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CONSECO
GREAT AMERICAN RESERVE INSURANCE COMPANY
Annual Report to
Contract Owners
December 31, 1997
Great American Reserve Variable Annuity Account E
Conseco Series Trust
<PAGE>
ANNUAL REPORT TO CONTRACT OWNERS
Table of Contents
December 31, 1997
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Great American Reserve Variable Annuity Account E Page
Statement of Assets and Liabilities as of December 31, 1997 ................ 2
Statements of Operations for the Years Ended December 31, 1997 and 1996 .... 4
Statements of Changes in Net Assets for the Years Ended December 31,
1997 and 1996 .............................................................. 4
Notes to Financial Statements .............................................. 5
Report of Independent Accountants .......................................... 7
Conseco Capital Management, Inc.
Report from the President .................................................. 8
Report from the Asset Allocation Portfolio Adviser ......................... 8
Report from the Corporate Bond Portfolio Adviser ........................... 9
Report from the Common Stock Portfolio Adviser ............................. 9
Report from the Government Securities Portfolio Adviser .................... 10
Report from the Money Market Portfolio Adviser ............................. 10
Conseco Series Trust
Statement of Assets and Liabilities as of December 31, 1997 ................ 11
Statement of Operations for the Year Ended December 31, 1997 ............... 11
Statement of Changes in Net Assets for the Years Ended December 31,
1997 and 1996 .............................................................. 12
Statements of Investments in Securities as of December 31, 1997:
Asset Allocation Portfolio ............................................... 14
Common Stock Portfolio ................................................... 16
Corporate Bond Portfolio ................................................. 17
Government Securities Portfolio .......................................... 19
Money Market Portfolio ................................................... 20
Notes to Financial Statements .............................................. 21
Report of Independent Accountants .......................................... 27
1
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GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT E
Statement of Assets and Liabilities
December 31, 1997
<TABLE>
<CAPTION>
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SHARES COST VALUE
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Assets:
Investments in portfolio shares, at net asset value (Note 2):
The Alger American Fund:
Growth Portfolio ........................................................... 22,486.9 $ 932,278 $ 961,539
Leveraged AllCap Portfolio ................................................. 101,469.1 2,061,354 2,351,038
MidCap Portfolio ........................................................... 31,470.0 761,602 760,944
Small Capitalization Portfolio ............................................. 125,541.1 5,188,588 5,492,424
American Century Variable Portfolios, Inc.:
International Fund ......................................................... 26,123.1 177,814 178,682
Value Fund ................................................................. 73,653.2 505,492 510,417
Berger Institutional Products Trust:
100 Fund ................................................................... 65,249.2 752,521 724,918
Growth and Income Fund ..................................................... 81,602.4 1,076,683 1,092,656
Small Company Growth Fund .................................................. 18,340.0 208,826 221,181
BIAM International Fund .................................................... 201,289.5 2,012,558 1,970,624
Conseco Series Trust:
Asset Allocation Portfolio ................................................. 851,457.8 11,661,996 11,341,977
Common Stock Portfolio ..................................................... 958,490.9 20,655,014 19,326,216
Corporate Bond Portfolio ................................................... 525,377.4 5,259,245 5,324,957
Government Securities Portfolio ............................................ 36,843.7 439,928 443,603
Money Market Portfolio ..................................................... 3,543,929.1 3,543,929 3,543,929
Dreyfus Stock Index Fund ....................................................... 633,476.5 14,861,552 16,312,021
The Dreyfus Socially Responsible Growth Fund, Inc. ............................. 85,225.6 1,995,972 2,128,083
Federated Insurance Series:
High Income Bond Fund II ................................................... 269,559.6 2,798,328 2,951,677
International Equity Fund II ............................................... 32,009.8 386,779 392,760
Utility Fund II ............................................................ 72,988.5 879,413 1,043,005
The Janus Aspen Series:
Aggressive Growth Portfolio ................................................ 136,236.9 2,519,649 2,799,669
Growth Portfolio ........................................................... 461,464.6 7,810,949 8,527,866
Worldwide Growth Portfolio ................................................. 654,303.1 14,040,224 15,304,149
Neuberger & Berman Advisers Management Trust:
Limited Maturity Bond Portfolio ............................................ 1,855.7 26,017 26,203
Partners Portfolio ......................................................... 60,287.5 1,223,446 1,241,922
Strong Variable Insurance Funds, Inc.:
Growth Fund II ............................................................. 8,151.2 103,672 101,483
Strong Opportunity Fund II ..................................................... 14,104.5 304,667 306,069
The Van Eck Worldwide Insurance Trust:
Worldwide Hard Asset Fund (formerly Gold and Natural Resource Fund) (Note 1) 288,721.6 4,534,307 4,538,703
Worldwide Bond Fund ........................................................ 315,450.1 3,404,758 3,466,797
Worldwide Emerging Markets Fund ............................................ 174,418.2 2,359,098 1,918,600
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Total assets ......................................................................................... 115,304,112
Liabilities:
Amounts due to Great American Reserve Insurance Company ........................................................ 140,354
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Net assets (Note 6) .................................................................................. $115,163,758
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</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT E
Statement of Assets and Liabilities - Continued
December 31, 1997
<TABLE>
<CAPTION>
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UNITS UNIT VALUE REPORTED VALUE
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<S> <C> <C> <C>
Net assets attributable to:
Contract owners' deferred annuity reserves:
The Alger American Fund:
Growth Portfolio ............................................................. 742,232.6 $1.293971 $ 960,427
Leveraged AllCap Portfolio ................................................... 1,279,295.5 1.835511 2,348,160
MidCap Portfolio ............................................................. 679,329.8 1.118979 760,156
Small Capitalization Portfolio ............................................... 3,988,447.7 1.375354 5,485,527
American Century Variable Portfolios, Inc.:
International Fund ........................................................... 163,369.8 1.092954 178,556
Value Fund ................................................................... 415,890.9 1.225987 509,877
Berger Institutional Products Trust:
100 Fund ..................................................................... 627,056.2 1.154662 724,038
Growth and Income Fund ....................................................... 802,420.3 1.360249 1,091,491
Small Company Growth Fund .................................................... 187,471.2 1.178105 220,861
BIAM International Fund ...................................................... 2,029,229.7 0.969881 1,968,111
Conseco Series Trust:
Asset Allocation Portfolio ................................................... 5,740,115.3 1.973445 11,327,800
Common Stock Portfolio ....................................................... 7,962,515.1 2.424118 19,302,081
Corporate Bond Portfolio ..................................................... 4,066,811.9 1.307768 5,318,446
Government Securities Portfolio .............................................. 354,897.0 1.248382 443,047
Money Market Portfolio ....................................................... 3,116,004.9 1.136082 3,540,038
Dreyfus Stock Index Fund ......................................................... 8,884,648.6 1.833764 16,292,345
The Dreyfus Socially Responsible Growth Fund, Inc. ............................... 1,195,614.4 1.777912 2,125,697
Federated Insurance Series:
High Income Bond Fund II ..................................................... 2,184,738.8 1.349419 2,948,127
International Equity Fund II ................................................. 329,971.3 1.188469 392,161
Utility Fund II .............................................................. 675,836.3 1.541347 1,041,698
The Janus Aspen Series:
Aggressive Growth Portfolio .................................................. 1,867,131.1 1.497524 2,796,074
Growth Portfolio ............................................................. 5,160,717.8 1.650431 8,517,407
Worldwide Growth Portfolio ................................................... 8,234,605.0 1.856255 15,285,524
Neuberger & Berman Advisers Management Trust:
Limited Maturity Bond Portfolio .............................................. 25,088.9 1.043140 26,171
Partners Portfolio ........................................................... 1,000,599.9 1.239881 1,240,625
Strong Variable Insurance Funds, Inc.:
Growth Fund II ............................................................... 79,814.6 1.270148 101,376
Strong Opportunity Fund II ....................................................... 248,615.4 1.229863 305,763
The Van Eck Worldwide Investment Trust:
Worldwide Hard Assets Fund (formerly Gold and Natural Resources Fund) (Note 1) 3,728,758.3 1.215736 4,533,186
Worldwide Bond Fund .......................................................... 3,332,067.1 1.039146 3,462,503
Worldwide Emerging Markets Fund .............................................. 1,935,324.5 0.990151 1,916,263
Worldwide Hard Assets Fund (Note 1) .......................................... 156.5 1.417413 222
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Net assets (Note 6) ................................................................................. $115,163,758
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT E
Statements of Operations
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
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1997 1996
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<S> <C> <C>
Investment income:
Dividends from investments in portfolio shares ..................................... $7,456,439 $1,880,859
Expenses:
Mortality and expense risk fees .................................................... 848,167 211,735
Administrative fees ................................................................ 101,780 24,908
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Total expenses .................................................................. 949,947 236,643
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Net investment income ......................................................... 6,506,492 1,644,216
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Net realized gains (losses) and unrealized appreciation (depreciation) on investments:
Net realized gains on sales of investments in portfolio shares ..................... 284,803 90,408
Net change in unrealized appreciation of investments in portfolio shares ........... 1,446,801 1,416,628
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Net gain on investments in portfolio shares ..................................... 1,731,604 1,507,036
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Net increase in net assets from operations .................................... $8,238,096 $3,151,252
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</TABLE>
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
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1997 1996
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<S> <C> <C>
Changes from operations:
Net investment income ....................................... $ 6,506,492 $ 1,644,216
Net realized gains on sales of investments .................. 284,803 90,408
Net change in unrealized appreciation of investments ........ 1,446,801 1,416,628
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Net increase in net assets from operations ............... 8,238,096 3,151,252
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Changes from principal transactions:
Net contract purchase payments .............................. 75,117,717 26,259,253
Contract redemptions ........................................ (2,305,982) (523,287)
Net transfers (to) from fixed account ....................... 146,732 (239,681)
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Net increase in net assets from principal transactions ... 72,958,467 25,496,285
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Net increase in net assets ............................. 81,196,563 28,647,537
Net assets, beginning of year ................................. 33,967,195 5,319,658
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Net assets, end of year (Note 6) ....................... $ 115,163,758 $ 33,967,195
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT E
Notes to Financial Statements
December 31, 1997
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(1) General
Great American Reserve Variable Annuity Account E ("Account E") is
registered under the Investment Company Act of 1940, as amended, as a unit
investment trust. Account E was established on November 12, 1993 and commenced
operations on July 25, 1994 as a segregated investment account for individual
and group variable annuity contracts which are registered under the Securities
Act of 1933. The operations of Account E are included in the operations of Great
American Reserve Insurance Company (the "Company") pursuant to the provisions of
the Texas Insurance Code. The Company is an indirect wholly owned subsidiary of
Conseco, Inc., a publicly-held specialized financial services holding company
listed on the New York Stock Exchange.
Prior to June 1, 1995, Account E invested solely in shares of the
portfolios of the Conseco Series Trust. Currently, the following investment
options are available (effective date in parenthesis):
THE ALGER AMERICAN FUND
Growth Portfolio (June 1, 1996)
Leveraged AllCap Portfolio (June 1, 1995)
MidCap Portfolio (June 1, 1996)
Small Capitalization Portfolio (June 1, 1995)
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (MAY 1, 1997)
International Fund
Value Fund
BERGER INSTITUTIONAL PRODUCTS TRUST
100 Fund (June 1, 1996)
Growth and Income Fund (June 1, 1996)
Small Company Growth Fund (June 1, 1996)
BIAM International Fund (May 1, 1997)
CONSECO SERIES TRUST
Asset Allocation Portfolio
Common Stock Portfolio
Corporate Bond Portfolio
Government Securities Portfolio
Money Market Portfolio
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
(JUNE 1, 1995)
DREYFUS STOCK INDEX FUND (JUNE 1, 1995)
FEDERATED INSURANCE SERIES (JUNE 1, 1995)
High Income Bond Fund II
International Equity Fund II
Utility Fund II
THE JANUS ASPEN SERIES (JUNE 1, 1995)
Aggressive Growth Portfolio
Growth Portfolio
Worldwide Growth Portfolio
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST (MAY 1, 1997)
Limited Maturity Bond Portfolio
Partners Portfolio
STRONG VARIABLE INSURANCE FUNDS, INC.
Growth Fund II (May 1, 1997)
STRONG OPPORTUNITY FUND II (MAY 1, 1997)
THE VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund
(formerly Gold and Natural Resources Fund) (June 1, 1995)
Worldwide Bond Fund (June 1, 1995)
Worldwide Emerging Markets Fund (June 1, 1996)
Van Eck Worldwide Insurance Trust terminated the Worldwide Hard Assets
Fund on May 1, 1997 and the Gold and Natural Resources Fund was renamed the
Worldwide Hard Assets Fund. The remaining units in the terminated fund relate to
contract owners who have not transferred out.
The financial statements have been prepared in accordance with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgements of management with consideration given to materiality.
Actual results could differ from those estimates.
(2) Summary of Significant Accounting Policies
INVESTMENT VALUATION, TRANSACTIONS AND INCOME
Investments in portfolio shares are valued using the net asset value of
the respective portfolios at the end of each New York Stock Exchange business
day. Investment share transactions are accounted for on a trade date basis (the
date the order to purchase or redeem shares is executed) and dividend income is
recorded on the ex-dividend date. The cost of investments in portfolio shares
sold is determined on a first-in first-out basis. Account E does not hold any
investments which are restricted as to resale.
Net investment income and net realized gains (losses) and unrealized
appreciation (depreciation) on investments are allocated to the contracts on
each valuation date based on each contract's pro rata share of the assets of
Account E as of the beginning of each valuation date.
FEDERAL INCOME TAXES
No provision for federal income taxes has been made in the accompanying
financial statements because the operations of Account E are included in the
total operations of the Company, which is treated as a life insurance company
for federal income tax purposes under the Internal Revenue Code. Net investment
income and realized gains (losses) are retained in Account E and are not taxable
until received by the contract owner or beneficiary in the form of annuity
payments or other distributions.
ANNUITY RESERVES
Deferred annuity contract reserves are comprised of net contract purchase
payments less redemptions and benefits. These reserves are adjusted daily for
the net investment income and net realized gains (losses) and unrealized
appreciation (depreciation) on investments.
5
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GREAT AMERICAN RESERVE VARIABLE ANNUITY ACCOUNT E
Notes to Financial Statements - Continued
December 31, 1997
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(3) Purchases and Sales of Investments in Portfolio Shares
The aggregate cost of purchases of investments in portfolio shares were
$90,025,395 and $29,565,192 for the years ended December 31, 1997 and 1996,
respectively. The aggregate proceeds from sales of investments in portfolio
shares were $10,491,816 and $2,741,697 for the years ended December 31, 1997 and
1996, respectively.
(4) Deductions and Expenses
Although periodic retirement payments to contract owners vary according to
the investment performance of the portfolios, such payments are not affected by
mortality or expense experience because the Company assumes the mortality and
expense risks under the contracts.
The mortality risk assumed by the Company results from the life annuity
payment option in the contracts in which the Company agrees to make annuity
payments regardless of how long a particular annuitant or other payee lives. The
annuity payments are determined in accordance with annuity purchase rate
provisions established at the time the contracts are issued. Based on the
actuarial determination of expected mortality, the Company is required to fund
any deficiency in the annuity payment reserves from its general account assets.
The expense risk assumed by the Company is the risk that the deductions
for sales and administrative expenses may prove insufficient to cover the actual
sales and administrative expenses. The Company deducts daily from Account E a
fee, which is equal on an annual basis to 1.25 percent of the daily value of the
total investments of Account E, for assuming the mortality and expense risks.
These fees were $848,167 and $211,735 for the years ended December 31, 1997 and
1996, respectively.
Pursuant to an agreement between Account E and the Company (which may be
terminated by the Company), the Company provides sales and administrative
services to Account E, as well as a guaranteed minimum death benefit prior to
retirement for the contracts. The Company may deduct a percentage of amounts
surrendered to cover sales expenses. The percentage varies up to 9.00 percent
based upon the number of years the contract has been held. In addition, the
Company deducts units from individual contracts annually and upon full surrender
to cover an administrative fee of $30. Sales and administrative charges were
$120,852 and $21,774 for the years ended December 31, 1997 and 1996,
respectively. The Company also deducts daily from Account E a fee, which is
equal on an annual basis to 0.15 percent of the daily value of the total
investments of Account E, for administrative expenses. These expenses were
$101,780 and $24,908 for the years ended December 31, 1997 and 1996,
respectively.
(5) Other Transactions With Affiliates
Conseco Equity Sales, Inc., an affiliate of the Company, is the principal
underwriter and performs all variable annuity sales functions on behalf of the
Company through various retail broker/dealers including Conseco Financial
Services, Inc., an affiliate of the Company.
(6) Net Assets
Net assets consisted of the following at December 31, 1997:
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Proceeds from the sales of units since organization,
less proceeds of units redeemed .............................. $103,499,006
Undistributed net investment income ............................ 8,400,076
Undistributed net realized gains on sales of investments ....... 447,223
Net unrealized appreciation of investments ..................... 2,817,453
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Total net assets ............................. $115,163,758
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6
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REPORT OF INDEPENDENT ACCOUNTANTS
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To The Board of Directors of Great American Reserve Insurance Company and
Contract Owners of Great American Reserve Variable Annuity Account E
We have audited the accompanying statement of assets and liabilities of
Great American Reserve Variable Annuity Account E (the "Account") as of December
31, 1997, and the related statements of operations and changes in net assets for
each of the two years in the period then ended. These financial statements are
the responsibility of the Accounts' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of portfolio shares owned at December 31, 1997 by correspondence
with custodians. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Great American Reserve
Variable Annuity Account E as of December 31, 1997, and the results of its
operations and changes in its net assets for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 23, 1998
7
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CONSECO CAPITAL MANAGEMENT, INC.
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Report from the President
Dear Contract Owner:
The performance of the Conseco Series Trust for Great American Reserve
Variable Annuity Account E for the year ended December 31, 1997 is presented
below:
MORNINGSTAR
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
Portfolio 1997 1997(1)
================================================================================
Asset Allocation ......................... 16.21% 17.40%
Common Stock ............................. 17.04% 23.99%
Corporate Bond ........................... 8.39% 8.81%
Government Securities .................... 6.76% 8.64%
Money Market ............................. 3.80% 3.91%
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Note: Past performance is not indicative of future results.
(1) Average Accumulation Unit Value Total Return for each respective peer
group from Morningstar Variable Annuity/Life Performance Report through
12/31/97.
Financial market conditions cannot get much better than what has occured
over the last few years, and 1997 carried on this recent tradition in grand
form. The economy grew by about 4 percent, while inflation and unemployment
approached 30 year lows. Most stock market indexes (although temporarily
unnerved by yet another October surprise) were able to close the year within
spitting distance of their all-time highs. And after hitting a yield of 7.18
percent in April, the benchmark 30-year Treasury bond managed to end the year
yielding 5.92 percent.
While these events were no doubt significant, they were overshadowed by
the Southeast Asian financial crisis. The first signs of crisis developed last
summer as the Malaysian, Indonesian and Thailand currencies and financial
markets began to deteriorate. Other countries also felt the contagion effects,
including the United States. In response, the U.S. and the International
Monetary Fund have initiated the process to loan funds to several at-risk
countries.
This has resulted in an increase in the volatility of the U.S. financial
markets. It is also expected that U.S. domestic economic activity will be
dampened as foreign demand for U.S. products shrinks, and as we import cheaper
foreign goods. The impact of the Asian crisis on the U.S. economy has virtually
eliminated the need for the Federal Reserve Board to tighten monetary policy
and, if the economy were to weaken significantly, may even allow the Fed to
ease.
Financial crisis. Market volatility. These are the inevitable by-products
of a market system. They are to be expected (even relished) because they dictate
that markets temporarily ignore security fundamentals. They create opportunity.
Since our investment philosophy is based on the long term, this means that we
can take advantage of short term market mis-pricings. Conseco Capital
Management's history shows that our shareowners have received excellent returns
because of our disciplined strategy of investing in thoroughly researched,
undervalued securities. In this period of market volatility, we intend to
continue to invest for the long term by vigorously implementing our investment
discipline on both the equity and fixed income fronts.
Sincerely,
/s/ Maxwell E. Bublitz
Maxwell E. Bublitz, CFA
President & CEO
Conseco Capital Management
Report From the Asset Allocation
Portfolio Adviser
The Asset Allocation Fund is a balanced portfolio which invests in a
combination of equity, fixed income and cash. The strategy of the Asset
Allocation Fund through 1997 has been to highlight equity securities which
represented roughly 55 percent of the portfolio's assets.
The fourth quarter began with much anxiety about the strength in the
market over the summer, the sustainability of corporate profits and the
increasing volatility of Asian currency markets. All fears reached a fever pitch
on October 27th when the Dow Jones Industrial Average dropped 554 points (7.2
percent), recording the largest single point decline ever on fears of asset
deflation in Asian markets. The performance of the market following the sell-off
was typical of what we saw earlier in the year, with the index stocks
outperforming the broader market as hoards of capital previously invested in
Asia-Pacific markets sought safe haven in the U.S. market. The result of all
this was that the Index gained while virtually everything else stayed at October
27th levels or drifted even lower. In fact, because of its strong fourth quarter
move relative to the broader market, the Standard & Poor's 500 ("S&P 500")
finished the year up 33.36 percent, outstripping the returns of 90 percent of
all actively managed funds and the Russell 2000 Small Stock Index which returned
22.36 percent. This is the fourth straight year that we have seen this kind of
divergence.
Going forward, we remain hopeful that 1998 will be rewarding to investors
such as us who utilize a bottom-up approach in finding good growth stories in
stocks that still trade at reasonable valuations. In fact, if 1998 earnings on
S&P 500 companies ultimately end up in line with current expectations of 7 to 9
percent, then we would expect to see an increase in multiples for stocks which
can generate earnings growth in the 18 to 20 percent range.
The remaining 45 percent of the Asset Allocation Portfolio is invested in
bonds and cash. Our fixed income discipline of investing in those securities
which, through our own fundamental research, we consider to be undervalued.
Depending on valuation in the equity market, we may take the opportunity to
reallocate a portion of the portfolio to fixed income if we see pressure on
earnings or negative earnings surprises. Until the financial crisis in Asia
subsides, we expect to see sustained low levels of interest rates. Eventually,
as investors return their focus to economic fundamentals, we still expect to see
interest rates remain low, which should bode well for the valuation of financial
assets.
/s/ Gregory J. Hahn /s/ Thomas J. Pence
Gregory J. Hahn, CFA Thomas J. Pence
Senior Vice President Vice President
Portfolio Manager Portfolio Manager
8
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CONSECO CAPITAL MANAGEMENT, INC.
================================================================================
Report From the Corporate Bond
Portfolio Adviser
1997 was characterized by favorable market conditions throughout much of
the year. However, increased volatility brought dramatic changes to the fixed
income markets, especially in the fourth quarter.
The first three quarters of 1997 were distinguished by a strong, healthy
economy, low inflation levels and a general trend toward declining interest
rates. Relative value in the fixed income markets was difficult to distinguish
as spreads to treasuries remained very narrow in many sectors, including
corporate and mortgage-backed securities. Investors typically demand larger
spreads over U.S. Treasury bonds in order to compensate for perceived higher
risk levels. Federal Reserve policy stayed tight as Alan Greenspan remained the
vigilant watchdog over inflation. The budget deficit continued to narrow as a
result of lower interest rates and fiscal discipline from Congress. However, the
focus of the financial markets shifted away from domestic economic fundamentals
in the fourth quarter.
In the fourth quarter, currency deterioration in Thailand, Malaysia and
Indonesia, caused turmoil in their respective financial markets. Because the
world's economies are linked, the impact of this turmoil spread quickly
throughout Southeast Asia. As we move into 1998, the crisis is expected to have
a significant impact on economic growth in other countries, including the United
States. This phenomenon has already caused dramatic changes in the general
fundamentals of our domestic fixed income market, which created significantly
larger spreads to U.S. Treasuries in the corporate sector.
The level of interest rates declined because of the financial crisis: the
ten-year U.S. Treasury yield was 5.74 percent at year-end and the thirty-year
U.S. Treasury yield was 5.92 percent. With this dramatic decline in interest
rates, we have maintained a low exposure to mortgage-backed securities, due to
the higher risk of increased pre-payment activity. With higher pre-payments, the
security returns more principal, forcing the investor to reinvest the proceeds
at lower interest rates.
Nolan Smith, our municipal bond specialist, continues to recommend the
taxable municipal sector due to consistent spreads over U.S. Treasuries, which
have performed better than the corporate sector. We expect to direct proceeds to
this sector, given its performance relative to the rest of the market. At this
point, we have discovered only a few bonds meeting our investment criteria of
offering good relative value.
Our fixed income investment strategy continues to emphasize investing in
those securities we believe are undervalued. Most importantly, we conduct
thorough research before investing in any security. Our long-term strategies
coupled with our extensive knowledge of each investment we select enable us to
look forward with confidence as we continue to invest for the future.
/s/ Gregory J. Hahn
Gregory J. Hahn, CFA
Senior Vice President
Portfolio Manager
Report From the Common Stock
Portfolio Adviser
As we look back at 1997, we are able to draw a few insights on what is in
store for 1998. While the first three quarters exhibited strong growth and
favorable market conditions, the fourth quarter proved to be most eventful in
terms of future effects on market performance.
As is typical for most fourth quarters, the period began with much anxiety
related to market strength, sustainability of corporate profits, and increasing
volatility in Asian currency markets. Anxieties peaked on October 27th when the
Dow Jones Industrial Average dropped 554 points (7.2 percent), the largest
single point decline ever, surrounding fears of asset deflation in Asian
markets. Despite a relatively good series of earnings reports and economic
releases throughout the balance of the quarter, including low inflation and
25-year-low unemployment levels, concerns about the Asian influence prevailed.
Following the market plunge, much of the capital previously invested in
Asia-Pacific markets sought safety in the U.S. market through purchases of S&P
500 futures contracts. As a result, the Index gained ground, with stocks of the
largest 20 companies in the marketplace outperforming nearly everything in
sight. However, virtually all other stocks remained at October 27th levels or
drifted even lower. Due to the strong fourth quarter move of the largest company
stocks, the S&P 500 finished the year up 33.36 percent, outperforming the
returns of 90 percent of all actively managed funds, as well as the Russell 2000
Small Stock Index, which returned 22.36 percent. This is the fourth straight
year that the market has seen this kind of divergence.
In terms of sector performance, strong returns were realized in interest
rate-sensitive areas (financial institutions and utilities) and in defensive
stocks (food retailers and consumer staples). These sectors benefited from the
strong rally in the bond market and from the influx of invested dollars coming
from technology and energy sectors, which turned in some of the fourth quarter's
lowest returns. Our underweighting in financial institutions, utilities and
staples and our larger weightings in technology and energy explain why the
fourth quarter was a difficult one for us.
Despite these problems, many of our stocks enjoyed good earnings reports
and persevered during a time of high market volatility. Perhaps most rewarding
was the announcement that IBM/Tivoli bought Software Artistry for $24.50 per
share in cash; we were prematurely rewarded with a 200 percent return for our
share owners over the holding period.
We expect a cautionary tone to prevail over the market in 1998; as such,
we intend to increase our focus on earnings stories with strong balance sheets
and cashflow generation. We will also look for yield as a component of total
return whenever possible. In addition, we will watch for opportunities in
technology and energy given the aggressive sell-off in these sectors in late
1997.
Our investment strategy continues to rely on a bottom-up approach to stock
selection. Through extensive research of the companies in which we invest, our
goal is to discover good growth stories in stocks that still trade at reasonable
valuations. We are committed to a long-term reliance on this strategy, and
believe that it will serve our share owners well in the upcoming year.
/s/ Thomas J. Pence
Thomas J. Pence
Vice President
Portfolio Manager
9
<PAGE>
CONSECO CAPITAL MANAGEMENT, INC.
================================================================================
Report From the Government Securities
Portfolio Adviser
The currency crisis in Asia has pulled the U.S. Government along in its
torrent. The unprecedented drop in yields has apparently little regard for a
U.S. economy that is operating at capacity with a tight labor market. The
Federal Reserve has continued its policy of benign neglect in part due to good
news on the inflation front.
The "Asian contagion" has not been without its peripheral symptoms for the
seemingly immune bond market. Corporate bond spreads have widened in response to
a fuzzy profit picture and U.S. Government Agency securities ("Agency") have
followed suit, if only to keep pace with corporates. Thus, we have been
utilizing both corporates and Agency spreads in the short portion of the
portfolio to increase the overall yield of the portfolio without incurring
significant risk. In addition, as Agency spreads have widened significantly, we
have taken advantage of this opportunity to purchase various Agency securities
in the shorter maturity spectrum.The outlook for the early part of 1998 is
clouded by events in Asia, but we assert most of the drama is behind us.
Restructuring will be time consuming and painful for the Asian populace, and we
doubt if the U.S. Government bond market will be able to sustain these levels.
Consequently, we are shorter in duration than our benchmark and have taken
advantage of the widening in spread to increase our positions in corporate and
Agency securities.
/s/ G. Nolan Smith
G. Nolan Smith
Vice President
Portfolio Manager
Report From the Money Market
Portfolio Adviser
The Federal Open Market Committee ("FOMC") met three times to discuss the
economic and financial outlook and implementation of monetary policy during the
first half of 1997. The main theme of the first half was how wage inflation
would affect future price inflation. Unemployment inched downward from 5.4
percent in February to 5.3 percent in March and speculation that a smaller
employment pool would increase wages was a major concern. Even with price
inflation subdued throughout the first half of 1997, the FOMC raised the Fed
Funds Target Rate as a precautionary measure to a 5.50 yield. Most banks raised
their prime rate to 8.5 percent in conjunction with the Fed.
The second half of 1997 up to November was fairly the same. The threat of
an additional Fed Fund Target increase was always imminent when the FOMC met
five times in the second half. The same arguments used for the first half were a
concern for the second half: unemployment rate and wage inflation. This
sentiment changed when the Asian currencies were being devalued, which lead to a
flight to quality in U.S. Treasury bonds. The FOMC held rates at 5.50 percent
and explained that deflation was a concern for the near future and noted that
the Asian economy would affect future U.S. corporate profits.
Throughout the entire second half of the year, money market levels
fluctuated around the Fed Funds Target Rate. Top tier 30 day commercial paper
traded on average at a 5.382 percent yield in the first half and 5.536 percent
in the second. The yield on the 3 month T-Bill went from 4.835 percent on June
2nd to 5.473 percent on December 23rd, and the 1 year T-bill fluctuated from a
high of 6.069 percent to a low of 5.214 percent.
The objectives of the Money Market Portfolio have not changed. We attempt
to balance safety, liquidity and total return in managing a fully diversified
portfolio of money market securities. These objectives are met by investing in
United States Government and agency obligations, top tier commercial paper, and
highly rated corporate debt.
/s/ Darren B. Meyer
Darren B. Meyer
Portfolio Manager
10
<PAGE>
CONSECO SERIES TRUST
Statement of Assets and Liabilities
December 31, 1997
<TABLE>
<CAPTION>
==============================================================================================================================
ASSET COMMON CORPORATE GOVERNMENT MONEY
ALLOCATION STOCK BOND SECURITIES MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities (cost or amortized cost
$25,967,978, $200,349,239, $19,785,358,
$3,799,469, and $8,198,494, respectively) ................ $27,265,057 $216,896,715 $20,187,193 $3,837,894 $8,198,494
Cash ....................................................... 38,093 466,013 708,188 202,692 297,967
Accrued interest and dividends ............................. 214,186 144,474 376,890 41,368 1,489
Receivable for securities sold ............................. 1,407,319 12,261,605 1,736,447 445,482 --
Receivable for shares sold ................................. 202,046 726,314 20,910 -- 108,132
- ------------------------------------------------------------------------------------------------------------------------------
Total assets ........................................... 29,126,701 230,495,121 23,029,628 4,527,436 8,606,082
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued expenses ........................................... 18,528 155,304 13,288 2,695 3,346
Payable for securities purchased ........................... 1,185,771 13,354,216 1,739,485 246,615 --
Payable for shares redeemed ................................ -- -- -- 7,851 --
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities ...................................... 1,204,299 13,509,520 1,752,773 257,161 3,346
- ------------------------------------------------------------------------------------------------------------------------------
Net assets (Note 5) .................................. $27,922,402 $216,985,601 $21,276,855 $4,270,275 $8,602,736
==============================================================================================================================
Shares outstanding (unlimited number of shares authorized) ... 2,096,173 10,761,482 2,099,243 354,671 8,602,736
Net asset value, offering and redemption price per share ..... $ 13.32 $ 20.16 $ 10.14 $ 12.04 $ 1.00
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Statement of Operations
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
====================================================================================================================================
ASSET COMMON CORPORATE GOVERNMENT MONEY
ALLOCATION STOCK BOND SECURITIES MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends ........................................................... $ 103,533 $ 1,491,368 $ -- $ -- $ --
Amortization ........................................................ 8,875 -- 2,091 901 --
Interest ............................................................ 737,370 580,346 1,372,871 271,900 426,059
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income ......................................... 849,778 2,071,714 1,374,962 272,801 426,059
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees ............................................ 119,987 1,145,633 95,504 20,206 19,048
Compensation expense ................................................ 20,449 178,948 17,893 3,788 7,143
Custodial fees ...................................................... 20,089 11,747 13,066 7,344 4,480
Other ............................................................... 23,632 191,694 20,921 5,966 8,969
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses .................................................. 184,157 1,528,022 147,384 37,304 39,640
Less: Expenses charged to the Adviser (Note 3) ...................... 20,538 511 13,678 9,016 5,353
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses .................................................. 163,619 1,527,511 133,706 28,288 34,287
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income ....................................... 686,159 544,203 1,241,256 244,513 391,772
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) on sales of investments ................... 3,443,444 48,553,010 272,118 29,743 (65)
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investments:
Beginning of year ................................................... 1,873,913 32,528,460 86,529 (9,879) --
End of year (Note 4) ................................................ 1,297,079 16,547,476 401,835 38,425 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (576,834) (15,980,984) 315,306 48,304 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) on investments ... 2,866,610 32,572,026 587,424 78,047 (65)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations ................ $3,552,769 $ 33,116,229 $1,828,680 $322,560 $391,707
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
CONSECO SERIES TRUST
Statement of Changes in Net Assets
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
===================================================================================================================
ASSET ALLOCATION COMMON STOCK
PORTFOLIO PORTFOLIO
---------------------------- -----------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income .............................. $ 686,159 $ 395,293 $ 544,203 $ 82,918
Net realized gains (losses) on sales of investments 3,443,444 1,798,137 48,553,010 32,662,345
Net change in unrealized appreciation (depreciation)
of investments ................................... (576,834) 1,077,575 (15,980,984) 19,248,985
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations ..... 3,552,769 3,271,005 33,116,229 51,994,248
- -------------------------------------------------------------------------------------------------------------------
Net income equalization (Note 2) ..................... (78,588) (117,810) (253,222) (310,774)
- -------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income
and net realized short-term capital gains .......... (3,333,678) (1,838,944) (35,669,657) (26,591,735)
- -------------------------------------------------------------------------------------------------------------------
Distribution to shareholders of net realized long-term
capital gains ...................................... (795,925) (354,487) (13,427,556) (6,153,526)
- -------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares ................... 9,907,488 5,671,987 21,244,308 15,914,256
Net asset value of shares issued from reinvestment
of dividends and distributions ................... 4,208,191 2,311,241 49,350,435 33,056,035
Cost of shares redeemed ............................ (2,270,061) (1,794,161) (8,707,426) (6,211,539)
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions ................... 11,845,618 6,189,067 61,887,317 42,758,752
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets ................. 11,190,196 7,148,831 45,653,111 61,696,965
Net assets, beginning of year ........................ 16,732,206 9,583,375 171,332,490 109,635,525
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of year (Note 5) ........... $ 27,922,402 $ 16,732,206 $ 216,985,601 $ 171,332,490
===================================================================================================================
Share data:
Shares sold ........................................ 711,783 429,309 957,299 760,970
Shares issued from reinvestment of dividends
and distributions ................................ 309,812 174,386 2,357,384 1,553,738
Shares redeemed .................................... (167,731) (134,824) (395,255) (290,666)
- -------------------------------------------------------------------------------------------------------------------
Net increase in number of shares outstanding ... 853,864 468,871 2,919,428 2,024,042
===================================================================================================================
<CAPTION>
====================================================================================
CORPORATE BOND
PORTFOLIO
----------------------------
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Changes from operations:
Net investment income .............................. $ 1,241,256 $ 1,106,647
Net realized gains (losses) on sales of investments 272,118 (5,075)
Net change in unrealized appreciation (depreciation)
of investments ................................... 315,306 (277,156)
- ------------------------------------------------------------------------------------
Net increase in net assets from operations ..... 1,828,680 824,416
- ------------------------------------------------------------------------------------
Net income equalization (Note 2) ..................... (5,144) (8,548)
- ------------------------------------------------------------------------------------
Dividends to shareholders from net investment income
and net realized short-term capital gains .......... (1,500,199) (1,100,232)
- ------------------------------------------------------------------------------------
Distribution to shareholders of net realized long-term
capital gains ...................................... -- --
- ------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares ................... 4,517,431 2,840,237
Net asset value of shares issued from reinvestment
of dividends and distributions ................... 1,505,343 1,108,780
Cost of shares redeemed ............................ (2,532,596) (2,247,681)
- ------------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions ................... 3,490,178 1,701,336
- ------------------------------------------------------------------------------------
Net increase in net assets ................. 3,813,515 1,416,972
Net assets, beginning of year ........................ 17,463,340 16,046,368
- ------------------------------------------------------------------------------------
Net assets, end of year (Note 5) ........... $ 21,276,855 $ 17,463,340
====================================================================================
Share data:
Shares sold ........................................ 449,676 285,892
Shares issued from reinvestment of dividends
and distributions ................................ 149,867 111,611
Shares redeemed .................................... (251,946) (227,117)
- ------------------------------------------------------------------------------------
Net increase in number of shares outstanding ... 347,597 170,386
====================================================================================
</TABLE>
The accompanying notes are an intergral part of these financial statements.
12
<PAGE>
CONSECO SERIES TRUST
Statement of Changes in Net Assets - Continued
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
=======================================================================================================================
GOVERNMENT SECURITIES MONEY MARKET
PORTFOLIO PORTFOLIO
------------------------- --------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income ....................................... $ 244,513 $ 257,382 $ 391,772 $ 288,886
Net realized gains (losses) on sale of investments .......... 29,743 50,341 (65) 17
Net change in unrealized appreciation (depreciation)
of investments ............................................ 48,304 (207,272) -- --
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations .............. 322,560 100,451 391,707 288,903
- -----------------------------------------------------------------------------------------------------------------------
Net income equalization (Note 2) .............................. 51 2,180 -- --
- -----------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income and
net realized short-term capital gains ....................... (289,206) (254,150) (391,707) (288,903)
- -----------------------------------------------------------------------------------------------------------------------
Distribution to shareholders of net realized long-term
capital gains ............................................... -- (16,363) -- --
- -----------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares ............................ 640,218 282,122 10,118,046 4,844,730
Net asset value of shares issued from reinvestment
of dividends and distributions ............................ 289,155 268,333 391,707 288,903
Cost of shares redeemed ..................................... (716,194) (971,489) (8,891,680) (3,544,847)
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions ............................ 213,179 (421,034) 1,618,073 1,588,786
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets .......................... 246,584 (588,916) 1,618,073 1,588,786
Net assets, beginning of year ................................. 4,023,691 4,612,607 6,984,663 5,395,877
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of year (Note 5) .................... $ 4,270,275 $ 4,023,691 $ 8,602,736 $ 6,984,663
=======================================================================================================================
Share data:
Shares sold ................................................. 53,641 23,306 10,118,046 4,844,730
Shares issued from reinvestment of dividends
and distributions ......................................... 24,228 22,360 391,707 288,903
Shares redeemed ............................................. (60,110) (81,432) (8,891,680) (3,544,847)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in number of shares outstanding ... 17,759 (35,766) 1,618,073 1,588,786
=======================================================================================================================
</TABLE>
The accompanying notes are an intergral part of these financial statements.
13
<PAGE>
CONSECO SERIES TRUST
Asset Allocation Portfolio
Statement of Investments in Securities
December 31, 1997
================================================================================
NUMBER
OF SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
Common Stocks
(55.94% of total investments) (a)
Apparel and Accessory Stores (1.90%)
14,850 The Finish Line, Inc. (b) .............................. $ 194,906
11,950 Goody's Family Clothing, Inc. (b) ...................... 324,885
------------
519,791
------------
BUSINESS SERVICES (7.15%)
16,450 Affiliated Computer Services, Inc. (b) ................. 432,832
10,200 Autodesk, Inc. ......................................... 377,400
9,050 DataWorks Corporation (b) .............................. 179,869
11,100 First Data Corporation ................................. 324,675
9,100 Rent-Way, Inc. (b) ..................................... 168,350
14,850 Renter's Choice, Inc. (b) .............................. 304,425
8,800 Sotheby's Holdings, Inc. ............................... 162,800
------------
1,950,351
------------
CHEMICALS AND ALLIED PRODUCTS (0.76%)
5,000 The B.F. Goodrich Company .............................. 207,185
------------
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (3.54%)
24,150 Brightpoint, Inc. (b) .................................. 335,081
10,800 Cincinnati Bell, Inc. .................................. 334,800
20,350 LCC International, Inc. (b) ............................ 295,075
------------
964,956
------------
DEPOSITORY INSTITUTIONS (3.34%)
10,950 John Alden Financial Corporation ....................... 262,800
8,500 Norwest Corporation .................................... 328,313
2,850 U.S. Bancorp ........................................... 319,020
------------
910,133
------------
DURABLE GOODS -- WHOLESALE (3.77%)
18,500 IKON Office Solutions, Inc. ............................ 520,312
9,150 Pomeroy Computer Resources, Inc. (b) ................... 162,413
14,000 Watsco, Inc. ........................................... 345,618
------------
1,028,343
------------
EATING AND DRINKING PLACES (0.87%)
10,300 ShowBiz Pizza Time, Inc. (b) ........................... 236,900
------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (2.46%)
19,800 Kinder Morgan Energy Partners, L.P. .................... 670,725
------------
ELECTRICAL EQUIPMENT,
EXCEPT COMPUTERS (1.76%)
7,150 Comverse Technology, Inc. (b) .......................... 278,850
12,100 Exar Corporation (b) ................................... 199,650
------------
478,500
------------
FOOD STORES (0.90%)
9,650 Casey's General Stores, Inc. ........................... 244,869
------------
GENERAL MERCHANDISE STORES (1.92%)
17,875 Family Dollar Stores, Inc. ............................. 523,952
------------
HEALTH SERVICES (1.67%)
6,700 Prime Medical Services, Inc. (b) ....................... 92,540
13,875 Quorum Health Group, Inc. (b) .......................... 362,484
------------
455,024
------------
HOME FURNISHING AND
EQUIPMENT STORES (1.20%)
8,450 Tandy Corporation ...................................... 325,849
------------
HOUSING AND OTHER LODGING PLACES (1.81%)
11,190 Fairfield Communities, Inc. (b) ........................ 493,759
------------
INDUSTRIAL, COMMERCIAL MACHINERY,
COMPUTERS (2.48%)
12,550 EMC Corporation (b) .................................... 344,334
8,700 Lexmark International Group, Inc. (b) .................. 330,600
------------
674,934
------------
MEASURING INSTRUMENTS, PHOTO GOODS,
WATCHES (6.57%)
9,250 Analogic Corporation ................................... 351,500
10,350 DENTSPLY International, Inc. ........................... 315,675
10,200 Sola International, Inc. (b) ........................... 331,500
6,650 STERIS Corporation (b) ................................. 320,863
12,550 Waters Corporation (b) ................................. 472,194
------------
1,791,732
------------
NON-DURABLE GOODS WHOLESALE (1.58%)
4,500 Chemed Corporation ..................................... 186,467
12,400 U.S. Office Products Company (b) ....................... 243,350
------------
429,817
------------
OIL AND GAS EXTRACTION (4.54%)
4,250 BJ Services Company (b) ................................ 305,732
12,450 Enron Oil & Gas Company ................................ 263,778
5,850 Ocean Energy, Inc. (b) ................................. 288,475
7,900 Transocean Offshore Inc. ............................... 380,677
------------
1,238,662
------------
PAPER AND ALLIED PRODUCTS (1.70%)
5,800 Schweitzer-Mauduit International, Inc. ................. 216,050
2,750 St. Joe Corporation .................................... 248,875
------------
464,925
------------
PERSONAL SERVICES (0.90%)
5,500 H&R Block, Inc. ........................................ 246,466
------------
RAILROAD TRANSPORTATION (1.57%)
13,500 Kansas City Southern Industries, Inc. .................. 428,625
------------
SECURITY AND COMMODITY BROKERS (1.90%)
3,100 Franklin Resources, Inc. ............................... 269,505
7,100 The John Nuveen Company ................................ 248,500
------------
518,005
------------
STONE, CLAY, GLASS, CONCRETE (1.65%)
15,600 Department 56, Inc. (b) ................................ 448,500
------------
Total common stocks (cost $14,130,464) ................. $ 15,252,003
------------
(Continued)
14
<PAGE>
CONSECO SERIES TRUST
Asset Allocation Portfolio
Statement of Investments in Securities - Continued
December 31, 1997
================================================================================
NUMBER
OF SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
Preferred Stocks
(5.61% of total investments) (a)
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (2.95%)
28,000 Intermedia Communications Inc., 7% PFD ................. $ 805,000
------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (2.66%)
14,000 The AES Corporation Trust II, 5.5% CUM CVT PFD ......... 726,250
------------
Total preferred stocks (cost $1,400,000) $ 1,531,250
============
PRINCIPAL
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
Corporate Bonds
(34.78% of total investments) (a)
APPAREL AND OTHER FINISHED PRODUCTS (0.47%)
$125,000 Guess?, Inc., 9.500%, due 08/15/2003 ................... $ 129,062
------------
AUTO REPAIR AND PARKING (0.81%)
200,000 Amerco -MTN, 7.470%, due 01/15/2027 .................... 219,500
------------
BUSINESS SERVICES (0.74%)
200,000 Computervision Corporation, 11.375%,
due 08/15/1999 ......................................... 202,000
------------
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (2.39%)
240,000 Cencall Communications, 0.000%,
due 01/15/2004 ......................................... 217,500
190,000 Continental Cablevision, Inc., 9.000%,
due 09/01/2008 ......................................... 221,588
200,000 Peoples Telephone Co., Inc., 12.250%,
due 07/15/2002 ......................................... 212,500
------------
651,588
------------
DEPOSITORY INSTITUTIONS (2.10%)
200,000 Anchor Bancorp, Inc., 8.938%, due 07/09/2003 ........... 207,750
250,000 Centura Capital Trust I, 8.845%,
due 06/01/2027 (d) ..................................... 277,178
100,000 Hutchison Whampoa Finance, 7.450%,
due 08/01/2017 (d) ..................................... 88,865
------------
573,793
------------
DURABLE GOODS -- WHOLESALE (3.01%)
375,000 Cellstar Corporation, 5.000%, due 10/15/2002 (d) ....... 275,625
500,000 Pioneer Standard Electronics, Inc., 8.500%,
due 08/01/2006 ......................................... 545,000
------------
820,625
------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (3.54%)
450,000 CMS Energy Corporation, 7.625%,
due 11/15/2004 ......................................... 452,813
4,000 System Energy Resources, Inc., 11.375%,
due 09/01/2016 ......................................... 4,000
500,000 Trench Electric S.A. and Trench Inc., 10.250%,
due 12/15/2007(d) ...................................... 509,375
------------
966,188
------------
HOME FURNITURE AND EQUIPMENT STORES (1.90%)
500,000 MacSaver Financial Services, 7.875%,
due 08/01/2003 ......................................... 517,500
------------
INSURANCE COMPANIES (0.51%)
$100,000 Delphi Financial, 8.000%, due 10/01/2003 ............... 103,625
100,000 Home Holdings, Inc., 8.625%, due 12/15/2003 ............ 34,500
------------
138,125
------------
MINING -- METALS AND ORES (1.47%)
500,000 Echo Bay Mines, 11.000%, due 04/01/2027 ................ 400,000
------------
MISCELLANEOUS MANUFACTURING (0.74%)
200,000 USI American Holdings Inc., 7.250%,
due 12/01/2006 ......................................... 201,750
------------
MISCELLANEOUS RETAIL (0.77%)
200,000 Phar-Mor, Inc., 11.720%, 09/11/2002 .................... 210,500
------------
NON-DEPOSITORY CREDIT INSTITUTIONS (1.11%)
300,000 MCN Financing VI, 6.850%, due 10/28/1999 (d) ........... 303,084
------------
OIL AND GAS EXTRACTION (9.39%)
650,000 LASMO (USA), Inc., 6.750%, due 12/15/2007 .............. 656,500
200,000 Parker Drilling Corporation, 9.750%,
due 11/15/2006 ......................................... 216,000
500,000 Petrozuata Finance, Inc., 8.220%,
due 04/01/2017 (d) ..................................... 518,750
500,000 Pride Petroleum Services, Inc., 9.375%,
due 05/01/2007 ......................................... 538,750
600,000 Triton Energy Ltd., 9.250%, due 04/15/2005 630,000
------------
2,560,000
------------
PAPER AND ALLIED PRODUCTS (0.39%)
100,000 Westvaco Corporation, 10.300%, due 01/15/2019 .......... 106,250
------------
SECURITY AND COMMODITY BROKERS (3.59%)
55,000 Lehman Brothers, Inc., 7.375%, due 01/15/2007 .......... 57,681
250,000 Lehman Brothers Holdings Inc.,
Series E - MTN, 6.625%, due 12/27/2002 ................. 251,562
550,000 Salomon Inc., 7.300%, due 05/15/2002 ................... 569,250
100,000 Salomon Inc. Series C - MTN, 6.500%,
due 08/15/2003 ......................................... 99,625
------------
978,118
------------
STONE, CLAY, GLASS, CONCRETE (0.79%)
200,000 USG Corporation, 9.250%, due 09/15/2001 ................ 215,750
------------
TEXTILE MILL PRODUCTS (0.66%)
200,000 Polysindo International Finance Company, 13.000%,
due 06/15/2001 ......................................... 180,000
------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (0.40%)
100,000 U.S. Treasury Note, 7.250%, due 08/15/2004 ............. 108,152
------------
Total corporate bonds (cost $9,437,694) ................ 9,481,985
------------
Commercial Paper
(3.67% of total investments) (a)
DEPOSITORY INSTITUTIONS (3.67%)
1,000,000 UBS Finance (DE), Inc., 6.500%, due 01/02/1998 ......... 999,819
------------
Total commercial paper (cost $999,819) ................. 999,819
------------
Total investments in securities
(cost $25,967,978) (c) ................................. $ 27,265,057
============
- ----------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications
(b) Non-dividend paying common stock
(c) Cost also represents cost for federal income tax purposes
(d) Restricted under Rule 144A of the Securities Act of 1933
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
CONSECO SERIES TRUST
Common Stock Portfolio
Statement of Investments in Securities
December 31, 1997
================================================================================
NUMBER
OF SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
Common Stocks
(94.98% of total investments) (a)
APPAREL AND ACCESSORY STORES (3.13%)
196,900 The Finish Line, Inc. (b) ......................... $ 2,584,313
154,500 Goody's Family Clothing, Inc. (b) ................. 4,200,391
------------
6,784,704
------------
BUSINESS SERVICES (12.04%)
213,550 Affiliated Computer Services, Inc. (b) ............ 5,618,928
142,900 Autodesk, Inc. .................................... 5,287,300
126,850 DataWorks Corporation (b) ......................... 2,521,143
143,050 First Data Corporation ............................ 4,184,213
126,900 Rent-Way, Inc. (b) ................................ 2,347,650
192,100 Renter's Choice, Inc. (b) ......................... 3,938,050
120,250 Sotheby's Holdings, Inc. .......................... 2,224,625
------------
26,121,909
------------
CHEMICALS & ALLIED PRODUCTS (1.41%)
73,600 The B.F. Goodrich Company ......................... 3,049,763
------------
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (6.03%)
312,250 Brightpoint, Inc. (b) ............................. 4,332,469
160,250 Cincinnati Bell, Inc. ............................. 4,967,750
260,950 LCI International, Inc. (b) ....................... 3,783,775
------------
13,083,994
------------
DEPOSITORY INSTITUTIONS (5.93%)
141,400 John Alden Financial Corporation .................. 3,393,600
124,000 Norwest Corporation ............................... 4,789,500
41,850 U.S. Bancorp ...................................... 4,684,563
------------
12,867,663
------------
DURABLE GOODS -- WHOLESALE (6.19%)
239,150 IKON Office Solutions, Inc. ....................... 6,726,094
118,650 Pomeroy Computer Resources, Inc. (b) .............. 2,106,037
185,850 Watsco, Inc. ...................................... 4,588,079
------------
13,420,210
------------
EATING AND DRINKING PLACES (1.53%)
144,750 ShowBiz Pizza Time, Inc. (b) ...................... 3,329,250
------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (4.51%)
289,100 Kinder Morgan Energy Partners, L.P. ............... 9,793,263
------------
ELECTRICAL EQUIPMENT,
EXCEPT COMPUTERS (3.01%)
92,200 Comverse Technology, Inc. (b) ..................... 3,595,800
177,800 Exar Corporation (b) .............................. 2,933,700
------------
6,529,500
------------
FOOD STORES (1.64%)
139,900 Casey's General Stores, Inc. ...................... 3,549,962
------------
GENERAL MERCHANDISE STORES (3.12%)
230,600 Family Dollar Stores, Inc. ........................ 6,759,347
------------
HEALTH SERVICES (2.82%)
92,050 Prime Medical Services, Inc. (b) .................. 1,271,395
185,125 Quorum Health Group, Inc. (b) ..................... 4,836,391
------------
6,107,786
------------
HOME FURNITURE AND EQUIPMENT STORES (2.02%)
113,850 Tandy Corporation ................................. 4,390,284
------------
HOTELS, OTHER LODGING PLACES (2.94%)
144,513 Fairfield Communities, Inc. (b) ................... 6,376,636
------------
INDUSTRIAL, COMMERCIAL MACHINERY,
COMPUTERS (4.13%)
161,850 EMC Corporation (b) ............................... 4,440,678
119,000 Lexmark International Group, Inc. (b) ............. 4,522,000
------------
8,962,678
------------
MEASURING INSTRUMENTS, PHOTO GOODS,
WATCHES (10.94%)
124,600 Analogic Corporation .............................. 4,734,800
140,050 DENTSPLY International, Inc. ...................... 4,271,525
136,650 Sola International, Inc. (b) ...................... 4,441,125
86,900 STERIS Corporation (b) ............................ 4,192,925
161,900 Waters Corporation (b) ............................ 6,091,488
------------
23,731,863
------------
NON-DURABLE GOODS WHOLESALE (2.70%)
62,250 Chemed Corporation ................................ 2,579,453
166,525 U.S. Office Products Company (b) .................. 3,268,053
------------
5,847,506
------------
OIL & GAS EXTRACTION (7.48%)
58,200 BJ Services Company (b) ........................... 4,186,733
160,690 Enron Oil & Gas Company ........................... 3,404,539
75,400 Ocean Energy, Inc. (b) ............................ 3,718,125
101,950 Transocean Offshore Inc. .......................... 4,912,665
------------
16,222,062
------------
PAPER AND ALLIED PRODUCTS (2.90%)
81,400 Schweitzer-Mauduit International, Inc. ............ 3,032,150
35,950 St. Joe Corporation ............................... 3,253,475
------------
6,285,625
------------
PERSONAL SERVICES (1.48%)
71,700 H&R Block, Inc. ................................... 3,213,020
------------
RAILROAD TRANSPORTATION (2.56%)
174,650 Kansas City Southern Industries, Inc. ............. 5,545,137
------------
SECURITY AND COMMODITY BROKERS (3.59%)
40,050 Franklin Resources, Inc. .......................... 3,481,827
99,350 The John Nuveen Company ........................... 3,477,250
28,950 New England Investment Companies, L.P. ............ 828,694
------------
7,787,771
------------
STONE, CLAY, GLASS, CONCRETE (2.88%)
217,000 Department 56, Inc. (b) ........................... 6,238,750
------------
Total common stocks (cost $189,451,207) ........... $205,998,683
============
PRINCIPAL
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
Commercial Paper
(5.02% of total investments) (a)
DEPOSITORY INSTITUTIONS (5.02%)
$10,900,000 UBS Finance (DE), Inc., 6.500%, due 01/02/1998 .... $ 10,898,032
------------
Total commercial paper (cost $10,898,032) ......... 10,898,032
------------
Total investments in securities
(cost $200,349,239) (c) ........................... $216,896,715
============
- ----------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industry Classifications
(b) Non-dividend paying common stock
(c) Cost also represents cost for federal income tax purposes
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
CONSECO SERIES TRUST
Corporate Bond Portfolio
Statement of Investments in Securities
December 31, 1997
================================================================================
PRINCIPAL
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
Corporate Bonds
(60.14% of total investments) (a)
AIR TRANSPORTATION (1.44%)
$ 173,329 Delta Airlines 1992 ETC-C, 8.540%,
due 01/02/2007 .................................... $ 189,361
99,291 United Airlines 1996-A1 Pass Thru Certificate,
7.270%, due 01/30/2013 ............................ 101,153
------------
290,514
------------
AUTO REPAIR AND PARKING (2.13%)
100,000 Amerco -MTN, 6.710%, due 10/15/2008 ............... 100,457
300,000 Amerco -MTN, 7.470%, due 01/15/2027 ............... 329,250
------------
429,707
------------
BUSINESS SERVICES (1.00%)
200,000 Computervision Corporation, 11.375%,
due 08/15/1999 .................................... 202,000
------------
CHEMICALS AND ALLIED PRODUCTS (1.02%)
200,000 Smith International, Inc., 7.000%, due 09/15/2007 . 206,500
------------
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (3.65%)
285,000 Continental Cablevision, Inc., 9.000%,
due 09/01/2008 .................................... 332,381
100,000 Hutchison Whampoa Finance, YANK Series B,
7.450%, due 08/01/2017 (d) ........................ 88,865
300,000 News America Holdings, 7.750%, due 01/20/2024 ..... 315,750
------------
736,996
------------
DEPOSITORY INSTITUTIONS (5.11%)
300,000 Dao Heng Bank Ltd., 7.750%, due 01/24/2007 (d) .... 264,375
750,000 St. Paul Bancorp, 7.125%, due 02/15/2004 .......... 766,875
------------
1,031,250
------------
DURABLE GOODS -- WHOLESALE (2.16%)
400,000 Pioneer Standard Electronics Inc., 8.500%,
due 08/01/2006 .................................... 436,000
------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (14.77%)
250,000 Avon Energy Partners Holdings, 6.730%,
due 12/11/2002 (d) ................................ 251,250
500,000 CMS Energy Corporation, 7.375%,
due 11/15/2000 (d) ................................ 498,125
500,000 Coastal Corporation, 6.700%, due 02/15/2027 ....... 516,250
200,000 Long Island Lighting Company, 7.500%,
due 03/01/2007 .................................... 207,250
100,000 Salton Sea Funding Corporation, Series E, 8.300%,
due 05/30/2011 .................................... 107,250
250,000 Southern Investments Capital, 8.230%,
due 02/01/2027 .................................... 268,950
250,000 Tata Electric Company, 7.875%,
due 08/19/2007 (d) ................................ 240,938
300,000 Tenneco Inc., 10.200%, due 03/15/2008 ............. 380,625
250,000 Trench Electric S.A. and Trench Inc., 10.250%,
due 12/15/2007 (d) ................................ 254,687
250,000 USA Waste Services, Inc., 7.000%,
due 10/01/2004 .................................... 256,875
------------
2,982,200
------------
HOME FURNITURE AND EQUIPMENT STORES (2.82%)
550,000 MacSaver Financial Services, 7.875%,
due 08/01/2003 .................................... 569,250
------------
INSURANCE COMPANIES (3.00%)
150,000 Delphi Financial, 8.000%, due 10/01/2003 .......... 155,438
400,000 Delphi Funding LLC, 9.310%, due 03/25/2027 ........ 450,500
605,938
------------
LUMBER AND WOOD PRODUCTS,
EXCEPT FURNITURE (1.53%)
300,000 West Fraser Mill, 7.250%, due 09/15/2002 (d) ...... 308,250
------------
MINING-- METALS AND ORES (1.73%)
300,000 Echo Bay Mines, 11.000%, due 04/01/2027 ........... 240,000
150,000 Pohang Iron and Steel Company, 7.125%,
due 11/01/2006 .................................... 109,366
349,366
------------
MISCELLANEOUS MANUFACTURING (0.50%)
100,000 USI American Holdings, Inc., 7.250%,
due 12/01/2006 .................................... 100,875
------------
NON-DEPOSITORY CREDIT INSTITUTIONS (4.79%)
100,000 Associates Corporation of North America, 6.450%,
due 10/15/2001 .................................... 101,000
250,000 DSPL Finance Company, 9.120%,
due 12/30/2010 (d) ................................ 195,288
350,000 MCN Financing VI, 6.850%, due 10/28/1999 (d) ...... 353,598
300,000 Safeco Capital Trust I, 8.072%, due 07/15/2037 .... 316,125
966,011
------------
OIL AND GAS EXTRACTION (2.57%)
500,000 Petrozuata Finance, Inc., 8.220%,
due 04/01/2017 (d) ................................ 518,750
------------
PAPER AND ALLIED PRODUCTS (1.05%)
200,000 Westvaco Corporation, 10.300%, due 01/15/2019 212,500
------------
REAL ESTATE INVESTMENT TRUSTS (REITS) (3.52%)
400,000 Chelsea GCA Realty Partnership, L.P., 7.250%,
due 10/21/2007 .................................... 407,000
300,000 JDN Realty Corporation, 6.800%, due 08/01/2004 .... 303,750
710,750
------------
SECURITY AND COMMODITY BROKERS (7.35%)
250,000 Lehman Brothers Holdings, Inc., 8.875%,
due 02/15/2000 .................................... 263,437
250,000 Lehman Brothers Holdings, Inc. Series E - MTN,
6.625%, due 12/27/2002 ............................ 251,562
300,000 Morgan Stanley Finance Plc, 8.030%,
due 02/28/2017 .................................... 319,500
500,000 Salomon, Inc., 6.250%, due 10/01/1999 ............. 500,625
150,000 Salomon, Inc. Series C - MTN, 6.500%,
due 08/15/2003 .................................... 149,438
------------
1,484,562
------------
Total corporate bonds (cost $11,858,045) $ 12,141,419
============
(Continued)
17
<PAGE>
CONSECO SERIES TRUST
Corporate Bond Portfolio
Statement of Investments in Securities - Continued
December 31, 1997
================================================================================
PRINCIPAL
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
Municipal Bonds
(6.88% of total investments) (a)
PUBLIC FINANCE, TAXATION (6.88%)
$ 375,000 Doylestown Pennsylvania, Hospital Authority,
Revenue, 8.375%, due 07/01/2008 ................... $ 413,906
100,000 Fort Worth Texas, Higher Education, Finance
Corporation, Revenue, 7.500% , due 10/01/2006 ..... 103,000
160,000 Lake County Florida, Resource Recovery, Industrial
Development, Revenue, 7.125%, due 10/01/1999 ...... 160,400
300,000 Mississippi Hospital Equipment and Facilities,
Authority Revenue, 9.100%, due 04/01/2006 ......... 322,500
382,445 Philadelphia Pennsylvania, Authority for Industrial
Development, Revenue, 6.488%, due 06/15/2004 ...... 389,616
------------
Total municipal bonds (cost $ 1,341,469) 1,389,422
------------
Asset Backed Securities
(10.67% of total investments) (a)
200,000 EQCC Home Equity Loan Trust 97-1 A7, 7.120%,
due 05/15/2028 .................................... 206,463
200,000 Green Tree Financial Corp 1994-4 A5, 8.300%,
due 07/15/2019 .................................... 221,554
119,997 Green Tree Recreational Equipment & Consumer
96-A A1, 5.550%, due 02/15/2018 ................... 119,500
466,749 Green Tree Recreational Equipment & Consumer
Trust, 97-C B, 6.750%, due 02/15/2018 ............. 466,676
292,253 Lehman FHA Title 1 Loan Trust 96-2 A2, 6.780%,
due 03/25/2008 .................................... 293,760
200,000 National Car Rental Financing Limited Partnership
1996-1 A2, 6.800%, due 04/20/2000 ................. 201,926
250,000 Newcourt Receivables Asset Trust 1997-1 A3,
6.110%, due 05/21/2001 ............................ 250,078
392,736 New York City Tax Lien 1996-1 B, 6.910%,
due 05/25/2005 .................................... 393,042
------------
Total asset backed securities
(cost $ 2,124,306) 2,152,999
------------
Collateralized Mortgage Obligations
(6.40% of total investments) (a)
138,624 FHLMC Structured Pass Through Securities T-4 A1,
7.625%, due 08/25/2022 ............................ 142,176
500,000 Iroquois Trust 97-1 A, 7.000%, due 12/15/2006 ..... 503,887
228,915 JP Morgan Commercial Mortgage Finance
Corporation 96-C2 A, 6.470%, due 11/25/2027 ....... 231,455
180,863 JP Morgan Commercial Mortgage Finance
Corporation 97-C4 A1, 6.939%, due 12/26/2028 ...... 183,237
223,639 Rural Housing Trust 1987-1 3B, 7.330%,
due 04/01/2026 .................................... 230,698
------------
Total collateralized mortgage obligations
(cost $ 1,277,335) ................................ 1,291,453
------------
U. S. Government and Agency Obligations
(10.96% of total investments) (a)
405,951 Federal Home Loan Mortgage Corp., # G00479,
9.000%, due 04/01/2025 ............................ 431,958
250,000 Federal Home Loan Bank, 5.825%,
due 11/19/1999 .................................... 250,045
33,175 Federal National Mortgage Assn., # 062289,
6.710%, due 03/01/2028 ............................ 33,714
228,920 Federal National Mortgage Assn., # 183567,
7.500%, due 11/01/2022 ............................ 234,357
213,983 Federal National Mortgage Assn., # 286122,
7.000%, due 06/01/2024 ............................ 215,655
189,396 Federal National Mortgage Assn., # 349410,
7.000%, due 08/01/2026 ............................ 190,875
1,397 Government National Mortgage Assn., # 051699,
15.000%, due 07/15/2011 ........................... 1,666
2,630 Government National Mortgage Assn., # 056522,
14.000%, due 08/15/2012 ........................... 3,120
85,943 Government National Mortgage Assn., # 354859,
9.000%, due 07/15/2024 ............................ 91,959
250,000 U.S. Treasury Bond, 6.125%, due 08/15/2007 ........ 257,017
500,000 U.S. Treasury Note, 5.875%, due 08/31/1999 ........ 501,715
------------
Total U.S. government and agency obligations
(cost $ 2,184,384) ................................ 2,212,081
------------
Commercial Paper
(4.95% of total investments) (a)
DEPOSITORY INSTITUTIONS (4.95%)
1,000,000 UBS Finance (DE), Inc., 6.500%, due 01/02/1998 .... 999,819
------------
Total commercial paper (cost $ 999,819) ........... 999,819
------------
Total investments in securities
(cost $ 19,785,358) (c) ........................... $ 20,187,193
============
- ----------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications
(b) Non-dividend paying common stock
(c) Cost also represents cost for federal income tax purposes
(d) Restricted under Rule 144A of the Securities Act of 1933
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
CONSECO SERIES TRUST
Government Securities Portfolio
Statement of Investments in Securities
December 31, 1997
================================================================================
PRINCIPAL
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
Corporate Bonds
(17.35% of total investments) (a)
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (6.78%)
$ 250,000 LCI International, Inc., 7.250%, due 06/15/2007 ... $ 260,000
------------
PETROLEUM-REFINING AND
RELATED INDUSTRIES (2.68%)
100,000 Ultramar Diamond Shamrock Corporation,
7.200%, due 10/15/2017 ............................ 102,875
------------
SECURITY AND COMMODITY BROKERS (7.89%)
100,000 Lehman Brothers Holdings, Inc., Series E, MTN,
6.710%, due 10/12/1999 ............................ 101,000
100,000 Lehman Brothers Holdings, Inc., Series E, MTN,
6.625%, due 12/27/2002 ............................ 100,625
100,000 Salomon, Inc., 6.750%, due 02/15/2003 ............. 101,375
------------
303,000
------------
Total corporate bonds (cost $657,678) ............. 665,875
------------
Municipal Bonds
(5.23% of total investments) (a)
Public Finance, Taxation (5.23%)
200,000 Carondelet California Health Systems, 6.250%,
due 07/01/2001 .................................... 200,500
------------
Total municipal bonds (cost $199,868) ............. 200,500
------------
Asset Backed Securities
(16.69% of total investments) (a)
200,000 EQCC Home Equity Loan Trust 97-1 A7, 7.120%,
due 05/15/2028 .................................... 206,463
233,374 Green Tree Recreational Equipment & Consumer
Trust, 97-C B, 6.750%, due 02/15/2018 ............. 233,338
200,000 Tiers Asset-Backed Securities, Series CHAMT
Trust 1997-7, 6.688%, due 11/15/2003 .............. 200,875
------------
640,676
------------
Total asset backed securities
(cost $636,555) ................................... 640,676
------------
U. S. Government and Agency Obligations
(60.73% of total investments) (a)
250,000 Federal Home Loan Bank, 7.200%, due 11/06/2007 .... 250,117
173,265 Federal Home Loan Mortgage Corp., # D66012,
7.000%, due 11/01/2025 ............................ 174,944
106,522 Federal Home Loan Mortgage Corp., # E00441,
7.500%, due 07/01/2011 ............................ 109,384
150,000 Federal Home Loan Mortgage Corp., Multi Family
Pool, 6.775%, due 11/01/2003 ...................... 153,680
121,130 Federal National Mortgage Assn., # 174166,
8.000%, due 06/01/2002 ............................ 124,045
135,278 Federal National Mortgage Assn., # 303780,
7.000%, due 03/01/2026 ............................ 136,335
300,000 Federal National Mortgage Assn., Medium Term
Note, 8.000%, due 02/06/2012 ...................... 300,354
429,801 Government National Mortgage Assn., # 408675,
7.500%, due 01/15/2026 ............................ 440,680
1,500 Government National Mortgage Assn., # 044522,
13.000%, due 03/15/2011 ........................... 1,755
7,028 Government National Mortgage Assn., # 119896,
13.000%, due 11/15/2014 ........................... 8,224
100,000 Tennessee Valley Authority, 6.250%,
due 12/15/2017 .................................... 100,250
200,000 U.S. Treasury Bond, 8.000%, due 11/15/2021 ........ 249,492
75,000 U.S. Treasury Bond, 6.625%, due 02/15/2027 ........ 81,409
200,000 U.S. Treasury Note, 5.750%, due 08/15/2003 ........ 200,174
------------
2,330,843
------------
Total U.S. government and agency obligations
(cost $2,305,368) ................................. 2,330,843
------------
Total investments in securities
(cost $3,799,469) (b) ............................. $ 3,837,894
============
- ----------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications
(b) Cost also represents cost for federal income tax purposes
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
CONSECO SERIES TRUST
Money Market Portfolio
Statement of Investments in Securities
December 31, 1997
================================================================================
PRINCIPAL
AMOUNT SECURITY VALUE (b)
- --------------------------------------------------------------------------------
Commercial Paper
(100.00% of total investments) (a)
BUSINESS SERVICES (4.72%)
$ 390,000 First Data Corporation, 5.600%, due 02/18/1998 .... $ 387,088
------------
CHEMICALS AND ALLIED PRODUCTS (4.82%)
400,000 Schering Corporation, 5.720%, due 03/19/1998 ...... 395,106
------------
COMMUNICATIONS BY PHONE, TELEVISION,
RADIO, CABLE (14.24%)
400,000 Ameritech Corporation, 5.580%, due 01/23/1998 ..... 398,636
380,000 AT&T Corporation, 5.500%, due 01/02/1998 .......... 379,942
390,000 Lucent Technologies, Inc., 5.550%,
due 01/22/1998 .................................... 388,738
------------
1,167,316
------------
DEPOSITORY INSTITUTIONS (4.67%)
385,000 Abbey National PLC, 5.510%, due 02/03/1998 ........ 383,056
------------
ELECTRIC, GAS, WATER, COGENERATION,
SANITARY SERVICES (4.59%)
380,000 Southern Company, 5.740%, due 03/02/1998 .......... 376,365
------------
FOOD AND KINDRED PRODUCTS (4.97%)
410,000 Archer Daniels Midland Company, 5.640%,
due 02/09/1998 .................................... 407,495
------------
FOOD STORES (9.74%)
420,000 Southland Corporation, 5.630%, due 01/16/1998 ..... 419,015
380,000 Winn-Dixie Stores, Inc., 5.520%, due 01/06/1998 ... 379,709
------------
798,724
------------
GENERAL MERCHANDISE STORES (4.62%)
380,000 May Department Stores Company, 5.520%,
due 01/23/1998 .................................... 378,718
------------
INSURANCE COMPANIES (4.63%)
380,000 AON Corporation, 5.560%, due 01/09/1998 ........... 379,530
------------
NON-DEPOSITORY CREDIT INSTITUTIONS (18.81%)
410,000 American General Finance Corporation, 5.590%,
due 02/27/1998 .................................... 406,371
------------
380,000 Associates Corporation of North America, 5.520%,
due 01/26/1998 .................................... 378,544
380,000 General Electric Capital Corporation, 5.530%,
due 02/11/1998 .................................... 377,606
380,000 National Rural Utilities Corporation, 5.530%,
due 01/09/1998 .................................... 379,533
------------
1,542,054
------------
SECURITY AND COMMODITY BROKERS (19.59%)
390,000 Goldman Sachs Group, L.P., 5.680%,
due 04/24/1998 .................................... 383,047
420,000 J.P. Morgan & Company, Inc., 5.580%,
due 02/10/1998 .................................... 417,396
420,000 Merrill Lynch & Company, Inc., 5.590%,
due 02/27/1998 .................................... 416,283
390,000 Morgan Stanley, Dean Witter, Discover & Company,
5.540%, due 01/12/1998 ............................ 389,340
------------
1,606,066
------------
MUNICIPAL BONDS -- REVENUE (4.60%)
380,000 Province of Quebec, 5.730%, due 02/20/1998 ........ 376,976
------------
Total commercial paper ............................ 8,198,494
------------
Total investments in securities ................... $ 8,198,494
============
- ----------
(a) Using Standard Industry Codes prepared by the Technical Committee on
Industrial Classifications
(b) Value also represents cost for federal income tax purposes
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
CONSECO SERIES TRUST
Notes to Financial Statements
December 31, 1997
================================================================================
(1) GENERAL
Conseco Series Trust (the "Trust") is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended ("the Act"), and was organized as a Massachusetts Trust effective
November 15, 1982. The Trust offers shares only to affiliated life insurance
company separate accounts (registered as unit investment trusts under the Act)
to fund the benefits under variable annuity contracts.
Effective May 1, 1993, Great American Reserve Variable Annuity Account C
("Account C") transferred its assets to the Trust in exchange for shares of the
Common Stock, Corporate Bond (newly created effective May 1, 1993) and Money
Market Portfolios. Since May 1, 1993, the Trust continues to offer shares of
each of its portfolios to Account C.
On July 25, 1994 Great American Reserve Variable Annuity Account E
commenced operations and began investing in the shares of the Trust's
portfolios.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION, TRANSACTIONS, AND RELATED INVESTMENT INCOME
The investments in each portfolio are valued at the end of each New York
Stock Exchange business day. Investment transactions are accounted for on the
valuation date following the trade date (the date the order to buy or sell is
executed). Dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined on the specific identification basis. The Trust
does not hold any investments which are restricted as to resale, except certain
bonds (designated as footnote (d) in the applicable Statement of Investments)
held in the Corporate Bond and the Asset Allocation Portfolios, all of which are
eligible for resale under Rule 144A of the Securities Act of 1933.
The Board of Trustees (the "Trustees") determined that it will value the
Money Market Portfolio investments at amortized cost, which is conditioned on
the Trust's compliance with certain conditions contained in Rule 2a-7 of the
Act. The investment adviser of the Trust continuously reviews this method of
valuation and recommends changes to the Trustees, if necessary, to ensure that
the Money Market Portfolio investments are valued at fair value (as determined
by the Trustees in good faith).
In all portfolios of the Trust, except for the Money Market Portfolio,
securities traded on a national securities exchange are valued at closing market
prices. Listed securities for which no sale was reported on the valuation date
are valued at the mean of the closing bid and asked prices. Short term notes,
U.S. government obligations maturing within one year or less from the date
purchased and bank certificates of deposit are valued at amortized cost, which
approximates fair value.
Fixed income securities for which representative market quotes are readily
available are valued at the mid-day mean between the closing bid and asked
prices as quoted by one or more dealers who make a market in such securities.
FEDERAL INCOME TAXES
Each portfolio is treated as a separate taxable entity for federal income
tax purposes and qualifies as a regulated investment company under the Internal
Revenue Code. The Trust intends to continue to distribute all taxable income to
shareholders, and therefore, no provision has been made for federal income
taxes.
DIVIDENDS TO SHAREHOLDERS
Dividends are declared and reinvested from the sum of net investment
income and net realized short-term capital gains or losses on a daily basis in
the Money Market Portfolio, on a monthly basis in the Corporate Bond and
Government Securities Portfolios and on a quarterly basis in the Asset
Allocation and Common Stock Portfolios. Distributions are declared and
reinvested from net realized long-term capital gains on an annual basis.
INCOME EQUALIZATION
All portfolios, except the Money Market Portfolio, follow the accounting
practice known as income equalization by which a portion of the proceeds from
sales and costs of redemptions of shares is equivalent, on a per share basis, to
the amount of distributable investment income on the date the transaction is
credited or charged to undistributed income. As a result, undistributed
investment income per share is not materially affected by sales or redemptions
of the portfolio shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results may differ from these estimates.
(3) TRANSACTIONS WITH AFFILIATES
As investment adviser of the Trust, Conseco Capital Management, Inc. (the
"Adviser"), a wholly-owned subsidiary of Conseco, Inc., a publicly-held
specialized financial services holding company listed on the New York Stock
Exchange, charges an investment advisory fee based on the daily net asset value
at an annual rate of 0.55 percent for the Asset Allocation Portfolio, 0.60
percent for the Common Stock Portfolio, 0.50 percent for the Corporate Bond and
Government Securities Portfolios and 0.25 percent for the Money Market
Portfolio. The total fees paid to the Adviser were $1,400,378 and $1,008,557 for
the years ended December 31, 1997 and 1996, respectively. The Adviser has agreed
to limit the operating expenses of each portfolio so that the ratio of expenses,
including investment advisory fees, to average net assets on an annual basis
shall not exceed 0.75 percent for the Asset Allocation Portfolio, 0.80 percent
for the Common Stock Portfolio, 0.70 percent for the Corporate Bond Portfolio
and the Government Securities Portfolio, and 0.45 percent for the Money Market
Portfolio.
(4) INVESTMENT TRANSACTIONS
The aggregate costs of purchases of investments (excluding U.S. government
securities and short-term investments) were $576,039,967 and $310,865,829 for
the years ended December 31, 1997 and 1996, respectively. The aggregate proceeds
from the sales of investments (excluding U.S. government securities and
short-term investments) were $550,463,585 and $303,932,165 for the years ended
December 31, 1997 and 1996, respectively.
The aggregate costs of purchases of U.S. government securities (excluding
short-term investments) were $37,115,869 and $21,225,121 for the years ended
December 31, 1997 and 1996, respectively. The aggregate proceeds from sales of
U.S. government securities (excluding short-term investments) were $38,057,662
and $16,767,507 for the years ended December 31, 1997 and 1996, respectively.
21
<PAGE>
CONSECO SERIES TRUST
Notes to Financial Statements - Continued
December 31, 1997
================================================================================
(4) INVESTMENT TRANSACTIONS (Continued)
Gross unrealized appreciation and depreciation of investments at December
31, 1997 are shown below:
<TABLE>
<CAPTION>
==================================================================================================================================
ASSET COMMON CORPORATE GOVERNMENT MONEY
ALLOCATION STOCK BOND SECURITIES MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross unrealized appreciation ............................. $ 2,081,297 $ 24,460,287 $ 548,818 $ 41,476 $ --
Gross unrealized depreciation ............................. (784,218) (7,912,811) (146,983) (3,051) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation ............................... $ 1,297,079 $ 16,547,476 $ 401,835 $ 38,425 $ --
==================================================================================================================================
</TABLE>
(5) NET ASSETS
Net assets at December 31, 1997 are shown below.
<TABLE>
<CAPTION>
ASSET COMMON CORPORATE GOVERNMENT MONEY
ALLOCATION STOCK BOND SECURITIES MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proceeds from the sales of shares since organization, less
cost of shares
redeemed and net equalization ........................... $ 26,625,323 $200,438,125 $ 21,013,370 $ 4,246,800 $ 8,602,736
Undistributed net realized losses on sales of investments . -- -- (138,350) (14,950) --
Net unrealized appreciation of investments ................ 1,297,079 16,547,476 401,835 38,425 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total net assets ...................................... $ 27,922,402 $216,985,601 $ 21,276,855 $ 4,270,275 $ 8,602,736
==================================================================================================================================
</TABLE>
(6) FINANCIAL HIGHLIGHTS
Following are the financial highlights for each portfolio for the years
ended December 31, 1993 through 1997:
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
======================================================================
1997 1996 1995 1994 1993
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of year .............. $ 13.470 $ 12.390 $ 11.040 $ 11.400 $ 11.630
Income from investment operations (a):
Net investment income ................................. 0.441 0.419 0.508 0.463 0.410
Net realized gains (losses) and change in unrealized
appreciation (depreciation) on investments .......... 2.116 2.774 2.976 (0.526) 0.218
- ----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations .... 2.557 3.193 3.484 (0.063) 0.628
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and net realized
short-term capital gains ............................ (2.195) (2.075) (1.827) (0.266) (0.570)
Distribution of net realized long-term capital gains .. (0.512) (0.038) (0.307) (0.031) (0.288)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions ............................... (2.707) (2.113) (2.134) (0.297) (0.858)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year .................... $ 13.320 $ 13.470 $ 12.390 $ 11.040 $ 11.400
==================================================================================================================================
Total return (b) (d) ...................................... 17.85% 28.30% 31.49% (0.55%) 10.38%
Ratios/supplemental data
Net assets, end of year (c) ............................. $ 27,922,402 $ 16,732,206 $ 9,583,375 $ 6,172,390 $ 6,161,924
Ratio of expenses to average net assets (d) ............. 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to average net assets (d) 3.14% 3.15% 4.11% 4.20% 3.55%
Portfolio turnover rate ................................. 369.39% 208.13% 194.16% 223.92% 539.90%
Average commission paid (e) ............................. $ 0.06 $ 0.06 N/A N/A N/A
</TABLE>
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993
and July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.80 percent for the Common
Stock Portfolio, 0.70 percent for the Corporate Bond and the Government
Securities Portfolios and 0.45 percent for the Money Market Portfolio. If
the aforementioned guarantee had not been in affect during the period, the
ratio would have been 0.84 percent for the Asset Allocation Porfolio.
(e) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was
a commission. This disclosure is required by the Securities and Exchange
Commission beginning in 1996.
22
<PAGE>
CONSECO SERIES TRUST
Notes to Financial Statements - Continued
December 31, 1997
================================================================================
(6) FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
COMMON STOCK PORTFOLIO
=======================================================================
1997 1996 1995 1994 1993
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of year .............. $ 21.850 $ 18.840 $ 16.540 $ 16.690 $ 16.880
Income from investment operations (a):
Net investment income ................................. 0.064 0.013 0.340 0.240 0.232
Net realized gains and change in unrealized
appreciation on investments ......................... 4.060 8.169 5.675 0.072 0.920
- -----------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations ........... 4.124 8.182 6.015 0.312 1.152
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and net realized
short-term capital gains ............................ (4.232) (4.209) (2.807) (0.327) (1.181)
Distribution of net realized long-term capital gains .. (1.582) (0.963) (0.908) (0.135) (0.161)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions ............................... (5.814) (5.172) (3.715) (0.462) (1.342)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year .................... $ 20.160 $ 21.850 $ 18.840 $ 16.540 $ 16.690
===================================================================================================================================
Total return (b) (d) ...................................... 18.68% 44.99% 36.30% 1.92% 8.35%
Ratios/supplemental data
Net assets, end of year (c) ............................. $216,985,601 $171,332,490 $109,635,525 $74,759,728 $66,799,824
Ratio of expenses to average net assets (d) ............. 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income to average net assets (d) 0.28% 0.06% 1.80% 1.47% 1.40%
Portfolio turnover rate ................................. 234.20% 177.03% 172.55% 213.67% 205.81%
Average commission paid (e) ............................. $ 0.06 $ 0.06 N/A N/A N/A
</TABLE>
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993
and July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.80 percent for the Common
Stock Portfolio, 0.70 percent for the Corporate Bond and the Government
Securities Portfolios and 0.45 percent for the Money Market Portfolio. If
the aforementioned guarantee had not been in affect during the period, the
ratio would have been 0.80 percent for the Common Stock Portfolio.
(e) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was
a commission. This disclosure is required by the Securities and Exchange
Commission beginning in 1996.
23
<PAGE>
CONSECO SERIES TRUST
Notes to Financial Statements - Continued
December 31, 1997
================================================================================
(6) FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
CORPORATE BOND PORTFOLIO (E)
========================================================================
1997 1996 1995 1994 1993
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period ........... $ 9.970 $ 10.150 $ 9.450 $ 9.980 $ 10.000
Income from investment operations (a):
Net investment income ................................ 0.654 0.662 0.680 0.649 0.417
Net realized gains (losses) and change in unrealized
appreciation (depreciation) on investments ........... 0.309 (0.179) 0.990 (0.912) 0.173
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations ... 0.963 0.483 1.670 (0.263) 0.590
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and net realized
short-term capital gains ........................... (0.793) (0.663) (0.970) (0.267) (0.610)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions .............................. (0.793) (0.663) (0.970) (0.267) (0.610)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ................. $ 10.140 $ 9.970 $ 10.150 $ 9.450 $ 9.980
===================================================================================================================================
Total return (b) (d) ..................................... 9.97% 4.97% 18.25% (2.65%) 8.84%(f)
Ratios/supplemental data
Net assets, end of year (c) ............................ $ 21,276,855 $ 17,463,340 $ 16,046,368 $12,903,063 $13,577,440
Ratio of expenses to average net assets (d) ............ 0.70% 0.70% 0.70% 0.70% 0.70%(f)
Ratio of net investment income to average net assets (d) 6.50% 6.65% 6.78% 6.78% 6.22%(f)
Portfolio turnover rate ................................ 276.46% 276.35% 225.41% 198.48% 406.24%(f)
</TABLE>
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993
and July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.80 percent for the Common
Stock Portfolio, 0.70 percent for the Corporate Bond and the Government
Securities Portfolios and 0.45 percent for the Money Market Portfolio. If
the aforementioned guarantee had not been in affect during the period, the
ratio would have been 0.77 percent for the Corporate Bond Portfolio.
(e) The Corporate Bond Portfolio became an available investment option
effective May 1, 1993, with an initial offering price of $10.00.
(f) Annualized.
24
<PAGE>
CONSECO SERIES TRUST
Notes to Financial Statements - Continued
December 31, 1997
================================================================================
(6) FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES PORTFOLIO
=======================================================================
1997 1996 1995 1994 1993
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of year .............. $ 11.940 $ 12.380 $ 11.090 $ 11.450 $ 11.610
Income from investment operations (a):
Net investment income ................................. 0.724 0.722 0.754 0.720 0.738
Net realized gains (losses) and change in unrealized
appreciation (depreciation) on investments ............ 0.232 (0.409) 1.119 (1.031) 0.281
- ----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations .... 0.956 0.313 1.873 (0.311) 1.019
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and net realized
short-term capital gains ............................ (0.856) (0.707) (0.583) (0.049) (1.179)
Distribution of net realized long-term capital gains .. -- (0.046) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions ............................... (0.856) (0.753) (0.583) (0.049) (1.179)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year .................... $ 12.040 $ 11.940 $ 12.380 $ 11.090 $ 11.450
==================================================================================================================================
Total return (b) (d) ...................................... 8.26% 2.75% 17.35% (2.79%) 8.91%
Ratios/supplemental data
Net assets, end of year (c) ............................. $ 4,270,275 $ 4,023,691 $ 4,612,607 $ 4,712,785 $ 7,579,366
Ratio of expenses to average net assets (d) ............. 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income to average net assets (d) 6.05% 6.02% 6.27% 6.45% 6.30%
Portfolio turnover rate ................................. 195.08% 157.62% 284.31% 421.05% 397.42%
</TABLE>
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993
and July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.80 percent for the Common
Stock Portfolio, 0.70 percent for the Corporate Bond and the Government
Securities Portfolios and 0.45 percent for the Money Market Portfolio. If
the aforementioned guarantee had not been in affect during the period, the
ratio would have been 0.92 percent for the Government Securities
Portfolio.
25
<PAGE>
CONSECO SERIES TRUST
Notes to Financial Statements - Continued
December 31, 1997
================================================================================
(6) FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
========================================================================
1997 1996 1995 1994 1993
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of year .............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from investment operations (a):
Net investment income ................................. 0.051 0.050 0.055 0.038 0.029
- -----------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations ............. 0.051 0.050 0.055 0.038 0.029
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions (a):
Dividends from net investment income and net realized
short-term capital gains ............................ (0.051) (0.050) (0.055) (0.038) (0.029)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions ............................... (0.051) (0.050) (0.055) (0.038) (0.029)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of year .................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
===================================================================================================================================
Total return (b) (d) ...................................... 5.25% 5.13% 5.46% 3.78% 2.86%
Ratios/supplemental data
Net assets, end of year (c) ............................. $ 8,602,736 $ 6,984,663 $ 5,395,877 $ 5,105,367 $ 5,229,641
Ratio of expenses to average net assets (d) ............. 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of net investment income to average net assets (d) 5.14% 5.03% 5.46% 3.78% 2.86%
Portfolio turnover rate ................................. N/A N/A N/A N/A N/A
</TABLE>
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) Total return represents performance of the Trust only and does not include
mortality and expense deductions in separate accounts.
(c) Accounts C and E became shareholders in the Trust effective May 1, 1993
and July 25, 1994, respectively.
(d) These ratios have been favorably affected by a guarantee from the Adviser
that the ratio of expenses to average net assets would not exceed 0.75
percent for the Asset Allocation Portfolio, 0.80 percent for the Common
Stock Portfolio, 0.70 percent for the Corporate Bond and the Government
Securities Portfolios and 0.45 percent for the Money Market Portfolio. If
the aforementioned guarantee had not been in affect during the period, the
ratio would have been 0.52 percent for the Money Market Portfolio.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To The Board of Trustees and Shareholders
Conseco Series Trust
We have audited the accompanying statement of assets and liabilities,
including the statement of investments in securities, of Conseco Series Trust
(comprising respectively, the Asset Allocation, Common Stock, Corporate Bond,
Government Securities, and Money Market Portfolios), as of December 31, 1997,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended for
each of the Portfolios named above except for the Corporate Bond Portfolio for
which the period is May 1, 1993 (inception) to December 31, 1997. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of cash and securities owned as
of December 31, 1997, by correspondence with the custodian and brokers or other
auditing procedures where confirmations from brokers were not received. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting the Conseco Series Trust as of
December 31, 1997, the results of their operations for the year ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then ended
for each of the Portfolios named above except for the Corporate Bond Portfolio
for which the period is May 1, 1993 (inception) to December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 23, 1998
27
<PAGE>
================================================================================
This page intentionally left blank.
<PAGE>
================================================================================
Great American Reserve
Variable Annuity Account E
SPONSOR
Great American Reserve Insurance Company - Carmel, Indiana.
DISTRIBUTOR
Conseco Equity Sales, Inc. - Carmel, Indiana.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. - Indianapolis, Indiana.
Conseco Series Trust
BOARD OF TRUSTEES
William P. Daves, Jr., Chairman
Consultant to the insurance and health care industries.
Director, President and Chief Executive Officer,
FFG Insurance Co.,
Dallas, Texas.
Harold W. Hartley, Trustee
Retired. Chartered Financial Analyst.
Formerly Executive Vice President,
Tenneco Financial Services Inc.,
Fort Myers Beach, Florida.
Maxwell E. Bublitz, Trustee and President
President, Conseco Capital Management, Inc.,
Carmel, Indiana.
Dr. R. Jan LeCroy, Trustee
President, Dallas Citizens Council,
Dallas, Texas.
Dr. Jesse H. Parrish, Trustee
Higher education consultant.
Formerly President, Midland College,
Midland, Texas.
INVESTMENT ADVISER
Conseco Capital Management, Inc. - Carmel, Indiana.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. - Indianapolis, Indiana.
CUSTODIAN
Bankers Trust Company - New York, New York.
<PAGE>
[Logo]
CONSECO
-----------------
First Class Mail
U.S. Postage Paid
Hackensack, NJ
Permit No. 9
-----------------
Great American Reserve Insurance Company
11815 North Pennsylvania Street
Carmel, Indiana 46032
--------------------------------
--------------------------------
05-7993 (2/98)
- --------------------------------------------------------------------------------
[Logo]
CONSECO
GREAT AMERICAN RESERVE INSURANCE COMPANY
Annual Report to
Contract Owners
December 31, 1997
This report is for the information of contract owners and participants of the
Great American Reserve Variable Annuity Account E and Conseco Series Trust. It
is authorized for distribution to other persons only when preceded or
accompanied by a current prospectus which contains more complete information,
including charges and expenses.
Great American Reserve Variable Annuity Account E
Conseco Series Trust
- --------------------------------------------------------------------------------
