CONSECO SERIES TRUST
Common Stock Portfolio
Asset Allocation Portfolio
Supplement Dated April 20, 1998 to
Prospectus Dated May 1, 1997
The following replaces the discussion on pages 18 and 19 of the current
Prospectus of Conseco Series Trust:
MANAGEMENT DISCUSSION AND ANALYSIS
COMMON STOCK PORTFOLIO
As we look back upon the second half of 1996, we have to keep things in
perspective by reminding ourselves how long we have been in the midst of
economic expansion relative to historical market cycles. This is already the
fourth longest expansion of the twentieth century. This is significant because
in the three longer cycles, corporate earnings peaked out well in advance of
each cycle's demise. Thus, if history offers any clues here, we are probably
pretty close to some degree of deceleration in corporate profits. Happily, we
can look back upon 1996 as another banner year of unabated growth in corporate
profits and equity returns.
As for returns during the second half of the year, the Standard & Poor's
500 (S&P 500) gained 11.68% and the Dow Jones Industrial Average gained 15.38%.
Market performance was mostly led by a strong showing in the semiconductor and
energy sectors with stock such as Intel and Helmrich & Payne leading the way.
Some of the worst performers for the period included trucking, broadcasting and
manufactured housing.
During the period we continued to stay focused on our bottom up research
intensive approach. With this in mind, energy continued to play a prominent role
in our portfolio with names such as Tosco, Apache and Forest Oil. In the areas
of telecommunications and networking equipment, two of our more successful
positions were Network General and Brightpoint. Capital goods also put in strong
results in our portfolio with Miller Industries, which performed well throughout
the period. Finally, technology had its role in the second half of the year with
names such as GenRad and Ultrak.
Looking into 1997, investor uncertainty on the overall market remains
quite high. Excessive valuations and sentiment readings as well as the ultimate
duration of this profit cycle all cause us to question whether we can continue
much longer without a significant correction. However, in spite of this
tentative outlook on the performance of the market averages such as the S&P 500
and the Dow Jones Industrial Average, we remain committed to finding great
businesses and great management teams that can grow their earnings significantly
in excess of the average company in the market. To this end, we will continue to
focus our research efforts in the months ahead on companies in the technology,
energy and business services sectors. Additionally, we are intrigued by the
opportunities for profit growth that exist in the textile, aerospace, healthcare
and gold producer industries where we still see attractive valuations and
<PAGE>
developing insider buying patterns. We think that the possibility of a stronger
dollar in 1997 could result in a significant leadership change in this market as
domestically focused companies enjoy less pressure on unit volumes and profit
margins than their international counterparts. Finally, we expect to continue to
reduce our exposure to higher-end consumer products and services where we fell
the overabundance of capital investment in this cycle has created over-capacity
and excessive competition.
ASSET ALLOCATION PORTFOLIO
Our strategy in the Asset Allocation Portfolio has been to emphasize our growth
equity style of investing which has represented approximately 55% of the total
portfolio. Within the fixed-income portion of the portfolio, we have seen very
strong performance during the second half of the year from the high yield
sector, which includes our investments in UNYSIS, Peoples Telephone and
Phar-Mor. In addition, we are finding value in Yankee issues as well as domestic
bank/finance issues.
Concerning the equity portion of the portfolio, we feel it is important to make
several observations which have impacted our investment decisions. The general
market did not exit 1996 cheap by any calculation. Much has been said about
stock buybacks, lower dividend payouts and the attractiveness of U.S. equities
versus those abroad. We think much of this is just noise. The current
price/earnings ratio of around 22 times 1997 earnings is quite high, even after
giving consideration to such aforementioned factors. Much of this profit cycle
has been driven by the positive impact of lower interest rates and taxes on
corporate profit margins. These factors, along with restrictions and
technological advances, have expanded profit margins to levels which are going
to be hard to improve upon in 1997.
Despite the excess valuations in many segments of the market, we continue to
find opportunities in selected areas. Our bottom up, research intensive approach
during this period identified values in selected issues in energy,
telecommunications, and technology, as well as in the capital goods sector.
Tosco, Apache and Forest Oil were prominent in our portfolio and accounted for
much of our energy holdings. Network General, Brightpoint, Ultrak, and GenRad
all contributed as strong performers in telecommunications related holdings.
Also, Miller Industries was significant as an investment in the capital goods
sector and performed well during the period.
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The following tables show the data which will replace the data currently
contained in the graphs on pages 18 and 19 of the current Prospectus of the
Conseco Series Trust:
ASSET ALLOCATION PORTFOLIO
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
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AVERAGE ANNUAL TOTAL RETURN
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1 YEAR 5 YEAR SINCE INCEPTION
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28.30% 15.61% 12.06%(1)
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(1) The inception date of this Portfolio was May 1, 1987.
Past performance is not predictive of future performance. Performance does not
include separate account expenses.
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<CAPTION>
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5/1/87 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation
Portfolio 10,000 9,594 10,414 12,636 11,938 14,556 16,169 17,916 17,824 23,437 30,069
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S&P 500 Index 10,000 8,670 10,100 13,275 12,851 16,777 18,066 19,872 20,136 27,695 34,051
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LB Govt/Corporate
Index 10,000 10,081 10,846 12,391 13,417 15,581 16,762 18,611 17,958 21,413 22,034
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</TABLE>
COMMON STOCK PORTFOLIO
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 YEAR 10 YEAR
------------------------------------------
44.99% 21.02% 15.73%
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Past performance is not predictive of future performance. Performance does not
include separate account expenses.
<TABLE>
<CAPTION>
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12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock Port. 10,000 10,111 11,060 14,461 13,205 16,609 19,698 21,386 21,814 29,733 43,112
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S&P 500 Index 10,000 10,517 12,253 16,104 15,590 20,352 21,916 24,107 24,428 33,598 41,309
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</TABLE>
