As filed with the Securities and Exchange Commission on May 1, 1998
Registration Nos. 811-3641/2-80455
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No.22 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No.24
(Check appropriate box or boxes) [X]
CONSECO SERIES TRUST
Exact Name of Registrant as Specified in Charter)
11815 N. Pennsylvania Street, Carmel, Indana 46032
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (317) 817~300
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:
Donald Smith, Esq.
Kirkpatrick & Lockhart
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
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, 1998 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
<PAGE>
<TABLE>
<CAPTION>
CONSECO SERIES TRUST
FORM N-lA
CROSS REFERENCE SHEET
Form N-lA
Item No.
- --------- Part A - Prospectus
-------------------
<S> <C> <C>
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; Investment
Restrictions
14. Management of the Registrant ........................................ Management
15. Control Persons and Principal Holders of Securities ................. Not Applicable
Form N-lA Part B - Statement of
Item No. Additional Information (con't)
- -------- ------------------------------
16. Investment Advisory and Other Services Management; Financial Statements;
Prospectus)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
PROSPECTUS
MAY 1, 1998
COMMON STOCK PORTFOLIO
ASSET ALLOCATION PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
CORPORATE BOND PORTFOLIO
MONEY MARKET PORTFOLIO
TABLE OF CONTENTS
PAGE
Cover Page ................................................................ i
Summary ................................................................... 1
Trust Annual Expenses After Reimbursement ................................. 1
Financial Highlights ...................................................... 2
Investment Objectives and Policies of the Portfolios ...................... 11
Management ................................................................ 17
Management Discussion and Analysis ........................................ 19
Purchase and Redemption of Shares ......................................... 23
Dividends, Distributions and Taxes ........................................ 23
Investment Performance .................................................... 24
Table of Contents of the Statement of Additional Information .............. 24
Appendix A--Securities Ratings ............................................ 28
|
CCM | INVESTMENT ADVISOR
-------------------------- |
CONSECO CAPITAL MANAGEMENT |
<PAGE>
CONSECO SERIES TRUST
Administrative Office: 11815 N. Pennsylvania Street, Carmel, Indiana 46032 o
(317) 817-8300
- --------------------------------------------------------------------------------
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, 1998, 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 at the address
and telephone above.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN AP-PROVED 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, 1998.
1
<PAGE>
CONSECO SERIES TRUST
1998
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 series of shares, each of which currently represents a
separate diversified portfolio of investments. The Trust's series 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, prospective 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
daily net assets):
Portfolios Management Fees Other Expenses Total Expenses (1)
================================================================================
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%
================================================================================
(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 1997 would have totaled: 0.80 percent for the Common Stock
Portfolio; 0.84 percent for the Asset Allocation Portfolio; 0.92 percent
for the Government Securities Portfolio; 0.77 percent for the Corporate
Bond Portfolio; and 0.52 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: 0.65% for the Common Stock
Portfolio; 0.65% for the Asset Allocation Portfolio; and 0.50% for the
Money Market Portfolio.
The above table reflects estimates of expenses of the Trust's Portfolios.
1
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Year Year Year
Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31,
Common Stock Portfolio 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value per share, beginning of year $ 21.850 $ 18.840 $ 16.540
Income from investment operations (a):
Net investment income 0.064 0.013 0.340
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments 4.060 8.169 5.675
- -------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 4.124 8.182 6.015
- -------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (4.232) (4.209) (2.807)
Distribution of net realized long-term capital gains (1.582) (0.963) (0.908)
- -------------------------------------------------------------------------------------------------------------
Total distributions (5.814) (5.172) (3.715)
- -------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 20.160 $ 21.850 $ 18.840
- -------------------------------------------------------------------------------------------------------------
Total return (b) (d) 18.68% 44.99% 36.30%
Ratios/supplemental data
Net assets, end of year (c) $216,985,601 $171,332,490 $109,635,525
Ratio of expenses to average net assets (d) 0.80% 0.80% 0.80%
Ratio of net investment income to average net assets (d) 0.28% 0.06% 1.80%
Portfolio turnover rate 234.20% 177.03% 172.55%
Average commission paid (e) $ 0.0600 $ 0.0600 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) Great American Reserve 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, 0.80 percent for the Common
Stock Portfolio, 0.70 percent for the Corporate Bond and Government
Securities Portfolios, and 0.45 percent for the Money Market Portfolio for
the years ended December 31, 1997, 1996, 1995, 1994 and 1993, and 1.25
percent for each portfolio for each of the five years ended December 31,
1992. If the aforementioned guarantee had not been in effect during 1997,
the ratio would have been 0.80 percent for the Common Stock Portfolio.
(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
<PAGE>
CONSECO SERIES TRUST
1998
PROSPECTUS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992 1991(f) 1990 1989 1988
===================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$ 16.690 $ 16. 880 $ 16.290 $ 13.870 $ 15.800 $ 13.870 $ 12.680
0.240 0.232 0.292 0.347 0.672 0.347 0.369
0.072 0.920 2.787 3.311 (1.930) 3.957 0.932
- ---------------------------------------------------------------------------------------------------
0.312 1.152 3.079 3.658 (1.258) 4.304 1.301
- ---------------------------------------------------------------------------------------------------
(0.327) (1.181) (1.101) (0.186) (0.167) (0.443) (0.111)
(0.135) (0.161) (1.388) (1.052) (0.505) (1.931) --
- ---------------------------------------------------------------------------------------------------
(0.462) (1.342) (2.489) (1.238) (0.672) (2.374) (0.111)
- ---------------------------------------------------------------------------------------------------
$ 16.540 $ 16.690 $ 16.880 $ 16.290 $ 13.870 $ 15.800 $ 13.870
===================================================================================================
1.92% 8.35% 18.34% 25.77% (8.68)% 30.75% 9.38%
$74,759,728 $66,799,824 $8,307,023 $8,379,781 $7,958,678 $11,191,613 $12,736,978
0.80% 0.80% 1.25% 1.25% 1.25% 1.25% 1.04%
1.47% 1.40% 1.73% 2.19% 4.50% 2.10% 2.74%
213.67% 205.81% 461.05% 100.39% 45.12% 47.22% 71.51%
N/A N/A N/A N/A N/A N/A N/A
===================================================================================================
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Year Year Year
Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31,
Asset Allocation Portfolio (e) 1997 1996 1995
=====================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning
of period $ 13.470 $ 12.390 $ 11.040
Income from investment operations (a):
Net investment income 0.441 0.419 0.508
Net realized gain (loss) and change
in unrealized appreciation
(depreciation) on investments 2.116 2.774 2.976
- -----------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 2.557 3.193 3.484
- -----------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment
income and net realized short-term
capital gains (2.195) (2.075) (1.827)
Distribution of net realized long-term
capital gains (0.512) (0.038) (0.307)
- -----------------------------------------------------------------------------------------------------
Total distributions (2.707) (2.113) (2.134)
- -----------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 13.320 $ 13.470 $ 12.390
=====================================================================================================
Total return (b) (d) 17.85% 28.30% 31.49%
Ratios/supplemental data
Net assets, end of period (c) $27,922,402 $16,732,206 $9,583,375
Ratio of expenses to average net assets (d) 0.75% 0.75% 0.75%
Ratio of net investment income to average net assets (d) 3.14% 3.15% 4.11%
Portfolio turnover rate 369.39% 208.13% 194.16%
Average commission paid (f) $ 0.0600 $ 0.0600 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) Great American Reserve 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, 1997, 1996, 1995, 1994 and 1993 and 1.25 percent
for each portfolio for each of the five years ended December 31, 1992. If
the aforementioned guarantee had not been in effect during 1997, the ratio
would have been 0.84 percent for the Asset Allocation Portfolio.
(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
<PAGE>
CONSECO SERIES TRUST
1998
PROSPECTUS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992(e) 1991(g) 1990 1989 1988
===============================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$ 11.400 $ 11.630 $ 11.740 $ 11.050 $ 12.050 $ 10.050 $ 9.310
0.463 0.410 0.633 0.210 0.211 0.180 0.186
(0.526) 0.218 0.867 2.094 (0.891) 1.953 0.614
- -----------------------------------------------------------------------------------------------
(0.063) 0.628 1.500 2.304 (0.680) 2.133 0.800
- -----------------------------------------------------------------------------------------------
(0.266) (0.570) (1.463) (0.532) (0.320) (0.133) (0.060)
(0.031) (0.288) (0.147) (1.082) -- -- --
- -----------------------------------------------------------------------------------------------
(0.297) (0.858) (1.610) (1.614) (0.320) (0.133) (0.060)
===============================================================================================
$ 11.040 $ 11.400 $ 11.630 $ 11.740 $ 11.050 $ 12.050 $ 10.050
- -----------------------------------------------------------------------------------------------
(0.55%) 10.38% 10.36% 21.57% (5.59%) 21.27% 8.55%
$6,172,390 $6,161,924 $4,308,251 $1,373,327 $1,520,532 $2,365,652 $3,108,433
0.75% 0.75% 1.25% 1.25% 1.25% 1.25% 1.25%
4.20% 3.55% 5.46% 1.69% 1.86% 1.66% 1.88%
223.92% 539.90% 690.17% 128.46% 26.04% 24.49% 29.61%
N/A N/A N/A 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) 1997 1996 1995
===================================================================================================
<S> <C> <C> <C>
Net asset value per share, beginning of year $ 11.940 $ 12.380 $ 11.090
Income from investment operations (a):
Net investment income 0.724 0.722 0.754
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments 0.232 (0.409) 1.119
- ---------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.956 0.313 1.873
- ---------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (0.856) (0.707) (0.583)
Distribution of net realized long-term capital gains -- (0.046) --
- ---------------------------------------------------------------------------------------------------
Total distributions (0.856) (0.753) (0.583)
- ---------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 12.040 $ 11.940 $ 12.380
===================================================================================================
Total return (b) (d) 8.26% 2.75% 17.35%
Ratios/supplemental data
Net assets, end of year (c) $4,270,275 $4,023,691 $4,612,607
Ratio of expenses to average net assets (d) 0.070% 0.70% 0.70%
Ratio of net investment income to average net assets (d) 6.05% 6.02% 6.27%
Portfolio turnover rate 195.08% 157.62% 284.31%
===================================================================================================
</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) Great American Reserve 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, 1997, 1996, 1995, 1994 and 1993 and 1.25 percent
for each of the five years ended December 31, 1992. If the aforementioned
guarantee had not been in effect during 1997, the ratio would have been
0.92 percent for the Government Securities Portfolio.
(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>
CONSECO SERIES TRUST
1998
PROSPECTUS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992(e) 1991(f) 1990 1989 1988
================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$ 11.450 $ 11.610 $ 12.000 $ 11.220 $ 11.180 $ 10.590 $ 10.410
0.720 0.738 0.679 0.830 0.861 0.876 0.893
(1.031) 0.281 0.219 0.856 0.033 0.389 (0.193)
- ------------------------------------------------------------------------------------------------
(0.311) 1.019 0.898 1.686 0.894 1.265 0.700
- ------------------------------------------------------------------------------------------------
(0.049) (1.179) (1.094) (0.906) (0.854) (0.675) (0.520)
-- -- (0.194) -- -- -- --
- ------------------------------------------------------------------------------------------------
(0.049) (1.179) (1.288) (0.906) (0.854) (0.675) (0.520)
- ------------------------------------------------------------------------------------------------
$ 11.090 $ 11.450 $ 11.610 $ 12.000 $ 11.220 $ 11.180 $ 10.590
================================================================================================
(2.79%) 8.91% 6.62% 15.01% 7.96% 12.28% 6.38%
$4,712,785 $7,579,366 $10,220,193 $5,780,442 $5,639,371 $5,946,269 $6,648,484
0.70% 0.70% 1.25% 1.25% 1.25% 1.25% 0.93%
6.45% 6.30% 5.77% 7.24% 7.79% 8.04% 8.30%
421.05% 397.42% 742.09% 55.85% 57.04% 127.19% 156.73%
================================================================================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Year Year Year
Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31,
Money Market Portfolio 1997 1996 1995
==================================================================================================
<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 0.051 0.050 0.055
Net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments -- -- --
- ---------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.051 0.050 0.055
- ---------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and
net realized short-term capital gains (0.051) (0.050) (0.055)
- ---------------------------------------------------------------------------------------------------
Total distributions (0.051) (0.050) (0.055)
- ---------------------------------------------------------------------------------------------------
Net asset value per share, end of year $ 1.000 $ 1.000 $ 1.000
===================================================================================================
Total return (b) (d) 5.25% 5.13% 5.46%
Ratios/supplemental data
Net assets, end of year (c) $8,602,736 $6,984,663 $5,395,877
Ratio of expenses to average net assets (d) 0.45% 0.45% 0.45%
Ratio of net investment income to average net assets (d) 5.14% 5.03% 5.46%
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) Great American Reserve 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, 1997, 1996, 1995, 1994 and 1993 and 1.25 percent
for each of the five years ended December 31, 1992. If the aforementioned
guarantee had not been in effect during 1997, the ratio would have been
0.52 percent for the Money Market Portfolio.
8
<PAGE>
CONSECO SERIES TRUST
1998
PROSPECTUS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992 1991 1990 1989 1988
================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
0.038 0.029 0.026 0.050 0.070 0.081 0.066
-- -- 0.001 -- -- -- --
- ------------------------------------------------------------------------------------------------
0.038 0.029 0.027 0.050 0.070 0.081 0.066
- ------------------------------------------------------------------------------------------------
(0.038) (0.029) (0.027) (0.050) (0.070) (0.081) (0.066)
- ------------------------------------------------------------------------------------------------
(0.038) (0.029) (0.027) (0.050) (0.070) (0.081) (0.066)
- ------------------------------------------------------------------------------------------------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
================================================================================================
3.78% 2.86% 2.66% 5.06% 6.97% 8.06% 6.56%
$5,105,367 $5,229,641 $3,111,264 $5,010,336 $6,451,442 $15,962,894 $8,534,156
0.45% 0.45% 1.25% 1.25% 1.25% 1.25% 1.04%
3.78% 2.86% 2.66% 5.06% 6.97% 8.06% 6.56%
N/A N/A N/A N/A N/A N/A N/A
================================================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Year Year Year Year Period From
Ended Ended Ended Ended May 1, 1993,
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, to
Corporate Bond Portfolio (e) 1997 1996 1995 1994 1993
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period $ 9.970 $ 10.150 $ 9.450 $ 9.980 $ 10.000
Income from investment operations (a):
Net investment income 0.654 0.662 0.680 0.649 0.417
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments 0.309 (0.179) 0.990 (0.912) 0.173
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 0.963 0.483 1.670 (0.263) 0.590
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income
and net realized short-term
capital gains (0.793) (0.663) (0.970) (0.267) (0.610)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.793) (0.663) (0.970) (0.267) (0.610)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 10.140 $ 9.970 $ 10.150 $ 9.450 $ 9.980
====================================================================================================================================
Total return (b) (d) 9.97% 4.97% 18.25% (2.65%) 8.84%(f)
Ratios/supplemental data
Net assets, end of period (c) $21,276,855 $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% 0.70%(f)
Ratio of net investment income to average
net assets (d) 6.50% 6.65% 6.78% 6.78% 6.22%(f)
Portfolio turnover rate 276.46% 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) Great American Reserve 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, 1997, 1996, 1995, 1994 and 1993. If the
aforementioned guarantee had not been in effect during 1997, the ratio
would have been 0.77 percent for the Corporate Bond Portfolio.
(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
1998
PROSPECTUS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Each of the Portfolios has a different investment objective as
described below. Each Portfolio is managed by the Adviser. There can be no
assurance that any of the Portfolios will achieve its investment objective. 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.
Each of the Funds may invest in restricted securities such as private
placements, although a Fund may not invest in any restricted security that is
illiquid if, after acquisition thereof, more than 15 percent of the Fund's
assets would be invested in illiquid securities. Once acquired, restricted
securities may be sold by a fund 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 ("1933 Act"). As a result, restricted
securities, once acquired, may be more difficult to sell and may sell at a price
that is less favorable than anticipated.
The Funds may invest in securities traded pursuant to Rule 144A under
the 1933 Act (Rule 144A permits qualified institutional buyers to trade certain
securities even though they are not registered under the 1933 Act). The Adviser,
acting pursuant to guidelines established by the Board of Trustees, may
determine that some Rule 144A securities are liquid.
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
consistent with the preservation of capital and a prudent level of risk, 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
11
<PAGE>
- --------------------------------------------------------------------------------
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. Small company stocks have higher risk and volatility,
because most are not as broadly traded as stocks of larger companies, and thus
their prices may fluctuate more widely and abruptly.
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 listed "covered" call and "secured" put options,
including options on stock indices, and purchasing such options; purchasing and
selling, for hedging purposes, stock index, interest rate, and other futures
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, commonly known as "junk
bonds". Investments in high yield, high risk debt securities involve certain
risks, as discussed with respect to the Asset Allocation Portfolio below. 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 listed "covered" call and "secured" put options, including options
on stock indices, and
12
<PAGE>
CONSECO SERIES TRUST
1998
PROSPECTUS
- --------------------------------------------------------------------------------
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,
and relative 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. Small company stock are subject to the risks described with respect to
the Common Stock Portfolio.
The Asset Allocation Portfolio may also invest in high yield, high
risk, lower-rated debt securities, which are not believed to involve undue risk
to income or principal. Generally, higher yielding bonds carry ratings assigned
by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's ("S&P") that
are lower than those assigned to investment grade debt securities, or they are
unrated. Lower rated debt securities and unrated securities determined by the
Adviser to be below investment grade 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, such as changes
in the financial condition of issuers or in interest rates, 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. To the
extent that there is no established retail secondary market, there may be thin
trading of high yield, lower-rated debt securities, and this may make it more
difficult to accurately value the lower-rated debt securities and the Fund's
assets, and to dispose of such 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 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. Investments in foreign securities involve certain risks,
including fluctuations in foreign exchange rates, and the possible imposition of
exchange controls or other foreign governmental laws or restrictions. Foreign
companies may not be subject to accounting, auditing, and financial reporting
standards and requirements comparable to those to which the U.S. is subject. 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. See "Foreign Securities" under "Description of Securities and
13
<PAGE>
- --------------------------------------------------------------------------------
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.
Mortgage pass-through securities or modified pass-through securities are subject
to early repayment of principal arising from prepayments of principal on the
underlying mortgage loans. Prepayment rates vary widely and may be affected by
changes in market interest rates and other economic trends or factors.
Accordingly, it is not possible to accurately predict the average life of a
particular underlying pool of mortgages. Reinvestment of prepayments may occur
at a higher or lower rate 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. 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.
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 listed
"covered" call and "secured" put 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
14
<PAGE>
CONSECO SERIES TRUST
1998
PROSPECTUS
- --------------------------------------------------------------------------------
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, as defined
below. 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, states and their political subdivisions, agencies and
instrumentalities ("municipal securities") and foreign governments and their
agencies and instrumentalities. The interest on municipal securities in which
the Portfolio invests typically is not exempt from federal income tax.
Investments in foreign securities involve certain risks, discussed with respect
to the Asset Allocation Portfolio. See "Foreign Securities" under "Description
of Securities and Investment Techniques" in the SAI for further information. 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.
Mortgage-related debt securities are subject to certain risks, as discussed with
respect to the Government Securities Portfolio above. For further information,
see "Debt Securities" and "Mortgage-backed Securities" in the SAI. In addition,
up to 15 percent of the Portfolio's assets 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's assets 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.
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
15
<PAGE>
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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 listed "covered" call and "secured" put
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.
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
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CONSECO SERIES TRUST
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PROSPECTUS
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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 Adviser, 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 has contracted to receive an
investment advisory fee equal to an annual rate of 0.25 percent of the average
daily net asset value of the Money Market Portfolio, 0.50 percent of the average
daily net asset value of the Government Securities and Corporate Bond
Portfolios, 0.60 percent of the average daily net asset value of the Common
Stock Portfolio, and 0.55 percent of the average 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 percent, and
the Money Market Portfolio shall not exceed 0.45 percent. For the years ended
December 31, 1997, 1996, and 1995, the Adviser's fees before reimbursement
totaled $1,400,378, $1,008,557, and $695,347, respectively, which was 0.58
percent, 0.58 percent, and 0.57 percent, of the average net
17
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assets for 1997, 1996, and 1995 respectively. Total expenses of the average
annual net assets of each Portfolio for the years ended 1997, 1996 and 1995;
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.
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 and systems 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: G. Nolan Smith, Vice President for the Adviser.
He is responsible for taxable and tax-exempt fixed income portfolio management.
Mr. Smith was previously employed by Strong Capital Management. During his
tenure, he managed the Strong Municipal Money Market, Short-Term and Municipal
Bond Funds. Prior to joining Strong Capital Management, Mr. Smith was a fixed
income credit analyst at USAA Investment Management Company.
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.
Like other financial and business organizations, the Trust could be
adversely affected if computer systems they rely on do not properly process
date-related information and data involving the years 2000 and after. The
Adviser is taking steps that it believes are reasonable to address this problem
in its own computer systems and to obtain assurances that comparable steps are
being taken by the Funds' other major service providers. The Adviser also
attempts to evaluate the potential impact of this problem on the issuers of
investment securities that the Funds purchase. However, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds.
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PROSPECTUS
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MANAGEMENT DISCUSSION AND ANALYSIS
COMMON STOCK PORTFOLIO
As we look back at 1997, we are able to draw a few insights on what is
in store for 1998. While the first three quarters exhibited strong growth and
favorable market conditions, the fourth quarter proved to be most eventful in
terms of future effects on market performances.
As is typical for most fourth quarters, the period began with much
anxiety related to market strength, sustainability of corporate profits, and
increasing volatility in Asian currency markets. Anxieties peaked on October
27th when the Dow Jones Industrial Average dropped 554 points (7.2 percent), the
largest single point decline ever, surrounding fears of asset deflation in Asian
markets. Despite a relatively good series of earnings reports and economic
releases throughout the balance of the quarter, including low inflation and
25-year-low unemployment levels, concerns about the Asian influence prevailed.
Following the market plunge, much of the capital previously invested in
Asia-Pacific markets sought safety in the U.S. market through purchases of S&P
500 futures contracts. As a result, the Index gained ground, with stocks of the
largest 20 companies in the marketplace outperforming nearly everything in
sight. However, virtually all other stocks remained at October 27th levels or
drifted even lower. Due to the strong fourth quarter move of the largest company
stocks, the S&P 500 finished the year up 33.36 percent, outperforming the
returns of 90 percent of all actively managed funds, as well as the Russell
Small Stock Index, which returned 22.36 percent. This is the fourth straight
year that the market has seen this kind of divergence.
In terms of sector performance, strong returns were realized in
interest rate-sensitive areas (financial institutions and utilities) and in
defensive stocks (food retailers and consumer staples). These sectors benefited
from the strong rally in the bond market and from the influx of invested dollars
coming from technology and energy sectors, which turned in some of the fourth
quarter's lowest returns. Our underweighting in financial institutions,
utilities and staples and our larger weightings in technology and energy explain
why the fourth quarter was a difficult one for us.
Despite these problems, many of our stocks enjoyed good earnings
reports and persevered during a time of high market volatility. Perhaps most
rewarding was the announcement that IBM/Trivoli bought Software Artistry for
$24.50 per share cash; we were prematurely rewarded with a 200 percent return
for our share owners over the holding period.
We expect a cautionary tone to prevail over the market in 1998; as
such, we intend to increase our focus on earnings stories with strong balance
sheets and cashflow generation. We will also look for yield as a component of
total return whenever possible. In addition, we will watch for opportunities in
technology and energy given the aggressive sell-off in these sectors in late
1997.
Our investment strategy continues to rely on a bottom-up approach to
stock selection. Through extensive research of the companies in which we invest,
our goal is to discover good growth stories in stocks that still trade at
reasonable valuations. We are committed to a long-term reliance on this
strategy, and believe that it will serve our share owners well in the upcoming
year.
[The following represents a chart in the printed report]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE COMMON STOCK PORTFOLIO AND THE S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
18.68% 21.04% 17.60%
Past performance is not predictive of future performance.
Performance does not include separate account expenses.
Common Stock Portfolio S&P 500 Index
12/31/87 10.000 10.000
12/31/88 10.938 11.661
12/31/89 14.302 15.356
12/31/90 13.060 14.879
12/31/91 16.426 19.412
12/31/92 19.482 20.892
12/31/93 21.151 22.997
12/13/94 21.574 23.301
12/31/95 29.407 32.058
12/31/96 42.638 39.418
12/31/97 50.605 52.568
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ASSET ALLOCATION PORTFOLIO
The Asset Allocation Fund is a balanced portfolio which invests in a
combination of equity, fixed income and cash. The strategy of the Asset
Allocation Fund through 1997 has been to highlight equity securities which
represented roughly 55 percent of the portfolio's assets.
The fourth quarter began with much anxiety about the strength in the
market over the summer, the sustainability of corporate profits and the
increasing volatility of Asian currency markets. All fears reached a fever pitch
on October 27th when the Dow Jones Industrial Average dropped 554 points (7.2
percent), recording the largest single point decline ever on fears of asset
deflation in Asian markets. The performance of the market following the sell-off
was typical of what we saw earlier in the year, with the index stocks
outperforming the broader market as hoards of capital previously invested in
Asia-Pacific markets sought safe haven in the U.S. market. The result of all
this was that the Index gained while virtually everything else stayed at October
27th levels or drifted even lower. In fact, because of its strong fourth quarter
move relative to the broader market, the Standard & Poor's 500 ("S&P 500")
finished the year up 33.36 percent, outstripping the returns of 90 percent of
all actively managed funds and the Russell 2000 Small Stock Index which returned
22.36 percent. This is the fourth straight year that we have seen this kind of
divergence.
Going forward, with respect to the equity portion of the portfolio, we
intend to continue our strategy of utilizing a bottom-up approach in finding
good growth stories in stocks that still trade at reasonable valuations. In
fact, if 1998 earnings on S&P 500 companies ultimately end up in line with
current expectations of 7 to 9 percent, then we would expect to see an increase
in multiples for stocks which can generate earnings growth in the 18 to 20
percent range.
The remaining 45 percent of the Asset Allocation Portfolio is invested
in bonds and cash. Our fixed income discipline focuses on investing in those
securities which, through our own fundamental research, we consider to be
undervalued. Depending on valuation in the equity market, we may take the
opportunity to reallocate a portion of the portfolio to fixed income if we see
pressure on earnings or negative earnings surprises. Until the financial crisis
in Asia subsides, we expect to see sustained low levels of interest rates.
Eventually, as investors return their focus to economic fundamentals, we still
expect to see interest rates remain low, which should bode well for the
valuation of financial assets.
[The following represents a chart in the printed report]
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
AVERAGE ANNUAL TOTAL RETURN
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
17.85% 16.99% 13.96%
Past performance is not predictive of future performance.
Performance does not include separate account expenses.
Asset Allocation Portfolio S&P 500 Index LB Govt/Corporate Index
12/31/87 10.000 10.000 10.000
12/31/88 10.855 11.661 10.759
12/31/89 13.171 15.356 12.291
12/31/90 12.443 14.879 13.309
12/31/91 15.172 19.412 15.455
12/31/92 16.853 20.892 16.627
12/31/93 18.674 22.997 18.461
12/13/94 18.577 23.301 17.813
12/31/95 24.428 32.058 21.240
12/31/96 31.341 39.418 21.856
12/31/97 36.935 52.568 23.989
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PROSPECTUS
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GOVERNMENT SECURITIES PORTFOLIO
The currency crisis in Asia has pulled the U.S. Government along in its
torrent. The unprecedented drop in yields has apparently little regard for a
U.S. economy that is operating at capacity with a tight labor market. The
Federal Reserve has continued its policy of benign neglect in part due to good
news on the inflation front.
The "Asian contagion" has not been without its peripheral symptoms for
the seemingly immune bond market. Corporate bond spreads have widened in
response to a fuzzy profit picture and U.S. Government Agency securities
("Agency") have followed suit, if only to keep pace with corporates. Thus, we
have been utilizing both corporates and Agency spreads in the short portion of
the portfolio to increase the overall yield of the portfolio without incurring
significant risk. In addition, as Agency spreads have widened significantly, we
have taken advantage of this opportunity to purchase various Agency securities
in the shorter maturity spectrum. The outlook for the early part of 1998 is
clouded by events in Asia, but we believe most of the drama is behind us.
Restructuring will be time consuming and painful for the Asian populace, and we
doubt if the U.S. Government bond market will be able to sustain these levels.
Consequently, the Portfolio is shorter in duration than our benchmark and we
have taken advantage of the widening in spread to increase the Portfolio's
position in corporate and Agency securities.
[The following represents a chart in the printed report]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GOVERNMENT SECURITIES PORTFOLIO AND
THE LEHMAN BROTHERS GOVERNMENT AND MBS INDEXES
AVERAGE ANNUAL TOTAL RETURN
---------------------------
1 YEAR 5 YEARS TEN YEARS
------ ------- ---------
8.26% 6.73% 8.34%
Past performance is not predictive of future performance.
Performance does not include separate account expenses.
<TABLE>
<CAPTION>
Government Securities Portfolio Lehman Brothers Government Index Lehman Brothers MBS Index
<S> <C> <C> <C>
12/31/87 10.000 10.000 10.000
12/31/88 10.641 10.703 10.873
12/31/89 11.985 12.226 12.542
12/31/90 12.995 13.292 13.887
12/31/91 15.038 15.329 16.070
12/31/92 16.083 16.437 17.189
12/31/93 17.554 18.189 18.365
12/13/94 17.063 17.574 18.069
12/31/95 20.022 20.797 21.105
12/31/96 20.573 21.373 22.234
12/31/97 22.273 23.423 24.344
</TABLE>
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CORPORATE BOND PORTFOLIO
1997 was characterized by favorable market conditions throughout much
of the year. However, increased volatility brought dramatic changes to the fixed
income markets, especially in the fourth quarter.
The first three quarters of 1997 were distinguished by a strong,
healthy economy, low inflation levels and a general trend toward declining
interest rates. Relative value in the fixed income markets was difficult to
distinguish as spreads to treasuries remained very narrow in many sectors,
including corporate and mortgage-backed securities. Investors typically demand
larger spreads over U.S. Treasury bonds in order to compensate for perceived
higher risk levels. Federal Reserve policy stayed tight as Alan Greenspan
remained the vigilant watchdog over inflation. The budget deficit continued to
narrow as a result of lower interest rates and fiscal discipline from Congress.
However, the focus of the financial markets shifted away from the domestic
economic fundamentals in the fourth quarter.
In the fourth quarter, currency deterioration in Thailand, Malaysia and
Indonesia, caused turmoil in their respective financial markets. Because the
world's economies are linked, the impact of this turmoil spread quickly
throughout Southeast Asia. As we move into 1998, the crisis is expected to have
a significant impact on economic growth in other countries, including the United
States. This phenomenon has already caused dramatic changes in the general
fundamentals of our domestic fixed income market, which created significantly
larger spreads to U.S. Treasures in the corporate sector.
The level of interest rates declined because of the financial crisis:
the ten-year U.S. Treasury yield was 5.75 percent at year-end and the
thirty-year U.S. Treasury yield was 5.92 percent. With this dramatic decline in
interest rates, we have maintained a low exposure to mortgage-backed securities,
due to the higher risk of increased pre-payment activity. With higher
pre-payments, the security returns more principal, forcing the investor to
reinvest the proceeds at lower interest rates.
Nolan Smith, our municipal bond specialist, continues to recommend the
taxable municipal sector due to consistent spreads over U.S. Treasuries, which
have performed better than the corporate sector. We expect to direct proceeds to
this sector, given its performance relative to the rest of the market. At this
point, we have discovered only a few bonds meeting our investment criteria of
offering good relative value.
Our fixed income investment strategy continues to emphasize investing
in those securities we believe are undervalued. Most importantly, we conduct
thorough research before investing in any security. Our long-term strategies
coupled with our extensive knowledge of each investment we select enable us to
look forward with confidence as we continue to invest for the future.
[The following represents a chart in the printed report]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE CORPORATE BOND PORTFOLIO AND
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX
AVERAGE ANNUAL TOTAL RETURN
---------------------------
1 YEAR INCEPTION(1) INCEPTION(1)
------ ------------ ------------
9.97% 7.60% 7.60%
(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.
Lehman Brothers
Corporate Bond Portfolio Government/Corporate Index
5/1/93 10.000 10.000
12/31/93 10.599 10.602
12/13/94 10.314 10.230
12/31/95 12.196 12.198
12/31/96 12.802 12.552
12/31/97 14.078 13.777
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PROSPECTUS
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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 close
of regular trading on the New York Stock Exchange (normally 4:00p.m., Eastern
time).
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, OTHER DISTRIBUTIONS AND, TAXES
Investors should understand that, as Owners, they will not receive
directly any dividends or other distributions from the Trust or any of the
Portfolios. All such dividends and other distributions are payable to, and
reinvested by, the separate accounts of the insurance company in which contract
premiums are invested.
It is each Portfolio's intention to distribute sufficient net
investment income to avoid the imposition of federal income tax on the
Portfolio. Each portfolio 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,
consists of all dividends and/or interest received and any net short-term gains
from the sale of its investments less its estimated expenses (including fees
payable to the Adviser). Net investment income of the Money Market Portfolio
consists of accrued interest accrued (i) plus or minus amortized discounts or
premiums, (ii) plus all realized net short-term gains on 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 securities during the year. Similarly, that Portfolio must
include in its taxable income each year any interest on payment-in-kind
securities in the form of additional securities. Accordingly, to continue to
qualify for treatment as a regulated investment company under the Code, that
Portfolio may be required to distribute as a dividend an amount that is greater
than the total amount of cash the Portfolio actually receives. 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
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.
Distributions of all capital gains (the excess of net long-term capital
gain over net short-term capital loss) of a Portfolio, if any, is declared and
paid to its shareholders annually after the close of its fiscal year. See the
applicable Contract prospectus for information regarding
23
<PAGE>
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the federal income tax treatment of distributions to the insurance company
separate accounts.
Each Portfolio of the Trust is treated as a separate corporation for
federal income tax purposes and intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986 (the "Code").
As such, a portfolio will not be subject to federal income tax on the part of
its net investment income and net realized capital gains that it distributes to
shareholders. To qualify for treatment as a "regulated investment company," each
Portfolio must, among other things, derive at least 90 percent of its gross
income for each taxable year from dividends, interest and gains from the sale or
other disposition of securities.
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-13
Portfolio Turnover and Securities Transactions .............................B-14
Management .................................................................B-15
Net Asset Values of the Shares of the Portfolios ...........................B-18
General ....................................................................B-18
Independent Accountants ....................................................B-19
Financial Statements .......................................................F-01
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PROSPECTUS
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25
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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)
/s/
------------------------------------
Signature
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PROSPECTUS
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27
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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
28
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CONSECO SERIES TRUST
1998
PROSPECTUS
- --------------------------------------------------------------------------------
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.
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.
29
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CONSECO SERIES TRUST
1998
PROSPECTUS
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Conseco Series Trust
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
VP-100 (5/98) May 1, 1998
<PAGE>
PART B
<PAGE>
CONSECO SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
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, 1998. You can
obtain a copy by contacting the Trust's Administrative Office, 11815 N.
Pennsylvania Street, Carmel, Indiana 46032.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
<S> <C> <C>
Investment Performance............................................B-1 24
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 17
Net Asset Values of the Shares of the Portfolios.................B-18 23
General..........................................................B-18 1
Independent Accountants..........................................B-19 -
Financial Statements..............................................F-1 2
</TABLE>
CCM INVESTMENT ADVISER
--------------------------
Conseco Capital Management
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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 reim- bursements, 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
B-1
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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
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 World Bank,
which are, not U.S. government agencies, but have the ability to borrow from
member 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 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,
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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.
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. If new types of mortgage-related securities are developed and
offered to other types of investors, investments in such 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.
ASSET-BACKED SECURITIES
Each Portfolio other than the Money Market Portfolio may purchase
asset-backed securities 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
B-3
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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 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
liquid 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, Common Stock Portfolio, and the Corporate Bond 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 fixed income securities generally offer a higher yield than that
available from higher-rated issues with similar maturities, as compensation for
holding a security that is subject to greater risk. Lower-rated fixed income
securities are deemed by rating agencies to be predominately speculative with
respect to the issuer's capacity to pay interest and repay principal and may
involve major risk or exposure to adverse conditions. 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) adverse changes in the financial condition of the issuers, (3)
price fluctuation in response to changes in interest rates and (4) limited
liquidity and secondary market support.
An economic downturn affecting the issuer may result in a weakened capacity
to make principal and interest payments and an increased incidence of default.
In addition, a fund that invests in lower-rated securities may incur additional
expenses to the extent recovery is sought on defaulted securities. Because of
the many risks involved in investing in high yield fixed income securities, the
success of such investments is dependent upon the credit analysis of the
Adviser. Although the market for lower-rated fixed income securities is not new,
and the market has previously weathered economic downturns, the past performance
of the market for such securities may not be an accurate indication of its
performance during future economic downturns or periods of rising interest
rates. 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 debt securities of the
same maturity are a function of several factors, including the relative
financial strength of the issuers.
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: Ba 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 Conseco Capital Management, Inc. ("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
B-4
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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 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 or liquid securities 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:
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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. 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 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. A Portfolio will segregate
cash or liquid securities whenever it enters into reverse repurchase agreements.
Such transactions may be considered to be borrowings.
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.
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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, U.S. also, 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. 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 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
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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 enters into a futures contract, an amount of cash,
or liquid securities equal to the fair market value less initial 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 assets 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 operator".
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 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 and Composite Stock Price Index or the New York
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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 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's return might have been better 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
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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. 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. In addition, certain of these instruments are relatively new
and without a significant trading history. 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. 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,
excluding transactions entered into for bona fide hedging purposes and 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 listed
"covered" calls and "secured" 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
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" call and "secured"
put 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 from OCC if exchanged traded 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 protect
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partially against increases in the value or securities to be purchased, 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 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 an equal or lower
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 or liquid 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, or liquid securities, 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
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 or securities in a segregated
account 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 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
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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.
Forward currency contracts are not traded on regulated commodities
exchanges. A Portfolio entering into a forward currency contract incurs the risk
of default by the counter party to the transaction. 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.
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 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 increase
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
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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 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-13
<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 therein, (c) on an approved standard form of
agreement and (d) that meet limits on investments in the repurchase agreements
of any one
B-14
<PAGE>
================================================================================
bank, broker or dealer.
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.
The Adviser is responsible for decisions to buy and sell securities for the
Trust, broker-dealer selection, and negotiation of brokerage commission rates.
The Adviser's primary consideration in effecting a securities transaction will
be execution at the most favorable price. A substantial portion of the Trust's
portfolio transactions in fixed income securities 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, 1997, 1996, and 1995, $1,075,944, $588,876, and $387,644,
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.
MANAGEMENT
B-15
<PAGE>
================================================================================
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 Adviser is a wholly-owned subsidiary of Conseco, Inc. ("Conseco"), a
publicly-owned financial services company, the principal operations of which are
in development, marketing and administration of specialized annuity, life and
health insurance products. Conseco's offices are located at 11825 N.
Pennsylvania Street, Carmel, Indiana 46032.
Great American Reserve Insurance Company and Bankers National Life Insurance
Company, subsidiaries of Conseco, Inc., hold all of the outstanding shares of
Conseco Series Trust for the benefit of contract owners.
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.
Total investment advisory fees paid to the Adviser for the last three fiscal
years are reported in the prospectus. See "Management" section in the prospectus
for further information.
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-16
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
NAME, ADDRESS POSITION HELD WITH PRINCIPAL OCCUPATION(S)
AND AGE TRUST OR ADVISER DURING PAST 5 YEARS
====================================================================================================================
<S> <C> <C>
WILLIAM P. DAVES, JR. (72) Chairman of the Board, Consultant to insurance and healthcare
5723 Trail Meadow Trustee industries. Director, President and Chief
Dallas, TX 75230 Executive Officer, FFG Insurance Co. Chairman of
the Board and Trustee of one other mutual fund
managed by the Adviser.
MAXWELL E. BUBLITZ* (42) President and Trustee Chartered Financial Analyst. President and
11825 N. Pennsylvania St. Director, Adviser. Previously, Senior Vice
Carmel, IN 46032 President, Adviser. President and Trustee of one
other mutual fund managed by the Adviser.
HAROLD W. HARTLEY (74) Trustee Retired. Chartered Financial Analyst. Previously,
317 Peppard Drive, S.W. Executive Vice President, Tenneco Financial
Ft. Myers Beach, Fl 33913 Services, Inc. Trustee of one other mutual fund
managed by the Adviser.
DR. R. JAN LECROY (67) Trustee President, Dallas Citizens Council. Trustee of
Dallas Citizens Council one other mutual fund managed by the Adviser.
1201 Main Street, Suite 2444 Director, Southwest Securities Group, Inc.
Dallas, TX 75202
DR. JESSE H. PARRISH (70) Trustee Former President, Midland College. Higher
2805 Sentinel Education Consultant. Trustee of one other
Midland, TX 79701 mutual fund managed by the Adviser.
WILLIAM P. LATIMER (62) Vice President and Vice President, Senior Counsel, Secretary, Chief
11825 N. Pennsylvania St. Secretary Compliance Officer and Director of Adviser. Vice
Carmel, IN 46032 President, Senior Counsel, Secretary and
Director, Conseco Equity Sales, Inc. Vice
President and Secretary of one other mutual fund
managed by the Adviser. Previously, Consultant
to securities industry. Previously, Senior Vice
President--Compliance, USF&G Investment Services,
Inc. and Vice President, Axe-Houghton Management
Inc.
JAMES S. ADAMS (38) Treasurer Senior Vice President, Bankers National, Great
11815 N. Pennsylvania St. American Reserve. Senior Vice President,
Carmel, IN 46032 Treasurer, and Director, Conseco Equity Sales,
Inc. Senior Vice President and Treasurer, Conseco
Services, LLC. Treasurer of one other mutual
fund managed by the Adviser.
WILLIAM T. DEVANNEY, JR. (42) Vice President, Senior Vice President, Corporate Taxes, Bankers
11815 N. Pennsylvania St. Corporate Taxes National and Great American Reserve. Senior Vice
Carmel, IN 46032 President, Corporate Taxes, Conseco Equity Sales,
Inc. and Conseco Services LLC. Vice President of
one other mutual fund managed by the Adviser.
====================================================================================================================
</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-17
<PAGE>
================================================================================
The following table shows the compensation of each disinterested Trustee for the
fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate Total Compensation from Investment
Compensation Companies in the Trust Complex
Name of Person, Position From the Trust Paid to Trustees
- ------------------------ -------------- ----------------
<S> <C> <C>
William P. Daves, Jr. $9,000 $24,000
(1 other investment company)
Harold W. Hartley $9,000 $25,000
(1 other investment company)
Dr. R. Jan LeCroy $9,000 $25,000
(1 other investment company)
Dr. Jesse H. Parrish $9,000 $25,000
(1 other investment company)
</TABLE>
- ------------------
B-18
<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, 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.
B-19
<PAGE>
================================================================================
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, 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 series (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 series 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, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
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.
FINANCIAL STATEMENTS
Audited Financial Statements for the Conseco Series Trust Asset Allocation
Portfolio, Common Stock Portfolio, Corporate Bond Portfolio, Government
Securities Portfolio and Money Market Portfolio for the fiscal year ended
December 31, 1997 are incorporated by reference from the Trust's annual report
to shareholders.
B-20
<PAGE>
CONSECO SERIES TRUST
ADMINISTRATIVE OFFICE
11815 N. PENNSYLVANIA STREET
CARMEL, INDIANA 46032
SAI-100 (5/98) May 1, 1998
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
(1) The following financial statement is included in the prospectus
constituting Part A of the Post-Effective Amendment to the
Registration Statement.
Financial Highlights.
(2) The following financial statements are incorporated by reference
from the Trust's 1997 Annual Report to Shareholders.
Statement of Assets and Liabilities, December 31, 1997.
Statement of Operations for the year ended, December 31, 1997.
Statement of Changes in Net Assets for years ended, December 31,
1997 and 1996.
Statement of Investments, December 31, 1997.
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 Amendment 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 reference to Exhibit
No. 1 (ii) to Post-Effective Amendment 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 reference
to Exhibit No. 5 to the Post-Effective Amendment 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. incorporated by reference to Exhibit No. 5
(ii) to Post-Effective Amendment No. 17 to the Registration
Statement 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.
(27) -- Financial Data Schedule.
(27.1) -- Money Market Portfolio.
(27.2) -- Government Securities Portfolio.
(27.3) -- Common Stock Portfolio.
(27.4) -- Asset Allocation Portfolio.
(27.5) -- Corporate Bond Portfolio.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following information concerns the principal 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)
Conseco Capital Management, Inc. (Delaware)
Lincoln American Life Insurance Company (Tennessee)
Marketing Distribution Systems Consulting Group, Inc. (Delaware)
MDS Securities Incorporated (Delaware)
MDS of New Jersey, Inc. (New Jersey)
Conseco Equity Sales, Inc. (Texas)
CIHC, Incorporated (Delaware)
Conseco Services, LLC (Indiana)
Conseco Marketing, LLC (Indiana)
Conseco Financial Services, Inc. (Pennsylvania)
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 Travellers Life Insurance Company (Pennsylvania)
Conseco Life Insurance Company of New York (New York)
United General 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)
Wabash Life Insurance Company (Kentucky)
Conseco Life Insurance Company (Indiana)
Philadelphia Life Insurance Company (Pennsylvania)
Lamar Life Insurance Company (Mississippi)
Pioneer Financial Services, Inc. (Delaware)
Geneva International Insurance Company, Inc.
(Turks and Caicos Islands)
Pioneer Life Insurance Company (Illinois)
Health and Life Insurance Company of America (Illinois)
Manhattan National Life Insurance Company (Illinois)
Connecticut National Life Insurance Company (Illinois)
United Group Holdings, Inc. (Nevada)
National Group Life Insurance Company (Illinois)
Continental Life and Accident Insurance Company
(Illinois)
Colonial Penn Life Insurance Company (Pennsylvania)
Providential Life Insurance Company (Arizona)
Conseco Partnership Management, Inc. (Indiana)
American Life Holdings, Inc. (Delaware)
American Life Holding Company (Delaware)
American Life and Casualty Insurance Company (Iowa)
Vulcan Life Insurance Company (Alabama) - (98%)
Washington National Corporation (Delaware)
Washington National Insurance Company (Illinois)
United Presidential Corporation (Indiana)
United Presidential Life Insurance Company (Indiana)
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,
Great American Reserve Variable Annuity Account E, Great American Reserve
Variable Annuity Account F, and Great American Reserve Variable Annuity
Account G, 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 47% of its shares.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of April 1, 1998, 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 Agreements filed as Exhibit (5) to Post-Effective
Amendment No. 8 and Post-Effective Amendment 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. Additionally, Mr. Dick is a director of approximately ten non-public
companies, which are believed to be not affiliated with Conseco, Inc.
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.
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 30th day
of April, 1998.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ MAXWELL E. BUBLITZ President April 30, 1998
- ------------------------------ (Principal Executive Officer)
Maxwell E. Bublitz
/S/ WILLIAM P. DAVES, JR.* Chairman of the Board and April 30, 1998
- ------------------------------- Trustee
William P. Daves, Jr.
/S/ HAROLD W. HARTLEY* Trustee April 30, 1998
- -----------------------------
Harold W. Hartley
/S/ R. JAN LECROY* Trustee April 30, 1998
- -----------------------------
R. Jan LeCroy
/S/ JESSE H. PARRISH* Trustee April 30, 1998
- -----------------------------
Jesse H. Parrish
/S/ JAMES S. ADAMS Treasurer April 30, 1998
- -----------------------------
James S. Adams
* /S/ WILLIAM P. LATIMER
------------------------
William P. Latimer
Attorney-in-fact
</TABLE>
<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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ MAXWELL E. BUBLITZ President and Trustee April 29, 1997
- ------------------------------ (Principal Executive Officer)
Maxwell E. Bublitz
</TABLE>
<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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ WILLIAM P. DAVES, JR. Chairman of the Board April 22, 1997
- ----------------------------- and Trustee
William P. Daves
</TABLE>
<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/ HAROLD W. HARTLEY Trustee April 26, 1996
- -----------------------------
Harold W. Hartley
<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 22, 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 22, 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 22, 1997
- ------------------------- (Principal Financial and
James S. Adams Accounting Officer)
<PAGE>
Exhibit
Number Exhibit
- ------- -------
(10) Consent and Opinion of Counsel
(11) Consent of Accountants
(27.0) Financial Data Schedule
(27.1) Financial Data Schedule - Money Market Portfolio
(27.2) Financial Data Schedule - Government Securities Portfolio
(27.3) Financial Data Schedule - Common Stock Portfolio
(27.4) Financial Data Schedule - Asset Allocation Portfolio
(27.5) Financial Data Schedule - Corporate Bond Portfolio
Exhibit 10
CONSECO SERIES TRUST
Administrative Office
11815 N. Pennsylvania Street
Carmel, IN 46032
April 28, 1998
Board of Trustees
Conseco Series Trust
Re: Conseco Series Trust
Registration Statement on Form N-1A
Gentlemen and Madam:
I am Executive Vice President, Secretary and General Counsel of Conseco,
Inc., the direct owner of the investment adviser of Conseco Series Trust (the
"Registrant"). At your request, I have examined or caused to be examined the
Registration Statement on Form N-1A, (the "Registration Statement") of the
Registrant with respect to the securities issued in connection with the
Registrant offering shares to insurance company separate accounts. The
Registrant's Form N-1A Registration Statement is filed 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.
In rendering this opinion, I, or attorneys under my supervision (together
referred to herein as "we"), have examined and relied upon a copy of the
Registration Statement. We have also examined originals, or copies of originals
certified to our satisfaction, of such agreements, documents, certificates and
statements of government officials and other instruments, and have examined such
questions of law and have satisfied ourselves as to such matters of fact, as we
have considered relevant and necessary as a basis for this opinion. We have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures, the legal capacity of all natural persons and the
conformity with the original documents of any copies thereof submitted to us for
examination.
Based on the foregoing, and subject to the qualifications and limitations
hereinafter set forth, 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 a open ended management investment company
registered under the 1940 Act; and
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 do not find it necessary for the purposes of this opinion to cover, and
accordingly I express no opinion as to, the application of the securities or
blue sky laws of the various states to the sale of the securities to be
registered pursuant to the Registration Statement. Without limiting the
generality of the foregoing, I express no opinion in connection with the matters
contemplated by the Registration Statement, and no opinion may be implied or
inferred, except as expressly set forth herein.
This opinion is limited to the laws of the State of Indiana and of the
United States of America to the extent applicable. If any of the securities
included in the Registration Statement are governed by the laws of a state other
than Indiana, I have assumed for the purposes of this opinion that the laws of
such other state are the same as those of the State of Indiana.
I hereby consent to the inclusion of the opinion as Exhibit B-10 to the
Registration Statement and to all references to me in the Registration Statement
or the Prospectus included therein.
Very truly yours,
/S/ JOHN J. SABL
John J. Sabl
Executive Vice President, Secretary,
and General Counsel
Exhibit (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 22 to the
Registration Statement of Conseco Series Trust (the "Trust") on Form N-1A (File
No. 2-80455) of our report dated February 23, 1998, on our audit of the
financial statements and financial highlights of the Trust, which report is
included in the Annual Report to Shareholders for the year ended December 31,
1997, which is incorporated by reference in the Post-Effective Amendment to the
Registration Statment. We also consent to the reference to our Firm under the
caption "Independent Accountants."
/S/ COOPERS & LYBRAND
Indianapolis, Indiana
April 29, 1998
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<NAME> MONEY MARKET
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<NUMBER-OF-SHARES-SOLD> 10,118,046
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<NUMBER> 2
<NAME> GOVERNMENT SECUR
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 3,799,469
<INVESTMENTS-AT-VALUE> 3,837,894
<RECEIVABLES> 445,482
<ASSETS-OTHER> 244,060
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,527,436
<PAYABLE-FOR-SECURITIES> 246,615
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,546
<TOTAL-LIABILITIES> 257,161
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<NET-ASSETS> 4,270,275
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 28,288
<NET-INVESTMENT-INCOME> 244,513
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<DISTRIBUTIONS-OF-INCOME> (289,206)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 53,641
<NUMBER-OF-SHARES-REDEEMED> (60,110)
<SHARES-REINVESTED> 24,228
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<GROSS-EXPENSE> 37,304
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<PER-SHARE-NII> 0.724
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<NUMBER> 3
<NAME> COMMON STOCK
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<INVESTMENTS-AT-VALUE> 216,896,715
<RECEIVABLES> 12,261,605
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<OTHER-ITEMS-LIABILITIES> 155,304
<TOTAL-LIABILITIES> 13,509,520
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 216,985,601
<DIVIDEND-INCOME> 1,491,368
<INTEREST-INCOME> 580,346
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<EXPENSES-NET> 1,527,511
<NET-INVESTMENT-INCOME> 544,203
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<NAME> ASSET ALLOCATION
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<EXPENSES-NET> 163,619
<NET-INVESTMENT-INCOME> 686,159
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<APPREC-INCREASE-CURRENT> (576,834)
<NET-CHANGE-FROM-OPS> 3,552,769
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<DISTRIBUTIONS-OF-INCOME> 3,333,678
<DISTRIBUTIONS-OF-GAINS> (795,925)
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</TABLE>
<TABLE> <S> <C>
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<NAME> CORPORATE BOND
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 147,384
<AVERAGE-NET-ASSETS> 19,100,562
<PER-SHARE-NAV-BEGIN> 9.970
<PER-SHARE-NII> 0.654
<PER-SHARE-GAIN-APPREC> 0.309
<PER-SHARE-DIVIDEND> (0.793)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.140
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
