short-term debt obligations issued by commercial
banks and in certificates of deposit, time deposits, and other short-term
obligations issued by savings and loan associations ("S&Ls"). Certificates of
deposit are receipts from a bank or an S&L for funds deposited for a specified
period of time at a specified rate of return. Time deposits in banks or S&Ls are
generally similar to certificates of deposit, but are uncertificated. Bankers'
acceptances are time drafts drawn on commercial banks by borrowers, usually in
connection with international commercial transactions. The Money Market
Portfolio, Common Stock Portfolio and Corporate Bond Portfolio may each invest
in obligations of foreign branches of domestic commercial banks and foreign
banks so long as the securities are U.S. dollar-denominated. The Asset
Allocation Portfolio may also invest in these types of instruments but such
instruments will not necessarily be U.S. dollar-denominated. See "Foreign
Securities" below for information regarding risks associated with investments in
foreign securities.
The Portfolios will not invest in obligations issued by a commercial bank
or S&L unless:
1. The bank or S&L has total assets of at least $1 billion, or the equivalent
in other currencies, and the institution has outstanding securities rated A
or better by Moody's or Standard & Poor's, or, if the institution has no
outstanding securities rated by Moody's or Standard & Poor's, it has, in
the determination of the Adviser, similar credit-worthiness to institutions
having outstanding securities so rated;
2. In the case of a U.S. bank or S&L, its deposits are federally insured; and
3. In the case of a foreign bank, the security is, in the determination of the
Adviser, of an investment quality comparable with other debt securities
which may be purchased by the Portfolio. These limitations do not prohibit
investments in securities issued by foreign branches of U.S. banks,
provided such U.S. banks meet the foregoing requirements.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements and reverse repurchase
agreements. Repurchase agreements permit an investor to maintain liquidity and
earn income over periods of time as short as overnight. Repurchase agreements
may be characterized as loans collateralized by the underlying securities. In
these transactions, a Portfolio purchases U.S. Treasury obligations or U.S.
government securities (the "underlying securities") from a broker or bank, which
agrees to repurchase the underlying securities on a certain date or on demand
and at a fixed price calculated to produce a previously agreed upon return to
the Portfolio. If the broker or bank were to default on its repurchase
obligation and the underlying securities were sold for a lesser amount, the
Portfolio would realize a loss. A repurchase transaction will be subject to
guidelines approved by the Board of Trustees of the Trust, which include
monitoring the
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credit-worthiness of the parties with which the Portfolio engages in repurchase
transactions, obtaining collateral at least equal in value to the repurchase
obligation, and marking the collateral to market on a daily basis.
A reverse repurchase agreement involves the temporary sale of a security by
a Portfolio and its agreement to repurchase the instrument at a specified time
and price. Such agreements are short-term in nature and involve minimal credit
risks.
Although not one of the Trust's fundamental policies, it is the Trust's
present policy not to enter into a repurchase transaction which will cause more
than 10 percent of the assets of the Money Market Portfolio, the Corporate Bond
Portfolio or the Government Securities Portfolio to be subject to repurchase
agreements having a maturity of more than seven days. This 10 percent limit also
includes the aggregate of (i) fixed time deposits subject to withdrawal
penalties, other than overnight deposits; and (ii) any restricted securities
(i.e., securities which cannot freely be sold for legal reasons) and any
securities for which market quotations are not readily available; however, this
10 percent limit does not include any obligations payable at principal amount
plus accrued interest, on demand or within seven days after demand, and thus
does not include repurchase agreements having a maturity of seven days or less.
RESTRICTED AND ILLIQUID SECURITIES
The Common Stock Portfolio, the Asset Allocation Portfolio and the
Corporate Bond Portfolio may invest in restricted securities such as private
placements, although a Portfolio may not invest in any illiquid restricted
security if, after acquisition thereof, more than 15 percent of the Portfolio's
assets would be invested in illiquid securities. Once acquired, restricted
securities may be sold by a Portfolio only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933. If sold in a privately negotiated
transaction, a Portfolio may have difficulty finding a buyer and may be required
to sell at a price that is less than the Adviser had anticipated. Where
registration is required, a Portfolio may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell.
WARRANTS
The Common Stock and Asset Allocation Portfolios may invest in warrants.
Each of these Portfolios may invest up to 5 percent of its net assets in
warrants (not including those that have been acquired in units or attached to
other securities), measured at the time of acquisition, and each such Portfolio
may acquire a warrant not listed on the New York or American Stock Exchanges if,
after such acquisition, no more than 2 percent of the Portfolio's net assets
would be invested in such warrants.
The holder of a warrant has the right to purchase a given number of shares
of a security of a particular issuer at a specified price until expiration of
the warrant. Such investments provide greater potential for profit or loss than
a direct purchase of the same amount of the securities. Prices of warrants do
not necessarily move in tandem with the prices of the underlying securities, and
are considered speculative investments. They pay no dividends and confer no
rights other than a purchase option. If a warrant is not exercised by the date
of its expiration, a Portfolio would lose its entire investment in such warrant.
FOREIGN SECURITIES
The Asset Allocation Portfolio may invest in equity securities of foreign
issuers. That Portfolio may invest up to 50 percent of its net assets in such
securities. The Asset Allocation Portfolio and Common Stock Portfolio may invest
in American Depository Receipts ("ADRs"), which are described below. The
Corporate Bond Portfolio may invest in debt obligations of foreign issuers,
including foreign governments and their agencies and instrumentalities.
Investments in foreign securities may offer unique potential benefits such as
substantial growth in industries not yet developed in the particular country.
Such investments also permit a Portfolio to invest in foreign countries with
economic policies or business cycles different from those of the United States,
or to reduce fluctuations in portfolio value by taking advantage of foreign
stock markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability, or diplomatic developments that could
adversely affect investments in those countries. Since the Asset Allocation
Portfolio may invest in securities denominated or quoted in currencies other
than the U.S.
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dollar, changes in foreign currency exchange rates will affect the value of
securities in that Portfolio and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those to which U.S. companies are subject.
Foreign securities markets, while growing in volume, have, for the most part,
substantially less volume than U.S. markets. Securities of many foreign
companies are less liquid and their prices more volatile than securities of
comparable U.S. companies. Transactional costs in non-U.S. securities markets
are generally higher than in U.S. securities markets. There is generally less
government supervision and regulation of exchanges, brokers, and issuers than
there is in the United States. A Portfolio might have greater difficulty taking
appropriate legal action with respect to foreign investments in non-U.S. courts
than with respect to domestic issuers in U.S. courts. In addition, transactions
in foreign securities may involve greater time from the trade date until
settlement than domestic securities transactions and involve the risk of
possible losses through the holding of securities by custodians and securities
depositories in foreign countries.
Dividend and interest income from foreign securities may generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by a Portfolio or its investors in all cases.
ADRs are certificates issued by a U.S. bank or trust company representing
the right to receive securities of a foreign issuer deposited in a foreign
subsidiary or branch or a correspondent of that bank. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and may offer
U.S. investors more liquidity than the underlying securities. The Portfolio may
invest in unsponsored ADRs. The issuers of unsponsored ADRs are not obligated to
disclose material information in the U.S. and, therefore, there may not be a
correlation between such information and the market value of such ADRs.
FUTURES CONTRACTS
The Common Stock, Corporate Bond, Government Securities and Asset
Allocation Portfolios may engage in futures contracts and may purchase and sell
interest rate futures contracts. The Common Stock and Asset Allocation
Portfolios may purchase and sell stock index futures contracts, interest rate
futures contracts, and futures contracts based upon other financial instruments
and components. The Asset Allocation Portfolio may also engage in gold and other
precious metals futures contracts.
Such investments may be made by these Portfolios solely for the purpose of
hedging against the effect that changes in general market conditions, interest
rates, and conditions affecting particular industries may have on the values of
securities held in a Portfolio or in which a Portfolio intends to purchase, and
not for purposes of speculation.
GENERAL DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides for
the future sale by one party and purchase by another party of a specified amount
of a particular financial instrument (debt security) or commodity for a
specified price at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and payment for the
underlying financial instruments, such contracts are usually closed out before
the delivery date. Closing out an open futures contract position is effected by
entering into an offsetting sale or purchase, respectively, for the same
aggregate amount of the same financial instrument on the same delivery date.
Where a Portfolio has sold a futures contract, if the offsetting price is more
than the original futures contract purchase price, the Portfolio realizes a
gain; if it is less, the Portfolio realizes a loss.
At the time a Portfolio purchases a futures contract, an amount of cash,
U.S. government securities, or money market instruments, equal to the fair
market value less initial and variation margin of the futures contract, will be
deposited in a segregated account with the Trust's custodian to collateralize
the position and thereby ensure that such futures contract is covered. A
Portfolio may be required to deposit additional cash equivalent items in the
segregated account in order to continue covering the contract as market
conditions change. In addition, each Portfolio will comply with certain
regulations of the Commodity Futures Trading Commission to qualify for an
exclusion from being a "commodity pool," which require a Portfolio to set aside
cash and short-term obligations with respect to long positions in a futures
contract.
INTEREST RATE FUTURES CONTRACTS. The Common Stock, Corporate Bond,
Government Securities and Asset Allocation Portfolios may purchase and sell
interest rate futures contracts. An interest rate futures contract is an
obligation traded on an exchange or board of trade that requires the purchaser
to accept delivery, and the seller to make delivery, of a specified quantity of
the underlying financial instrument, such as U.S. Treasury bills and bonds, in a
stated delivery month, at a price fixed in the contract.
These Portfolios may purchase and sell interest rate futures as a hedge
against changes in interest rates that
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adversely impact the value of debt instruments and other interest rate sensitive
securities being held by a Portfolio. A Portfolio might employ a hedging
strategy whereby it would purchase an interest rate futures contract when it is
not fully invested in long-term debt securities but wishes to defer their
purchase until it can orderly invest in such securities or because short-term
yields are higher than long-term yields. Such a purchase would enable the
Portfolio to earn the income on a short-term security while at the same time
minimizing the effect of all or part of an increase in the market price of the
long-term debt security which the Portfolio intends to purchase in the future. A
rise in the price of the long-term debt security prior to its purchase either
would be offset by an increase in the value of the futures contract purchased by
the Portfolio or avoided by taking delivery of the debt securities under the
futures contract.
A Portfolio would sell an interest rate futures contract to continue to
receive the income from a long-term debt security, while endeavoring to avoid
part or all of the decline in market value of that security which would
accompany an increase in interest rates. If interest rates rise, a decline in
the value of the debt security held by the Portfolio would be substantially
offset by the ability of the Portfolio to repurchase at a lower price the
interest rate futures contract previously sold. While the Portfolio could sell
the long-term debt security and invest in a short-term security, this would
ordinarily cause the Portfolio to give up income on its investment since
long-term rates normally exceed short-term rates.
OPTIONS ON FUTURES CONTRACTS. The Common Stock, Corporate Bond, Government
Securities and Asset Allocation Portfolios may purchase options on interest rate
futures contracts, although these Portfolios will not write options on any such
contracts. A futures option gives a Portfolio the right, in return for the
premium paid, to assume a long position (in the case of a call) or short
position (in the case of a put) in a futures contract at a specified exercise
price prior to the expiration of the option. Upon exercise of a call option, the
purchaser acquires a long position in the futures contract and the writer of the
option is assigned the opposite short position. In the case of a put option, the
converse is true. In most cases, however, a Portfolio would close out its
position before expiration by an offsetting purchase or sale.
The Portfolios would enter into options on futures contracts only in
connection with hedging strategies. Generally, these strategies would be
employed under the same market conditions in which a Portfolio would use put and
call options on debt securities, as described in "Options on Securities" below.
STOCK INDEX FUTURES CONTRACTS. The Common Stock and Asset Allocation
Portfolios may purchase and sell stock index futures contracts. A "stock index"
assigns relative values to the common stocks included in an index (for example,
the Standard & Poor's 500 Index of Composite Stocks or the New York Stock
Exchange Composite Index), and the index fluctuates with changes in the market
values of such stocks. A stock index futures contract is a bilateral agreement
to accept or make payment, depending on whether a contract is purchased or sold,
of an amount of cash equal to a specified dollar amount multiplied by the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally purchased
or sold.
To the extent that changes in the value of the Common Stock Portfolio or
Asset Allocation Portfolio correspond to changes in a given stock index, the
sale of futures contracts on that index ("short hedge") would substantially
reduce the risk to the Portfolio of a market decline and, by so doing, provide
an alternative to a liquidation of securities position, which may be difficult
to accomplish in a rapid and orderly fashion. Stock index futures contracts
might also be sold:
1. When a sale of portfolio securities at that time would appear to be
disadvantageous in the long-term because such liquidation would:
a. Forego possible appreciation,
b. Create a situation in which the securities would be difficult to
repurchase, or
c. Create substantial brokerage commission;
2. When a liquidation of part of the investment portfolio has commenced or is
contemplated, but there is, in the Adviser's determination, a substantial
risk of a major price decline before liquidation can be completed; or
3. To close out stock index futures purchase transactions.
Where the Adviser anticipates a significant market or market sector
advance, the purchase of a stock index futures contract ("long hedge") affords a
hedge against the possibility of not participating in such advance at a time
when a Portfolio is not fully invested. Such purchases would serve as a
temporary substitute for the purchase of individual stocks, which may then be
purchased in an orderly fashion. As purchases of stock are made, an amount of
index futures contracts which is comparable to the amount of stock purchased
would be terminated by offsetting closing sales transactions. Stock index
futures might also be purchased:
1. If the Portfolio is attempting to purchase equity positions in issues which
it may have or is having difficulty
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purchasing at prices considered by the Adviser to be fair value based upon
the price of the stock at the time it qualified for inclusion in the
investment portfolio, or
2. To close out stock index futures sales transactions.
GOLD FUTURES CONTRACTS. The Asset Allocation Portfolio may enter into
futures contracts on gold. A gold futures contract is a standardized contract
which is traded on a regulated commodity futures exchange, and which provides
for the future delivery of a specified amount of gold at a specified date, time,
and price. When the Portfolio purchases a gold futures contract, it becomes
obligated to take delivery and pay for the gold from the seller in accordance
with the terms of the contract. When the Portfolio sells a gold futures
contract, it becomes obligated to make delivery of the gold to the purchaser in
accordance with the terms of the contract. The Portfolio will enter into gold
futures contracts only for the purpose of hedging its holdings or intended
holdings of gold stocks. The Portfolio will not engage in these contracts for
speculation or for achieving leverage. The hedging activities may include
purchases of futures contracts as an offset against the effect of anticipated
increases in the price of gold or sales of futures contracts as an offset
against the effect of anticipated declines in the price of gold.
RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS. There are several risks
associated with the use of futures and futures options for hedging purposes.
While hedging transactions may protect a Portfolio against adverse movements in
the general level of interest rates and economic conditions, such transactions
could also preclude the Portfolio from the opportunity to benefit from favorable
movements in the underlying component. There can be no guarantee that the
anticipated correlation between price movements in the hedging vehicle and in
the portfolio securities being hedged will occur. An incorrect correlation could
result in a loss on both the hedged securities and the hedging vehicle so that
the Portfolio return might have been better off if hedging had not been
attempted. The degree of imperfection of correlation depends on circumstances
such as variations in speculative market demand for futures and futures options,
including technical influences in futures trading and futures options, and
differences between the financial instruments being hedged and the instruments
underlying the standard contracts available for trading in such respects as
interest rate levels, maturities, and credit-worthiness of issuers. A decision
as to whether, when, and how to hedge involves the exercise of skill and
judgment and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends.
There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures contract or a futures option position.
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day. Once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there is
no assurance that an active secondary market will develop or continue to exist.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses. Lack of a
liquid market for any reason may prevent a Portfolio from liquidating an
unfavorable position and the Portfolio would remain obligated to meet margin
requirements and continue to incur losses until the position is closed.
A Portfolio will only enter into futures contracts or futures options which
are standardized and traded on a U.S. exchange or board of trade, or, in the
case of futures options, for which an established over-the-counter market
exists. A Portfolio will not enter into a futures contract or purchase a futures
option if immediately thereafter the initial margin deposits for futures
contracts held by the Portfolio plus premiums paid by it for open futures
options positions, less the amount by which any such positions are
"in-the-money" (i.e., the amount by which the value of the contract exceeds the
exercise price), would exceed 5 percent of the Portfolio's net assets.
OPTIONS ON SECURITIES
The Common Stock, Asset Allocation, Corporate Bond and Government
Securities Portfolios may purchase put and call options on securities, and the
Common Stock and Asset Allocation Portfolios may purchase put and call options
on stock indices at such times as the Adviser deems appropriate and consistent
with a Portfolio's investment objective. Such Portfolios may also write
"covered" and "secured" call and put options. A Portfolio may write covered and
secured options with respect to not more than 25 percent of its net assets. A
Portfolio may purchase call and put options with a value of up to 5 percent of
its net assets. Each of these Portfolios may enter into closing transactions in
order to terminate its obligations either as a writer or a purchaser of an
option prior to the expiration of the option.
PURCHASING OPTIONS ON SECURITIES. An option on a security is a contract
that gives the purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option) or to sell a
specified
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security (in the case of a put option) from or to the seller ("writer") of the
option at a designated price during the term of the option. A Portfolio may
purchase put options on securities to protect holdings in an underlying or
related security against a substantial decline in market value. Securities are
considered related if their price movements generally correlate to one another.
For example, the purchase of put options on debt securities held by a Portfolio
would enable a Portfolio to protect, at least partially, an unrealized gain in
an appreciated security without actually selling the security. In addition, the
Portfolio would continue to receive interest income on such security.
A Portfolio may purchase call options on securities to protect against
substantial increases in prices of securities which the Portfolio intends to
purchase pending its ability to invest in such securities in an orderly manner.
A Portfolio may sell put or call options it has previously purchased, which
could result in a net gain or loss depending on whether the amount realized on
the sale is more or less than the premium and other transactional costs paid on
the option which is sold.
WRITING COVERED CALL AND SECURED PUT OPTIONS. In order to earn additional
income on its portfolio securities or to protect partially against declines in
the value of such securities, the Common Stock, Asset Allocation, Corporate Bond
and Government Securities Portfolios may each write "covered" and "secured" call
options. The exercise price of a call option may be below, equal to, or above
the current market value of the underlying security at the time the option is
written. During the option period, a covered call option writer may be assigned
an exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. Closing purchase transactions will ordinarily be effected to
realize a profit on an outstanding call option, to prevent an underlying
security from being called, to permit the sale of the underlying security, or to
enable the Portfolio to write another call option on the underlying security
with either a different exercise price or expiration date or both.
In order to earn additional income or to facilitate its ability to purchase
a security at a price lower than the current market price of such security, the
Asset Allocation, Corporate Bond, Government Securities and Common Stock
Portfolios may write "secured" put options. During the option period, the writer
of a put option may be assigned an exercise notice by the broker-dealer through
whom the option was sold requiring the writer to purchase the underlying
security at the exercise price.
A Portfolio may write a call or put option only if the call option is
"covered" or the put option is "secured" by the Portfolio. Under a covered call
option, the Portfolio is obligated, as the writer of the option, to own the
underlying securities subject to the option or hold a call at the same exercise
price, for the same exercise period, and on the same securities as the written
call. Under a secured put option, a Portfolio must maintain, in a segregated
account with the Trust's custodian, cash, cash equivalents, or U.S. government
securities with a value sufficient to meet its obligation as writer of the
option. A put may also be secured if the Portfolio holds a put on the same
underlying security at an equal or greater exercise price. Prior to exercise or
expiration, an option may be closed out by an offsetting purchase or sale of an
option of the same Portfolio.
OPTIONS ON SECURITIES INDICES. The Common Stock and Asset Allocation
Portfolios may purchase call and put options on securities indices. Call and put
options on securities indices also may be purchased or sold by a Portfolio for
the same purposes as the purchase or sale of options on securities. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The Common Stock and Asset Allocation Portfolios may write put and call options
on securities indices. When such options are written, the Portfolio is required
to maintain a segregated account consisting of cash, cash equivalents, or high
grade obligations or the Portfolio must purchase a like option of greater value
that will expire no earlier than the option written. The purchase of such
options may not enable a Portfolio to hedge effectively against stock market
risk if they are not highly correlated with the value of a Portfolio's
securities. Moreover, the ability to hedge effectively depends upon the ability
to predict movements in the stock market, which cannot be done accurately in all
cases.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves
certain risks. During the option period, the covered call writer has, in return
for the premium on the option, given up the opportunity to profit from a price
increase in the underlying securities above the exercise price, and, as long as
its obligation as a writer continues, has retained the risk of loss should the
price of the underlying security decline. The writer of an option has no control
over the time when it may be required to fulfill its obligation as a writer of
the option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation under
the option and must deliver the underlying securities at the exercise price. If
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a put or call option purchased by a Portfolio is not sold when it has remaining
value, and if the market price of the underlying security, in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Portfolio will lose its
entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security.
There can be no assurance that a liquid market will exist when a Portfolio
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Portfolio may be unable to
close out a position. If a Portfolio cannot effect a closing transaction, it
will not be able to sell the underlying security while the previously written
option remains outstanding, even though it might otherwise be advantageous to do
so. Possible reasons for the absence of a liquid secondary market on a national
securities exchange could include: insufficient trading interest, restrictions
imposed by national securities exchanges, trading halts or suspensions with
respect to call options or their underlying securities, inadequacy of the
facilities of national securities exchanges or The Options Clearing Corporation
due to a high trading volume or other events, and a decision by one or more
national securities exchanges to discontinue the trading of call options or to
impose restrictions on certain types of orders.
Since option premiums paid or received by a Portfolio, as compared to
underlying investments, are small in relation to the market value of such
investments, buying and selling put and call options offer large amounts of
leverage. Thus, the leverage offered by trading in options could result in a
Portfolio's net asset value being more sensitive to changes in the value of the
underlying securities.
FOREIGN CURRENCY TRANSACTIONS
The Asset Allocation Portfolio may enter into foreign currency futures
contracts and forward currency contracts. A foreign currency futures contract is
a standardized contract for the future delivery of a specified amount of a
foreign currency, at a future date at a price set at the time of the contract. A
forward currency contract is an obligation to purchase or sell a currency
against another currency at a future date at a price agreed upon by the parties.
The Portfolio may either accept or make delivery of the currency at the maturity
of the contract or, prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. The Portfolio will
engage in foreign currency futures contracts and forward currency transactions
in anticipation of or to protect itself against fluctuations in currency
exchange rates. The Portfolio will not commit more than 15 percent of its total
assets computed at market value at the time of commitment to a foreign currency
futures or forward currency contracts. The Portfolio will purchase and sell such
contracts for hedging purposes and not as an investment. The Portfolio will not
enter into a foreign currency contract with a term of greater than one year.
Foreign currency futures and forward currency contracts are not traded on
regulated commodities exchanges. There can be no assurance that a liquid market
will exist when a Portfolio seeks to close out a foreign currency futures or
forward currency position, in which case a Portfolio might not be able to effect
a closing purchase transaction at any particular time. In addition, a Portfolio
entering into a foreign currency futures or forward currency contract incurs the
risk of default by the counter party to the transaction. While these contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
Although the Asset Allocation Portfolio values assets daily in U.S.
dollars, it does not intend to physically convert its holdings of foreign
currencies into U.S. dollars on a daily basis. The Portfolio will do so from
time to time and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Portfolio at one rate, while offering a lesser
rate of exchange should the Portfolio desire to resell that currency to the
dealer.
OPTIONS ON FOREIGN CURRENCIES
The Asset Allocation Portfolio may invest up to 5 percent of its total
assets, taken at market value at the time of investment, in call and put options
on domestic and foreign securities and foreign currencies. The Portfolio may
purchase call and put options on foreign currencies as a hedge against changes
in the value of the U.S. dollar (or another currency) in relation to a foreign
currency in which portfolio securities of the Portfolio may be denominated. A
call option on a foreign currency gives the purchaser the right to buy, and a
put option the right to sell, a certain amount of foreign currency at a
specified price during a fixed period of time. The Portfolio may enter into
closing sale transactions with respect to such options, exercise them, or permit
them to expire.
The Asset Allocation Portfolio may employ hedging strategies with options
on currencies before the Portfolio
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purchases a foreign security denominated in the hedged currency, during the
period the Portfolio holds the foreign security, or between the day the foreign
security is purchased or sold and the date on which payment therefor is made or
received. Hedging against a change in the value of a foreign currency in the
foregoing manner does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions reduce or preclude the opportunity for
gain if the value of the hedged currency should change relative to the U.S.
dollar. The Portfolio will purchase options on foreign currencies only for
hedging purposes and will not speculate in options on foreign currencies. The
Portfolio may invest in options on foreign currency which are either listed on a
domestic securities exchange or traded on a recognized foreign exchange.
An option position on a foreign currency may be closed out only on an
exchange which provides a secondary market for an option of the same series.
Although the Asset Allocation Portfolio will purchase only exchange-traded
options, there is no assurance that a liquid secondary market on an exchange
will exist for any particular option, or at any particular time. In the event no
liquid secondary market exists, it might not be possible to effect closing
transactions in particular options. If the Portfolio cannot close out an
exchange-traded option which it holds, it would have to exercise its option in
order to realize any profit and would incur transactional costs on the sale of
the underlying assets.
BORROWING
For temporary purposes, such as to facilitate redemptions, a Portfolio may
borrow money from a bank, but only if immediately after each such borrowing and
continuing thereafter the Portfolio would have asset coverage of 300 percent.
Leveraging by means of borrowing will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Portfolio's net asset value;
money borrowed will be subject to interest and other costs (which may include
commitment fees and/or the cost of maintaining minimum average balances), which
may or may not exceed the income received from the securities purchased with
borrowed funds. The use of borrowing tends to result in a faster than average
movement, up or down, in the net asset value of a Portfolio's shares. A
Portfolio also may be required to maintain minimum average balances in
connection with such borrowing or to pay a commitment or other fee to maintain a
line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate.
INVESTMENT IN SECURITIES OF OTHER INVESTMENT COMPANIES
Each Portfolio (except the Money Market Portfolio) may purchase securities
of other investment companies. Such securities have the potential to appreciate
as do any other securities, but tend to present less risk because their value is
based on a diversified portfolio of investments. The 1940 Act expressly permits
mutual funds such as the Trust to invest in other investment companies within
prescribed limitations. An investment company may invest in other investment
companies if at the time of such investment (1) it does not purchase more than 3
percent of the voting securities of any one investment company, (2) it does not
invest more than 5 percent of its assets in any single investment company, and
(3) the investment in all investment companies does not exceed 10 percent of
assets. Each Portfolio will comply with all of these limitations with respect to
the purchase of securities issued by other investment companies.
Investment companies in which the Portfolios may invest charge advisory and
administrative fees and may also assess a sales load and/or distribution fees.
Therefore, investors in a Portfolio that invested in other investment companies
would indirectly bear costs associated with those investments as well as the
costs associated with investing in the Portfolio. The percentage limitations
described above significantly limit the costs a Portfolio may incur in
connection with such investments.
B-12
<PAGE>
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions and policies relating to
the investment of assets of the Portfolios and their activities. These are
fundamental policies and may not be changed without the approval of the holders
of a "majority" of the outstanding shares of each Portfolio affected. Under the
1940 Act, the vote of such a "majority" means the vote of the holders of the
lesser of (i) 67 percent of the shares represented at a meeting at which more
than 50 percent of the outstanding shares are represented or (ii) more than 50
percent of the outstanding shares. A change in policy affecting only one
Portfolio may be effected with the approval of the holders of a "majority" of
the outstanding shares of such Portfolio. The Trust may not, and each Portfolio
may not (except as noted):
1. Purchase securities on margin or sell securities short, except that
Portfolios engaged in transactions in options, futures, and options on
futures may make margin deposits in connection with those transactions, and
except that each Portfolio (except the Money Market Portfolio) may make
short sales against the box and that effecting short sales against the box
will not be deemed to constitute a purchase of securities on margin;
2. Purchase or sell commodities or commodity contracts (which, for the purpose
of this restriction, shall not include foreign currency futures or forward
currency contracts), except: (a) any Portfolio (except the Money Market
Portfolio) may engage in interest rate futures contracts, stock index
futures, futures contracts based on other financial instruments, and
options on such futures contracts; and (b) the Asset Allocation Portfolio
may engage in futures contracts on gold;
3. Borrow money or pledge, mortgage, or assign assets, except that a Portfolio
may: (a) borrow from banks, but only if immediately after each borrowing
and continuing thereafter it will have an asset coverage of at least 300
percent; (b) enter into reverse repurchase agreements, options, futures,
options on futures contracts, foreign currency futures contracts and
forward currency contracts as described in the Prospectus and in this
Statement of Additional Information. (The deposit of assets in escrow in
connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery basis and
collateral arrangements with respect to initial or variation margin
deposits for future contracts, and options on futures contracts and foreign
currency futures and forward currency contracts will not be deemed to be
pledges of a Portfolio's assets);
4. Underwrite securities of other issuers;
5. Invest more than 5 percent of its assets in the securities of any one
issuer if thereafter the Portfolio in question would have more than 5
percent of its assets in the securities of any issuer; this restriction
does not apply to U.S. Government securities;
6. Invest in securities of a company for the purpose of exercising control or
management;
7. Write, purchase or sell puts, calls or any combination thereof, except that
the Common Stock Portfolio, the Asset Allocation Portfolio, the Corporate
Bond Portfolio and the Government Securities Portfolio may write listed
covered or secured calls and puts and enter into closing purchase
transactions with respect to such calls and puts if, after writing any such
call or put, not more than 25 percent of the assets of the Portfolio are
subject to covered or secured calls and puts, and except that the Common
Stock Portfolio, Asset Allocation Portfolio, Corporate Bond Portfolio and
Government Securities Portfolio may purchase calls and puts with a value of
up to 5 percent of each such Portfolio's net assets;
8. Participate on a joint or a joint and several basis in any trading account
in securities;
9. Invest in the securities of issuers in any one industry if thereafter more
than 25 percent of the assets of the Portfolio in question would be
invested in securities of issuers in that industry; investing in cash items
(including time and demand deposits such as certificates of deposit of
domestic banks), U.S. government securities, or repurchase agreements as to
these securities, shall not be considered investments in an industry;
10. Purchase or sell real estate, except that it may purchase marketable
securities which are issued by companies which invest in real estate or
interests therein; or
11. Lend any of its assets except to purchase or hold money market instruments
permitted by its investment objective and policies.
In order to limit the risks associated with entry into repurchase
agreements, the Trustees have adopted certain criteria (which are not
fundamental policies) to be followed by the Portfolios. These criteria provide
for entering into repurchase agreement transactions (a) only with banks or
broker-dealers meeting certain guidelines for creditworthiness, (b) that are
fully collateralized as defined, (c) on an approved standard form of agreement
and (d) that meet limits on investments in the repurchase agreements of any one
bank, broker or dealer. In accordance with regulatory requirements, the Board of
Trustees has also adopted procedures for segregating Portfolio assets whenever a
Portfolio enters into reverse repurchase agreements or dollar mortgage rolls
with institutions other than banks.
B-13
<PAGE>
PORTFOLIO TURNOVER AND SECURITIES TRANSACTIONS
A portfolio turnover rate is, in general, the percentage computed by taking the
lesser of purchases or sales of portfolio securities (excluding certain
short-term securities) for a year and dividing it by the monthly average of the
market value of such securities during the year. The Money Market Portfolio does
not have a stated portfolio turnover matrix as securities of the type in which
it invests are excluded in the usual calculation of that rate. The remaining
Portfolios do not have a predetermined rate of portfolio turnover since such
turnover will be incidental to transactions taken with a view to achieving their
respective objectives.
High turnover and short-term trading involve correspondingly greater
commission expenses and transaction costs. If a Portfolio derives more than 30
percent of its gross income from the sale of securities held less than three
months, the Portfolio may fail to qualify under the tax laws as a regulated
investment company in particular years and thereupon would lose certain
beneficial tax treatment of its income (see "Dividends, Distributions and Taxes"
in the Prospectus).
The Adviser is responsible for decisions to buy and sell securities for the
Trust, broker-dealer selection, and negotiation of its brokerage commission
rates. The Adviser's primary consideration in effecting a securities transaction
will be execution at the most favorable price and that the Adviser understands
that a substantial portion of the Trust's portfolio transactions will be
transacted with primary market makers acting as principal on a net basis, with
no brokerage commissions being paid by the Trust. In certain instances, the
Adviser may make purchases of underwritten issues at prices which include
underwriting fees. In selecting a broker-dealer to execute each particular
transaction, the Adviser will take the following into consideration: the best
net price available; the reliability, integrity and financial condition of the
broker-dealer; and the size of contribution of the broker-dealer to the
investment performance of the Trust on a continuing basis. The Adviser shall not
be deemed to have acted unlawfully or to have breached any duty created by the
Investment Advisory Agreement in question or otherwise solely by reason of its
having caused the Trust to pay a broker-dealer that provides brokerage and
research services to the Adviser an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Adviser
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to its clients. The Adviser
allocates the orders placed by it on behalf of the Trust to such broker-dealers
who also provide research or statistical material, or other services to the
Trust, the Adviser or its clients. Such allocation shall be in such amounts and
proportions as the Adviser shall determine and the Adviser will report on said
allocations periodically to the Trust indicating the broker-dealers to whom such
allocations have been made and the basis therefor. Broker-dealers may be
selected who provide brokerage and/or research services to the Trust and/or
other accounts over which the Adviser exercises investment discretion. Such
services may include advice concerning the value of securities (including
providing quotations as to securities); the advisability of investing in,
purchasing or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analysis and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto, such as clearance and settlement.
The receipt of research from broker-dealers may be useful to the Adviser in
rendering investment management services to the Trust and/or the Adviser's other
clients; conversely, such information provided by broker-dealers who have
executed transaction orders on behalf of other clients may be useful to the
Adviser in carrying out its obligations to the Trust. The receipt of such
research will not be substituted for the independent research of the Adviser. It
does enable the Adviser to reduce costs to less than those which would have been
required to develop comparable information through its own staff. The use of
broker-dealers who supply research may result in the payment of higher
commissions (including mark-ups or mark-downs on principal transactions) than
those available from other broker-dealers who provide only the execution of
portfolio transactions. Orders on behalf of the Trust may be bunched with orders
on behalf of other clients of the Adviser. During the fiscal years ended
December 31, 1996, 1995, and 1994, $588,876, $387,644, and $476,786,
respectively, were paid in brokerage commissions to brokers.
The Board of Trustees periodically reviews the Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Trust.
B-14
<PAGE>
MANAGEMENT
THE ADVISER
Conseco Capital Management, Inc. (the "Adviser") provides investment advice
and, in general, supervises the Trust's management and investment program,
furnishes office space, prepares reports for the Trust, monitors compliance by
the Trust in its investment activities and pays all compensation of officers and
Trustees of the Trust who are affiliated persons of the Adviser. The Trust pays
all other expenses incurred in the operation of the Trust, including fees and
expenses of unaffiliated Trustees of the Trust.
The Investment Advisory Agreements provide that the Adviser shall not be
liable for any error in judgment or mistake of law or for any loss suffered by
the Trust in connection with any investment policy or the purchase, sale or
redemption of any securities on the recommendations of the Adviser. The
Agreements provide that the Adviser is not protected against any liability to
the Trust or its security holders for which the Adviser shall otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by the Agreements or the
violation of any applicable law.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their affiliations, if any, with
the Adviser and their principal occupations are set forth below. As of the date
of this Prospectus, Messrs. Parrish and LeCroy are Owners of contracts with
Great American Reserve; none of the other Trustees or officers own any of the
shares of any of the Portfolios, either directly or through ownership of the
Contracts.
B-15
<PAGE>
<TABLE>
<CAPTION>
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POSITION HELD PRINCIPAL OCCUPATION(S) DURING
NAME AND ADDRESS WITH TRUST OR ADVISER PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
WILLIAM P. DAVES, JR. Chairman of the Board, Consultant to insurance and health
5723 Trail Meadow Trustee care industries. Director, President
Dallas, TX 75230 and Chief Executive Officer, FFG
Insurance Co.
MAXWELL E. BUBLITZ * President and Trustee; President, Adviser. Previously, Sr. Vice
11825 N. Pennsylvania St. President and a Director President, Adviser.
Carmel, IN 46032 of Adviser
HAROLD W. HARTLEY Trustee Retired. Chartered Financial Analyst.
317 Peppard Drive, S.W. Previously, Executive Vice President,
Ft. Myers Beach, FL 33913 Tenneco Financial Services, Inc.
DR. R. JAN LECROY Trustee President, Dallas Citizens Council.
Dallas Citizens Council
1201 Main Street
Dallas, TX 75202
DR. JESSE H. PARRISH Trustee Former President, Midland College.
2805 Sentinel Higher Education Consultant.
Midland, TX 79701
JAMES S. ADAMS Treasurer Sr. Vice President, Bankers National,
11815 N. Pennsylvania St. Great American Reserve.
Carmel, IN 46032
WILLIAM T. DEVANNEY, JR. Vice President, Sr. Vice President, Corporate Taxes,
11815 N. Pennsylvania St. Corporate Taxes Bankers National and Great American
Carmel, IN 46032 Reserve.
WILLIAM P. LATIMER Vice President and Vice President, Sr. Counsel and Secretary
11825 N. Pennsylvania St. Secretary; Vice and Chief Compliance Officer
Carmel, IN 46032 President, Director of Adviser. Previously, Consultant to
and Chief Compliance securities industry. Previously, Senior
Officer of Adviser Vice President--Compliance, USF& G
Investment Services, Inc. and Vice Pres-
ident, Axe-Houghton Management Inc.
</TABLE>
- --------------------------------------------------------------------------------
* The Trustee so indicated is an "interested person," as defined in the
Investment Company Act of 1940, of the Trust due to the positions indicated
with the Adviser .
B-16
<PAGE>
NET ASSET VALUES OF THE SHARES OF THE PORTFOLIOS
THE VALUE OF THE SECURITIES OF THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's use of the amortized cost method is
conditioned on compliance with certain conditions contained in Rule 2a-7 (the
"Rule") under the 1940 Act. The Rule also obligates the Trustees, as part of
their responsibility within the overall duty of care owed to the shareholders,
to establish procedures reasonably designed, taking into account current market
conditions and the Portfolio's investment objectives, to stabilize the net asset
value per share as computed for the purpose of distribution and redemption at
$1.00 per share. The Trustees' procedures include periodically monitoring, as
they deem appropriate and at such intervals as are reasonable in light of
current market conditions, the relationship between the amortized cost value per
share and the net asset value per share based upon available indications of
market value. The Trustees will consider what steps should be taken, if any, in
the event of difference of more than one-half of one percent between the two. To
minimize any material dilution or other unfair results which might arise from
differences between the two, the Trustees will take such steps as they consider
appropriate (e.g., redemption in kind or shortening the average portfolio
maturity).
It is the normal practice of the Money Market Portfolio to hold portfolio
securities to maturity. Therefore, unless a sale or other disposition of a
security is mandated by redemption requirements or other extraordinary
circumstances, the Portfolio will realize the principal amount of the security.
Under the amortized cost method of valuation traditionally employed by
institutions for valuation of money market instruments, neither the amount of
daily income nor the net asset value is affected by any unrealized appreciation
or depreciation of the Portfolio. In periods of declining interest rates, the
yield on shares of the Portfolio will tend to be higher than if the valuation
were based upon market prices and estimates. In periods of rising interest
rates, the yield on shares of the Portfolio will tend to be lower than if the
valuation was based upon market prices and estimates.
THE VALUE OF THE SECURITIES OF THE OTHER PORTFOLIOS
Securities held by all Portfolios except the Money Market Portfolio will be
valued as follows: Portfolio 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. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market,
and it is expected that for debt securities this ordinarily will be the
over-the-counter market. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust. In valuing
lower-rated debt securities, it should be recognized that judgment plays a
greater role than is the case with respect to securities for which a broader
range of dealer quotations and last sale information is available. Debt
securities with maturities of sixty (60) days or less are valued at amortized
cost.
GENERAL
The Trustees themselves have the power to alter the number and terms of
office of the Trustees, and they may at any time lengthen their own terms or
make their terms of unlimited duration (subject to certain removal procedures)
and appoint their own successors, provided that always at least a majority of
the Trustees have been elected by the shareholders of the Trust. The voting
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect any
Trustees. The Trust is not required to hold Annual Meetings of Shareholders for
action by shareholders' vote except as may be required by the 1940 Act or the
Declaration of Trust. The Declaration of Trust provides that shareholders can
remove Trustees by a vote of two-thirds of the vote of the outstanding shares.
The Trustees will call a meeting of shareholders to vote on the removal of a
Trustee upon the written request of the holders of 10 percent of the Trust's
shares. In addition, 10 or more shareholders meeting certain conditions and
holding the lesser of $25,000 worth or 1 percent of the Trust's shares may
advise the Trustees in writing that they wish to communicate with other
shareholders for the purpose of requesting a meeting to remove a Trustee. The
Trustees will then either give those shareholders access to the shareholder list
or, if requested by those shareholders, mail at the shareholders' expense the
shareholders' communication to all other shareholders. See the Contract and
Policy Prospectuses for information as to the voting of shares by Owners.
Each issued and outstanding share of each Portfolio is entitled to
participate equally in dividends and distributions of the respective Portfolio
and in the net assets of such Portfolio upon liquidation or dissolution
remaining after satisfaction of outstanding liabilities. The shares of each
Portfolio have no preference, preemptive, conversion,
B-17
<PAGE>
- --------------------------------------------------------------------------------
exchange or similar rights, and are freely transferable.
Under Rule 18f-2 under the 1940 Act, as to any investment company which has
two or more classes (such as the Portfolios) outstanding and as to any matter
required to be submitted to shareholder vote, such matter is not deemed to have
been effectively acted upon unless approved by the holders of a "majority" (as
defined in that Rule) of the voting securities of each class affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases on which an advisory contract is approved by one or
more, but not all, classes. A change in investment policy may go into effect as
to one or more classes whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected classes.
Under Massachusetts law, shareholders of a trust such as the Trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the Trust. The Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trust or its Trustees. The
Declaration of Trust provides for indemnification and reimbursement of expenses
out of Trust property for any shareholder held personally liable for its
obligations. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a trust such as the Trust to be held
personally liable as a partner under certain circumstances, the risk of a
Contract Owner incurring financial loss on account of shareholder liability is
highly unlikely and is limited to the relatively remote circumstances in which
the Trust would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Trust and the Adviser have Codes of Ethics governing the personal
securities transactions of officers and employees. These codes require prior
approval for certain transactions and prohibit transactions which may be deemed
to conflict with the securities trading of the Adviser's clients.
INDEPENDENT ACCOUNTANTS
The financial statements of the Trust included in the Prospectus and the
Statement of Additional Information have been examined by Coopers & Lybrand,
L.L.P., Indianapolis, Indiana, independent accountants, for the periods
indicated in their reports as stated in their opinion and have been so included
in reliance upon such opinion given upon the authority of the firm as experts in
accounting and auditing.
B-18
<PAGE>
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Conseco Series Trust and the Asset Allocation Portfolio, Common Stock Portfolio,
Corporate Bond Portfolio, Government Securities Portfolio, Money Market
Portfolio, BNL Mortgage-Backed Securities Portfolio, BNL High Yield Portfolio
and BNL Convertible Portfolio
PAGE
Statement of Assets and Liabilities,
December 31, 1996......................................................F-3
Statement of Operations for the Year Ended
December 31, 1996......................................................F-4
Statement of Changes in Net Assets for
the Years Ended December 31, 1996
and 1995...............................................................F-5
Statement of Investments in Securities,
December 31, 1996............................................................F-7
Notes to Financial Statements...............................................F-17
Report of Independent Accountants...........................................F-25
F-1
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F-2
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<TABLE>
<CAPTION>
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STATEMENT OF ASSETS AND LIABILITIES
ASSET COMMON CORPORATE GOVERNMENT MONEY
ALLOCATION STOCK BOND SECURITIES MARKET
DEC. 31, 1996 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities
(cost or amortized cost -
$13,858,095, $138,243,266,
$17,130,181, $3,915,526 and
$6,690,002 respectively......................... $15,732,008 $170,771,726 $17,216,710 $3,905,647 $6,690,002
Cash................................................ 676,534 98,213 83,480 68,615 288,816
Accrued interest and dividends...................... 121,381 67,619 271,642 35,363 7,895
Receivable for securities sold...................... 820,000 11,200,000 971,531 200,000 -
Receivable for shares sold.......................... 212,813 508,390 - 16,456 612
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets.................................... 17,562,736 182,645,948 18,543,363 4,226,081 6,987,325
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued expenses.................................... 10,838 117,619 10,629 2,465 2,662
Payable for securities purchased.................... 819,692 11,195,839 1,053,369 199,925 -
Payable for shares redeemed......................... - - 16,025 - -
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Total liabilities............................... 830,530 11,313,458 1,080,023 202,390 2,662
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (Note 5)....................... 16,732,206 171,332,490 17,463,340 4,023,691 6,984,663
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (unlimited
number of shares authorized)........................ 1,242,309 7,842,054 1,751,646 336,912 6,984,633
Net asset value, offering and
redemption price per share.......................... 13.47 21.85 9.97 11.94 1.00
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</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
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STATEMENT OF OPERATIONS
ASSET COMMON CORPORATE GOVERNMENT MONEY
ALLOCATION STOCK BOND SECURITIES MARKET
DEC. 31, 1996 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest ...................................... $ 455,682 $ 471,873 $ 1,224,128 $ 287,603 $ 314,969
Dividends ..................................... 34,361 703,155 -- -- --
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Total investment income ................... 490,043 1,175,028 1,224,128 287,603 314,969
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees ...................... 69,483 819,083 83,915 21,586 14,490
Compensation expenses ......................... 13,885 150,011 18,411 4,738 6,343
Custodial fees ................................ 25,873 24,022 12,017 9,067 8,657
Other ......................................... 9,893 107,236 13,287 3,442 4,067
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses ............................ 119,134 1,100,352 127,630 38,833 33,557
Less: expenses charged to
the Adviser (Note 3) ...................... 24,384 8,242 10,149 8,612 7,474
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses .............................. 94,750 1,092,110 117,481 30,221 26,083
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income ............... 395,293 82,918 1,106,647 257,382 288,886
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) on sale
of investments ................................ 1,798,137 32,662,345 (5,075) 50,341 17
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investments:
Beginning of year ............................. 796,338 13,279,475 363,685 197,393 --
End of year ................................... 1,873,913 32,528,460 86,529 (9,879) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) of investments ............. 1,077,575 19,248,985 (277,156) (207,272) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains
(losses) on investments ............. 2,875,712 51,911,330 (282,231) (156,931) 17
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net
assets from operations ........ $ 3,271,005 $51,994,248 $ 824,416 $ 100,451 $ 288,903
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</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
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STATEMENT OF CHANGES IN NET ASSETS
ASSET ALLOCATION COMMON STOCK
PORTFOLIO PORTFOLIO
---------------------- -----------------------
FOR THE YEARS ENDED DEC. 31, 1996 AND 1995 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income ............................ $ 395,293 $ 315,668 $ 82,918 $ 1,639,347
Net realized gains (losses) on sale of investments 1,798,137 986,254 32,662,345 17,257,854
Net change in unrealized appreciation
(depreciation) of investments ................. 1,077,575 763,020 19,248,985 9,104,998
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations ............. 3,271,005 2,064,942 51,994,248 28,002,199
- ------------------------------------------------------------------------------------------------------------------------------------
Net income equalization (Note 2) ......................... (117,810) (45,637) (310,774) (304,482)
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Dividends to shareholders from net
investment income and net realized short-term
capital gains .................................... (1,838,944) (1,088,856) (26,591,735) (13,216,278)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders of net realized
long-term capital gains .......................... (354,487) (190,541) (6,153,526) (4,375,576)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares ................. 5,671,987 2,337,932 15,914,256 10,907,804
Net asset value of shares issued from reinvestment
of dividends and distributions ................ 2,311,241 1,325,034 33,056,035 17,896,336
Cost of shares redeemed .......................... (1,794,161) (991,889) (6,211,539) (4,034,206)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions ............. 6,189,067 2,671,077 42,758,752 24,769,934
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets .. 7,148,831 3,410,985 61,696,965 34,875,797
Net assets, beginning of year ............................ 9,583,375 6,172,390 109,635,525 74,759,728
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (Note 5) ....... $ 16,732,206 $ 9,583,375 $ 171,332,490 $ 109,635,525
- ------------------------------------------------------------------------------------------------------------------------------------
Share data:
Shares sold ...................................... 429,309 187,752 760,970 576,891
Shares issued from reinvestment
of dividends and distributions ................ 174,386 106,975 1,553,738 938,043
Shares redeemed .................................. (134,824) (80,133) (290,666) (215,685)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in number
of shares outstanding .................. 468,871 214,594 2,024,042 1,299,249
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CORPORATE BOND GOVERNMENT
PORTFOLIO SECURITIES PORTFOLIO
------------------------ ----------------------
FOR THE YEARS ENDED DEC. 31, 1996 AND 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income ............................ 1,106,647 980,815 257,382 293,496
Net realized gains (losses) on sale of investments (5,075) 330,899 50,341 205,153
Net change in unrealized appreciation
(depreciation) of investments ................. (277,156) 1,075,255 (207,272) 249,884
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations ............. 824,416 2,386,969 100,451 748,533
- ----------------------------------------------------------------------------------------------------------------------------
Net income equalization (Note 2) ......................... (8,548) (14,120) 2,180 42,608
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
investment income and net realized short-term
capital gains .................................... (1,100,232) (1,385,323) (254,150) (269,374)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders of net realized
long-term capital gains .......................... -- -- (16,363) --
- ----------------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares ................. 2,840,237 1,739,415 282,122 494,412
Net asset value of shares issued from reinvestment
of dividends and distributions ................ 1,108,780 1,399,443 268,333 226,766
Cost of shares redeemed .......................... (2,247,681) (983,079) (971,489) (1,343,123)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions ............. 1,701,336 2,155,779 (421,034) (621,945)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets .. 1,416,972 3,143,305 (588,916) (100,178)
Net assets, beginning of year ............................ 16,046,368 12,903,063 4,612,607 4,712,785
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (Note 5) ....... $ 17,463,340 $ 16,046,368 $ 4,023,691 $ 4,612,607
- ----------------------------------------------------------------------------------------------------------------------------
Share data:
Shares sold ...................................... 285,892 174,704 23,306 41,122
Shares issued from reinvestment
of dividends and distributions ................ 111,611 140,379 22,360 18,550
Shares redeemed .................................. (227,117) (99,878) (81,432) (112,066)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in number
of shares outstanding .................. 170,386 215,205 (35,766) (52,394)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
-----------------------
FOR THE YEARS ENDED DEC. 31, 1996 AND 1995 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Changes from operations:
Net investment income ............................ 288,886 270,384
Net realized gains (losses) on sale of investments 17 --
Net change in unrealized appreciation
(depreciation) of investments ................. -- --
- ----------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations ............. 288,903 270,384
- ----------------------------------------------------------------------------------------
Net income equalization (Note 2) ......................... -- --
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net
investment income and net realized short-term
capital gains .................................... (288,903) (270,384)
- ----------------------------------------------------------------------------------------
Distributions to shareholders of net realized
long-term capital gains .......................... -- --
- ----------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares ................. 4,844,730 2,344,876
Net asset value of shares issued from reinvestment
of dividends and distributions ................ 288,903 270,384
Cost of shares redeemed .......................... (3,544,847) (2,324,750)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions ............. 1,588,786 290,510
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets .. 1,588,786 290,510
Net assets, beginning of year ............................ 5,395,877 5,105,367
- ----------------------------------------------------------------------------------------
Net assets, end of year (Note 5) ....... $ 6,984,663 $ 5,395,877
- ----------------------------------------------------------------------------------------
Share data:
Shares sold ...................................... 4,844,730 2,344,876
Shares issued from reinvestment
of dividends and distributions ................ 288,903 270,384
Shares redeemed .................................. (3,544,847) (2,324,750)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in number
of shares outstanding .................. 1,588,786 290,510
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CONSECO SERIES TRUST
ASSET ALLOCATION PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
NUMBER
OF SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS
(56.84% OF TOTAL INVESTMENTS) (a)
APPAREL AND ACCESSORY STORES (3.35%)
12,300 Claire's Stores, Inc. ............................... $ 159,900
4,800 Finish Line, Inc. Class A (b) ....................... 101,400
10,700 Footstar, Inc.(b) ................................... 266,162
----------
527,462
----------
BUILDING CONSTRUCTION, GENERAL
CONTRACTORS, OPERATIVE BUILDERS
(1.62%)
10,300 Fairfield Communities, Inc.(b) ...................... 254,925
----------
BUSINESS SERVICES (5.59%)
6,450 Comdisco, Inc. ...................................... 204,787
13,750 IKOS Systems, Inc. (b) .............................. 275,000
34,900 Ross Systems, Inc. (b) .............................. 335,912
8,950 Software Artistry, Inc. (b) ......................... 63,768
----------
879,467
----------
COMMUNICATIONS BY PHONE,
TELEVISION, RADIO, CABLE (1.09%)
5,950 Billing Information Concepts Corporation (b) ........ 171,063
----------
DURABLE GOODS - WHOLESALE (1.29%)
6,300 Insight Enterprises, Inc. (b) ....................... 176,400
900 Watsco, Inc. (b) .................................... 25,988
----------
202,388
----------
EATING AND DRINKING PLACES (1.33%)
2,200 Cooker Restaurant Corporation ....................... 25,575
10,100 Showbiz Pizza Time, Inc. (b) ........................ 183,063
----------
208,638
----------
ELECTRIC, GAS, WATER, COGENERATION
SANITARY SERVICES (1.28%)
4,130 Coastal Corporation ................................. 201,854
----------
ELECTRICAL EQUIPMENT, EXCEPT COMPUTERS (3.36%)
11,200 Semtech Corporation (b) ............................. 191,800
11,050 Ultrak, Inc. (b) .................................... 337,025
----------
528,825
----------
ENGINEERING SERVICES, ACCOUNTING, MANAGEMENT (1.16%)
8,200 Correctional Services, Corporation (b) .............. 117,875
3,800 NCO Group, Inc (b) .................................. 64,125
----------
182,000
----------
FABRICATED METAL, EXCEPT
MACHINERY, TRANSPORTATION EQUIPMENT (3.19%)
25,125 Miller Industries, Inc. (b) ......................... 502,500
----------
FOOD AND KINDRED PRODUCTS (0.54%)
750 Philip Morris Companies Inc. ........................ 84,469
----------
FURNITURE AND FIXTURES (1.31%)
3,650 Herman Miller, Inc. ................................. 206,681
----------
GENERAL MERCHANDISE STORES (0.58%)
2,475 Proffitt's Inc (b) .................................. 91,266
----------
HEALTH SERVICES (1.22%)
9,150 Medpartners, Inc. (b) ............................... 192,150
----------
HOME FURNITURE AND EQUIPMENT STORES (1.77%)
13,900 Microage, Inc. (b) .................................. 278,000
----------
HOTELS, OTHER LODGING PLACES (0.54%)
6,150 Chartwell Leisure, Inc. (b) ......................... 84,563
----------
<PAGE>
INDUSTRIAL, COMMERCIAL MACHINERY, COMPUTERS (4.28%)
9,900 Micros Systems Inc. (b) ............................ 304,425
12,200 Network General Corporation (b) ..................... 369,050
----------
673,475
----------
INSURANCE COMPANIES (1.05%)
7,900 USF&G Corporation ................................... 164,912
----------
LEATHER PRODUCTS (0.60%)
10,200 Genesco, Inc. (b) ................................... 94,350
----------
MEASURING INSTRUMENTS, PHOTO GOODS, WATCHES (6.61%)
10,100 GenRad, Inc. (b) .................................... 234,825
3,900 Guidant Corporation (b) ............................. 222,300
3,350 Honeywell, Inc. (b) ................................. 220,264
900 Perclose, Inc. (b) .................................. 18,225
9,300 SBS Technologies, Inc. (b) .......................... 344,100
----------
1,039,714
----------
MISCELLANEOUS RETAIL (0.84%)
18,000 Creative Computers, Inc. (b) ........................ 132,750
----------
NON-DEPOSITORY CREDIT INSTITUTIONS (2.23%)
13,650 Consumer Portfolio Services, Inc. (b) ............... 153,563
5,350 Sirrom Capital Corporation .......................... 196,613
----------
350,176
----------
(continued)
F-7
<PAGE>
CONSECO SERIES TRUST
ASSET ALLOCATION PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
NUMBER
OF SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
OIL AND GAS EXTRACTION (4.54%)
5,870 Apache Corporation .................................. $ 207,651
7,250 Forest Oil Corporation (b) .......................... 127,781
2,300 Nuevo Energy Company (b) ............................ 119,600
9,500 Oryx Energy Company (b) ............................. 235,125
2,000 Titan Exploration, Inc. (b) ......................... 24,000
----------
714,157
----------
PAPER AND ALLIED PRODUCTS (1.14%)
5,700 Schweitzer-Mauduit International, Inc. .............. 180,262
----------
PETROLEUM - REFINING & RELATED PRODUCTS (2.70%)
2,550 Texaco, Inc. (b) .................................... 250,219
2,200 Tosco Corporations .................................. 174,075
----------
424,294
----------
PRINTING, PUBLISHING AND ALLIED (1.34%)
4,800 Central Newspapers, Inc. ............................ 211,200
----------
RUBBER AND MISCELLANEOUS PLASTIC PRODUCTS (1.91%)
7,150 Reebok International Ltd. (b) ....................... 300,300
----------
TRANSPORTATION SERVICES (.038%)
3,700 Team Rental Group, Inc. (b) ......................... 59,662
----------
TOTAL COMMON STOCKS
(COST $7,144,283)................................... 8,941,503
----------
PREFERRED STOCKS
(3.16% OF TOTAL INVESTMENTS) (a)
MINING - METALS AND ORES (0.72%)
6,500 Coeur D'Alene Mines Corporation, 7.00% .............. 113,750
----------
PRINTING, PUBLISHING AND ALLIED (2.44%)
366 Time Warner Inc., Series K,(144A), 10.25% ........... 383,751
----------
TOTAL PREFERRED STOCKS
(COST $460,578) ..................................... 497,501
----------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
CORPORATE BONDS
(34.79% OF TOTAL INVESTMENTS) (a)
APPAREL AND OTHER FINISHED
PRODUCTS (0.65%)
$ 100,000 Guess?, Inc., 9.500%, due 08/15/2003 ................ 102,500
----------
BUSINESS SERVICES (3.19%)
500,000 Valassis Inserts, 8.375%, due 03/15/1997 ............ 501,790
----------
CHEMICAL AND ALLIED PRODUCTS (2.53%)
200,000 Fisher Scientific International, Inc.,
7.125%, due 12/15/2005............................... 190,750
200,000 Freeport McMoran Resource Partners, L.P.,
8.750%, due 02/15/2004............................... 208,000
----------
398,750
----------
COMMUNICATIONS BY PHONE,
TELEVISION, RADIO, CABLE (3.38%)
190,000 Continental Cablevision, Inc., 9.000%,
due 09/01/2008....................................... 215,412
100,000 Net Sat Servicos LTDA, 12.75%, due 08/05/2004........ 104,625
200,000 Peoples Telephone Co., Inc., 12.25%,
due 07/15/2002....................................... 211,000
----------
531,037
----------
DEPOSITORY INSTITUTIONS (2.58%)
200,000 Anchor Bancorp, Inc., 8.9375%, due 07/09/2003 ....... 207,250
200,000 Wells Fargo Capital, 7.96%, due 12/15/2026 .......... 199,354
----------
406,604
----------
DURABLE GOODS - WHOLESALE (1.30%)
200,000 Pioneer Standards Electronics,
Inc., 8.500%, due 08/01/2006......................... 204,000
----------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (0.04%)
7,000 System Energy Resources, Inc.,
11.375%, due 09/01/2016 ............................. 7,088
----------
ELECTRICAL EQUIPMENT, EXCEPT COMPUTERS (1.25%)
200,000 USI American Holdings, Inc., (144A),
7.250%, due 12/01/2006 .............................. 196,500
----------
FOOD AND KINDRED PRODUCTS (1.27%)
200,000 RJR Nabisco, Inc., 8.75%,
due 08/15/2005 ...................................... 200,000
----------
FOOD STORES (2.14%)
300,000 Safeway, Inc., 10.000%, due 12/01/2001............... 336,750
----------
FOREIGN GOVERNMENT (1.91%)
300,000 Republic of South Africa, 8.375%,
due 10/17/2006 ...................................... 300,375
----------
(continued)
F-8
<PAGE>
CONSECO SERIES TRUST
ASSET ALLOCATION PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
INDUSTRIAL, COMMERCIAL MACHINERY, COMPUTERS (1.36%)
$ 200,000 Unisys Corporation, (144A) 12.00%,
due 04/15/2003 .................................... $ 213,250
----------
INSURANCE COMPANIES (0.15%)
100,000 Home Holdings, Inc., 8.625%,
due 12/15/2003 .................................... 23,000
----------
MISCELLANEOUS RETAIL (1.33%)
200,000 Phar-Mor, Inc., 11.72%, 09/11/2002................. 210,000
----------
MOTOR FREIGHT TRANSPORTATION, WAREHOUSES (1.30%)
200,000 Amerco, 7.85%, 05/15/2003.......................... 204,500
----------
NON-DEPOSITORY CREDIT INSTITUTIONS (4.48%)
200,000 Aames Financial Corporation, 9.125%,
due 11/01/2003..................................... 204,500
500,000 Edison Mission Energy Funding,
7.330%, due 09/15/2008............................. 499,750
----------
704,250
----------
PAPER AND ALLIED PRODUCTS (0.68%)
100,000 Westvaco Corporation, 10.300%,
due 01/15/2019..................................... 106,750
----------
PERSONAL SERVICES (1.46%)
250,000 Uniforet, Inc., (144A) 11.125%,
due 10/15/2006..................................... 229,375
----------
PRIMARY METAL INDUSTRIES (0.30%)
100,000 USX Corporation, 0.000%,
due 08/09/2005..................................... 46,875
----------
SECURITY AND COMMODITY
BROKERS (0.70%)
111,000 Lehman Brothers Holdings, Inc.,
6.650%, due 11/08/2000............................. 110,014
----------
TEXTILE MILL PRODUCTS (1.37%)
200,000 Polysindo International Finance Company,
11.375%, due 06/15/2006............................ 216,250
----------
TRANSPORTATION EQUIPMENT (1.42%)
200,000 Rohr, Inc., 11.625%, due 05/15/2003................ 223,500
----------
TOTAL CORPORATE BONDS
(COST $5,433,388).................................. 5,473,158
----------
COMMERCIAL PAPER
(5.21% OF TOTAL INVESTMENTS) (a)
ELECTRICAL EQUIPMENT, EXCEPT
COMPUTERS (5.21%)
820,000 Duracell, Inc., 6.75%, due 01/02/1997 $819,846
-----------
TOTAL COMMERCIAL PAPER
(COST $819,846)..................................... 819,846
-----------
TOTAL INVESTMENTS IN
SECURITIES
(COST $13,858,095) (C)............................... $15,732,008
-----------
(a) Using Standard Industrial Codes prepared by the Technical Committee on
Industrial Classifications.
(b) Non-dividend paying common stock.
(c) Cost also represents cost for federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
CONSECO SERIES TRUST
COMMON STOCK PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
NUMBER
OF SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS
(92.34% OF TOTAL INVESTMENTS) (a)
APPAREL AND ACCESSORY
STORES (5.19%)
206,200 Claire's Stores, Inc. .............................. $2,680,600
80,800 Finish Line, Inc. Class A (b)....................... 1,706,900
179,700 Footstar, Inc. (b).................................. 4,470,037
----------
8,857,537
----------
BUILDING CONSTRUCTION, GENERAL
CONTRACTORS, OPERATIVE BUILDERS
(2.52%)
173,600 Fairfield Communities, Inc. (b)..................... 4,296,600
----------
BUSINESS SERVICES (8.91%)
111,400 Comdisco, Inc....................................... 3,536,950
246,300 IKOS Systems, Inc. (b).............................. 4,926,000
581,800 Ross Systems, Inc. (b).............................. 5,599,825
161,100 Software Artistry, Inc. (b)......................... 1,147,837
----------
15,210,612
----------
COMMUNICATIONS BY PHONE,
TELEVISION, RADIO, CABLE (1.68%)
100,150 Billing Information Concepts Corp. (b).............. 2,879,312
----------
DURABLE GOODS - WHOLESALE (1.87%)
98,700 Insight Enterprises, Inc. (b)....................... 2,763,600
15,200 Watsco, Inc......................................... 438,900
----------
3,202,500
----------
EATING AND DRINKING PLACES (2.09%)
35,800 Cooker Restaurant Corporation....................... 416,175
174,200 Showbiz Pizza Time, Inc. (b)........................ 3,157,375
----------
3,573,550
----------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (1.99%)
69,400 Coastal Corporation................................. 3,391,925
----------
ELECTRICAL EQUIPMENT, EXCEPT
COMPUTERS (5.22%)
187,100 Semtech Corporation (b)............................. 3,204,088
187,100 Ultrak, Inc. (b).................................... 5,706,500
----------
8,910,638
----------
ENGINEERING SERVICES, ACCOUNTING,
MANAGEMENT (2.02%)
160,500 Correctional Services Corp. (b)..................... 2,307,188
68,100 NCO Group, Inc. (b)................................. 1,149,188
----------
3,456,376
----------
FABRICATED METAL, EXCEPT
MACHINERY, TRANSPORTATION
EQUIPMENT (5.21%)
444,750 Miller Industries, Inc. (b)......................... 8,895,000
----------
FOOD AND KINDRED PRODUCTS (0.91%)
13,775 Philip Morris Companies, Inc........................ $1,551,409
----------
FURNITURE AND FIXTURES (2.43%)
73,200 Herman Miller, Inc.................................. 4,144,950
----------
GENERAL MERCHANDISE STORES (1.09%)
50,375 Proffitt's, Inc. (b)................................ 1,857,578
----------
HEALTH SERVICES (1.97%)
160,100 Medpartners, Inc. (b)............................... 3,362,100
----------
HOME FURNITURE AND EQUIPMENT
STORES (2.99%)
255,550 Microage, Inc. (b).................................. 5,111,000
----------
HOTELS, OTHER LODGING PLACES (0.95%)
117,700 Chartwell Leisure, Inc. (b)......................... 1,618,375
----------
INDUSTRIAL, COMMERCIAL MACHINERY,
COMPUTERS (6.99%)
165,000 Micros Systems, Inc. (b)............................ 5,073,750
226,900 Network General Corporation (b)..................... 6,863,725
----------
11,937,475
----------
INSURANCE COMPANIES (1.84%)
150,300 USF&G Corporation................................... 3,137,513
----------
LEATHER PRODUCTS (0.96%)
177,900 Genesco, Inc. (b)................................... 1,645,575
----------
MEASURING INSTRUMENTS, PHOTO
GOODS, WATCHES (10.52%)
182,700 GenRad, Inc. (b).................................... 4,247,775
65,800 Guidant Corporation................................. 3,750,600
58,900 Honeywell, Inc...................................... 3,872,675
15,600 Perclose, Inc....................................... 315,900
156,200 SBS Technologies, Inc............................... 5,779,400
----------
17,966,350
----------
MISCELLANEOUS RETAIL (1.29%)
299,800 Creative Computers, Inc. (b)........................ 2,211,025
----------
NON-DEPOSITORY CREDIT INSTITUTIONS
(3.52%)
241,000 Consumer Portfolio Services, Inc. (b)............... 2,711,250
90,000 Sirrom Capital Corporation.......................... 3,307,500
----------
6,018,750
----------
(continued)
F-10
<PAGE>
CONSECO SERIES TRUST
COMMON STOCK PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
NUMBER
OF SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
OIL AND GAS EXTRACTION (7.88%)
115,850 Apache Corporation........................... $ 4,098,194
142,500 Forest Oil Corporation (b)................... 2,511,563
39,900 Nuevo Energy Company (b)..................... 2,074,800
174,000 Oryx Energy Company (b)...................... 4,306,500
39,000 Titan Exploration, Inc. (b).................. 468,000
-----------
13,459,057
-----------
PAPER AND ALLIED PRODUCTS (2.07%)
111,600 Schweitzer-Mauduit International, Inc........ 3,529,350
-----------
PETROLEUM - REFINING & RELATED
INDUSTRIES (4.36%)
44,700 Texaco, Inc. ................................ 4,386,188
38,600 Tosco Corporation............................ 3,054,225
-----------
7,440,413
-----------
PRINTING, PUBLISHING & ALLIED (2.32%)
89,900 Central Newspapers, Inc...................... 3,955,600
-----------
RUBBER AND MISCELLANEOUS
PLASTIC PRODUCTS (2.39%)
119,200 Reebok International Ltd..................... 5,006,400
-----------
TRANSPORTATION SERVICES (0.62%)
66,300 Team Rental Group Inc........................ 1,069,087
---------
TOTAL COMMON STOCKS
(COST $125,218,947).......................... 157,696,057
-----------
PREFERRED STOCKS
(1.10% OF TOTAL INVESTMENTS) (a)
MINING - METALS AND ORES (1.10%)
107,300 Coeur D'Alene Mines Corporation 7%........... 1,877,750
-----------
TOTAL PREFERRED STOCKS
(COST $1,826,400)............................ 1,877,750
-----------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
COMMERCIAL PAPER
(6.56% OF TOTAL INVESTMENTS) (a)
ELECTRIC EQUIPMENT, EXCEPT
COMPUTERS (4.92%)
$8,400,000 Duracell Inc. 6.75%, due 01/02/0997.......... 8,398,425
------------
NON-DEPOSITORY CREDIT INSTITUTIONS
(1.64%)
2,800,000 American General Capital Services,
6.50%, due 01/02/1997........................ 2,799,494
------------
TOTAL COMMERCIAL PAPER
(COST $11,197,919)........................... 11,197,919
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $138,243,266) (c)...................... $170,771,726
------------
(a) Using Standard Industrial Codes prepared by the Technical Committee on
Industry Classifications.
(b) Non-dividend paying common stock.
(c) Cost also represents cost for federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
CONSECO SERIES TRUST
CORPORATE BOND PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAl
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
CORPORATE BONDS
(63.13% OF TOTAL INVESTMENTS) (a)
AIR TRANSPORTATION (1.94%)
$180,844 Delta Airlines 1992 ETC-C, 8.540%,
due 01/02/2007.................................. $ 190,790
45,211 Delta Airlines, 1992 ETC-D, 8.540%
due 01/02/2007.................................. 47,133
100,000 United Airlines 1996-A1 Pass Thru
Certificate, 7.270%, due 01/30/2013............. 95,625
---------
333,548
---------
AUTO REPAIR AND PARKING (2.96%)
400,000 Amerco, Inc. 7.850%, due 05/15/2003............. 409,000
100,000 Amerco MTN, 6.710%,
due 10/15/2008.................................. 100,875
---------
509,875
---------
COMMUNICATIONS BY PHONE,
TELEVISION, RADIO, CABLE (1.88%)
285,000 Continental Cablevision, Inc. , 9.000%
due 09/01/2008.................................. 323,119
---------
DEPOSITORY INSTITUTIONS (7.56%)
100,000 First Chicago Corporation (144A), 7.950%
due 12/01/2026.................................. 98,299
300,000 Morgan Stanley Fin Plc, 8.030%, due
02/28/2017...................................... 300,000
550,000 Southern Investments UK, 6.375%, due
11/15/2001...................................... 543,813
250,000 Standard Federal Bancorp, 7.750%, due
07/17/2006...................................... 260,625
100,000 Wells Fargo Capital I, 7.960%, due
12/15/2026...................................... 99,677
---------
1,302,414
---------
DURABLE GOODS - WHOLESALE (2.37%)
400,000 Pioneer Standard Electronics, 8.500%,
due 08/01/2006.................................. 408,000
---------
ELECTRIC, GAS, WATER, COGENERATION
SANITARY SERVICES (6.41%)
300,000 Coastal Corporation, 10.000%, due
02/01/2001...................................... 333,375
400,000 System Energy Resources, 7.280%, due
08/01/1999...................................... 404,500
300,000 Tenneco, 10.200%, due 03/15/2008................ 365,250
---------
1,103,125
---------
ELECTRICAL EQUIPMENT, EXCEPT
COMPUTERS, (0.57%)
100,000 USI American Holdings, Inc. (144A),
7.250%, due 12/01/2006.......................... 98,250
---------
FOOD AND KINDRED PRODUCTS (4.65%)
500,000 Nabisco Inc., 7.550%, due
06/15/2015...................................... 493,125
300,000 Pan-American Beverage, Inc., 8.125%
due 04/01/2003.................................. 308,205
---------
801,375
---------
FOOD STORES (2.20%)
156,000 Safeway Inc., 9.650%, due 01/15/2004............ 175,500
175,000 Safeway Inc., 9.875%, due 03/15/2007............ 203,000
---------
378,500
---------
FOREIGN GOVERNMENTS (1.45%)
250,000 Republic of South Africa, 8.375%, due
10/17/2006...................................... 250,312
---------
HOLDING AND INVESTMENT COMPANIES
(2.92%)
200,000 Guangdong International Trust &
Investments (144A), 8.750%, due
10/24/2016...................................... 202,882
300,000 Duke Realty, 7.250%, due 09/22/2002............. 299,250
---------
502,132
---------
INSURANCE COMPANIES (7.64%)
250,000 American Reinsurance, 10.875%, due
09/15/2004...................................... 272,500
100,000 Integon Corporation, 9.500%, due
10/15/2001...................................... 107,375
400,000 Leucadia National Corporation, 7.875%,
due 10/15/2006.................................. 402,000
200,000 TIG Holdings, 8.125%, due 04/15/2005............ 209,500
300,000 Torchmark Corporation, 8.250%, due
08/15/2009...................................... 323,625
---------
1,315,000
---------
LUMBER AND WOOD PRODUCTS,
EXCEPT FURNITURE (1.73%)
300,000 West Fraser Mill (144A), 7.250% due
09/15/2002...................................... 298,875
---------
NON-DEPOSITORY CREDIT
INSTITUTIONS (3.22%)
250,000 DSPL Finance (144A), 9.120%, due
12/30/2010...................................... 257,000
300,000 Edison Mission Energy Funding (144A)
6.770%, due 09/15/2003.......................... 297,750
---------
554,750
---------
(continued)
F-12
<PAGE>
CONSECO SERIES TRUST
CORPORATE BOND PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAl
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
OIL AND GAS EXTRACTION (4.58%)
$ 400,000 BJ Services (144A), 7.000%, due
02/01/2006...................................... $ 386,836
150,000 Ras Laffan Gas (144A), 8.294%,
due 03/15/2014.................................. 151,024
250,000 Western Atlas Inc., 5.650%, due
07/13/1997...................................... 250,000
---------
787,860
---------
PAPER AND ALLIED PRODUCTS (1.24%)
200,000 Westavco Corporation, 10.300%, due
01/15/2019...................................... 213,500
---------
PETROLEUM - REFINING AND RELATED
INDUSTRIES 0.58%)
100,000 Lyondell Petrochemical Company,
8.250%, due 03/15/1997.......................... 100,383
---------
PRIMARY METAL INDUSTRIES (0.48&)
175,000 USX Corporation, 0.000%, due
08/09/2005...................................... 82,031
---------
REAL ESTATE OPERATORS, AGENTS,
MANAGERS (1.46%)
250,000 Trinet Corporation Realty Trust, 7.300%
due 05/15/2001.................................. 251,875
---------
RUBBER AND MISCELLANEOUS PLASTIC
PRODUCTS (2.36%)
400,000 Tupperware Finance BV, 7.250%, due
10/01/2006...................................... 406,000
---------
SECURITY AND COMMODITY BROKERS
(3.15%)
280,000 Lehman Brothers Holdings, Inc. Ser E MTN
6.650%, due 11/08/2000.......................... 277,513
250,000 Lehman Brothers Holdings, Inc., 8.875%
due 02/15/2000.................................. 264,688
---------
542,201
---------
NON-CLASSIFIED (1.78%)
300,000 Soc Quimica Y Minera De (144A),
7.700%, due 09/15/2006.......................... 306,267
---------
TOTAL CORPORATE BONDS
COST ($10,787,807).............................. 10,869,392
----------
MUNICIPAL BONDS
(5.37% OF TOTAL INVESTMENTS) (a)
PUBLIC FINANCE, TAXATION (5.37%)
210,000 Lake County Florida Resource Recovery
Industrial Development Revenue, 7.125%,
due 10/01/1999.................................. 209,213
300,000 Mississippi Hospital Equipment & Facilities
Authority Revenue, 9.100%, due
04/01/2006...................................... 314,250
400,000 New York State Dorm Authority Revenues,
6.550%, due 04/01/2000.......................... 400,500
---------
TOTAL MUNICIPAL BONDS
(COST $922,630)................................. 923,963
---------
COLLATERALIZED MORTGAGE
OBLIGATIONS
(5.24% OF TOTAL INVESTMENTS)
193,466 FHLMC Structured Pass Through Securities
T-4 A1, 7.625%, due 08/25/2022.................. 196,187
246,396 JP Morgan Commercial Mortgage Finance
Corporation 96 C2 A, 6.470%, due
11/25/2027...................................... 240,236
474,703 Structured Asset Securities Corporation
96 CFL 1 A1B, 5.751%, due 02/25/2028............ 465,818
---------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (COST $919,291)..................... 902,241
---------
ASSET BACKED SECURITIES
(10.64% OF TOTAL INVESTMENTS)
250,000 Contimortgage Home Equity Loan Trust
1996-3 A5, 7.520%, due 07/15/2011............... 255,429
200,000 Green Tree Financial Corporation
1994-4 A5, 8.300%, due 07/15/2019............... 212,125
204,831 Green Tree Recreational Equipment &
Consumer Trust 96 A A1, 5.550%, due
02/15/2018...................................... 201,912
500,000 Lehman FHA Title 1 Loan Trust 96-2 A2,
6.780%, due 03/25/2008.......................... 501,406
200,000 National Car Rental Financing Limited
Partnership 1996-1 A2, 6.800%, due
04/20/2000...................................... 201,000
228,850 Newcourt Receivables Asset Trust 1996-2
A, 6.870%, due 06/20/2004....................... 229,825
229,121 New York City Tax Liens 1996-1 B, 6.910%
due 05/25/2005.................................. 230,410
---------
TOTAL ASSET BACKED SECURITIES
(COST $1,811,520)............................... 1,832,107
---------
(continued)
F-13
<PAGE>
CONSECO SERIES TRUST
CORPORATE BOND PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAl
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(10.57% OF TOTAL INVESTMENTS)
$ 442,554 Federal Home Loan Mortgage Corp.,
#E20187, 7.000%, due 08/01/2010 ............. $ 442,692
42,417 Federal National Mortgage Assn.,
#062289, 6.993%, due 03/01/2028 ............. 42,921
251,384 Federal National Mortgage Assn.,
#183567, 7.500%, due 11/01/2022 ............. 251,384
225,365 Federal National Mortgage Assn.,
#286122, 7.000%, due 06/01/2024 ............. 220,576
455,181 Federal National Mortgage Assn.,
#325435, 7.000%, due 09/01/2010 ............. 454,896
197,582 Federal National Mortgage Assn.,
#349410, 7.000%, due 08/01/2026 ............. 193,384
3,173 Government National Mortgage Assn.,
#051699, 15.000%, due 07/15/2011 ............ 3,780
2,955 Government National Mortgage Assn.,
#056522, 14.000%, due 08/15/2012 ............ 3,473
100,121 Government National Mortgage Assn.,
#180604, 9.000%, due 11/15/2016 ............. 105,502
100,000 U.S. Treasury Note, 6.500%, due
10/15/2006................................... 100,562
----------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(COST $1,819,096) ......................... 1,819,170
----------
COMMERCIAL PAPER
(5.05% OF TOTAL INVESTMENTS) (a)
ELECTRICAL EQUIPMENT, EXCEPT
COMPUTERS (5.05%)
870,000 Duracell Inc. , 6.750%, due 01/02/1997....... 869,837
----------
TOTAL COMMERCIAL PAPER
(COST $869,837).............................. 869,837
----------
TOTAL INVESTMENTS IN SECURITIES
(COST $17,130,181) (b)....................... $17,216,710
-----------
(a) Using Standard Industrial Codes prepared by the Technical Committee on
Industry Classifications.
(b) Cost also represents cost for federal income tax purposes.
The accompanying notes are an integral part of these financial statements
F-14
<PAGE>
CONSECO SERIES TRUST
GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAl
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(91.17% OF TOTAL INVESTMENTS)
$ 250,000 Federal Home Loan Bank, 7.170%,
due 03/29/2000................................ $ 257,063
191,970 Federal Home Loan Mortgage Corp.,
D66012, 7.000%, due 11/01/2025................ 188,431
239,951 Federal Home Loan Mortgage Corp.,
E00441, 7.500%, due 07/01/2011................ 243,625
150,000 Federal Home Loan Mortgage Corp.,
Multi Family Pool, 6.775%, due
11/15/2003.................................... 150,938
168,342 Federal National Mortgage Assn.,
#174166, 8.000%, due 06/01/2002............... 171,551
245,423 Federal National Mortgage Assn.,
#250485, 6.500%, due 02/01/2026............... 234,302
146,526 Federal National Mortgage Assn.,
#303780, 7.000%, due 03/01/2026............... 143,412
1,540 Government National Mortgage Assn.,
#044522, 13.00%, due 03/15/2011............... 1,792
5,389 Government National Mortgage Assn.,
#068651, 12.000%, due 08/15/2013.............. 6,164
6,143 Government National Mortgage Assn.,
#105200, 13.000%, due 10/15/2013.............. 7,149
7,130 Government National Mortgage Assn.,
#119896, 13.000%, due 11/15/2014.............. 8,297
466,246 Government National Mortgage Assn.,
#408675, 7.500%, due 01/15/2026............... 466,683
246,838 Government National Mortgage Assn.,
#417575, 8.000%, due 07/15/2026............... 252,006
275,000 U.S. Treasury Bond, 8.125%, due
05/15/2021.................................... 319,503
475,000 U.S. Treasury Note, 5.875%, due
04/30/1998.................................... 475,941
125,000 U.S. Treasury Note, 7.750%, due
11/30/1999.................................... 130,651
50,000 U.S. Treasury Note, 6.750%, due
04/30/2000.................................... 50,974
50,000 U.S. Treasury Note, 5.625%, due
11/30/2000.................................... 49,131
50,000 U.S. Treasury Note, 5.500%, due
12/31/2000.................................... 48,800
200,000 U.S. Treasury Note, 6.625%, due
07/31/2001.................................... 203,250
150,000 U.S. Treasury Bond, 6.500%, due
10/15/2006.................................... 150,843
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(COST $3,571,030)............................. 3,560,586
---------
ASSET BACKED SECURITIES
(3.71% OF TOTAL INVESTMENTS)
150,000 Nationsbank Credit Card Master Trust,
Series 1993-2, Class A, 6.000%, due
12/15/2005.................................... 145,098
---------
TOTAL ASSET BACKED SECURITIES
(COST $144,533)............................... 145,098
---------
COMMERCIAL PAPER
(5.12% OF TOTAL INVESTMENTS) (a)
ELECTRICAL EQUIPMENT, EXCEPT
COMPUTERS (5.12%)
200,000 Duracell Inc., 6.750%, due 01/02/1997......... 199,963
---------
TOTAL COMMERCIAL PAPER
(COST $199,963)............................... 199,963
---------
TOTAL INVESTMENTS IN SECURITIES
(COST $3,915,526) (b)......................... $ 3,905,647
-----------
(a) Using Standard Industrial Codes prepared by the Technical Committee on
Industry Classifications.
(b) Cost also represents cost for federal income tax purposes.
The accompanying notes are an integral part of these financial statements
F-15
<PAGE>
CONSECO SERIES TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF INVESTMENTS IN SECURITIES
December 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAl
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
CORPORATE BONDS
(3.80% OF TOTAL INVESTMENTS) (a)
OIL AND GAS EXPLORATION (3.80%)
$ 255,000 Western Atlas, Inc. (Put), 5.650%,
due 07/13/1997.................................. $ 254,201
---------
TOTAL CORPORATE BONDS........................... 254,201
---------
COMMERCIAL PAPER
(96.20% OF TOTAL INVESTMENTS) (a)
COMMUNICATIONS BY PHONE,
TELEVISION, RADIO, CABLE (4.76%)
320,000 Lucent Technologies, Inc., 5.290%,
due 01/28/1997.................................. 318,730
---------
DEPOSITORY INSTITUTIONS (4.72%)
316,000 Bank of New York, Inc., 5.320%, due
01/09/1997...................................... 315,627
---------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (19.40%)
322,000 Browning Ferris Industries, Inc., 5.350%
due 01/15/1997.................................. 321,330
320,000 Michigan Consolidated Gas Company,
5.410%, due 01/02/1997.......................... 319,952
340,000 Northern Indiana Public Service Company,
Inc., 5.350%, due 03/13/1997.................... 336,413
320,000 Northern States Power Company
Minnesota, Inc., 5.300%, due 01/07/1997......... 319,717
---------
1,297,412
---------
ELECTRICAL EQUIPMENT, EXCEPT
COMPUTERS (5.16%)
345,000 Duracell, Inc. 6.000%, due 01/02/1997........... 344,943
---------
FOOD AND KINDRED PRODUCTS
(9.78%)
340,000 Kellogg Corporation, 5.330%, due
01/13/1997...................................... 339,396
316,000 Philip Morris Companies, Inc., 5.300%
due 01/24/1997.................................. 314,930
---------
654,326
---------
MEASURING INSTRUMENTS, PHOTO
GOODS, WATCHES (9.32%)
315,000 Xerox Corporations, Inc., 5.300%
due 01/14/1997.................................. 314,397
310,000 Raytheon Company, Inc., 5.340%,
due 01/16/1997.................................. 309,310
---------
623,707
---------
NON-DEPOSITORY CREDIT
INSTITUTIONS (14.21%)
320,000 Associates Corp. of North America, Inc.,
5.340%, due 01/31/1997.......................... 318,576
315,000 Ciesco L.P., 5.300%, due 01/14/1997............. 314,398
319,000 Household Finance Company, Inc.,
5.310%, due 01/31/1997.......................... 317,588
---------
950,562
---------
PAPER AND ALLIED PRODUCTS
(4.76%)
320,000 Weyerhauser Company, 5.300%, due
01/29/1997...................................... 318,681
---------
RUBBER AND MISCELLANEOUS
PLASTICS PRODUCTS (4.78%)
320,000 Rubbermaid, Inc., 5.420%, due
01/03/1997...................................... 319,904
---------
SECURITY & COMMODITY
BROKERS (19.31%)
320,000 CS First Boston, Inc., 5.340%, due
01/10/1997...................................... 319,573
320,000 Goldman Sachs Group L.P., 5.350%,
due 02/04/1997.................................. 318,383
318,000 Merrill Lynch Company, Inc., 5.330%,
due 01/06/1997.................................. 317,764
340,000 JP Morgan & Co., Inc., 5.380%,
due 03/17/1997.................................. 336,189
---------
1,291,909
---------
TOTAL COMMERCIAL PAPER.......................... 6,435,801
---------
TOTAL INVESTMENTS IN
SECURITIES...................................... $ 6,690,002
-----------
(a) Using Standard Industrial Codes prepared by the Technical Committee on
Industrial Classifications.
(b) Value also represents cost for federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
CONSECO SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
(1) GENERAL
Conseco Series Trust (the "Trust") is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended ("the Act"), and was organized as a Massachusetts Trust effective
November 15, 1982. The Trust offers shares only to affiliated life insurance
company separate accounts (registered as unit investment trusts under the Act)
to fund the benefits under variable annuity contracts.
Effective May 1, 1993, Great American Reserve Variable Annuity Account C
("Account C") transferred its assets to the Trust in exchange for shares of the
Common Stock, Corporate Bond (newly created effective May 1, 1993) and Money
Market Portfolios. Since May 1, 1993, the Trust continues to offer shares of
each of its portfolios to Account C.
On July 25, 1994, Great American Reserve Variable Annuity Account E
commenced operations and began investing in the shares of the Trust's
portfolios.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION, TRANSACTIONS, AND RELATED INVESTMENT INCOME
Investments in each portfolio are valued at the end of each New York Stock
Exchange business day, with the exception of regional business holidays.
Investment transactions are accounted for on the valuation date following the
trade date (the date the order to buy or sell is executed). Dividend income is
recorded on the ex-dividend date. The cost of investments sold is determined on
the specific identification basis. The Trust does not hold any investments which
are restricted as to resale, except the BJ Services, DSPL Finance, Edison Energy
Funding, First Chicago Corporation, Guangdong International Trust & Investments,
Ras Laffan Gas, Soc Quimica Y Minera De, USI American Holdings, Inc. and West
Fraser Mill bonds held in the Corporate Bond Portfolio and the USI American
Holdings, Inc., Uniforet, Inc., and Unisys Corporation bonds and the Time Warner
Inc. preferred stock held in the Asset Allocation Portfolio, all of which are
eligible for resale under Rule 144A of the Securities Act of 1933.
The Board of Trustees (the "Trustees") determined that it will value the
Money Market Portfolio investments at amortized cost, which is conditioned on
the Trust's compliance with certain conditions contained in Rule 2a-7 of the
Act. The investment adviser to the Trust continuously reviews this method of
valuation and recommends changes to the Trustees, if necessary, to ensure that
the Money Market Portfolio investments are valued at fair value (as determined
by the Trustees in good faith).
In all portfolios of the Trust, except for the Money Market Portfolio,
securities traded on a national securities exchange are valued at closing market
prices. Listed securities for which no sale was reported on the valuation date
are valued at the mean of the closing bid and asked prices. Short-term notes,
U.S. government obligations maturing within one year or less from the date
purchased and bank certificates of deposit are valued at amortized cost, which
approximates fair value.
Fixed income securities for which representative market quotes are readily
available are valued at the mid-day mean between the closing bid and asked
prices as quoted by one or more dealers who make a market in such securities.
FEDERAL INCOME TAXES
Each portfolio is treated as a separate taxable entity for federal income
tax purposes and qualifies as a regulated investment company under the Internal
Revenue Code. The Trust intends to continue to distribute all taxable income to
shareholders, and therefore, no provision has been made for federal income
taxes.
DIVIDENDS TO SHAREHOLDERS
Dividends are declared and reinvested from the sum of net investment income
and net realized short-term capital gains or losses on a daily basis in the
Money Market portfolio, on a monthly basis in the Government Securities and
Corporate Bond portfolios and on a quarterly basis in the Asset Allocation and
Common Stock portfolios. Distributions are declared and reinvested from net
realized long-term capital gains on an annual basis.
F-17
<PAGE>
CONSECO SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
INCOME EQUALIZATION
All portfolios, except the Money Market Portfolio, follow the accounting
practice known as income equalization by which a portion of the proceeds from
sales and costs of redemptions of shares is equivalent, on a per share basis, to
the amount of distributable investment income on the date the transaction is
credited or charged to undistributed income. As a result, undistributed
investment income per share is not materially affected by sales or redemptions
of the portfolio shares.
(3) TRANSACTIONS WITH AFFILIATES
As investment adviser to the Trust, Conseco Capital Management, Inc. (the
"Adviser"), a wholly-owned subsidiary of Conseco, Inc., a publicly-held
specialized financial services holding company listed on the New York Stock
Exchange, charges an investment advisory fee based on the daily net asset value
at an annual rate of 0.55 percent for the Asset Allocation Portfolio, 0.60
percent for the Common Stock Portfolio, 0.50 percent for the Corporate Bond
Portfolio and the Government Securities Portfolio, and 0.25 percent for the
Money Market Portfolio. Total fees paid to the Adviser for the years ended
December 31, 1996 and 1995 were $1,008,557 and $695,347, respectively. The
Adviser has agreed to limit the operating expenses of each portfolio so that the
ratio of expenses, including investment advisory fees, to average net assets on
an annual basis shall not exceed 0.75 percent for the Asset Allocation
Portfolio, 0.80 percent for the Common Stock Portfolio, 0.70 percent for the
Corporate Bond Portfolio and the Government Securities Portfolio, and 0.45
percent for the Money Market Portfolio.
(4) INVESTMENT TRANSACTIONS
The aggregate cost of purchases of investments (excluding U.S. government
securities and short term investments) during the years ended December 31, 1996
and 1995 were $310,865,829 and $214,317,334, respectively. The aggregate
proceeds from sales of investments (excluding U.S. government securities and
short term investments) for the years ended December 31, 1996 and 1995 were
$303,932,165 and $204,792,532, respectively.
The aggregate cost of purchases of U.S. government securities (excluding
short-term investments) for the years ended December 31, 1996 and 1995 were
$21,225,121 and $15,926,727, respectively. The aggregate proceeds from sales of
U.S. government securities (excluding short-term investments) for the years
ended December 31, 1996 and 1995 were $16,767,507 and $13,354,470, respectively.
Gross unrealized appreciation and depreciation of investments at December 31,
1996 are shown below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS
ASSET COMMON CORPORATE GOVERNMENT MONEY
ALLOCATION STOCK BOND SECURITIES MARKET
DEC. 31, 1996 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross unrealized appreciation.................. $ 2,175,754 $ 36,195,163 $ 182,899 $ 29,085 $ -
Gross unrealized depreciation.................. (301,841) (3,666,703) (96,370) (38,964) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)..... $ 1,873,913 $ 32,528,460 $ 86,529 $ (9,879) $ -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
CONSECO SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(5) NET ASSETS
Total net assets consisted of the following at December 31, 1996:
ASSET COMMON CORPORATE GOVERNMENT MONEY
ALLOCATION STOCK BOND SECURITIES MARKET
DEC. 31, 1995 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proceeds from the sales of shares since
organization, less cost of shares
redeemed and net equalization............. $ 14,858,293 $ 138,804,030 $ 17,528,336 $ 4,033,570 $ 6,984,663
Undistributed net realized gains (losses)
on sale of investments.................... - - (151,525) - -
Net unrealized appreciation (depreciation)
of investments............................ 1,873,913 32,528,460 86,529 (9,879) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total net assets..................... $ 16,732,206 $ 171,332,490 $ 17,463,340 $ 4,023,691 $ 6,984,663
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-19
<PAGE>
CONSECO SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS
ASSET ALLOCATION PORTFOLIO
----------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992(E)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of year............................. $ 12.390 $ 11.040 $ 11.400 $ 11.630 $ 11.740
Income from investment operations (a):
Net investment income..................... 0.419 0.508 0.463 0.410 0.633
Net realized gains (losses) and change
in unrealized appreciation
(depreciation) of investments........ 2.774 2.976 (0.526) 0.218 0.867
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations....... 3.193 3.484 (0.063) 0.628 1.500
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income
and net realized short-term
capital gains........................ (2.075) (1.827) (0.266) (0.570) (1.463)
Distribution of net realized
long-term capital gains.............. (0.038) (0.307) (0.031) (0.288) (0.147)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions.............. (2.113) (2.134) (0.297) (0.858) (1.610)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year............. $ 13.470 $ 12.390 $ 11.040 $ 11.400 $ 11.630
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (b) (d)............................... 28.30% 31.49% (0.55%) 10.38% 10.36%
Ratios/supplemental data:
Net assets, end of year (c)................... $16,732,206 $ 9,583,375 $ 6,172,390 $ 6,161,924 $ 4,308,251
Ratio of expenses to average
net assets (d)............................ 0.75% 0.75% 0.75% 0.75% 1.25%
Ratio of net investment income
to average net assets (d)................ 3.15% 4.11% 4.20% 3.55% 5.46%
Portfolio turnover rate....................... 208.13% 194.16% 223.92% 539.90% 690.17%
Average commission paid (f)................... $ 0.0600 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Per-share amounts presented are based on an average of monthly shares
outstanding for the periods indicated.
(b) Total return represents performance of the Trust Portfolios only and does
not include mortality and expense deductions in separate accounts.
(c) Account C and E became shareholders of the Trust effective May 1, 1993, and
July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common Stock
Portfolio and 0.45 percent for the Money Market Portfolio for the years
ended December 31, 1996, 1995, 1994 and 1993 and 1.25 percent for each
portfolio for the year ended December 31, 1992.
(e) The BNL High Yield and BNL Convertible Portfolios were merged into the Asset
Allocation Portfolio (formerly the BNL Multiple Strategies Portfolio)
effective March 11, 1992.
(f) Computed by dividing the total amount of commissions paid by the total
number of share purchased and sold during the period for which there was a
commission. This disclosure is required by the Securities and Exchange
Commission beginning in 1996.
F-20
<PAGE>
CONSECO SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
COMMON STOCK PORTFOLIO
-----------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of year............................. $ 18.840 $ 16.540 $ 16.690 $ 16.880 $ 16.290
Income from investment operations (a):
Net investment income..................... 0.013 0.340 0.240 0.232 0.292
Net realized gains (losses) and change
in unrealized appreciation
(depreciation) on investments........ 8.169 5.675 0.072 0.920 2.787
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from
investment operations....... 8.182 6.015 0.312 1.152 3.079
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income
and net realized short-term
capital gains........................ (4.209) (2.807) (0.327) (1.181) (1.101)
Distribution of net realized
long-term capital gains.............. (0.963) (0.908) (0.135) (0.161) (1.388)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions............... (5.172) (3.715) (0.462) (1.342) (2.489)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year............. $ 21.850 $ 18.840 $ 16.540 $ 16.690 $ 16.880
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (b) (d)............................... 44.99% 36.30% 1.92% 8.35% 18.34%
Ratios/supplemental data:
Net assets, end of year (c)................... $ 171,332,490 $109,635,525 $ 74,759,728 $ 66,799,824 $8,307,023
Ratio of expenses to average
net assets (d)............................ 0.80% 0.80% 0.80% 0.80% 1.25%
Ratio of net investment income
to average net assets (d)................. 0.06% 1.80% 1.47% 1.40% 1.73%
Portfolio turnover rate....................... 177.03% 172.55% 213.67% 205.81% 461.05%
Average commission paid....................... $ .0600 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Per-share amounts presented are based on an average of monthly shares
outstanding for the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993, and
July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common Stock
Portfolio and 0.45 percent for the Money Market Portfolio for the years
ended December 31, 1996, 1995, 1994 and 1993 and 1.25 percent for each
portfolio for the year ended December 31, 1992.
(e) Computed by dividing the total amount of commissions paid by the total
number of share purchased and sold during the period for which there was a
commission. This disclosure is required by the Securities and Exchange
Commission beginning in 1996.
F-21
<PAGE>
CONSECO SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
CORPORATE BOND PORTFOLIO (E)
-----------------------------------------------------------------------
YEAR YEAR YEAR PERIOD FROM
ENDED ENDED ENDED MAY 1, 1993 TO
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value per share, beginning of period........... $ 10.150 $ 9.450 $ 9.980 $ 10.000
Income from investment operations (a):
Net investment income............................ 0.662 0.680 0.649 0.417
Net realized gains (losses) and change
in unrealized appreciation
(depreciation) on investments................ (0.179) 0.990 (0.912) 0.173
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations................ 0.483 1.670 (0.263) 0.590
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income
and net realized short-term
capital gains................................ (0.663) (0.970) (0.267) (0.610)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions..................... (0.663) (0.970) (0.267) (0.610)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period................. 9.970 10.150 9.450 9.980
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (b) (d)..................................... 4.97% 18.25% (2.65%) 8.84%(f)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (c).................... $17,463,340 $16,046,368 $12,903,063 $13,577,440
Ratio of expenses to average net assets (d)...... 0.70% 0.70% 0.70% 0.70%(f)
Ratio of net investment income to average
net assets (d)............................... 6.65% 6.78% 6.78% 6.22%(f)
Portfolio turnover rate.......................... 276.35% 225.41% 198.48% 406.24%(f)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Per-share amounts presented are based on an average of monthly shares
outstanding for the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993, and
July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common Stock
Portfolio and 0.45 percent for the Money Market Portfolio for the years
ended December 31, 1996, 1995, 1994 and 1993 and 1.25 percent for each
portfolio for the year ended December 31, 1992.
(e) The Corporate Bond Portfolio became an available investment option effective
May 1, 1993, with an initial offering price of $10.00.
(f) Annualized.
F-22
<PAGE>
CONSECO SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
GOVERNMENT SECURITIES PORTFOLIO
-----------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 (E)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of year............................. $ 12.380 $ 11.090 $ 11.450 $ 11.610 $ 12.000
Income from investment operations (a):
Net investment income...................... 0.722 0.754 0.720 0.738 0.679
Net realized gains (losses) and change
in unrealized appreciation
(depreciation) on investments.......... (0.409) 1.119 (1.031) 0.281 0.219
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations.......... 0.313 1.873 (0.311) 1.019 0.898
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income
and net realized short-term
capital gains.......................... (0.707) (0.583) (0.049) (1.179) (1.094)
Distribution of net realized
long-term capital gains................ (0.046) - - - (0.194)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions............... (0.753) (0.583) (0.049) (1.179) (1.288)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year............. $ 11.940 $ 12.380 $ 11.090 $ 11.450 $ 11.610
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (b) (d)............................... 2.75% 17.35% (2.79%) 8.91% 6.62%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of year (c)................... $4,023,691 $4,612,607 $4,712,785 $ 7,579,366 $10,220,193
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (d)......................... 0.70% 0.70% 0.70% 0.70% 1.25%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (d).............. 6.02% 6.27% 6.45% 6.30% 5.77%
Portfolio turnover rate....................... 157.62% 284.31% 421.05% 397.42% 742.09%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Per share amounts presented are based on an average of monthly shares
outstanding for the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993, and
July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common
Stock Portfolio and 0.45 percent for the Money Market Portfolio for the
years ended December 31, 1996, 1995, 1994 and 1993 and 1.25 percent for
each portfolio for the year ended December 31, 1992.
(e) The BNL Mortgage-Backed Securities Portfolio was merged into the Government
Securities Portfolio (formerly the BNL Government Securities Portfolio)
effective March 11, 1992.
F-23
<PAGE>
CONSECO SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of year................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from investment operations (a):
Net investment income........................ 0.050 0.055 0.038 0.029 0.026
Net realized gains (losses) and change
in unrealized appreciation
(depreciation) on investments........... - - - - 0.001
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from
investment operations.......... 0.050 0.055 0.038 0.029 0.027
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income
and net realized short-term
capital gains................................ (0.050) (0.055) (0.038) (0.029) (0.027)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions................. (0.050) (0.055) (0.038) (0.029) (0.027)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (b) (d).................................. 5.13% 5.46% 3.78% 2.86% 2.66%
Ratios/supplemental data:
Net assets, end of year (c)...................... $6,984,663 $5,395,877 $5,105,367 $5,229,641 $3,111,264
Ratio of expenses to average
net assets (d).............................. 0.45% 0.45% 0.45% 0.45% 1.25%
Ratio of net investment income
to average net assets (d)........................ 5.03% 5.46% 3.78% 2.86% 2.66%
Portfolio turnover rate............................... N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Per-share amounts presented are based on an average of monthly shares
outstanding for the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993, and
July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.70 percent for the Corporate
Bond and Government Securities Portfolios, 0.80 percent for the Common
Stock Portfolio and 0.45 percent for the Money Market Portfolio for the
years ended December 31, 1996, 1995, 1994 and 1993 and 1.25 percent for
each portfolio for the year ended December 31, 1992.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES
AND SHAREHOLDERS
CONSECO SERIES TRUST
We have audited the accompanying statement of assets and liabilities,
including the statement of investments in securities, of Conseco Series Trust
(comprising respectively, the Asset Allocation, Common Stock, Corporate Bond,
Government Securities, and Money Market Portfolios), as of December 31, 1996,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended for
each of the Portfolios named above except for the Corporate Bond Portfolio for
which the period is May 1, 1993 (inception) to December 31, 1996. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting the Conseco Series Trust as of
December 31, 1996, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then ended
for each of the Portfolios named above except for the Corporate Bond Portfolio
for which the period is May 1, 1993 (inception) to December 31, 1996, in
conformity with generally accepted accounting principles.
Indianapolis, Indiana
February 21, 1997
F-25
<PAGE>
CONSECO SERIES TRUST
ADMINISTRATIVE OFFICE
11815 N. PENNSYLVANIA STREET
CARMEL, INDIANA 46032
SAI-100 (5/97) May 1, 1997
<PAGE>
PART C
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
(1) The following financial statement is included in the prospectus con-
stituting Part A of the Post-Effective Amendment to the Registration
Statement.
Financial Highlights.
(2) The following financial statements are included in the Statement of
Additional Information constituting Part B of this Post-Effective
Amendment to the Registration Statement. Statement of Assets and
Liabilities, December 31, 1996. Statement of Operations for the year
ended, December 31, 1996. Statement of Changes in Net Assets for
years ended, December 31, 1996 and 1995. Statement of Investments,
December 31, 1996.
Notes to Financial Statements.
Report of Independent Accountants.
(b) Exhibits:
(1) -- Amended Declaration of Trust, incorporated herein
by reference to Exhibit 1 (i) to Pre-Effective Amend-
ment No. 1 to the Registration Statement on Form N-1
(File No. 2-80455) filed on June 28, 1983; Amendment
to Amended Declaration of Trust, incorporated by refe-
rence to Exhibit No. 1 (ii) to Post-Effective Amend-
ment No. 1 to the Registration Statement of Form N-1A
(File No. 2-80455) April 20, 1984; Amendment to
Amended Declaration of Trust incorporated by
reference to Exhibit No. 1 (iii) to Post-Effective
Amendment No. 17 to the Registration Statement on Form
N-1A (File No. 2-80455) April 28, 1993.
(2) -- By-Laws, incorporated by reference to Exhibit No. 2 to
the Registration Statement on Form N-1 (File No.
2-80455).
(3) -- Not Applicable.
(4) -- Not Applicable.
(5) -- Investment Advisory Agreements, incorporated by
<PAGE>
reference to Exhibit No.5 to the Post-Effective Amend-
ment No. 8 to the Registration Statement on Form N-1A
(File No. 2-80455) March 3, 1988; and an Investment
Advisory Agreement dated January 1, 1993 between the
Registrant and Conseco Capital Management, Inc. incor-
porated by reference to Exhibit No. 5 (ii) to Post-
Effective Amendment No. 17 to the Registration State-
ment on Form N-1A (File No. 2-80455) April 28, 1993.
(6) -- Not Applicable
(7) -- Not Applicable.
(8) -- Custodian Agreement is incorporated by reference to
Exhibit No. 8 to the Post-Effective Amendment No. 17
to the Registration Statement on Form N-1A (File No.
2-80455) April 28, 1993.
(9) -- Not Applicable.
(10) -- Consent and Opinion of Counsel filed herewith.
(11) -- Consent of Independent Accountants filed herewith.
(12) -- Not Applicable.
(13) -- Not Applicable.
(14) -- Not Applicable.
(15) -- Not Applicable.
(16) -- Not Applicable.
(17) -- Financial Data Schedule.
(17.0) -- Money Market Portfolio.
(17.1) -- Government Securities Portfolio
(17.2) -- Common Stock Portfolio.
(17.3) -- Asset Allocation Portfolio.
(17.4) -- Corporate Bond Portfolio
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following information concerns those companies that may be deemed to
be controlled by or under common control with Registrant (all 100% owned unless
indicated otherwise):
CONSECO, INC. (Indiana) - (publicly traded)
CIHC, Incorporated (Delaware)
<PAGE>
Bankers National Life Insurance Company (Texas)
National Fidelity Life Insurance Company (Missouri)
Bankers Life Insurance Company of Illinois (Illinois)
Bankers Life & Casualty Company (Illinois)
Certified Life Insurance Company (California)
Jefferson National Life Insurance Company of Texas (Texas)
Beneficial Standard Life Insurance Company (California)
Great American Reserve Insurance Company (Texas)
American Life Holdings, Inc. (Delaware)
American Life Holding Company (Delaware)
American Life and Casualty Insurance Company (Iowa)
Vulcan Life Insurance Company (Alabama) - (98%)
Life Partners Group, Inc. (Delaware)
Wabash Life Insurance Company (Kentucky)
Massachusetts General Life Insurance Company (Massachusetts)
Philadelphia Life Insurance Company (Pennsylvania)
Lamar Life Insurance Company (Mississippi)
American Travellers Life Insurance Company (Pennsylvania)
United General Life Insurance Company (Texas)
American Travellers Insurance Company of New York (New York)
Intermediate Holdings, Inc. (Delaware)
THD, Inc. (Delaware)
TLIC Life Insurance Company (Texas)
Transport Life Insurance Company (Texas)
Continental Life Insurance Company (Texas)
Capitol American Financial Corporation (Ohio)
Capitol Insurance Company of Ohio (Ohio)
Capitol American Life Insurance Company (Arizona)
Frontier National Life Insurance Company (Ohio)
<PAGE>
Capitol National Life Insurance Company (Ohio)
Conseco Capital Management, Inc. (Delaware)
Conseco Equity Sales, Inc. (Texas)
Conseco Financial Services, Inc. (Pennsylvania)
Conseco Marketing, LLC (Indiana)
Conseco Services, LLC (Indiana)
Lincoln American Life Insurance Company (Tennessee)
Marketing Distribution Systems, Consulting Group, Inc. (Delaware)
MDS of New Jersey, Inc. (New Jersey)
MDS Securities Incorporated (Delaware)
Bankmark School of Business, Inc. (Delaware)
Conseco Series Trust (Massachusetts)*
Conseco Fund Group (Massachusetts) (publicly held)**
* The shares of Conseco Series Trust currently are sold to Bankers National
Variable Account B, Great American Reserve Variable Annuity Account C, and
Great American Reserve Variable Annuity Account E, each being segregated
asset accounts established pursuant to Texas law by Bankers National Life
Insurance Company and Great American Reserve Insurance Company,
respectively.
** The shares of the Conseco Fund Group are sold to the public; Conseco
affiliates currently hold in excess of 95% of its shares.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of April 1, 1997, the Registrant had two record holders of its shares
of beneficial interest of the Money Market Portfolio, Common Stock Portfolio,
Asset Allocation Portfolio, Government Securities Portfolio and the Corporate
Bond Portfolio.
ITEM 27. INDEMNIFICATION Reference is made to Articles II and V of the
Declaration of Trust filed as Exhibit (1) to Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A (File No. 2-80455) June 19, 1984.
Reference is also made to Article VII of the Investment Advisory Agreement filed
as Exhibit (5) to Post-Effective Amendment No. 8 and Post-Effective Amendment
<PAGE>
No. 17 to the Registration Statement on Form N-1A (File No. 2-80455) March 3,
1988 and April 28, 1993, respectively.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The investment adviser is Conseco Capital Management, Inc., a wholly-owned
subsidiary of Conseco, Inc. See Part A, "Management," for a more complete
description. The principal officers and directors of Conseco Capital Management,
Inc. are as follows:
Rollin M. Dick, Director, Executive Vice President and Chief Financial Officer
of Conseco, Inc., Carmel, Indiana. Mr. Dick is an officer and/or director of
various affiliates of the Adviser. He is a director of Brightpoint, Inc.,
Indianapolis, Indiana and General Acceptance Corporation, Bloomington, Indiana.
Maxwell E. Bublitz, President and Director.
Albert J. Gutierrez, Senior Vice President, Investment Officer.
Gregory J. Hahn, Senior Vice President, Portfolio Analytics.
Thomas A. Meyers, Senior Vice President, Director of Marketing.
William P. Latimer, Senior Counsel and Secretary; Chief Compliance Officer and
Director.
ITEM 29. PRINCIPAL UNDERWRITER
Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books, or other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of the Adviser or the
Custodian as follows:
(a) the records required to be maintained by paragraphs 4, 5, 6 and 11 of
Rule 31a-1(b) will be maintained by the Adviser.
(b) the records required to be maintained by paragraphs 1, 2, 3, 7 and 8
of Rule 31a-1(b) will be maintained by the Custodian.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
<PAGE>
ITEM 32. UNDERTAKINGS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized in the city of Carmel, of the State of Indiana, on the 29th day
of April, 1997.
CONSECO SERIES TRUST
By: /S/ MAXWELL E. BUBLITZ
-------------------------
Maxwell E. Bublitz
President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ MAXWELL E. BUBLITZ* President April 29, 1997
- -----------------------------
Maxwell E. Bublitz (Principal Executive Officer)
/S/ WILLIAM P. DAVES, JR.* Chairman of the Board and April 29, 1997
- -----------------------------
William P. Daves, Jr. Trustee
Trustee
- -----------------------------
Harold W. Hartley
/S/ R. JAN LECROY* Trustee April 29, 1997
- -----------------------------
R. Jan LeCroy
/S/ JESSE H. PARRISH* Trustee April 29, 1997
- -----------------------------
Jesse H. Parrish
/S/ JAMES S. ADAMS* Treasurer April 29, 1997
- -----------------------------
James S. Adams
* /S/ WILLIAM P. LATIMER
--------------------------
William P. Latimer
Attorney-in-fact
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned whose signature
appears below constitutes and appoints William P. Latimer and Karl W. Kindig,
jointly and severally, as his true and lawful attorney-in-fact and agent, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Conseco Series Trust Registration
Statement on Form N-1A (File No. 2-80455), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact or agent or substitute lawfully does or causes to be
done by virtue hereof.
SIGNATURE TITLE DATE
/S/ MAXWELL E BUBLITZ President and Trustee April 29, 1997
- -----------------------------
Maxwell E. Bublitz (Principal Executive Officer)
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned whose signature
appears below constitutes and appoints William P. Latimer and Karl W. Kindig,
jointly and severally, as his true and lawful attorney-in-fact and agent, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Conseco Series Trust Registration
Statement on Form N-1A (File No. 2-80455), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact or agent or substitute lawfully does or causes to be
done by virtue hereof.
SIGNATURE TITLE DATE
/S/ WILLIAM P. DAVES, JR. Chairman of the Board April 29, 1997
- -----------------------------
William P. Daves, Jr. and Trustee
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned whose signature
appears below constitutes and appoints William P. Latimer and Karl W. Kindig,
jointly and severally, as his true and lawful attorney-in-fact and agent, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Conseco Series Trust Registration
Statement on Form N-1A (File No. 2-80455), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact or agent or substitute lawfully does or causes to be
done by virtue hereof.
SIGNATURE TITLE DATE
/S/ R. JAN LECROY Trustee April 29, 1997
- ------------------------------
R. Jan LeCroy
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned whose signature
appears below constitutes and appoints William P. Latimer and Karl W. Kindig,
jointly and severally, as his true and lawful attorney-in-fact and agent, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Conseco Series Trust Registration
Statement on Form N-1A (File No. 2-80455), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact or agent or substitute lawfully does or causes to be
done by virtue hereof.
SIGNATURE TITLE DATE
/S/ JESSE H. PARRISH Trustee April 29, 1997
- -----------------------------
Jesse H. Parrish
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned whose signature
appears below constitutes and appoints William P. Latimer and Karl W. Kindig,
jointly and severally, as his true and lawful attorney-in-fact and agent, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Conseco Series Trust Registration
Statement on Form N-1A (File No. 2-80455), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact or agent or substitute lawfully does or causes to be
done by virtue hereof.
SIGNATURE TITLE DATE
/S/ JAMES S. ADAMS Treasurer April 29, 1997
- -------------------------
James S. Adams (Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT EXHIBIT
(10) Consent and Opinion of Counsel
(11) Consent of Accountants
(17.0) Financial Data Schedule - Money Market Portfolio
(17.1) Financial Data Schedule - Government Securities Portfolio
(17.2) Financial Data Schedule - Common Stock Portfolio
(17.3) Financial Data Schedule - Asset Allocation Portfolio
(17.4) Financial Data Schedule - Corporate Bond Portfolio
CONSECO SERIES TRUST
Administrative Offices
11825 N. Pennsylvania Street
Carmel, IN 46032
April 28, 1997
Board of Trustees
Conseco Series Trust
Re: Conseco Series Trust
Registration Statement on Form N-1A
Gentlemen and Madam:
I am General Counsel of Conseco, Inc., the direct owner of the investment
adviser of Conseco Series Trust (the "Registant"). Attorneys under my
supervision and I have acted as counsel to the Registrant in connection with the
Registrant's Form N-1A Registration Statement filing pursuant to the Securities
Act of 1933 (the "Act") and the Investment Company Act of 1940 ("1940 Act").
This opinion is being furnished pursuant to the Act in connection with the
Registrant's Form N-1A Registration Statement relating to the securities issued
in connection with the Registrant offering shares to insurance company separate
accounts (the "Registration Statement"). No fee is payable because the
Registrant files a declaration of indefinite registration pursuant to Rule 24f-2
under the 1940 Act.
I, or attorneys under my supervision, have examined copies of the
Registration Statement and such other documents as we have deemed necessary or
appropriate for the giving of this opinion. In our examination, we have assumed
the legal capacity of all natural persons, the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified or
photostatic copies and the authenticity of the originals of such latter
documents. As to any facts material to the opinions expressed herein which were
not independently established or verified, we have relied upon oral or written
statements and representations of officers and other representatives of the
Registrant.
Based on the foregoing, I am of the opinion that:
1. The Registrant has been duly organized and is an existing
business trust pursuant to the applicable laws of the State of
Massachusetts;
2. The Account is an open ended management investment company
registered under the 1940 Act;
3. The securities issued by the Registrant, when issued as described
in the Registration Statement will be duly authorized and upon
issuance will be validly issued, fully paid and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/S/ LAWRENCE W. INLOW
- ---------------------
Lawrence W. Inlow
Executive Vice President,
Secretary and General Counsel
Conseco, Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
The Trustees
Conseco Series Trust
We consent to the inclusion in this registration statement on Form N-1A (File
No. 2-80455) of our report dated February 21, 1997, on our audit of the
financial statements of Conseco Series Trust. We also consent to the reference
to our firm under the heading "Independent Accountants."
/S/ COOPERS & LYBRAND, L.L.P.
-----------------------------
Coopers & Lybrand, L.L.P.
Indianapolis, Indiana
April 30, 1997
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<NAME> Money Market
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<TABLE> <S> <C>
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<NUMBER> 2
<NAME> Government Securities
<S> <C>
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<PERIOD-START> JAN-01-1996
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<NET-INVESTMENT-INCOME> 257,382
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<PER-SHARE-NII> 0.722
<PER-SHARE-GAIN-APPREC> (0.409)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> Common Stock
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<NAME> Asset Allocation
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<NUMBER> 5
<NAME> Corporate Bond
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</TABLE>
