As filed with the Securities and Exchange Commission on May 3, 1999
Registration Nos. 811-3641/2-80455
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 25 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27 [X]
(Check appropriate box or boxes)
CONSECO SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
11815 N. Pennsylvania Street, Carmel, Indiana 46032
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (317) 817-6300
William P. Kovacs, 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):
X immediately upon filing pursuant to paragraph (b) of Rule 485
-------
on May 3, 1999 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
--------
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>
CONSECO SERIES TRUST
Money Market Portfolio
Government Securities Portfolio
Fixed Income Portfolio
Balanced Portfolio
Equity Portfolio
Contents of Registration Statement
This Registration Statement consists of the following papers and documents:
o Cover Sheet
Contents of Registration Statement:
o Part A - Prospectus
o Statement of Additional Information
o Signature Pages
o Exhibits
<PAGE>
CONSECO SERIES TRUST PROSPECTUS
MAY 3, 1999
MONEY MARKET PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
FIXED INCOME PORTFOLIO
BALANCED PORTFOLIO
EQUITY PORTFOLIO
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved of these securities or determined whether this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS
The Portfolios
General Information About the Portfolios .................. 3
Money Market Portfolio .................................... 4
Government Securities Portfolio ........................... 6
Fixed Income Portfolio .................................... 9
Balanced Portfolio ....................................... 12
Equity Portfolio ......................................... 15
Primary Risk Considerations ....................................... 17
Fees and Expenses .................................................. 19
Management ......................................................... 20
Purchase and Redemption of Shares .................................. 22
Dividends and Distributions ........................................ 23
Financial Highlights ............................................... 24
For More Information ............................................... 25
2
<PAGE>
(Intro)
THE ADVISER'S INTEGRATED APPROACH TO MONEY MANAGEMENT
We believe that combining the knowledge and experience of both fixed income and
equity analysts leads to better security selection over time.
Whether selecting fixed income or equity securities, our analysts look for
companies with:
o Proven management teams
o Leading edge products
o Dominant market share positions
They then conduct a rigorous financial analysis of these companies, focusing on
such indicators as:
o Cost of capital
o Financial strength
o Spending plans
This analysis is used to select those securities deemed by the Adviser to be
most appropriate for each Portfolio's investment objective.
Each of the Portfolios may invest in restricted securities, such as private
placements, which are not registered with the Securities Exchange Commission.
Restricted securities are generally illiquid; however, the Adviser focuses on
those that are liquid and may not invest in any restricted security that would
cause more than 15 percent of the Portfolio's total assets to be invested in
illiquid securities. The Portfolios also may invest in securities that qualify
to be sold directly to institutional investors pursuant to Rule 144A under the
Securities Act of 1933.
Because of the Adviser's active management style, our Portfolios generally have
a higher portfolio turnover rate than other portfolios and, therefore, may have
higher taxable distributions and increased trading costs which may impact
performance.
There is no assurance that the Portfolios will achieve their investment
objectives. All of the Portfolios have the ability to change their investment
objectives without shareholder approval, although they do not currently intend
to do so. In addition, the value of your investment in any Portfolio will
fluctuate, which means that you may lose money.
Prior to May 3, 1999, the Fixed Income Portfolio was known as the Corporate Bond
Portfolio, the Balanced Portfolio was known as the Asset Allocation Portfolio,
and the Equity Portfolio was known as the Common Stock Portfolio.
(Sidebar)
A WORD ABOUT THE ADVISER
Conseco Capital Management, Inc. (CCM), or the "Adviser," provides investment
advice and management to each Portfolio. CCM manages more than $35.3 billion in
assets for an array of foundations, endowments, corporations, government and
union clients (as of 12/31/98).
Please note: Definitions for bold-faced words within the text can be found
directly following each Portfolio's Primary Risk Considerations.
3
<PAGE>
MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks current income consistent with stability of capital and
liquidity.
[sidebar]
An investment in this Portfolio is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation or any other government
agency. Although the Adviser seeks to preserve the value of your
investment at $1.00 per share, there can be no assurance that it will
be able to do so. It is possible to lose money by investing in the
Portfolio.
ADVISER'S STRATEGY
The Portfolio may invest in the following types of money market securities:
o U.S. government securities
o BANK OBLIGATIONS
o COMMERCIAL PAPER OBLIGATIONS
o SHORT-TERM CORPORATE DEBT SECURITIES
PRIMARY RISKS:
Market risk
Credit risk
Interest rate risk
See "Primary Risk Considerations" on page 00 for a detailed discussion of the
Portfolio's risks.
[sidebar]
BANK OBLIGATIONS
Time deposits, certificates of deposit, bankers' acceptances and other bank
obligations of Banks that have total assets in excess of $1 billion and are
subject to regulation by the U.S. government, including:
o U.S. subsidiaries of foreign banks
o London branches of domestic banks
o Foreign branches of domestic commercial banks and foreign banks, as
long as the securities are U.S. dollar-denominated
COMMERCIAL PAPER OBLIGATIONS
A short-term debt obligation, including variable and floating rate securities of
U.S. corporations, maturing within 270 days and rated:
o A-1 or A-2 by Standard & Poor's Corporation or
o Prime-1 or Prime-2 by Moody's Investor Services, Inc. or,
o If not rated, of a comparable quality as determined by the Adviser
under supervision of the Board of Trustees
SHORT-TERM CORPORATE DEBT SECURITIES
Corporate debt securities (other than commercial paper) maturing in 13 months or
less.
4
<PAGE>
HOW HAS THE PORTFOLIO PERFORMED?
The chart and table below give an indication of the Portfolio's risks and
performance. The chart shows you how the Portfolio's performance has varied from
year to year. The table compares the Portfolio's performance over time to that
of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION,
PLEASE REMEMBER THAT THE PORTFOLIO'S PAST PERFORMANCE IS NOT NECESSARILY AN
INDICATION OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
YEAR RETURN
1989 8.06%
1990 6.97%
1991 5.06%
1992 2.66%
1993 2.86%
1994 3.78%
1995 5.46%
1996 5.13%
1997 5.25%
1998 5.21%
BEST QUARTER: 2Q89 2.17%
WORST QUARTER: 4Q92 0.61%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year 5 Year 10 Year
----------------------------------------
Money Market Portfolio 5.21% 5.02% 5.03%
65% Commercial Paper Index/ 5.83% 5.45% 5.88%
35% Payden & Regal T-Note 1 Yr.
Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for the
periods shown.
5
<PAGE>
GOVERNMENT SECURITIES PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks safety of capital, liquidity and current income.
ADVISER'S STRATEGY
The Portfolio will invest primarily in securities issued by the U.S. government
or an agency or instrumentality of the U.S. government. The Adviser uses
proprietary research to uncover undervalued securities. These securities may be
undervalued on the basis of structure, optionality or issuer.
The Portfolio may invest in any or all of the following:
o Treasury bills
o Certificates of indebtedness
o Notes
o Bonds
o Insured Bank deposits
o INVESTMENT GRADE CORPORATE DEBT SECURITIES
o Mortgage-related securities
Mortgage-related securities may include:
o Mortgage-backed securities of the Government National Mortgage
Association (GNMA)
o Mortgage-backed securities of the Federal Home Loan Mortgage
Corporation (FHLMC)
o Mortgage-backed securities of the Federal National Mortgage
Association (FNMA)
o PASS-THROUGH SECURITIES AND PARTICIPATION CERTIFICATES
o COLLATERALIZED MORTGAGE OBLIGATIONS
The Adviser may also purchase mortgage-related securities not issued by the U.S.
government or any agency or instrumentality of the U.S. government.
While the Portfolio may purchase debt securities of any maturity, it is
anticipated that the average life of the portfolio will be in the intermediate
range - between five and 15 years - but may be shorter or longer depending on
market conditions.
PRIMARY RISKS
Market risk
Interest rate risk
Restricted securities risk
Credit risk
Prepayment risk
See "Primary Risk Considerations" on page 00 for a detailed discussion of the
Portfolio's risks.
6
<PAGE>
[sidebar]
INVESTMENT GRADE DEBT SECURITIES
Considered especially creditworthy, these debt securities are rated in either
(i) normally rated AAA to BBB- by Standard and Poor's Corporation or Aaa to Baa3
by Moody's Investors Services, Inc., or (ii) if unrated, are deemed by the
Adviser to be of comparable credit quality.
PASS-THROUGH SECURITIES AND PARTICIPATION CERTIFICATES
Both represent pools of mortgages that are assembled, with interests sold in
each pool. Payments of principal (including prepayments) and interest by
mortgagors are "passed through" to the holders of the interests in each
portfolio.
COLLATERALIZED MORTGAGE OBLIGATIONS
These are similar to conventional bonds in that they have fixed maturities and
interest rates but are secured by groups of individual mortgages.
HOW HAS THE PORTFOLIO PERFORMED?
The chart and table below give an indication of the Portfolio's risks and
performance. The chart shows you how the Portfolio's performance has varied from
year to year. The table compares the Portfolio's performance over time to that
of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION,
PLEASE REMEMBER THAT THE PORTFOLIO'S PAST PERFORMANCE IS NOT NECESSARILY AN
INDICATION OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
YEAR RETURN
1989 12.28%
1990 7.96%
1991 15.01%
1992 6.62%
1993 8.91%
1994 -2.79%
1995 17.35%
1996 2.75%
1997 8.26%
1998 7.07%
BEST QUARTER: 2Q95 5.95%
WORST QUARTER: 1Q94 -2.98%
7
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year 5 Year 10 Year
----------------------------------------
Government Securities Portfolio 7.07% 6.32% 8.40%
Lehman Brothers Government Index 9.85% 7.18% 9.17%
Lehman Brothers MBS Index 6.96% 7.23% 9.13%
Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for the
periods shown.
8
<PAGE>
FIXED INCOME PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks the highest level of income consistent with preservation of
capital.
ADVISER'S STRATEGY
The Portfolio invests primarily in INVESTMENT GRADE DEBT SECURITIES.
The Adviser actively manages the portfolio to generate income, reduce risk, and
preserve or enhance total return in light of current market conditions and
trends.
Adhering to a strict buy/sell discipline, the Adviser seeks to enhance total
return by:
o Purchasing securities it believes are undervalued
o Selling securities it believes are overvalued or fully priced
To determine value, the Adviser utilizes:
o Independent FUNDAMENTAL ANALYSIS in evaluating the issuer, and
o An analysis of the specific structure of the security
In an effort to achieve the Portfolio's investment objective, the Adviser may
invest in debt securities issued by:
o Publicly or privately held companies in the U.S.
o Publicly or privately held companies overseas (primarily in YANKEE
BONDS)
o The U.S. government, its agencies and instrumentalities
o States and their political subdivisions issuing taxable MUNICIPAL
SECURITIES
o Foreign governments, their agencies and instrumentalities
The Portfolio may also invest in:
o Mortgage-backed debt securities
o Asset-backed debt securities
o Restricted securities
While the Portfolio may purchase debt securities of any MATURITY, it is
anticipated that the AVERAGE LIFE of the portfolio will be in the intermediate
range - between seven and 15 years - but may be shorter or longer depending on
market conditions.
PRIMARY RISKS
Credit risk
Interest rate risk
Market risk
Prepayment risk
Restricted securities risk
Municipal market risk
Foreign risk
See "Primary Risk Considerations" on page 00 for a detailed discussion of the
Portfolio's risks.
9
<PAGE>
(Sidebar)
INVESTMENT GRADE DEBT SECURITIES See Page 00.
FUNDAMENTAL ANALYSIS
A research technique that looks at a company's financial condition,
creditworthiness, management, and place in its industry to determine the
intrinsic value of the company's securities.
YANKEE BONDS
Dollar-denominated bonds issued in the U.S. by foreign banks and corporations.
MUNICIPAL SECURITIES
Bonds and other debt obligations issued by state and local governments. The
interest on the municipal securities in which the Portfolio invests typically is
NOT exempt from federal income tax.
MATURITY
When the principal, or face value of a bond, must be repaid.
AVERAGE LIFE
The average number of years that each principal dollar will be outstanding,
before it is repaid.
HOW HAS THE PORTFOLIO PERFORMED?
The chart and table below give an indication of the Portfolio's risks and
performance. The chart shows you how the Portfolio's performance has varied from
year to year. The table compares the Portfolio's performance over time to that
of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION,
PLEASE REMEMBER THAT THE PORTFOLIO'S PAST PERFORMANCE IS NOT NECESSARILY AN
INDICATION OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
YEAR RETURN
1993 8.84%*
1994 -2.65%
1995 18.25%
1996 4.97%
1997 9.97%
1998 6.17%
*Since inception, May 1, 1993
BEST QUARTER: 2Q95 6.63%
WORST QUARTER: 1Q94 -2.67%
10
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year 5 Year Since
Inception*
-----------------------------------------
Fixed Income Portfolio 6.17% 7.11% 7.34%
Lehman Brothers Government
Corporate Index 9.47% 7.30% 7.39%
*Inception Date 5/1/93
Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for the
periods shown.
11
<PAGE>
BALANCED PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks a high total investment return, consistent with the
preservation of capital and prudent investment risk.
ADVISER'S STRATEGY
Normally, the Portfolio invests approximately 50-65% of its assets in equity
securities, and the remainder in a combination of fixed income securities, or
cash equivalents.
The balance may change:
o A much higher percentage of assets may be invested in equity securities
if the Adviser considers conditions in the stock market to be
substantially more favorable than in the bond market.
o Conversely, if the Adviser considers conditions in the bond market to
be substantially more favorable than in the equity market, a much
higher percentage of assets may be invested in fixed income securities.
THE EQUITY PORTION OF THE PORTFOLIO
The Fund may invest in equity securities of domestic and foreign issuers. These
may include common and PREFERRED STOCKS, CONVERTIBLE SECURITIES AND WARRANTS.
The Adviser intends for the equity portion of the Portfolio to be widely
diversified by size of company and industry.
The Adviser looks for securities that will provide the two elements of total
return:
o Price appreciation
o Income from dividends
In selecting equity securities, the Adviser considers the following factors:
o Growth trends of the stock - and its industry
o Significant purchases or sales of the stock by corporate insiders
o Recent changes in earnings per share and their deviations from
analysts' expectations
o Relative price-earnings ratios, as compared to industry peers and
earnings growth potential
o The stock's price movement
THE FIXED INCOME PORTION OF THE PORTFOLIO
Normally, the Adviser will maintain at least 25% of the value of the portfolio's
assets in a wide range of domestic and foreign debt securities, including
non-U.S. dollar denominated securities. The majority of foreign investments will
be in YANKEE BONDS.
The Adviser anticipates that bonds will be invested primarily in intermediate
and/or long-term domestic debt securities.
The Portfolio may also invest in BELOW INVESTMENT GRADE SECURITIES that are not
believed to involve undue risk to income or principal. In general, however,
these types of securities are issued by companies without long track records of
sales and earnings, or by companies with questionable credit strength. The
lowest rating categories in which the Portfolio will invest are CCC/Caa.
12
<PAGE>
For defensive purposes, the Portfolio may temporarily depart from its investment
objective and invest without limitation in money market instruments. This could
help the Portfolio avoid losses but may mean lost opportunities.
PRIMARY RISKS
Market risk
Credit risk
Interest rate risk
Foreign risk
Leverage risk
See "Primary Risk Considerations" on page 00 for a detailed discussion of the
Portfolio's risks.
PREFERRED STOCK
Shares of a company that do not ordinarily have voting rights but do have a
stated dividend payment, as opposed to common stocks which ordinarily do have
voting rights but do not have a stated dividend payment.
CONVERTIBLE SECURITIES
Bonds, debentures, notes or preferred stock that are convertible into common
stock. Convertible securities have some unique return characteristics relative
to market fluctuations:
o When equity markets go up, they tend to rise in price
o When equity markets decline, they tend to decline relatively less in
price than stocks
Convertible securities have both an equity and a fixed income component.
Therefore,
o While the equity component is subject to fluctuations in value due to
activities of the issuing companies, and general market and economic
conditions;
o The fixed income component will be impacted by shifting interest rates
and changes in credit quality of the issuers.
WARRANTS
Contracts that allow the bearer to purchase shares for a specified price at a
future date.
YANKEE BONDS See Page 00.
BELOW INVESTMENT GRADE SECURITIES
These securities offer higher return potential in exchange for assuming greater
risk. Normally, they are rated BB+ or lower by Standard & Poor's Corporation or
Ba1 or lower by Moody's Investors Services, Inc., or, if unrated deemed by the
Adviser to be of comparable credit.
[Enclose in shaded boxes]
INTEREST RATES AND BOND MATURITIES
Bonds with longer maturities will be more effected by interest rate changes than
intermediate-term bonds. For example, if interest rates go down, the price of
long-term bonds will increase more rapidly than the price of intermediate-term
bonds.
HOW HAS THE PORTFOLIO PERFORMED?
13
<PAGE>
The chart and table below give an indication of the Portfolio's risks and
performance. The chart shows you how the Portfolio's performance has varied from
year to year. The table compares the Portfolio's performance over time to that
of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION,
PLEASE REMEMBER THAT THE PORTFOLIO'S PAST PERFORMANCE IS NOT NECESSARILY AN
INDICATION OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
YEAR RETURN
1989 21.27%
1990 -5.59%
1991 21.57%
1992 10.36%
1993 10.38%
1994 -0.55%
1995 31.49%
1996 28.30%
1997 17.85%
1998 10.37%
BEST QUARTER: 3Q97 13.17%
WORST QUARTER: 3Q98 -12.07%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year 5 Year 10 Year
-----------------------------------------
Balanced Portfolio 10.37% 16.90% 14.15%
S&P 500 Index 28.57% 24.06% 19.21%
Lehman Brothers Government/ 9.47% 7.30% 9.33%
Corporate Index
Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for the
periods shown.
14
<PAGE>
EQUITY PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks to provide a high total return consistent with preservation
of capital and a prudent level of risk.
ADVISER'S STRATEGY
The Portfolio will invest primarily in selected equity securities, including
common stocks and other securities having the investment characteristics of
common stocks, such as CONVERTIBLE SECURITIES and WARRANTS.
Normally, the Portfolio will be widely diversified by industry and company, but
will focus on SMALL- AND MID-CAP COMPANIES.
The Adviser looks for securities that will provide the two elements of total
return:
o Price appreciation
o Income from dividends
In selecting equity securities, the Adviser considers the following factors:
o Growth trends of the stock's issuer and the industry it represents
o Significant purchases and sales of the stock by corporate insiders
o Recent changes in earnings per share and their deviations from
analysts' expectations
o Relative price-earnings ratios, as compared to industry peers and
earnings growth potential
o The stock's historical price movement
For defensive purposes, the Portfolio may temporarily depart from its investment
objective and invest all or part of the Portfolio's assets in money market
instruments. This could help the Fund avoid losses but may mean lost
opportunities.
PRIMARY RISKS
Market risk
Liquidity and Valuation risk
Small Company risk
See "Primary Risk Considerations" on page 00 for a detailed discussion of the
Portfolio's risks.
15
<PAGE>
(Sidebar definitions)
CONVERTIBLE SECURITIES See Page 00.
WARRANTS See Page 00.
SMALL- AND MID-CAP COMPANIES
Generally refers to companies in the earlier period of their growth
expectations, from start-ups to better established firms. While these companies
have potential for attractive long-term returns, their securities may involve
greater risks, and more volatility, than investments in larger companies with a
stronger competitive advantage. The Adviser's extensive research efforts can
play a greater role in selecting securities from this sector than from larger
companies.
HOW HAS THE PORTFOLIO PERFORMED?
The chart and table below give an indication of the Portfolio's risks and
performance. The chart shows you how the Portfolio's performance has varied from
year to year. The table compares the Portfolio's performance over time to that
of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION,
PLEASE REMEMBER THAT THE PORTFOLIO'S PAST PERFORMANCE IS NOT NECESSARILY AN
INDICATION OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
YEAR RETURN
1989 30.75%
1990 -8.68%
1991 25.77%
1992 18.34%
1993 8.35%
1994 1.92%
1995 36.30%
1996 44.99%
1997 18.68%
1998 15.62%
BEST QUARTER: 4Q98 28.42%
WORST QUARTER: 3Q98 -21.16%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year 5 Year 10 Year
-----------------------------------------
Equity Portfolio 15.62% 22.57% 18.26%
S&P 500 Index 28.57% 24.06% 19.21%
16
<PAGE>
Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for the
periods shown.
17
<PAGE>
PRIMARY RISK CONSIDERATIONS
The value of your investment in any Portfolio will fluctuate, which means that
you may lose money. The primary risks of investing in the Portfolios are
described below. Each Portfolio's exposure to risk depends upon its specific
investment profile. The amount and types of risk vary depending on:
o The Portfolio's investment objective
o The Portfolio's ability to achieve its objective
o The markets in which the Portfolio invests
o The investments the Portfolio makes in those markets
o Prevailing economic conditions over the period of an investment
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise be unable to honor a financial obligation. Below investment
grade securities are especially susceptible to this risk.
FOREIGN RISK
The risk that foreign issuers may be subject to foreign political and economic
instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital. In addition, there may be
changes in foreign governmental attitudes towards private investment, possibly
leading to nationalization, increased taxation or confiscation of investors'
assets. Investments in issuers located or doing business in emerging or
developing markets are especially susceptible to these risks.
INTEREST RATE RISK
The risk that changing interest rates may adversely affect the value of an
investment. With fixed income securities, an increase in interest rates
typically causes the value of those securities to fall, while a decline in
interest rates may produce an increase in the market value of those securities.
Because of this risk, an investment in a Portfolio that invests in fixed income
securities is subject to risk even if all the fixed income securities in the
Portfolio's portfolio are paid in full at maturity. Changes in interest rates
will affect the value of longer-term fixed income securities more than
shorter-term securities.
LEVERAGE RISK
The risk that borrowing, or some derivative instruments, such as forward
commitment transactions, may multiply smaller market movements into large
changes in value.
LIQUIDITY AND VALUATION RISKS
The risk that securities that were liquid when purchased by a Portfolio may
become temporarily illiquid (i.e., not be sold readily) and hard to value,
especially in declining markets.
MARKET RISK
The risk that the market value of a Portfolio's investments will fluctuate as
the stock and bond markets fluctuate. Market risk may affect a single issuer,
industry or section of the economy or may affect the market as a whole.
MUNICIPAL MARKET RISK
The risk that special factors may negatively affect the value of municipal
securities and, as a result, a Portfolio's share price. These factors include
political or legislative changes, uncertainties related to the tax status of the
securities or the rights of investors in the securities. A Portfolio may invest
in municipal obligations that are related in such a way that an economic,
business or political development or change affecting one of these obligations
would also affect the other obligations.
18
<PAGE>
PREPAYMENT RISK
The risk that will prepay fixed rate obligations when interest rates fall,
forcing the Portfolio to re-invest in obligations with lower interest rates than
the original obligations.
RESTRICTED SECURITIES RISK
The risk that a buyer will be difficult to come by and selling price will need
to be less than originally anticipated because these restricted securities may
only be sold in privately negotiated transactions.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies. Smaller companies generally experience higher
growth rates and higher failure rates than do larger companies. The trading
volume of the securities of smaller companies is normally lower than that of
larger companies. Short-term changes in the demand for the securities of smaller
companies generally has a disproportionate effect on their market price, tending
to make prices rise more in response to buying demand and fall more in response
to selling pressure.
YEAR 2000
The Trusts could be adversely affected by problems relating to the inability of
computer systems used by the Adviser and the Trusts' other service providers to
recognize the year 2000. While year 2000-related computer problems could have a
negative effect on the Portfolios, the Adviser is working to avoid these
problems in its own computer systems and to obtain assurances from service
providers that they are taking similar steps.
EURO CONVERSION
The Portfolios also could be adversely affected by the conversion of European
currencies into the Euro beginning January 1, 1999. This conversion will not be
complete until 2002, and its full implementation may be delayed. Difficulties
with the conversion and potential delays may significantly impact European
capital markets and could increase volatility in world capital markets.
It is impossible to know whether the problems associated with both Year 2000 and
Euro conversion, which could disrupt operations of investments if uncorrected,
have been adequately addressed until the dates in question arrive.
Please note that there are other circumstances not described here which could
adversely affect your investment and potentially prevent a Portfolio from
achieving its objectives.
19
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you may pay if you buy and
hold shares of the Portfolios. These expenses are deducted from the Portfolios'
assets.
The purpose of the Conseco Series Trust (the "Trust") is to serve as the
investment medium for: (1) separate accounts funding variable annuity and
variable life insurance contracts ("Contracts") issued by both affiliated and
unaffiliated life insurance companies (see "Purchase and Redemption of Shares");
and (2) qualified pension and retirement plans outside of the separate account
context. The Portfolios' shares are not offered directly to the public.
ANNUAL PORTFOLIO OPERATING EXPENSES* (expenses that are deducted from each
Portfolio's assets) as a % of average daily net assets
ANNUAL PORTFOLIO OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET GOVERNMENT FIXED INCOME
PORTFOLIO SECURITIES PORTFOLIO BALANCED EQUITY PORTFOLIO
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees 0.70% 0.70% 0.70% 0.85% 0.85%
Other Expenses 0.13% 0.27% 0.19% 0.16% 0.10%
------------------------------------------------------------------------------
Equals: Total Annual Portfolio Operating Expenses 0.83% 0.97% 0.89% 1.01% 0.95%
Less: Fee Waiver and/or Expense Reimbursement** 0.38% 0.27% 0.19% 0.26% 0.15%
------------------------------------------------------------------------------
Equals: Net Expenses 0.45% 0.70% 0.70% 0.75% 0.80%
==============================================================================
</TABLE>
*EXPENSE INFORMATION HAS BEEN RESTATED TO REFLECT CURRENT FEES.
** PURSUANT TO A CONTRACTUAL ARRANGEMENT WITH THE TRUST, THE ADVISER HAS AGREED
TO WAIVE FEES AND/OR REIMBURSE PORTFOLIO EXPENSES THROUGH 4/30/00, SO THAT THE
TOTAL ANNUAL OPERATING EXPENSES OF EACH PORTFOLIO ARE LIMITED TO THE NET
EXPENSES FOR EACH RESPECTIVE PORTFOLIO, AS SET FORTH ABOVE. THIS ARRANGEMENT
DOES NOT COVER INTEREST, TAXES, BROKERAGE COMMISSIONS, AND EXTRAORDINARY
EXPENSES.
ADVISER
Conseco Capital Management, Inc. (CCM) is a wholly owned subsidiary of Conseco,
Inc., a publicly owned financial services company that provides specialized
annuity, life and health insurance products. CCM serves as the "Adviser" to each
of the Portfolios and as adviser to other registered investment companies. In
addition to managing the invested assets of Conseco, Inc., CCM manages
foundations, endowments, corporations, government and unions. As of December 31,
1998, CCM managed over $35.3 billion.
20
<PAGE>
ADVISORY FEES
For the fiscal year ended 12/31/98, the advisory fee paid to the Adviser by each
Portfolio was as follows:
-----------------------------------------------------------------------
ADVISORY FEES PAID
PORTFOLIO NAME (expressed as a percentage of
average daily net assets)
-----------------------------------------------------------------------
Money Market Portfolio .25%
-----------------------------------------------------------------------
Government Securities Portfolio .50%
-----------------------------------------------------------------------
Fixed Income Portfolio .50%
-----------------------------------------------------------------------
Balanced Portfolio .55%
-----------------------------------------------------------------------
Equity Portfolio .60%
-----------------------------------------------------------------------
(Sidebar)
CONSECO CAPITAL MANAGEMENT, INC.
11825 N. Pennsylvania Street, Carmel, Indiana 46032
PORTFOLIO MANAGERS OF CONSECO SERIES TRUST
MONEY MARKET PORTFOLIO:
GREGORY J. HAHN, CFA, SENIOR VICE PRESIDENT, PORTFOLIO ANALYTICS
CONSECO CAPITAL MANAGEMENT, INC.
At CCM, Mr. Hahn is also responsible for the portfolio analysis and management
of the institutional client accounts and analytical support for taxable
portfolios. In addition, he is responsible for SEC registered investment
products, , investments in the insurance industry and is portfolio manager of
other affiliated investment companies. Mr. Hahn joined the Adviser as a Vice
President and portfolio manager in 1989.
GOVERNMENT SECURITIES PORTFOLIO:
G. NOLAN SMITH, VICE PRESIDENT, PORTFOLIO ANALYTICS
CONSECO CAPITAL MANAGEMENT, INC.
At CCM, Mr. Smith is also responsible for taxable and tax-exempt, fixed income,
institutional client accounts, including other investment companies. Prior to
joining the Adviser in 1995, Mr. Smith was a portfolio manager at Strong Capital
Management, where he managed the Strong Municipal Money Market, Short-Term and
Municipal Bond Funds.
FIXED INCOME PORTFOLIO:
GREGORY J. HAHN, CFA, SENIOR VICE PRESIDENT, PORTFOLIO ANALYTICS
CONSECO CAPITAL MANAGEMENT, INC.
See Money Market Portfolio for Mr. Hahn's complete biography.
21
<PAGE>
BALANCED PORTFOLIO:
GREGORY J. HAHN, CFA, SENIOR VICE PRESIDENT, PORTFOLIO ANALYTICS
CONSECO CAPITAL MANAGEMENT, INC.
Mr. Hahn is the portfolio manager for the fixed income portion of the Portfolio.
See Money Market Portfolio for Mr. Hahn's complete biography.
THOMAS J. PENCE, CFA, SENIOR VICE PRESIDENT
CONSECO CAPITAL MANAGEMENT, INC.
Mr. Pence is the portfolio manager for the equity portion of the Portfolio.
Since joining the Adviser in 1992, Mr. Pence has been responsible for the
management of all of the Adviser's equity portfolios and for the oversight of
the equity investment process. Additionally, he is portfolio manager of other
affiliated investment companies.
EQUITY PORTFOLIO:
THOMAS J. PENCE, CFA, SENIOR VICE PRESIDENT
CONSECO CAPITAL MANAGEMENT, INC.
See Balanced Portfolio for Mr. Pence's complete biography.
22
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Portfolio shares are currently offered to insurance separate accounts
established by insurance companies to fund variable annuity and variable life
insurance contracts. Individuals may not purchase Portfolio shares directly from
the Trust. Shares of each Portfolio are purchased or redeemed at their
respective net asset values next computed (without a sales charge) after receipt
of an appropriate order.
A Portfolio's net asset value (NAV) per share is the total market value of the
Portfolio's securities and other assets minus its liabilities divided by the
total number of shares outstanding. Because the value of each Portfolio's
securities changes every business day, the Portfolio's share price usually
changes as well.
Each Portfolio calculates its NAV per share at the close of regular trading
(normally 4:00 p.m., Eastern Time) on the New York Stock Exchange (NYSE). The
NYSE is open every day for trading, except:
- --------------------------------------------------------------------------------
Saturday Presidents' Day Labor Day
Sunday Good Friday Thanksgiving Day
New Year's Day Memorial Day Christmas Day
Martin Luther King, Jr. Day Independence Day
- --------------------------------------------------------------------------------
The NAV is generally based on the market price of the securities held in a
Portfolio. Securities held by all Portfolios other than the Money Market
Portfolio are valued based on readily available market quotations.
The NAV for the Money Market Portfolio is determined using the amortized cost
method. In this method, securities are valued at the time of purchase at cost
and thereafter assume a constant amortization to maturity of any discount or
premium. This method does not take into account unrealized gains and losses, nor
does it consider the impact of fluctuating interest rates on the market value of
the security. The Money Market Portfolio will attempt to maintain a constant net
asset value of $1.00 per share, however, there can be no assurance that it will
be able to do so.
Under the direction of the Board, the Portfolios may use a practice known as
fair value pricing under the following circumstances:
|X| Securities and assets for which market quotations are not readily
available
|X| Events occur after an exchange closes are likely to affect the value
of the security
|X| Trust's management strongly believes a market price is not reflective
of a security's appropriate price
23
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio distributes at least 90% of its net investment income to its
shareholders to meet requirements of the Internal Revenue Code applicable to
regulated investment companies.
Investors should understand that, as Contract Owners, they will not receive any
dividends or other distributions directly 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.
Dividends from net investment income are declared and reinvested in additional
full and fractional shares by each Portfolio according to the schedule below.
The Trustees may elect to change dividend distribution intervals.
SCHEDULE OF DIVIDEND REINVESTMENTS
- --------------------------------------------------------------------------
PORTFOLIO DECLARED AND REINVESTED
- --------------------------------------------------------------------------
Money Market Portfolio Daily
- --------------------------------------------------------------------------
Government Securities Portfolio Monthly
- --------------------------------------------------------------------------
Fixed Income Portfolio Monthly
- --------------------------------------------------------------------------
Balanced Portfolio Quarterly
- --------------------------------------------------------------------------
Equity Portfolio Quarterly
- --------------------------------------------------------------------------
Capital gains - i.e., the excess of net long-term capital gain over net
short-term capital loss - are generally declared and distributed to shareholders
annually after the close of the Portfolio's fiscal year.
SEE THE APPLICABLE CONTRACT PROSPECTUS FOR INFORMATION REGARDING THE FEDERAL
INCOME TAX TREATMENT OF DISTRIBUTIONS TO THE INSURANCE COMPANY SEPARATE
ACCOUNTS.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Trust's
financial performance for the past five years (or, if shorter, the period of the
Trust's operations). Certain information reflects financial results for a single
Portfolio share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers whose report, along with the Trust's
financial statements, is included in the Trust's annual report, which is
available upon request.
================================================================================
Financial Highlights
<TABLE>
<CAPTION>
Money Market Portfolio
----------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
Financial Highlights (Audited) (Audited) (Audited) (Audited) (Audited)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period ..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from investment operations:
Net investment income ......................................... 0.051 0.051 0.050 0.055 0.038
Net realized gains (loss) and change in unrealized
appreciation (depreciation) on investments .................... -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total income, (loss) from investment operations ........... 0.051 0.051 0.050 0.055 0.038
Distributions:
Dividends from net investment income .......................... (0.051) (0.051) (0.050) (0.055) (0.038)
Distribution of net realized long- and short-term capital gains -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ....................................... (0.051) (0.051) (0.050) (0.055) (0.038)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ........................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
====================================================================================================================================
Total return (a) (b) ............................................... 5.21% 5.25% 5.13% 5.46% 3.78%
Ratios/supplemental data:
Net assets (dollars in thousands), end of period ................ $ 21,218 $ 8,603 $ 6,985 $ 5,396 $ 5,105
Ratio of net expenses to average net assets ..................... 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of total expenses to average net assets (b) ............... 0.54% 0.53% 0.59% 0.52% 0.58%
Ratio of net investment income to average net assets ............ 5.08% 5.14% 5.03% 5.46% 3.78%
Portfolio turnover rate ......................................... N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return represents performance of the Trust only and does not
include mortality and expense deductions in separate accounts.
(b) The Adviser has voluntarily agreed to waive their fees and/or reimburse the
Portfolio to the extent that the ratio of total expenses to average net
assets exceeds the net expenses as defined.
These voluntary limits may be discontinued by the Adviser after
April 30, 1999.
25
<PAGE>
Financial Highlights
================================================================================
<TABLE>
<CAPTION>
Government Securities Portfolio
----------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
Financial Highlights (Audited) (Audited) (Audited) (Audited) (Audited)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period ..................... $12.040 $11.940 $12.380 $11.090 $11.450
Income from investment operations:
Net investment income ......................................... 0.687 0.724 0.722 0.754 0.720
Net realized gains (loss) and change in unrealized
appreciation (depreciation) on investments .................... 0.146 0.232 (0.409) 1.119 (1.031)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations ............ 0.833 0.956 0.313 1.873 (0.311)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income .......................... (0.723) (0.856) (0.707) (0.583) (0.049)
Distribution of net realized long- and short-term capital gains -- -- (0.046) -- --
Return of capital ............................................. -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ....................................... (0.723) (0.856) (0.753) (0.583) (0.049)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ........................... $12.150 $12.040 $11.940 $12.380 $11.090
====================================================================================================================================
Total return (a) (b) ............................................... 7.07% 8.26% 2.75% 17.35% (2.79%)
Ratios/supplemental data:
Net assets (dollars in thousands), end of period ................ $ 7,907 $ 4,270 $ 4,024 $ 4,613 $ 4,713
Ratio of net expenses to average net assets ..................... 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of total expenses to average net assets (b) ............... 0.96% 0.92% 0.91% 0.78% 0.81%
Ratio of net investment income to average net assets ............ 5.63% 6.05% 6.02% 6.27% 6.45%
Portfolio turnover rate ......................................... 67.49% 195.08% 157.62% 284.31% 421.05%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return represents the performance of the Trust only and does not
include mortality and expense deductions in separate accounts.
(b) The Adviser has voluntarily agreed to waive their fees and/or reimburse the
Portfolio to the extent that the ratio of total expenses to average net
assets exceeds the net expenses as defined.
These voluntary limits may be discontinued by the Adviser anytime after
April 30, 1999.
26
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Fixed Income Portfolio
----------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
Financial Highlights (Audited) (Audited) (Audited) (Audited) (Audited)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period ..................... $ 10.140 9.970 $ 10.150 $ 9.450 $ 9.980
Income from investment operations:
Net investment income ......................................... 0.637 0.654 0.662 0.680 0.649
Net realized gains (loss) and change in unrealized apprciation
(depreciation) on investments ................................. (0.029) 0.309 (0.179) 0.990 (0.912)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations ............ 0.608 0.963 0.483 1.670 (0.263)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income .......................... (0.637) (0.793) (0.663) (0.970) (0.267)
Distribution of net realized long- and short-term capital gains -- -- -- -- --
Return of capital ............................................. (0.061) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ....................................... (0.698) (0.793) (0.663) (0.970) (0.267)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ........................... $ 10.050 10.140 $ 9.970 $ 10.150 $ 9.450
====================================================================================================================================
Total return (a) (b) ............................................... 6.17% 9.97% 4.97% 18.25% (2.65%)
Ratios/supplemental data:
Net assets (dollars in thousands), end of period ................ $ 23,985 $ 21,277 $ 17,463 $ 16,046 $ 12,903
Ratio of net expenses to average net assets ..................... 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of total expenses to average net assets (b) ............... 0.80% 0.77% 0.77% 0.74% 0.80%
Ratio of net investment income to average net assets ............ 6.24% 6.50% 6.65% 6.78% 6.78%
Portfolio turnover rate ......................................... 321.09% 276.46% 276.35% 225.41% 198.48%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return represents performance of the Trust only and does not
include mortality and expense deductions in separate accounts.
(b) The Adviser has voluntarily agreed to waive their fees and/or reimburse the
Portfolio to the extent that the ratio of total expenses to average net
assets exceeds the net expenses as defined.
These voluntary limits may be discontinued by the Adviser anytime after
April 30, 1999.
27
<PAGE>
================================================================================
Financial Highlights
<TABLE>
<CAPTION>
Balanced Portfolio
---------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
Financial Highlights (Audited) (Audited) (Audited) (Audited) (Audited)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period ..................... $ 13.320 $ 13.470 $ 12.390 $ 11.040 $ 11.400
Income from investment operations:
Net investment income ......................................... 0.434 0.441 0.419 0.508 0.463
Net realized gains (loss) and change in unrealized appreciation
(depreciation) on investments ................................. 0.955 2.116 2.774 2.976 (0.526)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations ............ 1.389 2.557 3.193 3.484 (0.063)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income .......................... (0.434) (2.195) (2.075) (1.827) (0.266)
Distribution of net realized long- and short-term capital gains -- (0.512) (0.038) (0.307) (0.031)
Return of capital ............................................. (0.605) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ....................................... (1.039) (2.707) (2.113) (2.134) (0.297)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ........................... $ 13.670 $ 13.320 $ 13.470 $ 12.390 $ 11.040
====================================================================================================================================
Total return (a) (b) ............................................... 10.37% 17.85% 28.30% 31.49% (0.55%)
Ratios/supplemental data:
Net assets (dollars in thousands), end of period ................ $ 45,904 $ 27,922 $ 16,732 $ 9,583 $ 6,172
Ratio of net expenses to average net assets ..................... 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of total expenses to average net assets (b) ............... 0.84% 0.84% 0.95% 0.87% 1.00%
Ratio of net investment income to average net assets ............ 3.25% 3.14% 3.15% 4.11% 4.20%
Portfolio turnover rate ......................................... 336.30% 369.39% 208.13% 194.16% 223.92%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return represents performance of the Trust only and does not
include mortality and expense deductions in separate accounts.
(b) The Adviser has voluntarily agreed to waive their fees and/or reimburse the
Portfolio to the extent that the ratio of total expenses to average net
assets exceeds the net expenses as defined.
These voluntary limits may be discontinued by the Adviser anytime after
April 30, 1999.
28
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Equity Portfolio
----------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
Financial Highlights (Audited) (Audited) (Audited) (Audited) (Audited)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period ..................... $ 20.160 $ 21.850 $ 18.840 $ 16.540 $ 16.690
Income from investment operations:
Net investment income ......................................... 0.112 0.064 0.013 0.340 0.240
Net realized gains (loss) and change in unrealized appreciation
(depreciation) on investments ................................... 3.086 4.060 8.169 5.675 0.072
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations ............ 3.198 4.124 8.182 6.015 0.312
Distributions:
Dividends from net investment income .......................... (0.265) (4.232) (4.209) (2.807) (0.327)
Distribution of net realized long- and short-term capital gains (0.477) (1.582) (0.963) (0.908) (0.135)
Return of capital ............................................. (1.026) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ....................................... (1.768) (5.814) (5.172) (3.715) (0.462)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ........................... $ 21.590 $ 20.160 $ 21.850 $ 18.840 $ 16.540
====================================================================================================================================
Total return (a) (b) ............................................... 15.62% 18.68% 44.99% 36.30% 1.92%
Ratios/supplemental data:
Net assets (dollars in thousands), end of period ................ $235,001 $216,986 171,332 $109,636 $ 74,760
Ratio of net expenses to average net assets ..................... 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of total expenses to average net assets (b) ............... 0.80% 0.80% 0.81% 0.80% 0.83%
Ratio of net investment income to average net assets ............ 0.55% 0.28% 0.06% 1.80% 1.47%
Portfolio turnover rate ......................................... 317.91% 234.20% 177.03% 172.55% 213.67%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return represents performance of the Trust only and does not
include mortality and expense deductions in separate accounts.
(b) The Adviser has voluntarily agreed to waive their fees and/or reimburse the
Portfolio to the extent that the ratio of total expenses to average net
assets exceeds the net expenses as defined.
These voluntary limits may be discontinued by the Adviser anytime after
April 30, 1999.
29
<PAGE>
[back cover]
FOR MORE INFORMATION
More information on the Conseco Series Trust is available free upon request:
SHAREHOLDER REPORTS
Additional information about the Portfolio's investments is available in the
Portfolio's annual and semi-annual reports to shareholders. In the Portfolio's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Portfolio's performance
during their most recent fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about each Portfolio and its policies. The SAI is
on file with the Securities and Exchange Commission (SEC) and is incorporated by
reference into (is legally considered part of) this prospectus.
(Sidebar)
To obtain a shareholder report, SAI, or other information:
BY TELEPHONE
Call 800-557-7043
BY MAIL
Conseco Series Trust
Attn: Administrative Offices
11815 N. Pennsylvania Street
Carmel, IN 46032
BY EMAIL
[email protected]
ON THE INTERNET
Text-only versions of the prospectuses and other documents pertaining to the
Portfolios can be viewed online or downloaded from:
SEC
http://www.sec.gov
Information about the Trust (including the SAI) can also be reviewed and copied
at the SEC's public reference room in Washington, DC (phone 800-SEC-0330). Or,
you can obtain copies of this information by sending a request, along with a
duplicating fee, to the SEC's Public Reference Section, Washington, DC
20549-6009.
Registration Number: 811-3641
<PAGE>
SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
MAY 3, 1999
This Statement of Additional Information ("SAI") 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 3, 1999. You
can obtain a copy by contacting the Trust's Administrative Office, 11815 N.
Pennsylvania Street, Carmel, Indiana 46032 or by phoning 800-557-7043.
TABLE OF CONTENTS
PAGE
Fund History......................................................... 1
Investment Restrictions.............................................. 1
Investment Strategies................................................ 2
Portfolio Turnover................................................... 4
Description of Securities and Investment Techniques.................. 5
Investment Performance............................................... 19
Securities Transactions.............................................. 21
Management........................................................... 23
Other Service Providers.............................................. 24
Net Asset Values of the Shares of the Portfolios..................... 26
Dividends, Distributions and Taxes................................... 27
General.............................................................. 27
Independent Accountants.............................................. 28
Financial Statements................................................. 28
<PAGE>
CCM INVESTMENT ADVISER
---
Conseco Capital Management, Inc.
<PAGE>
================================================================================
FUND HISTORY
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
("SEC") under the Investment Company Act of 1940 (the "1940 Act"). 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 SAI relates to the shares of five portfolios ("Portfolios") of
the Trust, each with its own investment objective or objectives and investment
policies. There is no assurance that any of the Portfolios will achieve its
investment objective. The various Portfolios may be used independently or in
combination.
The shares of the Portfolios are offered to insurance companies in order to
fund certain of their separate accounts used to support variable annuity and
variable life insurance contracts (the "Contracts"). Although not currently
doing so, Conseco Series Trust may also serve as an investment medium for
qualified pension and retirement plans outside of the separate account context.
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 SAI 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 affiliated insurance companies, such as, Bankers National
Life Insurance Company ("Bankers National"), Conseco Variable Insurance Company
("Conseco Variable"), and unaffiliated insurance companies. Trust shares are not
offered directly to and may not be purchased directly by members of the public.
Prior to May 3, 1999, the Fixed Income Portfolio was formerly known as the
Corporate Bond Portfolio; the Balanced Portfolio was formerly known as the Asset
Allocation Portfolio; and the Equity Portfolio was formerly known as the Common
Stock Portfolio.
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 Balanced 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
1
<PAGE>
================================================================================
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. With respect to 75 percent of its total assets, 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 (as defined in the Prospectus);
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 Government Securities Portfolio, the Fixed Income Portfolio, the
Balanced Portfolio and the Equity 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 Government Securities
Portfolio, Fixed Income Portfolio, Balanced Portfolio and Equity 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. With respect to 75 percent of its total assets, 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 bank, broker or
dealer.
INVESTMENT STRATEGIES
In addition to the investment strategies described in the Prospectus, the
MONEY MARKET PORTFOLIO may:
o 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." A money market instrument will be considered in the highest
quality (1) if it is rated in the highest rating category by (i) any two
nationally recognized statistical rating organization ("NRSRO") 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 securities to such security, and that are rate 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.
o With respect to no more than 5 percent of its total assets, measured at the
time of investment, invest in money market instruments that are in the
second-highest rating category for short-term debt obligations.
o 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
2
<PAGE>
================================================================================
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.
o 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.
o From time to time, purchase securities on a when-issued or delayed delivery
basis.
o Also enter into repurchase agreements.
In addition to the investment strategies described in the Prospectus, the
GOVERNMENT SECURITIES PORTFOLIO may:
o Invest the portion of the investment Portfolio which is not invested in U.S.
Government securities, in high rated debt securities that the Adviser
believes will not expose the Portfolio to undue risk.
o 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"
below for further information.
In addition to the investment strategies described in the Prospectus, the
FIXED INCOME PORTFOLIO may:
o Invest up to 15 percent of the Portfolio's assets directly in equity
securities, including preferred and common stocks, convertible debt
securities and debt securities carrying warrants to purchase equity
securities.
o Invest up to 10 percent of the Portfolio's assets in debt securities below
investment grade.
o 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"
below for further information.
In addition to the investment strategies described in the Prospectus, the
BALANCED PORTFOLIO may:
o If the Adviser believes that inflationary or monetary conditions warrant a
significant investment in companies involved in precious metals, 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.
o Invest in below investment grade securities, commonly known as "junk bonds".
o Invest in zero coupon securities and payment-in-kind securities.
o 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
3
<PAGE>
================================================================================
subdivisions or instrumentalities thereof. As a non-fundamental operating
policy, the Balanced Portfolio will not invest more than 50 percent of its
total assets (measured at the time of investment) in foreign securities. See
"Description of Securities and Investment Techniques" below for further
information.
4
<PAGE>
================================================================================
o 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 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" below for further information.
o Make temporary defensive investments (i.e., money market instruments)
without limit if it is believed that market conditions warrant a more
conservative investment strategy.
In addition to the investment strategies described in the Prospectus, the
EQUITY PORTFOLIO may:
o Invest in below investment grade securities, commonly known as "junk bonds".
o Use various investment strategies and techniques when the Adviser determines
that such use is appropriate in an effort to meet the Portfolio's investment
objectives. Such strategies and techniques include, 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 ("ADRs"); 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" below for further information.
o If market conditions indicate their desirability, for defensive purposes,
temporarily invest all or a part of the assets of the Equity Portfolio in
money market instruments.
PORTFOLIO TURNOVER
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.
5
<PAGE>
================================================================================
Because of the Adviser's active management style, our Portfolios generally
have a higher portfolio turnover than other portfolios and therefore, may have
higher taxable distribution and increased trading costs with may impact
performance. The following is a list of the Portfolios' portfolio turnover rates
for the fiscal year ended December 31, 1997 and 1998:
---------------------------------------------------------------------
YEAR ENDED
---------------------------------------------------------------------
PORTFOLIO NAME 1997 1998
---------------------------------------------------------------------
Government Securities Portfolio 195.08% 67.49%
---------------------------------------------------------------------
Fixed Income Portfolio 276.46% 321.09%
---------------------------------------------------------------------
Balanced Portfolio 369.39% 336.30%
---------------------------------------------------------------------
Equity Portfolio 234.20% 317.91%
---------------------------------------------------------------------
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 well
as the risks associated with such securities and techniques.
U.S. GOVERNMENT SECURITIES AND SECURITIES OF INTERNATIONAL ORGANIZATIONS
All of the Portfolios may invest in U.S. government securities. U.S.
government securities are issued or guaranteed by the U.S. Government or its
agencies, authorities or instrumentalities.
All of the Portfolios may purchase obligations issued by international
organizations, such as Inter-American Development Bank, the Asian-American
Development Bank and the International Bank for Reconstruction and Development
(the "World Bank"), which are not U.S. Government securities. These
international organizations, while not U.S. Government agencies or
instrumentalities, have the ability to borrow from member countries, including
the United States.
SMALL AND MEDIUM CAPITALIZATION COMPANIES
The Equity Portfolio may invest a substantial portion of its assets in
securities issued by small- and mid-cap companies. While these companies
generally have potential for rapid growth, investments in such companies often
involve greater risks than investments in larger, more established companies
because small- and mid-cap companies may lack the management experience,
financial resources, product diversification, and competitive strengths of
companies with larger market capitalizations. In addition, in many instances the
securities of small- and mid-cap companies are traded only over-the-counter or
on a regional securities exchange, and the frequency and volume of their trading
is substantially less than is typical of larger companies. Therefore, these
securities may be subject to greater and more abrupt price fluctuations. When
making large sales, a Portfolio may have to sell portfolio holdings at discounts
from quoted prices or may have to make a series of small sales over an extended
period of time due to the trading volume of small- and mid-cap company
securities. As a result, an investment in any of these Portfolios may be subject
to greater price fluctuations than an investment in a fund that invests
primarily in larger, more established companies. The Adviser's research efforts
may also play a greater role in
6
<PAGE>
================================================================================
selecting securities for these Portfolios than in a portfolio that invests
in larger, more established companies.
PREFERRED STOCK
Preferred stock pays dividends at a specified rate and generally has
preference over common stock in the payment of dividends and the liquidation of
the issuer's assets but is junior to the debt securities of the issuer in those
same respects. Unlike interest payments on debt securities, dividends on
preferred stock are generally payable at the discretion of the issuer's board of
directors, and shareholders may suffer a loss of value if dividends are not
paid. Preferred shareholders generally have no legal recourse against the issuer
if dividends are not paid. The market prices of preferred stocks are subject to
changes in interest rates and are more sensitive to changes in the issuer's
creditworthiness than are the prices of debt securities. Under ordinary
circumstances, preferred stock does not carry voting rights.
DEBT SECURITIES
All Portfolios may invest in U.S. dollar-denominated corporate debt
securities of domestic issuers, and the Fixed Income Portfolio and the Balanced
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.
As discussed more fully earlier in the SAI, 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 Government Securities Portfolio and Fixed
Income Portfolio will invest in rated debt securities only if they are rated
"investment grade," except that the Fixed Income Portfolio may invest up to 10
percent of the Portfolio's assets in below investment grade debt securities. The
Balanced Portfolio and Equity Portfolio 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.
BELOW INVESTMENT GRADE SECURITIES
IN GENERAL. The Fixed Income Portfolio, the Balanced Portfolio, and the
Equity Portfolio may invest in below investment grade securities. Below
investment grade securities (also referred to as "high yield securities are
securities rated BB+ or lower by S&P or Ba1 or lower by Moody's, securities
comparably rated by another NRSRO, or unrated securities of equivalent quality.
Below investment grade securities are deemed by the rating agencies to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Below investment grade securities, while generally offering
higher yields than investment grade securities with similar maturities, involve
greater risks, including the possibility of default or bankruptcy. As discussed
below, these risks are significantly greater in the case of below investment
grade securities.
Below investment grade securities generally offer a higher yield than that
available from higher-rated issues with
7
<PAGE>
================================================================================
similar maturities, as compensation for holding a security that is subject to
greater risk. Below investment grade 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. Below investment grade 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.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. 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 below investment grade securities may incur additional expenses
to the extent recovery is sought on defaulted securities. Because of the many
risks involved in investing in below investment grade securities, the success of
such investments is dependent upon the credit analysis of the Adviser. Although
the market for below investment grade 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 below investment grade 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: Ba1 or lower by
Moody's or BB+ or lower by Standard & Poor's. Debt securities rated below
investment grade are deemed by these agencies to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal and
may involve major risk exposure to adverse conditions.
Although 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 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 Balanced Portfolio's and the Equity 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.
CONVERTIBLE SECURITIES
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities ordinarily provide a stable
stream of income with generally higher yields than those of common stocks of the
same or similar issuers, but lower than the yield on non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
non-convertible securities but rank senior to common stock in a corporation's
capital structure.
8
<PAGE>
================================================================================
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
value, if converted into the underlying common stock. Convertible securities are
typically issued by smaller capitalized companies, whose stock prices may be
volatile. The price of a convertible security often reflects such variations in
the price of the underlying common stock in a way that non-convertible debt does
not. A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument, which could have an adverse effect on a Portfolio's ability to
achieve its investment objective.
MORTGAGE-BACKED SECURITIES
Each Portfolio other than the Money Market Portfolio may invest in
mortgage-backed securities. Mortgage-backed securities are interests in "pools"
of mortgage loans made to residential home buyers including mortgage loans made
by savings and loan institutions, mortgage bankers, commercial banks and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations (see
"Mortgage Pass-Through Securities," below).
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.
9
<PAGE>
================================================================================
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MORTGAGE-BACKED BONDS. 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. Asset-backed securities represent fractional interests in
pools of leases, retail installment loans and revolving credit receivables, both
secured and unsecured. These assets are generally held by a trust. Payments of
principal and interest or interest only are passed through to certificate
holders and may be guaranteed up to certain amounts by letters of credit issued
by a financial institution affiliated or unaffiliated with the trustee or
originator of the trust.
Underlying automobile sales contracts or credit card receivables are subject
to prepayment, which may reduce the overall return to certificate holders.
Nevertheless, principal repayment rates tend not to vary much with interest
rates and the short-term nature of the underlying car loans or other receivables
tends to dampen the impact of any change in the prepayment level. Certificate
holders may experience delays in payment on the certificates if the full amounts
due on underlying sales contracts or receivables are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. Other asset-backed
securities may be developed in the future.
10
<PAGE>
================================================================================
ZERO COUPON BONDS
The Balanced Portfolio may invest in zero coupon securities. Zero coupon
bonds are debt obligations which make no fixed interest payments but instead are
issued at a significant discount from face value. Like other debt securities,
the market price can reflect a premium or discount, in addition to the original
issue discount, reflecting the market's judgment as to the issuer's
creditworthiness, the interest rate or other similar factors. The original issue
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity (or the first interest payment date) at
a rate of interest reflecting the market rate at the time of issuance. Because
zero coupon bonds do not make periodic interest payments, their prices can be
very volatile when market interest rates change.
The original issue discount on zero coupon bonds must be included in a
Portfolio's income ratably as it accrues. Accordingly, to qualify for tax
treatment as a regulated investment company and to avoid a certain excise tax, a
Portfolio may be required to distribute as a dividend an amount that is greater
than the total amount of cash it actually receives. These distributions must be
made from the Portfolio's cash assets or, if necessary, from the proceeds of
sales of portfolio securities. Such sales could occur at a time which would be
disadvantageous to a Portfolio and when the Portfolio would not otherwise choose
to dispose of the assets.
PAY-IN-KIND BONDS
The Balanced Portfolio may invest in pay-in-kind bonds. These bonds pay
"interest" through the issuance of additional bonds, thereby adding debt to the
issuer's balance sheet. The market prices of these securities are likely to
respond to changes in interest rates to a greater degree than the prices of
securities paying interest currently. Pay-in-kind bonds carry additional risk in
that, unlike bonds that pay interest throughout the period to maturity, a
Portfolio will realize no cash until the cash payment date and the Portfolio may
obtain no return at all on its investment if the issuer defaults.
The holder of a pay-in-kind bond must accrue income with respect to these
securities prior to the receipt of cash payments thereon. To avoid liability for
federal income and excise taxes, a Portfolio most likely will be required to
distribute income accrued with respect to these securities, even though the
Portfolio has not received that income in cash, and may be required to dispose
of portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
COLLATERALIZED BOND OBLIGATIONS
A collateralized bond obligation ("CBO") is a type of asset-backed security.
Specifically, a CBO is an investment grade bond which is backed by a diversified
pool of high risk, high yield fixed income securities. The pool of high yield
securities is separated into "tiers" representing different degrees of credit
quality. The top tier of CBOs is backed by the pooled securities with the
highest degree of credit quality and pays the lowest interest rate. Lower-tier
CBOs represent lower degrees of credit quality and pay higher interest rates to
compensate for the attendant risk. The bottom tier typically receives the
residual interest payments (I.E. money that is left over after the higher tiers
have been paid) rather than a fixed interest rate. The return on the bottom tier
of CBOs is especially sensitive to the rate of defaults in the collateral pool.
EURODOLLAR AND YANKEEDOLLAR OBLIGATIONS
Eurodollar obligations are U.S. dollar obligations issued outside the United
States by domestic or foreign entities, while Yankeedollar obligations are U.S.
dollar obligations issued inside the United States by foreign entities. There is
generally less publicly available information about foreign issuers and there
may be less governmental regulation and supervision of foreign stock exchanges,
brokers and listed companies. Foreign issuers may use different accounting and
financial standards, and the addition of foreign governmental restrictions may
affect adversely the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements.
11
<PAGE>
================================================================================
FOREIGN SECURITIES
The Balanced 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 Balanced Portfolio and Equity Portfolio may invest in ADRs, which are
described below. The Fixed Income 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 Balanced 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.
All of the foregoing risks may be intensified in emerging markets.
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.
RESTRICTED SECURITIES, 144A SECURITIES AND ILLIQUID SECURITIES
The Fixed Income Portfolio, the Balanced Portfolio and the Equity Portfolio
may invest in restricted securities such as private placements, and in 144A
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
12
<PAGE>
================================================================================
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.
Rule 144A securities, although not registered, may be resold to qualified
institutional buyers in accordance with Rule 144A under the 1933 Act. The
Adviser, acting pursuant to guidelines established by the Board, may determine
that some Rule 144A securities are liquid.
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, which are securities that cannot be expected to
be sold within seven days at approximately the price at which they are valued.
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, Fixed Income Portfolio and Equity Portfolio may each invest in
obligations of foreign branches of
13
<PAGE>
================================================================================
domestic commercial banks and foreign banks so long as the securities are U.S.
dollar-denominated. The Balanced Portfolio may also invest in these types of
instruments but such instruments will not necessarily be U.S. dollar-
denominated. See "Foreign Securities" below for information regarding risks
associated with investments in foreign securities.
The Portfolios will not invest in obligations issued by a commercial bank or
S&L unless:
1. The bank or S&L has total assets of at least $1 billion, or the equivalent
in other currencies, and the institution has outstanding securities rated A
or better by Moody's or Standard & Poor's, or, if the institution has no
outstanding securities rated by Moody's or Standard & Poor's, it has, in
the determination of the Adviser, similar credit-worthiness to institutions
having outstanding securities so rated;
2. In the case of a U.S. bank or S&L, its deposits are federally insured; and
3. In the case of a foreign bank, the security is, in the determination of the
Adviser, of an investment quality comparable with other debt securities
which may be purchased by the Portfolio. These limitations do not prohibit
investments in securities issued by foreign branches of U.S. banks,
provided such U.S. banks meet the foregoing requirements.
COMMERCIAL PAPER
Commercial paper refers to promissory notes representing an unsecured debt of a
corporation or finance company with a fixed maturity of no more than 270 days. A
variable amount master demand note (which is a type of commercial paper)
represents a direct borrowing arrangement involving periodically fluctuating
rates of interest under a letter agreement between a commercial paper issuer and
an institutional lender pursuant to which the lender may determine to invest
varying amounts.
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 Government
Securities Portfolio or the Fixed Income 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.
14
<PAGE>
================================================================================
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, a Portfolio sells a fixed income security for
delivery in the current month and simultaneously contracts to repurchase a
substantially similar security (same type, coupon and maturity) on a specified
future date. During the roll period, the Portfolio would forego principal and
interest paid on such securities. The Portfolio would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by any interest earned on the proceeds of the initial sale.
In accordance with regulatory requirements, a Portfolio will segregate cash
or liquid securities whenever it enters into mortgage dollar rolls. Such
transactions may be considered to be borrowings for purposes of the Portfolios'
fundamental policies concerning borrowings.
WARRANTS
The Balanced Portfolio and Equity Portfolios may invest in warrants. Each of
these Portfolios may invest up to 5 percent of its net assets in warrants (not
including those that have been acquired in units or attached to other
securities), measured at the time of acquisition, and each such Portfolio may
acquire a warrant not listed on the New York or American Stock Exchanges if,
after such acquisition, no more than 2 percent of the Portfolio's net assets
would be invested in such warrants.
The holder of a warrant has the right to purchase a given number of shares
of a security of a particular issuer at a specified price until expiration of
the warrant. Such investments provide greater potential for profit or loss than
a direct purchase of the same amount of the securities. Prices of warrants do
not necessarily move in tandem with the prices of the underlying securities, and
are considered speculative investments. They pay no dividends and confer no
rights other than a purchase option. If a warrant is not exercised by the date
of its expiration, a Portfolio would lose its entire investment in such warrant.
FUTURES CONTRACTS
The Government Securities, Fixed Income, Balanced and Equity Portfolios may
engage in futures contracts and may purchase and sell interest rate futures
contracts. The Balanced and Equity Portfolios may purchase and sell stock index
futures contracts, interest rate futures contracts, and futures contracts based
upon other financial instruments and components. The Balanced Portfolio may also
engage in gold and other precious metals futures contracts.
Such investments may be made by these Portfolios solely for the purpose of
hedging against the effect that changes in general market conditions, interest
rates, and conditions affecting particular industries may have on the values of
securities held in a Portfolio or in which a Portfolio intends to purchase, and
not for purposes of speculation.
GENERAL DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides for
the future sale by one party and purchase by another party of a specified amount
of a particular financial instrument (debt security) or commodity for a
specified price at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and payment for the
underlying financial instruments, such contracts are usually closed out before
the delivery date. Closing out an open futures contract position is effected by
entering into an offsetting sale or purchase, respectively, for the same
aggregate amount of the same financial instrument on the same delivery date.
Where a Portfolio has sold a futures contract, if the offsetting price is more
than the original futures contract purchase price, the Portfolio realizes a
gain; if it is less, the Portfolio realizes a loss.
At the time a Portfolio 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
15
<PAGE>
================================================================================
Commission to qualify for an exclusion from being a "commodity pool operator".
INTEREST RATE FUTURES CONTRACTS. The Government Securities, Fixed Income,
Balanced and Equity 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 Government Securities, Fixed Income,
Balanced and Equity 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 Balanced and Equity 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 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 Balanced Portfolio or the
Equity 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
16
<PAGE>
================================================================================
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 Balanced 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 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
17
<PAGE>
================================================================================
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 AND SECURITIES INDICES
The Government Securities, Fixed Income, Balanced, and Equity Portfolios may
purchase put and call options on securities, and the Balanced and Equity
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 Government Securities, Fixed Income, Balanced
and Equity 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 partially against increases
in the value or securities to be purchased, the Government Securities, Fixed
Income, Balanced and Equity Portfolios may write "secured" put
18
<PAGE>
================================================================================
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 Balanced and Equity 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
Balanced and Equity 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.
19
<PAGE>
================================================================================
FOREIGN CURRENCY TRANSACTIONS
The Balanced 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 Balanced 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 Balanced 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 Balanced 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 Balanced 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
20
<PAGE>
================================================================================
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.
SEGREGATION AND COVER FOR OPTIONS, FUTURES AND OTHER FINANCIAL INSTRUMENTS
The use of the financial instruments discussed above, I.E., interest rate
transactions (including swaps, caps, floors and collars), futures contracts,
options on future contacts, options on securities and securities indices, and
forward contracts (collectively, "Financial Instruments"), may be subject to
applicable regulations of the SEC, the several exchanges upon which they are
traded, and/or the Commodity Futures Trading Commission ("CFTC").
Each Portfolio is required to maintain assets as "cover," maintain
segregated accounts or make margin payments when it takes positions in Financial
Instruments involving obligations to third parties (I.E., Financial Instruments
other than purchased options). No Portfolio will enter into such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies or other options, futures contracts or forward contracts, or (2) cash
and liquid assets with a value, marked-to-market daily, sufficient to cover its
potential obligations to the extent not covered as provided in (1) above. Each
Portfolio will comply with SEC guidelines regarding cover for these instruments
and will, if the guidelines so require, set aside cash or liquid assets in a
segregated account with its custodian in the prescribed amount as determined
daily.
BORROWING
For temporary purposes, such as to facilitate redemptions, a Portfolio may
borrow money from a bank, but only if immediately after each such borrowing and
continuing thereafter the Portfolio would have asset coverage of 300 percent.
Leveraging by means of borrowing will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Portfolio's net asset value;
money borrowed will be subject to interest and other costs which may 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.
INVESTMENT PERFORMANCE
The methods by which the investment performance of the Money Market
Portfolio are calculated for a specified
21
<PAGE>
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
Government Securities, Fixed Income, Balanced and Equity 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 Government Securities Portfolio and Fixed Income Portfolio may advertise
investment performance figures, including yield. Each Portfolio's yield will be
based upon a stated 30-day period and will be computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
YIELD = 2 ((A-B/CD)+1)6-1
Where:
A = the dividends and interest earned during the period.
B = the expenses accrued for the period (net of reimbursements, if any).
C = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
D = the maximum offering prices (which is the net asset value) per share on
the last day of the period.
Based on the 30-day period ended December 31, 1998, the average yield for
the Government Securities Portfolio 5.63% and the Fixed Income Portfolio was
6.14%.
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
22
<PAGE>
================================================================================
reinvestment of all distributions), according to the following formula:
P (1+T)n=ERV
Where:
P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value at the end of the stated period of a
hypothetical $1,000 payment made at the beginning of the stated
period.
The cumulative total return will be based upon a stated period and will be
computed by dividing the ending redeemable value of a hypothetical investment by
the value of the initial investment (assuming reinvestment of all
distributions).
Each investment performance figure will be carried to the nearest hundredth
of one percent.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
PORTFOLIO NAME ONE YEAR FIVE YEARS 10 YEARS
-------------- -------- ---------- --------
- -----------------------------------------------------------------------------
Money Market Portfolio 5.21% 5.02% 5.03%
- -----------------------------------------------------------------------------
Government Securities Portfolio 7.07% 6.32% 8.40%
----------------------------------------------------------------------------
Fixed Income Portfolio 6.17% 7.11% 7.34%*
- -----------------------------------------------------------------------------
Balanced Portfolio 10.37% 16.90% 14.15%
- -----------------------------------------------------------------------------
Equity Portfolio 15.62% 22.57% 18.26%
- -----------------------------------------------------------------------------
*Since inception - May 1, 1993.
SECURITIES TRANSACTIONS
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
23
<PAGE>
================================================================================
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 Adviser shall not be deemed to have acted unlawfully, or to have
breached any duty created by a Portfolio's Investment Advisory Agreement or
otherwise, solely by reason of its having caused the Portfolio to pay a
broker-dealer that provides brokerage and research services 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 is 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
the Portfolio. The Adviser allocates orders placed by it on behalf of these
Portfolios in such amounts and proportions as the Adviser shall determine and
the Adviser will report on said allocations regularly to a Portfolio indicating
the broker-dealers to whom such allocations have been made and the basis
therefor.
The receipt of research from broker-dealers may be useful to the Adviser in
rendering investment management services to these Portfolios and/or the
Adviser's other clients; conversely, 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 these Portfolios. 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 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 and 1998, no Portfolio paid
brokerage commissions to any affiliated brokers.
During the fiscal years ended December 31, 1997 and 1998, $1,075,944 and
$1,911,370, 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.
24
<PAGE>
================================================================================
MANAGEMENT
THE ADVISER
Conseco Capital Management, Inc. (the "Adviser") provides investment advice
and, in general, supervises the Trust's management and investment program,
furnishes office space, prepares reports for the Trust, monitors compliance by
the Trust in its investment activities and pays all compensation of officers and
Trustees of the Trust who are affiliated persons of the Adviser. The Trust pays
all other expenses incurred in the operation of the Trust, including fees and
expenses of unaffiliated Trustees of the Trust.
The 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. The Adviser manages and serves as
adviser to other registered investment companies and manages the invested assets
of Conseco, which owns or manages several life insurance subsidiaries, and
provides investment and servicing functions to the Conseco companies and
affiliates. The Adviser also manages foundations, endowments, public and
corporate pension plans, and private client accounts. As of December 31, 1998,
the Adviser managed in excess of $35.3 billion in assets.
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.
- -------------------------------------------------------------------------------
ADVISORY FEES ACCRUED
FISCAL YEAR ENDED DECEMBER 31
-----------------------------
- -------------------------------------------------------------------------------
PORTFOLIO 1997 1998
--------- ---- ----
- -------------------------------------------------------------------------------
Money Market Portfolio $ 19,048 $ 34,393
- -------------------------------------------------------------------------------
Government Securities Portfolio $ 20,206 $ 28,774
- -------------------------------------------------------------------------------
Fixed Income Portfolio $ 95,504 $ 108,286
- -------------------------------------------------------------------------------
Balanced Portfolio $ 119,987 $ 206,059
- -------------------------------------------------------------------------------
Equity Portfolio $ 1,145,633 $ 1,318,667
- -------------------------------------------------------------------------------
During the fiscal year ended December 31, 1997 and December 31, 1998, no
advisory fees were reimbursed and/or waived.
Pursuant to a contractual arrangement with the Trust, the Adviser has agreed
to waive fees and/or reimburse expenses through April 30, 2000, so that annual
operating expenses of each Portfolio are limited to the following net expenses:
0.45% for the Money Market Portfolio; 0.70% for the Government Securities
Portfolio; 0.70% for the Fixed Income Portfolio; 0.75% for the Balanced
Portfolio; and 0.80% for the Equity Portfolio. This arrangement does not cover
interest, taxes, brokerage commissions, and extraordinary expenses.
Conseco Variable Insurance Company and Bankers National Life Insurance
Company, subsidiaries of Conseco,
25
<PAGE>
================================================================================
Inc., hold a majority of the outstanding shares of Conseco Series Trust for the
benefit of contract owners.
OTHER SERVICE PROVIDERS
THE ADMINISTRATOR. The Board of Trustees has approved a form of
Administration Agreement to be implemented during 1999. It is anticipated that
Conseco Services, LLC a wholly owned subsidiary of Conseco will act as
Administrator to the Trust. Under the agreement, the Administrator will
supervise the overall administration of the Portfolios. These administrative
services may include supervising the preparation and filing of all documents
required for compliance by the Portfolios with applicable laws and regulations,
supervising the maintenance of books and records, and other general
administrative responsibilities. For providing these services, the Administrator
will receive a fee from each Portfolio.
CUSTODIAN. The Bank of New York , 90 Washington Street, 22nd Floor, New
York, New York 10826, serves as custodian of the assets of each Portfolio.
INDEPENDENT ACCOUNTANTS/AUDITORS. PricewaterhouseCoopers LLP, 2900 One
American Square, Box 82002, Indianapolis, Indiana 46282-0002 serves as the
Trust's independent accountant.
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 Conseco
Variable Insurance Company; 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.
<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. (73) 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 other mutual funds
managed by the Adviser.
MAXWELL E. BUBLITZ* (43) 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
other mutual funds managed by the Adviser.
HAROLD W. HARTLEY (75) 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 other mutual funds
managed by the Adviser. Director Ennis Business
Forms, Inc.
26
<PAGE>
=================================================================================================================================
NAME, ADDRESS POSITION HELD WITH PRINCIPAL OCCUPATION(S)
AND AGE TRUST OR ADVISER DURING PAST 5 YEARS
=================================================================================================================================
<S> <C> <C>
DR. R. JAN LECROY (68) Trustee Retired. Previously, President, Dallas Citizens
841 Liberty Council. Trustee of other mutual funds managed
Dallas, TX 75204 by the Adviser. Director, Southwest Securities
Group, Inc.
DR. JESSE H. PARRISH (71) Trustee Former President, Midland College. Higher
2805 Sentinel Education Consultant. Trustee of other mutual
Midland, TX 79701 funds managed by the Adviser.
DAVID N. WALTHALL (53) Trustee Principal, Walthall Asset Management. Former
1 Galleria Tower, Suite 1050 President, Chief Executive Officer and Director
13355 Noel Road of Lyrick Corporation. Formerly, President and
Dallas, TX 75240 CEO, Heritage Media Corporation. Formerly,
Director, Eagle National Bank. Trustee of other
mutual funds managed by the Adviser.
WILLIAM P. KOVACS (53) 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 other mutual funds
managed by the Adviser. Previously, Associate
Counsel, Vice President and Assistant Secretary,
Kemper Financial Services, Inc. (1989-1996);
previous to Of Counsel, Rudnick & Wolfe
(1997-1998); previous to Of Counsel, Shefsky &
Froelich (1998).
JAMES S. ADAMS (39) 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 other mutual funds
managed by the Adviser.
WILLIAM T. DEVANNEY, JR. (43) 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 other mutual funds 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 and its affiliates.
27
<PAGE>
================================================================================
The following table shows the compensation of each disinterested Trustee for the
fiscal year ending December 31, 1998.
COMPENSATION TABLE
<TABLE>
<CAPTION>
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 $26,000
(1 other investment company)
Harold W. Hartley $9,000 $26,000
(1 other investment company)
Dr. R. Jan LeCroy $9,000 $26,000
(1 other investment company)
Dr. Jesse H. Parrish $9,000 $26,000
(1 other investment company)
David N. Walthall $6,000 $8,000
(1 other investment company)
</TABLE>
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 closing market prices 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-
28
<PAGE>
================================================================================
the-counter market are valued at the mean between the closing bid and asked
prices as quoted by one or more dealers that make markets in such 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 below
investment grade 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.
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 less its estimated expenses (including fees payable to
the Adviser). Net investment income of the Money Market Portfolio consists of
accrued interest (i) plus or minus amortized discounts or premiums, (ii) plus or
minus realized gains or losses on portfolio securities, (iii) less the estimated
expenses of that Portfolio applicable to that dividend period. The Balanced
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 Fixed Income
Portfolio will be declared and reinvested monthly in additional full and
fractional shares of those respective Portfolios. Dividends from the Balanced
Portfolio and the Equity 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 each Portfolio's net capital gains (the excess of net
long-term capital gain over net short-term capital loss), net short-term gains,
and net realized gains from foreign currency transactions, 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 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.
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
29
<PAGE>
================================================================================
procedures) and appoint their own successors, provided that always at least a
majority of the Trustees have been elected by the shareholders of the Trust. The
voting rights of shareholders are not cumulative, so that holders of more than
50 percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect any
Trustees. The Trust is not required to hold Annual Meetings of Shareholders for
action by shareholders' vote except as may be required by the 1940 Act or the
Declaration of Trust. The Declaration of Trust provides that shareholders can
remove Trustees by a vote of two-thirds of the vote of the outstanding shares.
The Trustees will call a meeting of shareholders to vote on the removal of a
Trustee upon the written request of the holders of 10 percent of the Trust's
shares. In addition, 10 or more shareholders meeting certain conditions and
holding the lesser of $25,000 worth or 1 percent of the Trust's shares may
advise the Trustees in writing that they wish to communicate with other
shareholders for the purpose of requesting a meeting to remove a Trustee. The
Trustees will then either give those shareholders access to the shareholder list
or, if requested by those shareholders, mail at the shareholders' expense the
shareholders' communication to all other shareholders. See the Contract and
Policy Prospectuses for information as to the voting of shares by Owners.
Each issued and outstanding share of each Portfolio is entitled to
participate equally in dividends and distributions of the respective Portfolio
and in the net assets of such Portfolio upon liquidation or dissolution
remaining after satisfaction of outstanding liabilities. The shares of each
Portfolio have no preference, preemptive, conversion, 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 PricewaterhouseCoopers
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
30
<PAGE>
================================================================================
given upon the authority of the firm as experts in accounting and auditing.
FINANCIAL STATEMENTS
Audited Financial Statements for the Conseco Series Trust Money Market
Portfolio, Government Securities Portfolio, Corporate Bond Portfolio (now, the
Fixed Income Portfolio), Asset Allocation Portfolio (now, the Balanced
Portfolio) and Common Stock Portfolio (now, the Equity Portfolio), and for the
fiscal year ended December 31, 1998 are incorporated by reference from the
Trust's annual report to shareholders.
31
<PAGE>
CONSECO SERIES TRUST
ADMINISTRATIVE OFFICE
11815 N. PENNSYLVANIA STREET
CARMEL, INDIANA 46032
SAI-100 (5/99) May 3, 1999
<PAGE>
CONSECO SERIES TRUST
Money Market Portfolio
Government Securities Portfolio
Fixed Income Portfolio
Balanced Portfolio
Equity Portfolio
REGISTRATION STATEMENT ON FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Articles of Incorporation:
-- 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. All exhibits incorporated by reference to
Post-Effective Amendment No. 24 to the Registration
Statement (SEC File No. 2-80455), were filed November 5,
1998.
(b) Bylaws
-- By-Laws, incorporated by reference to Exhibit No. 2 to the
Registration Statement on Form N-1 (File No. 2-80455). All
exhibits incorporated by reference to Post-Effective
Amendment No. 24 to the Registration Statement (SEC File No.
2-80455), were filed November 5, 1998.
(c) Instruments Defining Rights of Security Holders
-- Not Applicable.
(d) Investment Advisory Contracts
-- 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.
All exhibits incorporated by reference to Post-
<PAGE>
Effective Amendment No. 24 to the Registration Statement
(SEC File No. 2-80455), were filed November 5, 1998.
(e) Underwriting Contracts
-- Not Applicable.
(f) Bonus or Profit Sharing Contracts
-- Not Applicable.
(g) Custodian Agreements
-- 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; and a Custodian Agreement is incorporated by
reference to Exhibit No. (g) to the Registration Statement
on Form N-1A (File No. 2-80455) filed herewith.
(h) Other Material Contracts
-- Administration Agreement dated May 3, 1999 is incorporated
by reference to Registration Statement on Form N-1A (File
No. 2-80455) filed herewith.
(i) Legal Opinion
-- Consent and Opinion of Counsel filed herewith.
(j) Other Opinions
-- Consent of Independent Accountants filed herewith.
(k) Omitted Financial Statements
-- Not Applicable.
(l) Initial Capital Agreements
-- Not Applicable.
(m) Rule 12b-1 Plan
-- Not Applicable.
(n) Financial Data Schedule. Filed herewith.
-- Money Market Portfolio.
-- Government Securities Portfolio.
-- Fixed Income Portfolio.
-- Balanced Portfolio.
-- Equity Portfolio.
(o) Rule 18f-3 Plan
<PAGE>
-- Not Applicable.
ITEM 24. 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)
Marketing Distribution Systems Consulting Group, Inc. (Delaware)
MDS of New Jersey, Inc. (New Jersey)
Conseco Equity Sales, Inc. (Texas)
Conseco Risk Management, Inc. (Indiana)
Conseco Mortgage Capital, Inc. (Delaware)
Conseco Group Risk Management Company (Mississippi)
Green Tree Financial Corporation (Delaware)
CIHC, Incorporated (Delaware)
Conseco Services, LLC (Indiana)
Conseco Marketing, LLC (Indiana)
Conseco Financial Services, Inc. (Delaware)
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 (Illinois)
Jefferson National Life Insurance Company of Texas (Texas)
Conseco Direct Life Insurance Company (Pennsylvania)
Conseco Annuity Assurance Company (Illinois)
Vulcan Life Insurance Company (Indiana)
Conseco Senior Health Insurance Company (Pennsylvania)
Continental Life Insurance Company (Texas)
United General Life Insurance Company (Texas)
Conseco Life Insurance Company of New York (New York)
<PAGE>
Conseco Variable Insurance Company (Texas)
Providential Life Insurance Company (Arkansas)
Washington National Corporation (Delaware)
Washington National Insurance Company (Illinois)
United Presidential Corporation (Indiana)
United Presidential Life Insurance Company (Indiana)
Wabash Life Insurance Company (Kentucky)
Conseco Life Insurance Company (Indiana)
Lincoln American Life Insurance Company (Tennessee)
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)
Conseco Medical Insurance Company (Illinois)
Capital American Financial Corporation (Ohio)
Conseco Health Insurance Company (Arizona)
Frontier National Life Insurance Company (Ohio)
Consumer Acceptance Corporation (Indiana)
General Acceptance Corporation (Indiana)
NAL Financial Group, Inc. (Delaware)
Conseco Series Trust (Massachusetts)*
Conseco Fund Group (Massachusetts) (publicly held)**
Conseco Strategic Income Fund (Massachusetts) (publicly held) ***
* The shares of Conseco Series Trust currently are sold to insurance separate
accounts which are both affiliated and unaffiliated.
** The shares of the Conseco Fund Group are sold to the public; Conseco
affiliates currently hold in excess of 55% of its shares.
*** The shares of the Conseco Strategic Income Fund, a closed-end management
investment company, are traded on the New York Stock Exchange.
ITEM 25. 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
<PAGE>
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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Conseco Capital Management, Inc. (the "Adviser") is an Indiana corporation
which offers investment advisory services. The Adviser is a wholly-owned
subsidiary of Conseco, Inc., also an Indiana corporation, a publicly owned
financial services company. Both the Adviser's and Conseco, Inc.'s officers are
located at 11825 N. Pennsylvania Street, Carmel, Indiana 46032.
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; Executive Vice President of
Conseco, Inc.; President and Trustee of Conseco Fund Group; President and
Trustee of Conseco Strategic Income Fund.
Albert J. Gutierrez, Senior Vice President, Investment Officer.
Gregory J. Hahn, Senior Vice President, Portfolio Analytics; Trustee of
Conseco Fund Group; Trustee of Conseco Strategic Income Fund.
Thomas A. Meyers, Senior Vice President, Director of Marketing
Thomas J. Pence, Senior Vice President
William P. Kovacs, Senior Counsel and Secretary; Chief Compliance Officer
and Director; Vice President and Secretary of Conseco Fund Group; Vice President
and Secretary of Conseco Strategic Income Fund;. Vice President and Secretary
Conseco Equity Sales, Inc.; Vice President and Secretary of Conseco Financial
Services, Inc.
Information as to the officers and directors of the Adviser is included in
its current Form ADV filed with the SEC and is incorporated by reference herein.
ITEM 27. PRINCIPAL UNDERWRITER
Not Applicable.
ITEM 28. 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, Conseco
Capital Management, Inc., or
<PAGE>
the Custodian, The Bank of New York, 90 Washington Street, 22nd Floor, New York,
New York 10826.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Conseco Series Trust, certifies
that it meets all of the requirements for effectiveness of this Post-Effective
Amendment No. 25 to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 25
to be signed on its behalf by the undersigned, thereto duly authorized, in the
city of Carmel, of the State of Indiana, on the 3rd day of May, 1999.
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 May 3, 1999
- ------------------------------ (Principal Executive Officer) and Trustee
Maxwell E. Bublitz
/S/ WILLIAM P. DAVES, JR.* Chairman of the Board and May 3, 1999
- ------------------------------- Trustee
William P. Daves, Jr.
/S/ HAROLD W. HARTLEY* Trustee May 3, 1999
- -----------------------------
Harold W. Hartley
/S/ R. JAN LECROY* Trustee May 3, 1999
- -----------------------------
R. Jan LeCroy
/S/ JESSE H. PARRISH* Trustee May 3, 1999
- -----------------------------
Jesse H. Parrish
/S/ JAMES S. ADAMS* Treasurer May 3, 1999
- -----------------------------
James S. Adams
/S/ DAVID N. WALTHALL* Trustee May 3, 1999
- -----------------------------
David N. Walthall
* /S/ WILLIAM P. KOVACS
William P. Kovacs
Attorney-in-fact
</TABLE>
<PAGE>
Exhibit
NUMBER EXHIBIT
(g) Custodian Agreement
(h) Administration Agreement
(i) Consent and Opinion of Counsel
(j) Consent of Accountants
(n) Financial Data Schedule
Financial Data Schedule - Money Market Portfolio
Financial Data Schedule - Government Securities Portfolio
Financial Data Schedule - Equity Portfolio
Financial Data Schedule - Balanced Portfolio
Financial Data Schedule - Fixed Income Portfolio
EXHIBIT (G)
Custodian Agreement
CUSTODY AGREEMENT
AGREEMENT, dated as of December ___, 1998 between Conseco Series Trust
("Fund"), on behalf of each of the series listed on Appendix I (each a
"Portfolio") and The Bank of New York ("Custodian").
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words shall have the
meanings set forth below:
1. "AUTHORIZED PERSON" shall be any person, whether or not an officer
or employee of Fund, duly authorized by Fund to give Oral and/or Written
Instructions on behalf of Fund, such persons to be designated in a Certificate
of Authorized Persons which contains a specimen signature of such person.
2. "BNY AFFILIATE" shall mean any office, branch or subsidiary of The
Bank of New York Company, Inc.
4. "BOOK-ENTRY SYSTEM" shall mean the Federal Reserve/Treasury book-
entry system for receiving and delivering securities, its successors and
nominees.
5. "BUSINESS DAY" shall mean any day on which Custodian, Book-Entry
System and relevant Depositories are open for business.
6. "DEPOSITORY" shall include the Depository Trust Company, the
Participants Trust Company, Euro-clear, Cedel, S.A. and any other securities
depository or clearing agency (and their respective successors and nominees)
registered with the U.S. Securities and Exchange Commission or otherwise
authorized to act as a securities depository or clearing agency.
7. "FOREIGN SECURITIES" shall include, without limitation, securities
issued by a government other than the United States government or a corporation
or other entity organized under the laws of any country other than the United
States and the securities issued by the United States government or by a state
or political subdivision thereof or by an agency thereof or by any entity
organized under the laws of the United States or of any state thereof which have
been issued and sold primarily outside the United States.
8. "ORAL INSTRUCTIONS" shall mean verbal instructions received by
Custodian from an Authorized Person or from a person reasonably believed by
Custodian to be an Authorized Person.
9. "UCC" shall mean the Uniform Commercial Code as in effect in the
State of New York.
10. "SECURITIES" shall include, without limitation, securities held in
the Book-Entry System or at a Depository, Foreign Securities, common stock and
other equity securities, bonds, debentures and other debt securities, notes,
mortgages or other obligations, and any instruments representing rights to
receive, purchase, or subscribe for the same, or representing any other rights
or interests therein.
11. "WRITTEN INSTRUCTIONS" shall mean any notices, instructions or
other instruments in writing received by Custodian from an Authorized Person or
from a person reasonably believed by Custodian to be an Authorized Person by
letter, telex, facsimile or electronic transmission, Custodian's on-line
communication system, or any other method whereby Custodian is able to verify
with a reasonable degree of certainty the identity of the sender of such
communications or the sender is required to provide a password or other
identification code.
ARTICLE II
APPOINTMENT OF CUSTODIAN; ACCOUNTS;
REPRESENTATIONS AND WARRANTIES
1. Fund, on behalf of each Portfolio, hereby appoints Custodian as
custodian of all Securities and cash at any time delivered to Custodian during
the term of this Agreement.
(a) Fund, on behalf of each Portfolio, authorizes Custodian to hold.
Securities in registered form in its name or the name of its nominees. Custodian
hereby accepts such appointment and agrees to establish and maintain one or more
securities accounts and cash accounts in the name of Fund (collectively, the
"Account") in which it will hold.
Securities and cash as provided herein.
(b) The Account shall constitute a "securities account" within the
meaning of Section 8-501 of the UCC, and Custodian agrees that all Securities
and other assets (other than money) of the Series that are credited to the
Account shall constitute "financial assets," as such term is
<PAGE>
defined in Section 8-102(a)(9) of the UCC. Except as specified in the next
sentence, the Fund shall have a "security entitlement," as that term is defined
in Section 8-102(a)(17) the UCC, with Custodian with respect to such financial
assets. To the extent that any financial assets are registered in the name of,
payable to the order of, or specially endorsed to the Fund and have not been
endorsed to Custodian (or if applicable, the Book Entry System or the
Depository) or in blank, Custodian shall hold such financial assets in the
Account as custodian and bailee for and on behalf of the Fund in accordance with
the terms of this Agreement.
2. Fund hereby represents and warrants, which representations and
warranties shall be continuing and shall be deemed to be reaffirmed upon each
Oral or Written Instruction given by Fund, on behalf of a Portfolio, that:
(a) Fund is duly organized and existing under the laws of the
jurisdiction of its organization, with full power to carry on its business as
now conducted, to enter into this Agreement and to perform its obligations
hereunder;
(b) This Agreement has been duly authorized, executed and delivered by
Fund, constitutes a valid and legally binding obligation of Fund, enforceable in
accordance with its terms, and no statute, regulation, rule, order, judgment or
contract binding on Fund prohibits Fund's execution or performance of this
Agreement;
(c) Either a Portfolio owns the. Securities in the Account free and
clear of all liens, claims, security interests and encumbrances (except those
granted herein) or, if the. Securities are owned beneficially by others, a
Portfolio has the right to pledge such Securities to the extent necessary to
secure that Portfolio's obligations hereunder, free of any right of redemption
or prior claim by the beneficial owner. Custodian's security interest pursuant
to Article V hereof shall be a first lien and security interest subject to no
setoffs, counterclaims or other liens prior to or on a parity with it in favor
of any other party (other than specific liens granted preferred status by
statute), and Fund shall take any and all reasonable additional steps which
Custodian requires to assure itself of such priority and status, including
notifying third parties or obtaining their consent to, Custodian's security
interest; and
(d) Fund undertakes to comply with all applicable requirements of any
laws, rules, regulations and governmental authorities having jurisdiction over
Fund and its business.
3. Custodian hereby represents and warrants, which representations and
warranties shall be continuing and shall be deemed to be reaffirmed upon each
Oral or Written Instruction received by Custodian, that:
(a) Custodian is duly organized and existing under the laws of the
jurisdiction of its organization, with full power to carry on its business as
now conducted, to enter into this Agreement and to perform its obligations
hereunder; and
(b) This Agreement has been duly authorized, executed and delivered by
Custodian, constitutes a valid and legally binding obligation of Custodian,
enforceable in accordance with its terms, and no statute, regulation, rule,
order, judgment or contract binding on Custodian prohibits Custodian's execution
or performance of this Agreement; and
(c) Custodian undertakes to comply with all applicable requirements of
any laws, rules, regulations and governmental authorities having jurisdiction
with respect to the duties to be performed by Custodian pursuant to this
Agreement.
ARTICLE III
CUSTODY AND RELATED SERVICES
1. Subject to the terms hereof, Fund hereby authorizes Custodian to
hold any Securities received by it from time to time for a Portfolio's account.
(a) Custodian shall be entitled to utilize the Book-Entry System and
Depositories to the extent possible in connection with its performance
hereunder. Securities and cash deposited by Custodian in the Book-Entry System
or a Depository will be held subject to the rules, terms and conditions of the
Book-Entry System or such Depository. Custodian shall identify on its books and
records the. Securities and cash belonging to each Portfolio, whether held
directly or indirectly through the Book-Entry System or a Depository. Securities
and cash of each Portfolio deposited in the Book-Entry System or a Depository
will be represented in accounts which include only assets held by Custodian for
its customers.
(b) Customer hereby authorizes Custodian to appoint one or more banking
institutions located outside of the United States as its subcustodian or
correspondent (each a "Foreign Subcustodian") in connection with the purchase,
sale or custody of a Portfolio's Foreign Securities.
2. Custodian shall furnish Fund with (a) an advice of daily
transactions, (b) a monthly statement summarizing all transactions and entries
for each Portfolio's Account, including all cash deposits and disbursements, and
listing all Securities in the Account, and (c) such periodic and special reports
as may be mutually agreed.
3. With respect to all Securities held in the Account, Custodian shall,
unless otherwise instructed to the contrary in writing:
(a) Receive and deposit all income, interest, dividends and other
payments and advise Fund as promptly as practicable of any such
<PAGE>
amounts due but not paid;
(b) Present for payment and receive the amount paid upon all Securities
which may mature or be called, redeemed, retired or otherwise presented for
payment and advise Fund as promptly as practicable of any such amounts due but
not paid;
(c) Forward to Fund copies of all information or documents that it may
receive from an issuer of Securities which, in the reasonable opinion of
Custodian, are intended for the beneficial owner of Securities;
(d) Execute, as custodian, any certificates of ownership, affidavits,
declarations or other certificates under any tax laws now or hereafter in effect
in connection with the collection of bond and note coupons;
(e) Hold directly, or through the Book-Entry System, a Depository or
Foreign Subcustodian, all rights and similar. Securities including stock
distributions and dividends issued with respect to any Securities credited to
the Account hereunder; and
(f) Endorse and deposit for collection checks, drafts or other
negotiable instruments.
4. (a) Whenever Securities (including, but not limited to, warrants,
options, tenders, options to tender or non-mandatory puts or calls) confer
optional rights on Fund or provide for discretionary action or alternative
courses of action by Fund, Fund shall be responsible for making any decisions
relating thereto and for directing Custodian to act. In order for Custodian to
act, it must receive Fund's Written Instructions at Custodian's offices,
addressed as Custodian may from time to time reasonably request, not later than
noon (New York time) at least two (2) Business Days prior to the last scheduled
date to act with respect to such Securities (or such earlier date or time as
Custodian may notify Fund). If Custodian provides such notification to Fund less
than two Business Days prior to the last scheduled date to act with respect to
such Securities, Fund agrees to direct Custodian regarding the action to be
taken promptly upon receipt. Upon receipt of Written Instructions, Custodian
will exchange Securities held hereunder for other Securities and/or cash in
connection with any conversion privilege, reorganization, recapitalization,
redemption in kind, consolidation, tender offer or exchange offer, or any
exercise or subscription, purchase or other similar rights represented by
Securities. Absent Custodian's timely receipt of such Written Instructions,
Custodian shall not be liable for failure to take any action relating to or to
exercise any rights conferred by such Securities.
(b) Custodian shall notify Fund as promptly as practicable under the
circumstances of such rights or discretionary actions or of the date or dates by
when such rights must be exercised or such action must be taken provided that
Custodian has received, from the issuer or the relevant Depository, timely
notice of such rights or discretionary corporate action or of the date or dates
such rights must be exercised or such action must be taken. Absent actual
receipt of such notice, Custodian shall have no liability for failing to so
notify Fund.
5. All voting rights with respect to Securities, however registered,
shall be exercised by Fund or its designee. Custodian's only duty shall be to
mail to Fund any documents (including proxy statements, annual reports and
signed proxies) relating to the exercise of such voting rights as promptly as
practicable under the circumstances.
6. Custodian shall as promptly as practicable under the circumstances
advise Fund upon its notification of the partial redemption, partial payment or
other action affecting less than all Securities of the relevant class. If
Custodian or Depository holds any Securities in which a Portfolio has an
interest as part of a fungible mass, Custodian or Depository may select the
Securities to participate in such partial redemption, partial payment or other
action in any non-discriminatory manner that it customarily uses to make such
selection.
7. Custodian shall not under any circumstances accept bearer interest
coupons which have been stripped from United States federal, state or local
government or agency securities unless explicitly agreed to by Custodian in
writing.
8. For the purpose of settling purchases of Foreign Securities and
foreign exchange transactions, the applicable Portfolio shall provide Custodian
with sufficient immediately available funds for all transactions by such time
and date as local conditions in the relevant market dictate.
(a) As used herein "sufficiently immediately available funds" shall
mean either (i) sufficient United States currency to purchase the necessary
foreign currency, or (ii) sufficiency applicable foreign currency, to settle the
transaction. Custodian shall provide Fund with immediately available funds each
day which result from the actual settlement of all sale transactions, based upon
advices received by Custodian from its Foreign Subcustodians and Depositories.
Such funds shall be in United States dollars or such other currency as the Fund
may specify to Custodian.
(b) Custodian is authorized to enter into spot or forward foreign
currency exchange transactions in connection with transactions in Foreign
Securities, or as otherwise may be requested by Fund and agreed to by Custodian.
Such contracts may be entered with Custodian or a BNY Affiliate acting as
principal or otherwise through customary banking channels. All expenses and
risks incident to the collection and conversion of currencies (including rate
fluctuations) shall be assumed by the applicable Portfolio.
10. Custodian is authorized to deliver or caused to be delivered
Securities against payment or other consideration or written receipt for the
exchange of interim receipts or temporary Securities for definitive Securities
and for transfer of Securities into the Account, or for exchange of Securities
for a different number of bonds, certificates, or other evidence, representing
the same aggregate face amount or number of units bearing
<PAGE>
the same interest rate, maturity date and call provisions.
ARTICLE IV
PURCHASE AND SALE OF SECURITIES;
CREDITS TO ACCOUNT
1. Promptly after each purchase or sale of Securities by a Portfolio,
Fund shall deliver to Custodian Written Instructions specifying all information
necessary for Custodian to settle such purchase or sale. Custodian shall account
for all purchases and sales of Securities on the actual settlement date unless
otherwise agreed by Custodian.
2. Custodian is instructed to settle all transactions involving
Securities (other than Foreign Securities) in accordance with street delivery
custom. Fund understands that when Custodian is instructed to deliver Securities
against payment, delivery of such Securities and receipt of payment therefor may
not be completed simultaneously. Fund assumes full responsibility for all credit
risks involved in connection with Custodian's delivery of Securities pursuant to
instructions of Fund.
3. Custodian may, as a matter of bookkeeping convenience or by separate
agreement with Fund, credit the Account with the proceeds from the sale,
redemption or other disposition of Securities or interest, dividends or other
distributions payable on Securities prior to its actual receipt of final payment
therefor. All such credits shall be conditional until Custodian's actual receipt
of final payment and may be reversed by Custodian to the extent that final
payment is not received. Payment with respect to a transaction will not be
"final" until Custodian shall have received immediately available funds which
under applicable law or rule are irreversible and not subject to any security
interest, levy or other encumbrance, and which are specifically applicable to
such transaction.
4. Upon Fund's Oral or Written Instructions, Custodian shall purchase
or sell Securities and is authorized to utilize any broker or agent in
connection with any such transactions, including BNY Affiliates. Custodian shall
not be liable for the acts or omissions of any such broker or agent, other than
a BNY Affiliate.
5. Provided that Custodian has acted without negligence, Custodian
shall have no obligation, and shall not be liable, for any loss or damage
whatsoever, resulting from its failure to settle any Security transaction where
the rules of a Depository prevent the receipt or delivery of such Security
(i.e., that the Security has been "chilled"). Custodian may, but is not
obligated to, attempt to utilize alternative methods of delivering Securities
from time to time offered by a Depository.
ARTICLE V
OVERDRAFTS OR INDEBTEDNESS
If Custodian in its sole discretion advances funds to a Portfolio which
results in an overdraft in the Account (including, without limitation,
overdrafts incurred in connection with the settlement of securities transactions
or funds transfers) or if a Portfolio is for any other reason indebted to
Custodian in connection with this Agreement, such overdraft or indebtedness
shall be deemed to be a loan made by Custodian to Portfolio payable on demand
and shall bear interest from the date incurred at Custodian's prime commercial
lending rate as publicly announced to be in effect from time to time, such rate
to be adjusted on the effective date of any change in such rate. In order to
secure repayment of a Portfolio's obligations to Custodian hereunder, Fund
hereby agrees that Custodian shall have a continuing lien and security interest
in, and right of set-off against, all Securities, money and other property now
or hereafter held in the Account (including proceeds thereof), and any other
property at any time held by it for the account of that Portfolio, provided that
the lien, security interest and right of set-off shall at all times be
enforceable only to the extent of the advance, overdraft or indebtedness. In
this regard, Custodian shall be entitled to all the rights and remedies of a
pledgee under common law and a secured party under the New York Uniform
Commercial Code and any other applicable laws, rules or regulations as then in
effect.
ARTICLE VI
CONCERNING CUSTODIAN
1. (a) Custodian shall exercise reasonable care in performing its
obligations hereunder and except as otherwise expressly provided herein,
Custodian shall not be liable for any costs, expenses, damages, liabilities or
claims including attorneys' and accountants' fees (collectively, "Losses")
incurred by or asserted against Fund or Portfolio, except those Losses arising
out of the bad faith, negligence or willful misconduct of Custodian. Custodian
shall have no obligation hereunder for Losses which are sustained or incurred by
reason of any action or inaction by the Book-Entry System or any Depository,
unless such action or inaction is caused by the negligence or willful misconduct
of Custodian. With respect to any Losses incurred by Fund or a Portfolio as a
result of the acts or the failure to act by any foreign Subcustodian, Custodian
shall take appropriate action to recover such Losses from such Foreign
Subcustodian (exclusive of costs and expenses incurred by Custodian). In no
event shall Custodian be liable to Fund or any third party for special, indirect
or consequential damages, or lost profits or loss of business, arising in
connection with this Agreement.
(b) Fund agrees to indemnify Custodian and hold Custodian harmless from
and against any and all Losses sustained or incurred by or asserted against
Custodian by reason of or as a result of any action or inaction, or arising out
of Custodian's performance hereunder, including reasonable fees and expenses of
counsel incurred by Custodian in a successful defense of claims by Fund;
provided, that Fund shall not indemnify Custodian for those Losses arising out
of Custodian's bad faith, negligence or willful misconduct. This indemnity shall
continue and shall be
<PAGE>
binding on Fund's successors and assigns under the same terms and be subject to
the same limitations, even after the termination of this Agreement.
2. Without limiting the generality of the foregoing, Custodian shall
not obligated to inquire into, and shall not be liable for, the validity of any
Securities purchased or sold by a Portfolio, the legality of their purchase or
sale, the propriety of the amount paid therefor upon purchase or sale, or any
actions of third parties with respect to the negotiability of Securities.
3. Custodian may, with respect to questions of law specifically
regarding the Account, obtain the advice of counsel (at its own expense) and may
reasonably rely in good faith and act reasonably in conformity with such advice.
4. Custodian shall be under no obligation to take action to collect any
amount payable on Securities in default, or if payment is refused after due
demand and presentment, but shall notify Fund as promptly as practicable under
the circumstances of such default or refusal to pay.
5. Custodian shall have no duty or responsibility to inquire into, make
recommendations, supervise, or determine the suitability of any transactions
affecting any Account.
6. Fund shall pay to Custodian the fees and charges set forth on the
Fee Schedule attached hereto (or as may be agreed upon from time to time), and
shall reimburse Custodian for all costs associated with the conversion of Fund's
Securities hereunder and the transfer of Securities and records kept in
connection with this Agreement. Fund shall also reimburse Custodian for
out-of-pocket expenses as agreed. Custodian may debit the Account for amounts
payable hereunder which remain in arrears for over 60 days.
7. Custodian shall be entitled to reasonably rely upon any Written or
Oral Instruction actually received by Custodian and reasonably believed by
Custodian to be duly authorized and delivered. Fund agrees to forward to
Custodian Written Instructions confirming Oral Instructions by the close of
business of the same day that such Oral Instructions are given to Custodian.
Fund agrees that the fact that such confirming Written Instructions are not
received or that contrary Written Instructions are received by Custodian after
Custodian has acted upon Oral Instructions shall in no way affect the validity
or enforceability of transactions authorized by such Oral Instructions and
effected by Custodian. If Fund elects to transmit Written Instructions through
an on-line communication system offered by Custodian, Fund's use thereof shall
be subject to the Terms and Conditions attached hereto as Appendix II.
8. To the extent that Custodian has agreed to provide pricing or other
information services in connection with this Agreement, Custodian is authorized
to utilize any vendor (including brokers and dealers of Securities) reasonably
believed by Custodian to be reliable to provide such information. Custodian
shall not be liable for any loss, damage or expense incurred as a result of
errors or omissions of such pricing information service, broker or dealer.
9. Upon reasonable request, Fund shall have access to Custodian's books
and records relating to the Account during Custodian's normal business hours.
Upon reasonable request, copies of any such books and records shall be provided
to Fund at Fund's expense.
10. It is understood that Custodian is authorized to supply any
information regarding the Account which is required by any law, regulation or
rule now or hereafter in effect.
11. Custodian shall not be responsible or liable for any failure or
delay in the performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control, including without limitation, acts of God; earthquakes; fires; floods;
wars; civil or military disturbances; sabotage; epidemics; riots; interruptions,
loss or malfunctions of utilities, computer (hardware or software) or
communications service; accidents; labor disputes; acts of civil or military
authority or governmental actions; it being understood that Custodian shall use
its best efforts to resume performance as soon as practicable under the
circumstances.
12. Custodian may enter into subcontracts, agreement and understanding
with any BNY Affiliate whenever and on such terms and conditions as it deems
necessary or appropriate to perform its services hereunder. No such subcontract,
agreement or understanding shall discharge Custodian from its obligations
hereunder.
13. Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied against Custodian in
connection with this Agreement.
ARTICLE VII
TERMINATION
Either party may terminate this Agreement (with respect to one or more
Portfolios or in the entirety) by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than sixty (60)
days after the date of such notice. Upon termination hereof, applicable
Portfolio(s) shall pay to Custodian such compensation as may be due to
Custodian, and shall likewise reimburse Custodian for other amounts payable or
reimbursable to Custodian hereunder. Custodian shall follow such reasonable
Written Instructions concerning the transfer of custody of records, Securities
and other items as Fund shall give; provided, that (a) Custodian shall have no
liability for shipping and insurance costs associated therewith, and (b) full
payment shall have been made to Custodian of its compensation, costs, expenses
and other amounts to which it is entitled hereunder.
<PAGE>
(a) In the event termination notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Trustees of the Fund,
certified by the Secretary, or any Assistant Secretary electing to terminate
this Agreement and designating a successor custodian or custodians, each of
which shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. In the event such notice is given by the
Custodian, the Fund shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Board of Trustees of the Fund, certified
by the Secretary, or any Assistant Secretary designating a successor custodian
or custodians. In the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon
the date set forth in such notice this Agreement shall terminate, and the
Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as Custodian, after
deducting all fees, expenses and other amounts for the payment of reimbursement
of which it shall then be entitled.
(b) If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
(c) Notwithstanding the foregoing, the Fund may terminate this
Agreement upon the date specified in a written notice in the event of the
bankruptcy of the Custodian, or any other event that the Fund reasonably
believes materially adversely affects the continued financial viability of the
Custodian.
(d) Upon termination of this Agreement, except as otherwise provided
herein, all obligations of the parties to each other hereunder shall cease.
ARTICLE VIII
CONFIDENTIALITY
Custodian agrees to keep confidential all records of Fund and all
information relating to Fund and its shareholders ("Material"), except that the
following information shall not be subject to the foregoing confidentiality
requirement: (i) Material in the public domain at the time of disclosure, (ii)
Material required to be disclosed by subpoena or similar process or applicable
law or regulations or to any regulatory or administrative body or commission to
whose jurisdiction Custodian may be subject, (iii) Material that becomes
available to Custodian on a non-confidential basis from a source not known by
Custodian to owe a duty of confidentiality to Fund, and (iv) Material disclosed
in connection with any litigation or dispute involving Fund and Custodian.
ARTICLE IX
DISASTER RECOVERY
Custodian shall use commercially reasonable efforts to enter into and
maintain with appropriate parties such arrangements as Custodian in its sole
discretion determines are reasonable to provide for emergency use of electronic
data processing equipment. In the event of equipment failure, Custodian shall,
at no additional expense to Fund, take such steps that Custodian in its sole
discretion determines are reasonable under the circumstances to minimize service
interruptions.
ARTICLE X
MISCELLANEOUS
1. Fund agrees to furnish to Custodian a new Certificate of Authorized
Persons in the event of any change in the then present Authorized Persons. Until
such new Certificate is received, Custodian shall be fully protected in acting
upon Oral Instructions and Written Instructions of such present Authorized
Persons.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to Custodian, shall be sufficiently given if
addressed to Custodian and received by it at its offices at 90 Washington
Street, New York, New York 10286, ATTENTION: Mutual Funds Administration, or at
such other place as Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to Fund shall be sufficiently given if addressed to
Fund and received by it at its offices at Conseco, Attention: Treasury, 11825 N.
Pennsylvania, Carmel, Indiana 46032, or at such other place as Fund may from
time to time designate in writing.
4. Each and every right granted to either party hereunder or under any
other document delivered hereunder or in connection herewith, or allowed it by
law or equity, shall be cumulative and may be exercised from time to time. No
failure on the part of either party to exercise, and no delay in exercising, any
right will operate as a waiver thereof, nor will any single or partial exercise
by either party of any right
<PAGE>
preclude any other or future exercise thereof or the exercise of any other
right.
5. In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
thereby. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties. This Agreement shall extend to and
shall be binding upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be assignable by
either party without the written consent of the other, except as express
provided herein.
6. This Agreement shall be construed in accordance with the substantive
laws of the State of New York, without regard to conflicts of laws principles
thereof. Fund and Custodian hereby consent to the jurisdiction of a state or
federal court situated in New York City, New York in connection with any dispute
arising hereunder.
7. The parties hereto agree that in performing hereunder, Custodian is
acting solely on behalf of Fund and no contractual or service relationship shall
be deemed to be established hereby between Custodian and any other person.
8. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
9. This Agreement, or any term thereof, may be changed or waived only
by written amendment, signed by the party against whom enforcement of such
change or waiver is sought.
10. Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liability of each Portfolio are separate and distinct
from the assets and liabilities of each other Portfolio and that no Portfolio
shall be liable or shall be charged for any debt, obligation or liability of any
other Portfolio.
11. The parties agree that neither the shareholders, trustees,
officers, employees nor any agent of the Fund shall be liable hereunder and that
the parties to this Agreement other than the Fund shall look solely to the Fund
property for the performance of this Agreement or payment of any claim under
this Agreement.
IN WITNESS WHEREOF, Fund and Custodian have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the day
and year first above written.
CONSECO SERIES TRUST, on behalf of each Portfolio
By:
------------------------------------
Title:
THE BANK OF NEW YORK
By:
------------------------------------
Title:
<PAGE>
APPENDIX I
LIST OF SERIES OF CONSECO SERIES TRUST ("PORTFOLIOS")
CONSECO SERIES TRUST, on behalf of each Portfolio
Date: By:
-------- ------------------------------------
Title:
THE BANK OF NEW YORK
Date: By:
------- ------------------------------------
Title:
<PAGE>
APPENDIX II
THE BANK OF NEW YORK
ON-LINE COMMUNICATIONS SYSTEM (THE "SYSTEM")
TERMS AND CONDITIONS
1. LICENSE; USE. Upon delivery to Fund of software enabling Fund to
obtain access to the System (the "Software"), Custodian grants to Fund a
personal, nontransferable and nonexclusive license to use the Software solely
for the purpose of transmitting Written Instructions, receiving reports, making
inquiries or otherwise communicating with Custodian in connection with the
Account(s). Fund shall use the Software solely for its own internal and proper
business purposes and not in the operation of a service bureau. Except as set
forth herein, no license or right of any kind is granted to Fund with respect to
the Software. Fund acknowledges that Custodian and its suppliers retain and have
title and exclusive proprietary rights to the Software, including any trade
secrets or other ideas, concepts, know-how, methodologies, or information
incorporated therein and the exclusive rights to any copyrights, trademarks and
patents (including registrations and applications for registration of either),
or other statutory or legal protections available in respect thereof. Fund
further acknowledges that all or a part of the Software may be copyrighted or
trademarked (or a registration or claim made therefor) by Custodian or its
suppliers. Fund shall not take any action with respect to the Software
inconsistent with the foregoing acknowledgments, nor shall Fund attempt to
decompile, reverse engineer or modify the Software. Fund may not copy, sell,
lease or provide, directly or indirectly, any of the Software or any portion
thereof to any other person or entity without Custodian's prior written consent.
Fund may not remove any statutory copyright notice or other notice included in
the Software or on any media containing the Software. Fund shall reproduce any
such notice on any reproduction of the Software and shall add any statutory
copyright notice or other notice to the Software or media upon Custodian's
request.
2. EQUIPMENT. Fund shall obtain and maintain at its own cost and
expense all equipment and services, including but not limited to communications
services, necessary for it to utilize the Software and obtain access to the
System, and Custodian shall not be responsible for the reliability or
availability of any such equipment or services.
3. PROPRIETARY INFORMATION. The Software, any data base and any
proprietary data, processes, information and documentation made available to
Fund (other than which are or become part of the public domain or are legally
required to be made available to the public) (collectively, the "Information"),
are the exclusive and confidential property of Custodian or its suppliers. Fund
shall keep the Information confidential by using the same care and discretion
that Fund uses with respect to its own confidential property and trade secrets,
but not less than reasonable care. Upon termination of the Agreement or the
Software license granted herein for any reason, Fund shall return to Custodian
any and all copies of the Information which are in its possession or under its
control.
4. MODIFICATIONS. Custodian reserves the right to modify the Software
from time to time and Fund shall install new releases of the Software as
Custodian may direct. Fund agrees not to modify or attempt to modify the
Software without Custodian's prior written consent. Fund acknowledges that any
modifications to the Software, whether by Fund or Custodian and whether with or
without Custodian's consent, shall become the property of Custodian.
5. NO REPRESENTATIONS OR WARRANTIES. CUSTODIAN AND ITS MANUFACTURERS
AND SUPPLIERS MAKE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE
SOFTWARE, SERVICES OR ANY DATABASE, EXPRESS OR IMPLIED, IN FACT OR IN LAW,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. FUND ACKNOWLEDGES THAT THE SOFTWARE, SERVICES AND ANY
DATABASE ARE PROVIDED "AS IS." IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE
LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT SPECIAL, OR CONSEQUENTIAL,
WHICH FUND MAY INCUR IN CONNECTION WITH THE SOFTWARE, SERVICES OR ANY DATABASE,
EVEN IF CUSTODIAN OR SUCH SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ACTS OF GOD,
MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION, INTERRUPTION OR MALFUNCTION OF
COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR ANY OTHER SIMILAR OR DISSIMILAR
CAUSE BEYOND THEIR REASONABLE CONTROL.
6. SECURITY; RELIANCE; UNAUTHORIZED USE. Fund will cause all persons
utilizing the Software and System to treat all applicable user and authorization
codes, passwords and authentication keys with extreme care. Custodian is hereby
irrevocably authorized to act in accordance with and rely on Written
Instructions received by it through the System. Fund acknowledges that it is its
sole responsibility to assure that only Authorized Persons use the System and
that Custodian shall not be responsible nor liable for any unauthorized use
thereof.
7. SYSTEM ACKNOWLEDGMENTS. Custodian shall acknowledge through the
System its receipt of each transmission communicated through the System, and in
the absence of such acknowledgment Custodian shall not be liable for any failure
to act in accordance with such transmission and Fund may not claim that such
transmission was received by Custodian.
8. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY UNITED
STATES LAW. FUND MAY NOT UNDER ANY CIRCUMSTANCES RESELL, DIVERT, TRANSFER,
TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY FORM) IN OR TO ANY OTHER
COUNTRY. IF CUSTODIAN DELIVERED THE SOFTWARE TO FUND OUTSIDE OF THE UNITED
STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN ACCORDANCE WITH THE
EXPORT ADMINISTRATION REGULATIONS. DIVERSION CONTRARY TO U.S. LAW IS PROHIBITED.
Fund hereby authorizes Custodian to report its name and address to government
agencies to which Custodian is required to provide such information by law.
<PAGE>
CERTIFICATE OF AUTHORIZED PERSONS
(FUND - ORAL AND WRITTEN INSTRUCTIONS)
The undersigned hereby certifies that he/she is the duly elected and
acting ______________________ of _____________________________________________
(the "Corporation"), and further certifies that the following officers or
employees of the Corporation have been duly authorized in conformity with the
Corporation's Articles of Incorporation and By-Laws to deliver Oral and Written
Instructions to The Bank of New York ("BNY") pursuant to the Custody Agreement
between the Corporation and BNY dated _______________, and that the signatures
appearing opposite their names are true and correct:
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
</TABLE>
This certificate supersedes any certificate of authorized individuals
you may currently have on file.
[corporate ___________________________________________
seal]
Title:
Date:
<PAGE>
CUSTODY ACCOUNT AGENCY AUTHORIZATION
Reference is made to the Custody Agreement (the "Custody Agreement") dated
as of ____________________ between ____________________________________________
("Fund") and The Bank of New York ("BNY").
This is to advise BNY that for the account(s) identified below Fund has duly
authorized the following investment managers (each, an "Investment Manager") to
act as Fund's agent for the purpose of (a) delivering Oral and Written
Instructions to BNY (as defined in the Custody Agreement), and/or (b) buying and
selling foreign currency (on a spot and forward basis) and options to buy and
sell foreign currency, as such purposes are designated below, and to confirm to
BNY that all actions taken by BNY in reliance upon such authorization (whether
in its capacity as custodian or counterparty) shall be binding on Fund.
<TABLE>
<CAPTION>
INVESTMENT MANAGER ACCOUNT TITLE/NUMBER INST. F/X
<S> <C> <C> <C>
- --------------------------------------- ------------------------ ----- -----
- --------------------------------------- ------------------------ ----- -----
- --------------------------------------- ------------------------ ----- -----
- --------------------------------------- ------------------------ ----- -----
- --------------------------------------- ------------------------ ----- -----
- --------------------------------------- ------------------------ ----- -----
- --------------------------------------- ------------------------ ----- -----
- --------------------------------------- ------------------------ ----- -----
</TABLE>
-----------------------------------
[corporate By
seal] ----------------------------------
Title:
Date:
<PAGE>
CERTIFICATE OF AUTHORIZED PERSONS
(INVESTMENT MANAGER - ORAL AND WRITTEN INSTRUCTIONS)
Re: Account Name:
Account Number:
The undersigned hereby certifies that he/she is the duly elected and acting
______________________ of _____________________________________________________
(the "Investment Manager"), and further certifies that the following officers or
employees of the Investment Manager have been duly authorized in conformity with
the Investment Manager's organizational documents to deliver oral and written
instructions to The Bank of New York ("BNY") with respect to the
above-referenced Account, and that the signatures appearing opposite their names
are true and correct:
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
</TABLE>
This certificate supersedes any certificate of authorized individuals
you may currently have on file.
[seal]
----------------------------------------
Title:
Date:
<PAGE>
CERTIFICATE OF AUTHORIZED PERSONS
(FUND - FOREIGN EXCHANGE)
The undersigned hereby certifies that he/she is the duly elected and acting
______________________ of _______________________________________________ (the
"Corporation"), and further certifies that the following officers or employees
of the Corporation have been duly authorized in conformity with the
Corporation's Articles of Incorporation and By-Laws to enter into contracts with
The Bank of New York ("BNY") to buy and sell foreign currency (on a spot and
forward basis) and options to buy and sell foreign currency on behalf of the
Corporation or any Account ("F/X Transactions"), and that the signatures
appearing opposite their names are true and correct:
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- ------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
</TABLE>
and further certifies that the following officers or employees of the
Corporation have been duly authorized in conformity with the Corporation's
Articles of Incorporation and By-Laws to confirm, orally and in writing, the
terms of F/X Transactions entered with BNY, and that the signatures appearing
opposite their names are true and correct:
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- ------------------------- --------------------- -------------------------------
Name Title Signature
</TABLE>
This certificate supersedes any certificate of authorized individuals
you may currently have on file.
[corporate
seal] ------------------------------------------
Title:
Date:
<PAGE>
CERTIFICATE OF AUTHORIZED PERSONS
(INVESTMENT MANAGER - FOREIGN EXCHANGE)
Re: Account Name:
Account Number:
The undersigned hereby certifies that he/she is the duly elected and acting
______________________ of ______________________________________________________
(the "Investment Manager"), and further certifies that the following officers or
employees of the Investment Manager have been duly authorized in conformity with
the Investment Manager's organizational documents to enter into contracts with
The Bank of New York ("BNY") to buy and sell foreign currency (on a spot and
forward basis) and options to buy and sell foreign currency on behalf of the
above-referenced Account ("F/X Transactions"), and that the signatures appearing
opposite their names are true and correct:
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- ------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
</TABLE>
and further certifies that the following officers or employees of the Investment
Manager have been duly authorized in conformity with the Investment Manager's
organizational documents to confirm, orally and in writing, the terms of F/X
Transactions entered by the Investment Manager with BNY, and that the signatures
appearing opposite their names are true and correct:
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------- --------------------- ------------------------------
Name Title Signature
- -------------------------- --------------------- ------------------------------
Name Title Signature
- ------------------------- --------------------- ------------------------------
Name Title Signature
</TABLE>
This certificate supersedes any certificate of authorized individuals
you may currently have on file.
[seal]
----------------------------------
Title:
Date:
<PAGE>
CERTIFICATION
The undersigned, ________________________, hereby certifies that he or she
is the duly elected and acting _____________________________________________ of
___________________________________, a ____________________ corporation (the
"Corporation"), and further certifies that the following resolution was adopted
by the Board of Directors of the Corporation on ___________________, and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof:
RESOLVED, that the Corporation is hereby authorized to enter
into any contracts to buy and sell foreign currency (on a
spot and forward basis) and options to buy and sell foreign
currency, whether pursuant to oral, telex, SWIFT, telecopier
or electronic instructions or otherwise, and that The Bank
of New York is hereby authorized to act and rely on any such
instructions, as understood by it and believed by it to be
genuine; and, in connection with any such transaction, any
officer, employee or agent as designated by the Corporation
may execute and deliver, in the name and on behalf of the
Corporation, any and all agreements and confirmations
containing any terms, conditions, representations,
warranties, covenants, amendments, waivers, releases and
instructions whatsoever and incur and pay any fees, costs,
expenses, liabilities and claims, all without limitation.
[seal]
---------------------------
Secretary
EXHIBIT (H)
-----------
Administration Agreement
ADMINISTRATION AGREEMENT
BETWEEN CONSECO SERIES TRUST
AND
CONSECO SERVICES LLC
THIS ADMINISTRATION AGREEMENT is entered into as of this 3rd day of
May, 1999, by and between Conseco Series Trust (the "Trust"), a Massachusetts
business trust having its principal office and place of business at 11825 N.
Pennsylvania St., Carmel, Indiana, and Conseco Services LLC (the
"Administrator"), an Indiana limited liability company having its principal
office and place of business at 11815 N. Pennsylvania St., Carmel, Indiana.
WITNESSETH:
-----------
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the " 1940 Act"), as an open-end diversified management
investment company;
WHEREAS, the Trust has established several separate series of shares,
each of which represents a separate portfolio of investments, and may establish
additional series of shares (each series now or hereafter listed on Schedule A
hereto, as such schedule may be amended from time to time, shall be referred to
herein as a "Portfolio"); and
WHEREAS, the Trust desires to retain the administrator to provide
administrative services to each Portfolio, and the Administrator is willing to
provide said services directly or through other entities;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties mutually agree as follows:
1. EMPLOYMENT; DUTIES OF THE ADMINISTRATOR
1.1 The Trust hereby employs the Administrator as administrator of each
Portfolio, and the Administrator agrees to provide the services set
forth herein in return for the compensation under Paragraph 2.
1.2 Subject to the supervision and direction of the Board of Trustees of
the Trust (the "Trustees"), the Administrator shall supervise each
Portfolio's business and affairs and shall provide the services
required for the effective administration of each Portfolio to the
extent not otherwise provided by employees, agents or contractors of
the Trust. These services shall include: (i) furnishing, without cost
to each Portfolio, such equipment, facilities and personnel as needed
in connection with the Portfolio's operations, (ii) supervising the
preparation and filing of all documents required for compliance by each
Portfolio with the federal and state securities laws, (iii) monitoring
and reporting on compliance by each Portfolio with its investment
policies and restrictions to the extent not already provided by the
Trust's investment adviser, (iv) furnishing clerical and bookkeeping
services as needed by each Portfolio in connection with its operation
(including establishing appropriate expense accruals, maintaining
expense files and coordinating payment of invoices), (v) maintaining
the books and records required by the 1940 Act, (vi) fund accounting,
(vii) assisting in the preparation and distribution of annual and other
reports to shareholders of each Portfolio, (viii) monitoring and
reporting on compliance with NASD rules, (ix) monitoring and reporting
on compliance with applicable Internal Revenue Code provisions and
regulations, (x) supervising the preparation and filing of any federal,
state and local income tax returns, (xi) preparing for meetings of the
Trustees and shareholders, (xii) permitting its directors, officers and
employees to serve, without compensation from the Trust or each
Portfolio, as Trustees or officers of the Trust, (xiii) overseeing the
determination and publication of each Portfolio's net asset value per
share in accordance with the Portfolio's policies, and (xiv) overseeing
relations with, and the performance of, agents engaged by the Trust,
such as its transfer agent, custodian, independent accountants and
legal counsel. Nothing contained herein shall be deemed to relieve or
deprive the Trustees of their responsibility for and control of the
conduct of the affairs of the Trust or the Portfolios.
1.3 The administrative services provided hereunder will exclude (i)
portfolio custodial services provided by the Trust's custodian, (ii)
transfer agency services provided by the Trust's transfer agent, if
any, (iii) distribution services provided
<PAGE>
by the distributor of the Trust's shares, Conseco Equity Sales, Inc., if
any, and (iv) any administrative services provided by the Trust's
investment adviser pursuant to its investment advisory agreements with
the Trust.
2. ADMINISTRATION FEES
2.1 As compensation for the services rendered and the expenses assumed by
the Administrator pursuant to this Agreement, each Portfolio shall pay
the Administrator a fee computed at the annual rate set forth on
Schedule A, as such schedule may be amended from time to time.
2.2 The administration fee shall be accrued daily by each Portfolio and
paid to the Administrator at the end of each calendar month. In the
case this Agreement becomes effective or terminates with respect to any
Portfolio before the end of any month, the administration fee for that
month shall be calculated on the basis of the number of business days
during which it is in effect for that month.
3 . EXPENSES
Each Portfolio shall bear all expenses of its operation (including its
proportionate share of the general expenses of the Trust) not
specifically assumed by the Administrator. Expenses borne by each
Portfolio shall include, but are not limited to, (i) organizational and
offering expenses of the Portfolio and expenses incurred in connection
with the issuance of shares of the Portfolio; (ii) fees of the Trust's
custodian and transfer agent; (iii) expenditures in connection with
meetings of shareholders and Trustees, other than those called solely
to accommodate the Administrator; (iv) compensation and expenses of
Trustees who are not interested persons of the Trust or the
Administrator ("Disinterested Trustees"); (v) the costs of any
liability, uncollectible items of deposit and other insurance or
fidelity bond; (vi) the cost of preparing, printing, and distributing
prospectuses and statements of additional information, any supplements
thereto, proxy statements, and reports for existing shareholders; (vii)
legal, auditing, and accounting fees; (viii) trade association dues;
(ix) filing fees and expenses of registering and maintaining
registration of shares of the Portfolio under applicable federal and
state securities laws; (x) brokerage commissions; (xi) taxes and
governmental fees; and (xii) extraordinary and non-recurring expenses.
4. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR AND THE TRUST
4.1 The Administrator represents and warrants to the Trust that:
(a) It is a limited liability company duly organized and existing,
in good standing, under the laws of the State of Indiana.
(b) It is duly qualified to carry on its business in the State of
Indiana.
(c) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
(d) All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
(e) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
4.2 The Trust represents and warrants to the Administrator that:
(a) It is a business trust duly organized and existing, in good
standing, under the laws of the Commonwealth of Massachusetts.
(b) It is empowered under applicable laws and by its Agreement and
Declaration of Trust and By-Laws to enter into and perform this
Agreement.
(c) All corporate proceedings required by said Agreement and
Declaration of Trust and By-Laws have been taken to authorize it
to enter into and perform this Agreement.
(d) A registration statement under the Securities Act of 1933, as
amended, and the 1940 Act is currently
<PAGE>
effective and will remain effective, and appropriate securities
filings have been made and will continue to be made, with
respect to all shares of the Portfolios being offered for sale.
5. CONFIDENTIALITY
Subject to the duty of the Trust or the Administrator to comply with
applicable law, each party agrees, on its own behalf and on behalf of
its employees, agents and contractors, to treat as confidential all
information with respect to the other party received pursuant to this
Agreement.
6. DELEGATION OF DUTIES
The Administrator may delegate to a sub-administrator the performance
of any or all of its duties hereunder with respect to one or more
Portfolios. The Administrator shall be responsible to the Trust and the
Portfolios for the acts and omissions of any sub-administrator to the
same extent as it is for its own acts and omissions. The Administrator
shall compensate any sub-administrator retained pursuant to this
Agreement out of the fees it receives pursuant to Paragraph 2 above.
7. LIABILITY
7.1 The Administrator and its officers, directors or employees shall not be
liable for, and each Portfolio shall indemnify and hold the
Administrator harmless from, any and all losses, damages, or expenses
resulting from any action taken or omitted to be taken by the
Administrator hereunder, except a loss, damage or expense resulting
from willful misfeasance, bad faith or negligence of the Administrator
or that of its officers, directors or employees or the reckless
disregard by the Administrator or its officers, directors or employees
of obligations and duties hereunder. Nothing herein shall in any way
constitute a waiver or limitation of any rights which may exist under
any federal securities laws.
7.2 A copy of the Trust's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts, and notice is
hereby given that this Agreement is executed on behalf of the Trustees
as Trustees and not individually. The Administrator acknowledges and
agrees that the obligations of a Portfolio hereunder are not binding
upon any of the Trustees or shareholders of the Portfolio personally
but are binding only upon the assets and property of that Portfolio and
no other.
8. PORTFOLIO RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Administrator agrees that all records which it maintains on behalf
of the Trust are the property of the Trust, will be preserved for the
periods prescribed by Rule 31a-2 under the 1940 Act, and will be
surrendered promptly to the Trust upon request.
<PAGE>
9. ADDITIONAL PORTFOLIOS
In the event that the Trust establishes one or more series of shares
with respect to which it desires to have the Administrator render
services under this Agreement, it shall so notify the Administrator in
writing. If the Administrator agrees in writing to provide said
services, such series of shares shall become a Portfolio hereunder upon
execution of a new Schedule A and approved by the Trustees.
10. TERM OF AGREEMENT
This Agreement, as amended, shall become effective on the date above
written and shall continue in effect for two years from such date
unless sooner terminated as hereinafter provided. Thereafter, this
Agreement shall continue in effect with respect to each Portfolio from
year to year so long as such continuation is approved at least annually
for each Portfolio by (i) the Trustees or by the vote of a majority of
the outstanding voting securities of the Portfolio and (ii) the vote of
a majority of the Disinterested Trustees, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
11. TERMINATION
This Agreement may be terminated by either party upon sixty (60) days'
prior written notice to the other. Termination of this Agreement with
respect to one Portfolio shall not affect the continued effectiveness
of this Agreement with respect to any other Portfolio.
12. AMENDMENT
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by the Trustees.
13. ASSIGNMENT
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
14. APPLICABLE LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of
Indiana, except insofar as the 1940 Act may be controlling.
<PAGE>
15. DEFINITIONS
As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons," and "assignment" shall have
the meaning as set forth in the 1940 Act. In addition, when the effect
of a requirement of the 1940 Act reflected in any provision of this
Agreement is modified, interpreted or relaxed by a rule, regulation or
order of the Securities and Exchange Commission, whether of special or
of general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
16. SEVERABILITY
The provisions of this Agreement shall be considered severable and if
any provision of this Agreement is deemed to be invalid or contrary to
any existing or future law, such invalidity shall not impair the
operation of or affect any other provision of this Agreement which is
valid.
17. MERGER OF AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
18. COUNTERPARTS
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
ATTEST: CONSECO SERIES TRUST
By:
- -------------------------------- ----------------------------
William P. Kovacs Maxwell E. Bublitz
President
ATTEST: CONSECO SERVICES LLC
By:
- ------------------------------ ----------------------------
Karl W. Kindig Thomas J. Kilian
President
<PAGE>
CONSECO SERIES TRUST
ADMINISTRATION AGREEMENT
SCHEDULE A
SERIES ANNUAL FEE
------ ----------
Equity (formerly, Common Stock) Portfolio .20%
Balanced (formerly, Asset Allocation) Portfolio .20%
Fixed Income (formerly, Corporate Bond) Portfolio .20%
Government Securities Portfolio .20%
Money Market Portfolio .20%
EXHIBIT (I)
------------
Legal Opinion
CONSECO SERIES TRUST
Administrative Office
11815 N. Pennsylvania Street
Carmel, IN 46032
May 3, 1999
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
Post-Effective Amendment Number 25 to 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 and Post-
Effective Amendment Number 25 thereto.
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 (i) 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 (J)
-----------
Consent of Accountants
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 25 to the
Registration Statement of Conseco Series Trust (the "Trust") on Form N-1A (File
No. 2-80455) of our report dated February 15, 1999, on our audit of the
financial statements and financial highlights of the Trust, which report is
included in the Annual Report to Shareholders as of December 31, 1998 and for
the periods indicated, which is incorporated by reference in the Post-Effective
Amendment to the Registration Statement. We also consent to the reference to our
Firm under the caption "Independent Accountants."
/S/ PRICEWATERHOUSECOOPERS
Indianapolis, Indiana
April 21, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Money Market
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 11,465,900
<INVESTMENTS-AT-VALUE> 11,465,900
<RECEIVABLES> 380,000
<ASSETS-OTHER> 1,015,153
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,861,053
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,665
<TOTAL-LIABILITIES> 133,665
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 12,727,388
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 254,875
<OTHER-INCOME> 0
<EXPENSES-NET> 20,432
<NET-INVESTMENT-INCOME> 234,443
<REALIZED-GAINS-CURRENT> (7)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 234,436
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (234,436)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,565,514
<NUMBER-OF-SHARES-REDEEMED> (5,675,298)
<SHARES-REINVESTED> 234,436
<NET-CHANGE-IN-ASSETS> 4,124,652
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,351
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,785
<AVERAGE-NET-ASSETS> 9,178,410
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.026
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.026)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> Govt Sec
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 4,430,742
<INVESTMENTS-AT-VALUE> 4,481,706
<RECEIVABLES> 253,875
<ASSETS-OTHER> 783,381
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,518,962
<PAYABLE-FOR-SECURITIES> 99,821
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,070
<TOTAL-LIABILITIES> 102,891
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,416,071
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 156,264
<OTHER-INCOME> 0
<EXPENSES-NET> 16,466
<NET-INVESTMENT-INCOME> 139,798
<REALIZED-GAINS-CURRENT> 10,201
<APPREC-INCREASE-CURRENT> 12,540
<NET-CHANGE-FROM-OPS> 162,539
<EQUALIZATION> (2,743)
<DISTRIBUTIONS-OF-INCOME> (139,799)
<DISTRIBUTIONS-OF-GAINS> (13,889)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,896,769
<NUMBER-OF-SHARES-REDEEMED> (913,512)
<SHARES-REINVESTED> 156,431
<NET-CHANGE-IN-ASSETS> 1,139,688
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 14,950
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,761
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,284
<AVERAGE-NET-ASSETS> 4,807,408
<PER-SHARE-NAV-BEGIN> 12.040
<PER-SHARE-NII> 0.351
<PER-SHARE-GAIN-APPREC> 0.056
<PER-SHARE-DIVIDEND> (0.351)
<PER-SHARE-DISTRIBUTIONS> (0.036)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.060
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> Fixed Income
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 20,084,922
<INVESTMENTS-AT-VALUE> 20,437,783
<RECEIVABLES> 777,017
<ASSETS-OTHER> 1,452,253
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,667,053
<PAYABLE-FOR-SECURITIES> 1,703,200
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,633
<TOTAL-LIABILITIES> 1,715,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 20,951,220
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 740,815
<OTHER-INCOME> 0
<EXPENSES-NET> 73,860
<NET-INVESTMENT-INCOME> 666,955
<REALIZED-GAINS-CURRENT> 136,521
<APPREC-INCREASE-CURRENT> (48,974)
<NET-CHANGE-FROM-OPS> 754,502
<EQUALIZATION> (3,318)
<DISTRIBUTIONS-OF-INCOME> (666,954)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,289,769
<NUMBER-OF-SHARES-REDEEMED> (4,369,907)
<SHARES-REINVESTED> 798,607
<NET-CHANGE-IN-ASSETS> (281,531)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 138,349
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52,757
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24,280
<AVERAGE-NET-ASSETS> 21,283,072
<PER-SHARE-NAV-BEGIN> 10.140
<PER-SHARE-NII> 0.324
<PER-SHARE-GAIN-APPREC> 0.031
<PER-SHARE-DIVIDEND> (0.324)
<PER-SHARE-DISTRIBUTIONS> (0.061)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.110
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> Balanced
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 39,602,822
<INVESTMENTS-AT-VALUE> 41,631,272
<RECEIVABLES> 2,946,529
<ASSETS-OTHER> 1,076,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,654,084
<PAYABLE-FOR-SECURITIES> 4,503,093
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,001
<TOTAL-LIABILITIES> 4,529,094
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 41,124,990
<DIVIDEND-INCOME> 120,159
<INTEREST-INCOME> 528,779
<OTHER-INCOME> 0
<EXPENSES-NET> 127,409
<NET-INVESTMENT-INCOME> 521,529
<REALIZED-GAINS-CURRENT> 2,062,191
<APPREC-INCREASE-CURRENT> 731,372
<NET-CHANGE-FROM-OPS> 3,315,092
<EQUALIZATION> (33,373)
<DISTRIBUTIONS-OF-INCOME> (521,529)
<DISTRIBUTIONS-OF-GAINS> (1,386,070)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 744,296
<NUMBER-OF-SHARES-REDEEMED> (52,328)
<SHARES-REINVESTED> 135,654
<NET-CHANGE-IN-ASSETS> 827,622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 93,433
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 44,732
<AVERAGE-NET-ASSETS> 34,311,046
<PER-SHARE-NAV-BEGIN> 13.320
<PER-SHARE-NII> 0.213
<PER-SHARE-GAIN-APPREC> 1.355
<PER-SHARE-DIVIDEND> (0.213)
<PER-SHARE-DISTRIBUTIONS> (0.605)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.070
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> Equity
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 232,111,226
<INVESTMENTS-AT-VALUE> 250,658,792
<RECEIVABLES> 29,269,517
<ASSETS-OTHER> 1,381,636
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 281,309,945
<PAYABLE-FOR-SECURITIES> 41,544,083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 162,554
<TOTAL-LIABILITIES> 41,706,637
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 239,603,308
<DIVIDEND-INCOME> 1,039,062
<INTEREST-INCOME> 390,310
<OTHER-INCOME> 0
<EXPENSES-NET> 925,752
<NET-INVESTMENT-INCOME> 503,620
<REALIZED-GAINS-CURRENT> 27,471,663
<APPREC-INCREASE-CURRENT> 2,000,090
<NET-CHANGE-FROM-OPS> 29,975,373
<EQUALIZATION> (1,123)
<DISTRIBUTIONS-OF-INCOME> (503,619)
<DISTRIBUTIONS-OF-GAINS> (17,107,901)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,711,312
<NUMBER-OF-SHARES-REDEEMED> (16,068,979)
<SHARES-REINVESTED> 17,612,644
<NET-CHANGE-IN-ASSETS> 10,254,977
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 694,314
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 233,069
<AVERAGE-NET-ASSETS> 233,592,976
<PER-SHARE-NAV-BEGIN> 20.160
<PER-SHARE-NII> 0.047
<PER-SHARE-GAIN-APPREC> 2.886
<PER-SHARE-DIVIDEND> (0.047)
<PER-SHARE-DISTRIBUTIONS> (1.656)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 21.390
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
