<PAGE>
As Filed With The Securities And Exchange Commission On
December 20, 1996
File Nos. 333-13185
811-7839
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No. 1
Post-Effective Amendment No. _______
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 X
Amendment No. 1
CONSECO FUND GROUP
(Exact Name of Registrant as Specified in Charter)
11825 North Pennsylvania Street
Carmel, Indiana 46032
(Address of Principal Executive Offices) (Zip Code)
(317) 817-6300
(Registrant s Telephone Number, including Area Code)
William P. Latimer, Esquire
Conseco Capital Management, Inc.
11815 Pennsylvania Street
Carmel, Indiana 46032
(Name and Address of Agent for Service of Process)
Copies to:
Michael Berenson, Esquire
Ann B. Furman, Esquire
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.<PAGE>
Washington, D.C. 20007
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this
Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act
of 1940, the Registrant declares that an indefinite amount of
shares is being registered under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement
on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this
Registration Statement shall become effective on such date as
the Commission acting pursuant to said Section 8(a) shall
determine.<PAGE>
CONSECO FUND GROUP
Contents of Registration Statement
This Registration Statement consists of the following papers
and documents:
o Cover Sheet
o Contents of Registration Statement
o Cross Reference Sheet
o Part A - Conseco Fund Group, Class A prospectus
Conseco Fund Group, Class Y prospectus
o Part B - Statement of Additional Information
o Part C - Other Information
o Signature Pages
o Exhibits<PAGE>
CONSECO FUND GROUP
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A Location in
Item No. Registration Statement
Part A: Information Required In Prospectus
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Cover Page
5. Management of the Fund Management
6. Capital Stock and Other Securities Investment
Objectives and
Policies of the
Funds
7. Purchase of Securities Being Offered Purchase and
Redemption of
Shares
8. Redemption or Repurchase Purchase and
Redemption of
Shares
9. Pending Legal Proceedings Not Applicable
Part B: Information Required In
Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General
Information
13. Investment Objectives and Policies Investment
Objectives
14. Management of the Registrant Management
15. Control Persons and Principal Not Applicable <PAGE>
Holders of Securities
16. Investment Advisory and Other Services Management
17. Brokerage Allocation Portfolio
Turnover and
Securities
Transactions
18. Capital Stock and Other Securities General
19. Purchase, Redemption and Pricing of Purchase and
Securities Being Offered Redemption of
Shares
20. Tax Status Taxes
21. Underwriters Distribution
Arrangements
22. Calculation of Performance Data Investment
Performance
23. Financial Statements Financial
Statements
Part C: Other Information
24. Financial Statements and Exhibits Financial
Statements and
Exhibits
25. Persons Controlled by or Under Persons
Common Control Controlled by or
Under Common
Control
26. Number of Holders of Securities Number of Holders
of Securities
27. Indemnification Indemnification
28. Business and Other Connections Business and of
Investment Adviser Other Connections
of Investment
Adviser
29. Principal Underwriters Principal
Underwriters
30. Location of Accounts and Records Location of
Accounts and <PAGE>
Records
31. Management Services Management
Services
32. Undertakings Undertakings<PAGE>
<PAGE>
PART A<PAGE>
Information contained herein is subject to completion or
amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers
to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any
State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such State.
SUBJECT TO COMPLETION DECEMBER __, 1996
CONSECO FUND GROUP
Administrative Office: 11815 N. Pennsylvania Street, Carmel,
Indiana 46032 (317) 817-6300
Class A Shares Prospectus
The Conseco Fund Group (the Trust ) is an open-end
diversified management investment company registered with the
Securities and Exchange Commission under the Investment
C o mpany Act of 1940. The Trust was organized as a
Massachusetts business trust on September 24, 1996. The Trust
is a series type of mutual fund which issues separate
classes (or series) of stock, each of which currently
represents a separate diversified portfolio of investments.
This Prospectus offers shares of three series ( Funds ) of the
Trust, each with its own investment objective or objectives
and investment policies. The Funds are divided into Class A
and Class Y shares. Class Y shares are offered to certain
institutional investors by a separate prospectus. Each class
may have different expenses which may affect performance.
The investment objectives of the Funds are as follows:
Equity Fund seeks to provide a high equity total return
consistent with preservation of capital and a prudent level of
risk primarily by investing in selected equity securities and
other securities having the investment characteristics of
common stocks.
Asset Allocation Fund seeks a high total investment
return, consistent with the preservation of capital and
prudent investment risk. The Fund seeks to achieve this
objective by pursuing an active asset allocation strategy
w h ereby investments are allocated, based upon thorough
investment research, valuation and analysis of market trends
and the anticipated relative total return available, among
various asset classes including debt securities, equity
securities, and money market instruments.<PAGE>
Fixed Income Fund seeks the highest level of income as is
consistent with preservation of capital by investing primarily
in investment grade debt securities.
The various Funds may be used independently or in
combination. You may also purchase shares of a money market
fund managed by Federated Investors, which seeks current
income consistent with stability of capital and liquidity, the
prospectus for which immediately follows this prospectus.
The investment policies of the respective Funds are
fundamental and cannot be changed without a vote of their
respective shareholders. There is no assurance that any of
the Funds will achieve their investment objectives.
Conseco Capital Management, Inc. (the Adviser ) serves
as the Trust s investment adviser. The Adviser supervises the
Trust s management and investment program, performs a variety
of administrative services on behalf of the Trust, and pays
all compensation of officers and Trustees of the Trust who are
affiliated persons of the Adviser or the Trust. The Trust
pays all other expenses incurred in the operation of the
Trust, including fees and expenses of Trustees who are
unaffiliated persons of the Adviser or the Trust.
This Prospectus sets forth concisely the information
about the Trust that an investor should know before investing.
A Statement of Additional Information (the SAI ) dated
January 2, 1997, containing additional information about the
Trust and the Funds, has been filed with the Securities and
Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the SAI
without charge by calling or writing the Trust.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE
REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January 2, 1997.
10<PAGE>
TABLE OF CONTENTS
Page
Cover Page
Fee Table
Investment Objectives and Policies of the Funds
Investment Techniques and Other Investment Policies
Management
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
Investment Performance
Table of Contents of the Statement of Additional
Information
Appendix A Securities Ratings
11<PAGE>
FEE TABLE
The following fee table is provided to assist investors
in understanding the various costs and expenses which may be
borne directly or indirectly by an investment in Class A
shares of the Funds.
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
Asset Fixed
Shareholder Transaction Equity Allocation Income
Expenses
Maximum Sales Charge
Imposed on Purchase (as a 5% 5% 5%
percentage of offering
price)
Maximum Sales Charge
Imposed on Reinvested None None None
Dividends (as a percentage
of offering price)
Deferred Sales Charge None None None
Redemption Fees None None None
Annual Fund Operating
Expenses
(as a percentage of average
net assets)
Management Fees .70% .70% .45%
Administrative Fees .20% .20% .20%
12b-1 Distribution and .25% .25% .25%
Service Fees (1)
Other Expenses (less .35% .35% .35%
voluntary fee waivers and
reimbursements)
Total Operating Expenses 1.50% 1.50% 1.25%
(after reimbursement)(2)
</TABLE>
(1) The 12b-1 fees shown in the table reflect the amount to
which the Trustees currently limit payments under the Class A
Distribution and Service Plan. As a result of 12b-1 fees, a
long-term shareholder in the Funds may pay more than the
economic equivalent of the maximum sales charges permitted by
12<PAGE>
the Rules of the National Association of Securities Dealers,
Inc.
(2) The Adviser has voluntarily agreed to waive its fees
and/or reimburse all expenses (exclusive of taxes, interest,
brokerage and other transaction expenses and other
extraordinary expenses) through April 30, 1998, including
management fees, to the extent that the Class A expenses of
the Equity, Asset Allocation and Fixed Income Funds exceed
1.50%, 1.50% and 1.25%, respectively, of the Fund s average
daily net assets. In the absence of such reimbursements, it
is estimated that the Total Operating Expenses would be 1.85%,
1.85% and 1.60%, for the Equity, Asset Allocation and Fixed
Income Funds, respectively.
Example
Assuming a hypothetical investment of $1,000, a 5% annual
return and redemption at the end of each time period, an
investor in Class A of each of the Funds would have paid
transaction and operating expenses at the end of each year as
follows:
1 Year 3 Years
Equity $65 $96
Asset Allocation $65 $96
Fixed Income $62 $88
T h e same level of expenses would be incurred if the
investments were held throughout the period indicated.
These examples illustrate the effect of expenses, but are
not meant to suggest actual or expected costs or returns, all
of which may vary.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each of the Funds has a different investment objective or
objectives as described below. Each Fund is managed by the
Adviser. There can be no assurance that any of the Funds will
achieve their investment objective or objectives. Each Fund
is subject to the risk of changing economic conditions, as
well as the risk inherent in the ability of the Adviser to
make changes in a Fund s investments in anticipation of
changes in economic, business, and financial conditions.
13<PAGE>
T h e different types of securities and investment
techniques common to one or more Funds all have attendant
risks of varying degrees. For example, with respect to equity
securities, there can be no assurance of capital appreciation
and there is a substantial risk of decline. With respect to
debt securities, there can be no assurance that the issuer of
such securities will be able to meet its obligations on
interest or principal payments in a timely manner. In
addition, the value of debt instruments generally rises and
falls inversely with interest rates.
The investments and investment techniques common to one
or more Funds are described in greater detail, including the
risks of each, in the Description of Securities and
Investment Techniques in the SAI.
The Funds are subject to investment restrictions that are
described under Investment Restrictions in the SAI. The
investment restrictions are fundamental policies, which
means that they may not be changed without a majority vote of
shareholders of the affected Funds. The Trust has certain
fundamental policies, which prohibit each Fund, with respect
to 75 percent of its total assets, from (i) investing more
than 5 percent of its assets in the securities of any one
issuer (except U.S. government securities defined below); and
(ii) investing more than 25 percent of its assets in the
securities of issuers in the same industry (except cash
equivalent items and U.S. government securities). Except for
fundamental policies imposed by the Trust s investment
restrictions, all investment policies and practices described
in this Prospectus and in the SAI are not fundamental, meaning
that the Board of Trustees may change them without shareholder
approval. See Description of Securities and Investment
Techniques and Investment Restrictions in the SAI for
further information.
Equity Fund
In seeking its objective of providing a high equity total
return, the Equity Fund will attempt to achieve a total return
(i.e., price appreciation plus potential dividend yield)
primarily through investment in selected equities (i.e.,
common stocks and other securities having the investment
c h a racteristics of common stocks, such as convertible
debentures and warrants). However, if market conditions
indicate their desirability, the Adviser may, for defensive
purposes, temporarily invest all or a part of the assets of
the Equity Fund in money market instruments. See Debt
Securities under Description of Securities and Investment
Techniques in the SAI for further information.
14<PAGE>
The Adviser expects that the equity portion of the Fund
will be widely diversified by both industry and number of
issuers. The Adviser s stock selection methods will be based
in part upon the analysis of variables which it believes
significantly relate to the future market performance of a
stock, such as recent changes in earnings per share and their
deviations from analysts expectations, past growth trends,
price action of the stock itself, publicly recorded trading
transactions by corporate insiders, and relative price-
e a rnings ratios. The Adviser expects that investment
opportunities will often be sought among securities of larger,
established companies, although securities of smaller, less
well-known companies may also be selected.
By investing in securities that are subject to market
risk, the Equity Fund is also subject to greater fluctuations
in its market value and involves the assumption of a higher
degree of risk as compared to a fund seeking stability of
principal, such as a money market fund or a fund investing
primarily in obligations issued or guaranteed by the U.S.
g o vernment or its agencies or instrumentalities (these
obligations are referred to in this Prospectus as U.S.
government securities ). To maximize potential return, the
Adviser may utilize a variety of investment techniques and
strategies including but not limited to: writing covered and
secured listed put and call options, including options on
stock indices, and purchasing such options; purchasing and
selling, for hedging purposes, stock index, interest rate, and
other futures contracts, and purchasing options on such
futures contracts; purchasing warrants and preferred and
convertible preferred stocks; borrowing from banks to purchase
securities; purchasing foreign securities in the form of
American Depository Receipts; purchasing securities of other
investment companies; entering into repurchase agreements;
purchasing restricted securities; investing in when-issued or
delayed delivery securities; and selling securities short
against the box. See Description of Securities and
Investment Techniques in the SAI for further information.
The Equity Fund may also invest in high yield, high risk,
lower-rated debt securities. See Risks Associated With High
Yield Debt Securities in the SAI for further information.
Asset Allocation Fund
The investment objective of the Asset Allocation Fund is
to seek a high total investment return consistent with the
preservation of capital and prudent investment risk. The Fund
seeks to achieve this objective by pursuing an active asset
allocation strategy whereby investments are allocated based
upon thorough investment research, valuation and analysis of
market trends and the anticipated relative total return
a v a ilable among various asset classes, including debt
15<PAGE>
securities, equity securities and money market instruments.
Total investment return consists of current income, including
dividends, interest, and discount accruals, and capital
appreciation. Achieving this Fund s objective depends on the
Adviser s ability to assess the effect of economic and market
trends on different sectors of the market. In seeking to
maximize total return, the Asset Allocation Fund will follow
an asset allocation strategy contemplating shifts (which may
be frequent) among a wide range of investments and market
sectors. The Fund s investments will be designed to maximize
total return during all economic and financial environments,
consistent with prudent risk as determined by the Adviser.
The Asset Allocation Fund will invest in U.S. government
securities, intermediate and long-term debt securities and
equity securities of domestic and foreign issuers, including
common and preferred stocks, convertible debt securities, and
warrants. If the Adviser deems stock market conditions to be
favorable or debt market conditions to be uncertain or
unfavorable, a substantially higher percentage of the Fund s
total assets may be invested in equity securities. If,
however, the Adviser believes that the equity environment is
u n c e rtain or unfavorable, the Fund may decrease its
investments in equity securities and increase its investments
in debt securities. Furthermore, if the Adviser believes that
inflationary or monetary conditions warrant a significant
investment in companies involved in precious metals, the Fund
may invest up to 10% of its total assets in the equity
s e c urities of companies exploring, mining, developing,
producing, or distributing gold or other precious metals.
Additionally, the Asset Allocation Fund may make temporary
defensive investments (i.e., money market instruments) without
limit if it is believed that market conditions warrant a more
conservative investment strategy.
The Asset Allocation Fund may use various investment
strategies and techniques when the Adviser determines that
such use is appropriate in an effort to meet the Fund s
investment objective, including but not limited to: writing
covered and secured listed put and call options, including
options on stock indices, and purchasing such options;
purchasing and selling, for hedging purposes, stock index,
i n terest rate, gold, and other futures contracts, and
purchasing options on such futures contracts; purchasing
warrants and preferred and convertible preferred stocks;
purchasing foreign securities; entering into foreign currency
transactions and options on foreign currencies; borrowing from
banks to purchase securities; purchasing securities of other
investment companies; entering into repurchase agreements;
purchasing restricted securities; investing in when-issued or
delayed delivery securities; and selling securities short
against the box. See Description of Securities and
16<PAGE>
Investment Techniques below and in the SAI for further
information.
The maturities of the debt securities in the Asset
Allocation Fund will vary based in large part on the Adviser s
expectations as to future changes in interest rates. However,
the Adviser anticipates that the debt component of the Fund
will generally be invested primarily in intermediate and/or
long-term debt securities. The Adviser anticipates that the
equity portion of the Fund will be widely diversified by both
industry and number of issuers. The Adviser s stock selection
methods will be based in part upon variables which it believes
significantly relate to the future market performance of a
stock, such as recent changes in earnings per share and their
deviations from analysts expectations, past growth trends,
price movement of the stock itself, publicly recorded trading
transactions by corporate insiders, and price-earnings ratios.
The Adviser anticipates that investment opportunities will
often be sought among securities of larger, established
companies, although securities of smaller, less well- known
companies may also be selected.
The Asset Allocation Fund may also invest in high yield,
high risk, lower-rated fixed income debt securities, which are
not believed to involve undue risk to income or principal.
The Asset Allocation Fund does not intend to invest more than
25% of its total assets (measured at the time of investment)
in high yield, high risk debt securities. Generally, higher
yielding bonds carry ratings assigned by Moody s Investor
Service, Inc. ( Moody s ) or Standard & Poor s Corporation
( S&P ) that are lower than those assigned to investment grade
debt securities, or are unrated and the Adviser does not
determine such security is of comparable quality to securities
rated in one of the four highest rating categories. Such
securities carry higher investment risk than investment grade
debt securities. The market values of lower-rated securities
generally fluctuate more widely than those of higher-rated
securities. In addition, changes in economic conditions or
other circumstances are more likely to lead to a weakened
capacity for such securities to make principal and interest
payments than is generally the case for higher grade debt
securities. The lowest rating categories in which the Fund
will invest are CCC/Caa. Securities in these categories are
considered to be of poor standing and are predominantly
speculative. The Adviser seeks to enhance total return
specifically through purchasing securities which the Adviser
believes are undervalued and selling, when appropriate, those
securities the Adviser believes are overvalued. In order to
determine value, the Adviser utilizes independent fundamental
analysis of the issuer as well as an analysis of the specific
structure of the security. A debt security will be considered
investment grade if it is rated in one of the four highest
17<PAGE>
rating categories by at least one nationally recognized
statistical rating organization ( NRSRO ), or, in the case of
an unrated security, if the Adviser determines such security
is of comparable quality to securities rated in one of the
four highest rating categories. See Appendix A to this
Prospectus for further discussion regarding securities ratings
and Risks Associated With High Yield Debt Securities under
Description of Securities and Investment Techniques in the
SAI.
The Asset Allocation Fund may also invest in zero coupon
securities and payment-in-kind securities. A zero coupon
security pays no interest to its holders prior to maturity and
a payment-in-kind security pays interest in the form of
additional securities. These securities will be subject to
greater fluctuation in market value in response to changing
interest rates than securities of comparable maturities that
make periodic cash distributions of interest.
The Asset Allocation Fund may also invest in equity and
d e bt securities of foreign issuers, including non-U.S.
dollar denominated debt securities, Eurodollar securities and
s e c u r ities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities
thereof. As a non-fundamental operating policy, the Asset
Allocation Fund will not invest more than 50% of its total
assets (measured at the time of investment) in foreign
securities. See Foreign Securities under Description of
Securities and Investment Techniques below and in the SAI for
further information.
Fixed Income Fund
In seeking its investment objective of providing the
highest level of income as is consistent with the preservation
of capital, the Fixed Income Fund invests primarily in
investment grade debt securities. The Adviser seeks to reduce
risk, increase income, and preserve or enhance total return by
actively managing the Fund in light of market conditions and
t r e n ds. The Adviser seeks to enhance total return
specifically through purchasing securities which the Adviser
believes are undervalued and selling, when appropriate, those
securities the Adviser believes are overvalued. In order to
determine value, the Adviser utilizes independent fundamental
analysis of the issuer as well as an analysis of the specific
structure of the security. A debt security will be considered
investment grade if it is rated in one of the four highest
rating categories by at least one NRSRO, or, in the case of an
unrated security, if the Adviser determines such security is
of comparable quality to securities rated in one of the four
highest rating categories. See Appendix A to this
P r o spectus for further discussion regarding securities
18<PAGE>
ratings. The Fixed Income Fund may invest in debt securities
issued by publicly and privately held U.S. and foreign
c o m panies, the U.S. government and agencies and
instrumentalities thereof, and foreign governments and their
agencies and instrumentalities. The Fixed Income Fund may
also invest in mortgage-related debt securities, other types
of asset-backed debt securities, and other forms of debt
securities. See Debt Securities below and in the SAI. In
addition, up to 15 % of the Fund may be invested directly in
Mortgage-Backed Securities below and equity securities,
including preferred and common stocks, convertible debt
securities and debt securities carrying warrants to purchase
equity securities, and up to 10% of the Fund may be invested
in debt securities rated below investment grade.
Debt securities purchased by the Fixed Income Fund may be
of any maturity. It is anticipated that the dollar weighted
average life of the debt portfolio will be between seven and
15 years, but may be shorter or longer depending on market
conditions. While the Fixed Income Fund intends to invest in
fixed income securities in order to achieve its investment
objective of obtaining the highest level of income consistent
with preservation of capital, it may from time to time invest
i n fixed income securities which offer higher capital
appreciation potential. Such investments would be in addition
to that portion of the Fund which may be invested in common
stocks and other types of equity securities.
With respect to the Fund s investment in fixed income
securities, such securities will be affected by changes in
interest rates. When interest rates decline, the market value
of a Fund invested at higher yields can be expected to rise.
Conversely, when interest rates rise, the market value of a
Fund invested at lower yields can be expected to decline.
Therefore, the Fund may engage in portfolio trading to take
advantage of market developments and yield disparities; for
example, shortening the average maturity of the Fund in
anticipation of a rise in interest rates so as to minimize
depreciation of principal, or lengthening the average maturity
of the Fund in anticipation of a decline in interest rates so
as to maximize appreciation of principal.
T h e Fixed Income Fund may use various investment
strategies and techniques when the Adviser determines that
such use is appropriate in an effort to meet the Fund s
investment objective. Such strategies and techniques include,
but are not limited to, writing covered and secured listed
put and call options and purchasing such options; purchasing
and selling, for hedging purposes, interest rate and other
futures contracts, and purchasing options on such futures
contracts; borrowing from banks to purchase securities;
i n vesting in securities of other investment companies;
19<PAGE>
entering into repurchase agreements; investing in when-issued
or delayed delivery securities; and selling securities short
against the box. See Description of Securities and
Investment Techniques in the SAI for further information.
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES
Mortgage-Backed Securities
Each Fund may invest in mortgage-backed securities.
Mortgage-related securities are interests in pools of mortgage
loans made to residential home buyers, including mortgage
loans made by savings and loan institutions, mortgage bankers,
commercial banks and others. Pools of mortgage loans are
assembled as securities for sale to investors by various
governmental, government-related and private organizations
(see "Mortgage Pass-Through Securities," below). The Funds
may also invest in debt securities which are secured with
collateral consisting of mortgage-related securities (see
"Collateralized Mortgage Obligations," at page ), and in
other types of mortgage-related securities.
Mortgage Pass-Through Securities. These are securities
representing interests in pools of mortgages in which
periodic payments of both interest and principal on the
securities are made by passing through periodic payments
made by the individual borrowers on the residential mortgage
loans underlying such securities (net of fees paid to the
issuer or guarantor of the securities and possibly other
costs). Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to sale
of the underlying property, refinancing, or foreclosure, net
of fees and costs which may be incurred) may expose a Fund to
a lower rate of return upon reinvestment of principal.
Payment of principal and interest on some mortgage pass-
through securities may be guaranteed by the full faith and
credit of the U.S. government (in the case of securities
guaranteed by the Government National Mortgage Association,
GNMA ), or guaranteed by agencies or instrumentalities of the
U.S. government (in the case of securities guaranteed by the
Federal National Mortgage Association, FNMA, or the Federal
Home Loan Mortgage Corporation, FHLMC ). Mortgage pass-
through securities created by non-governmental issuers (such
as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers, and other
secondary market issuers) may be uninsured or may be supported
by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters
of credit, which may be issued by governmental entities,
private insurers, or the mortgage poolers.
20<PAGE>
GNMA Certificates. GNMA certificates are mortgage-backed
securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is
g u aranteed by the full faith and credit of the U.S.
Government. GNMA certificates differ from typical bonds
because principal is repaid monthly over the term of the loan
rather than returned in a lump sum at maturity. Although GNMA
guarantees timely payment even if homeowners delay or default,
tracking the pass-through payments may, at times, be
difficult. Expected payments may be delayed due to the delays
in registering the newly traded paper securities. The
custodian s policies for crediting missed payments while
errant receipts are tracked down may vary. Other mortgage-
backed securities, such as those of FHLMC and FNMA, trade in
book-entry form and are not subject to this risk of delays in
timely payment of income. Although the mortgage loans in the
pool will have maturities of up to 30 years, the actual
average life of the GNMA certificates typically will be
substantially less because the mortgages may be purchased at
any time prior to maturity, will be subject to normal
principal amortization, and may be prepaid prior to maturity.
Reinvestment of prepayments may occur at higher or lower rates
than the original yield on the certificates.
FNMA and FHLMC Mortgage-Backed Obligations. FNMA, a
federally chartered and privately owned corporation, issues
pass-through securities representing interests in a pool of
conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not
backed by the full faith and credit of the U.S. government.
FNMA also issues REMIC certificates, which represent interests
in a trust funded with FNMA certificates. REMIC certificates
are guaranteed by FNMA and not by the full faith and credit of
the U.S. Government.
F H L M C , a corporate instrumentality of the U.S.
government, issues participation certificates which represent
an interest in a pool of conventional mortgage loans. FHLMC
guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect
holders against losses due to default, but these securities
are not backed by the full faith and credit of the U.S.
government. As is the case with GNMA certificates, the actual
maturity of and realized yield on particular FNMA and FHLMC
pass-through securities will vary based on the prepayment
experience of the underlying pool of mortgages.
Collateralized Mortgage Obligations. All Funds may
p u rchase mortgage-backed securities issued by financial
institutions such as commercial banks, savings and loan
associations, mortgage banks, and securities broker-dealers
(or affiliates of such institutions established to issue these
21<PAGE>
securities) in the form of either collateralized mortgage
obligations ( CMOs ) or mortgage-backed bonds. CMOs are
obligations fully collateralized directly or indirectly by a
pool of mortgages on which payments of principal and interest
are dedicated to payment of principal and interest on the
CMOs. Payments are passed through to the holders on the same
schedule as they are received. Mortgage-backed bonds are
g e neral obligations of the issuer fully collateralized
directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer s payment obligations on
the bonds but interest and principal payments on the mortgages
a r e not passed through either directly (as with GNMA
certificates and FNMA and FHLMC pass-through securities) or on
a modified basis (as with CMOs). Accordingly, a change in the
rate of prepayments on the pool of mortgages could change the
effective maturity of a CMO but not that of a mortgage-backed
bond (although, like many bonds, mortgage-backed bonds may be
callable by the issuer prior to maturity). Although the
mortgage-related securities securing these obligations may be
subject to a government guarantee or third-party support, the
obligation itself is not so guaranteed. Therefore, if the
collateral securing the obligation is insufficient to make
payment on the obligation, a holder could sustain a loss. It
is expected that governmental, government-related, or private
entities may create mortgage loan pools and other mortgage-
backed securities offering mortgage pass-through and mortgage-
backed securities. If such securities are developed and
offered to other types of investors, investments in such new
types of mortgage-related securities will be considered.
Risks of Mortgage-Backed Securities. In the case of
mortgage pass-through securities, such as GNMA certificates or
FNMA and FHLMC mortgage-backed obligations, or modified pass-
through securities, such as CMOs issued by various financial
institutions, early repayment of principal arising from
prepayments of principal on the underlying mortgage loans due
to the sale of the underlying property, the refinancing of the
loan, or foreclosure may expose a Fund to a lower rate of
return upon reinvestment of the principal. Prepayment rates
vary widely and may be affected by changes in market interest
rates and other economic trends and factors. In periods of
falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the
mortgage-backed security. Conversely, when interest rates are
rising, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the mortgage-backed
security. Accordingly, it is not possible to accurately
predict the average life of a particular pool. Reinvestment
of prepayments may occur at higher or lower rates than the
original yield on the securities. Therefore, the actual
maturity and realized yield on pass-through or modified pass-
22<PAGE>
through mortgage-backed securities will vary based upon the
prepayment experience of the underlying pool of mortgages.
Debt Securities
All Funds may invest in U.S. dollar denominated corporate
debt securities of domestic issuers, and the Asset Allocation
Fund and the Fixed Income Fund may invest in debt securities
o f f o r e ign issuers that may or may not be U.S.
dollar denominated.
The investment return on a corporate debt security
reflects interest earnings and changes in the market value of
the security. The market value of corporate debt obligations
may be expected to rise and fall inversely with interest rates
generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on
interest or principal payments at the time called for by an
instrument. Debt securities rated BBB or Baa, which are
considered medium-grade category debt securities, do not have
economic characteristics that provide the high degree of
security with respect to payment of principal and interest
associated with higher rated debt securities, and generally
have some speculative characteristics. A debt security will
be placed in this rating category where interest payments and
principal security appear adequate for the present, but
economic characteristics that provide longer term protection
may be lacking. Any debt security, and particularly those
rated BBB or Baa (or below), may be susceptible to changing
conditions, particularly to economic downturns, which could
lead to a weakened capacity to pay interest and principal.
Risks Associated With High Yield Debt Securities. The
Funds may invest in high yield, high risk, lower-rated debt
securities. High yield debt securities are subject to all
risks inherent in any investment in debt securities. As
discussed below, these risks are significantly greater in the
case of high yield debt securities.
Lower-rated debt securities generally offer a higher
current yield than that available from higher-rated issues.
However, lower-rated securities involve higher risks in that
they are especially subject to (1) adverse changes in general
economic conditions and in the industries in which the issuers
are engaged, (2) changes in the financial condition of the
issuers and (3) price fluctuation in response to changes in
interest rates. Accordingly, the yield on lower-rated debt
securities will fluctuate over time. During periods of
economic downturn or rising interest rates, highly leveraged
issuers may experience financial stress which could adversely
affect their ability to make payments of principal and
interest, and increase the possibility of default. In
23<PAGE>
addition, the market for lower-rated securities has expanded
rapidly in recent years, and this expanded market has not been
tested in a period of extended economic downturn. This market
may be thinner and less active than the market for higher
quality securities, which may limit the ability to sell such
securities at their fair value in response to changes in the
economy or the financial markets. Adverse publicity and
investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower-
rated securities, especially in a thinly traded market.
Differing yields on fixed income securities of the same
maturity are a function of several factors, including the
relative financial strength of the issuers. Higher yields are
generally available from securities rated below investment
grade categories of recognized rating agencies: Ba1 or lower
by Moody s or BB+ or lower by Standard & Poor s. Debt
securities rated below investment grade are deemed by these
agencies to be predominantly speculative with respect to the
issuer s capacity to pay interest and repay principal and may
involve major risk exposure to adverse conditions.
Foreign Securities
The Asset Allocation Fund may invest in equity securities
of foreign issuers. That Fund may invest up to 50 percent of
its net assets in such securities. The Asset Allocation Fund
and Equity Fund may invest in American Depository Receipts
( ADRs ), which are described below. The Fixed Income Fund may
invest in debt obligations of foreign issuers, including
foreign governments and their agencies and instrumentalities.
Investments in foreign securities may offer unique potential
benefits such as substantial growth in industries not yet
developed in the particular country. Such investments also
permit a Fund to invest in foreign countries with economic
policies or business cycles different from those of the United
States, or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that may not move in a
manner parallel to U.S. markets. Investments in securities of
f o r e ign issuers involve certain risks not ordinarily
associated with investments in securities of domestic issuers.
Such risks include fluctuations in foreign exchange rates,
future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain
countries, there is the possibility of expropriation of
a s sets, confiscatory taxation, political or social
instability, or diplomatic developments that could adversely
affect investments in those countries. Since the Asset
Allocation Fund may invest in securities denominated or quoted
in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the value of securities in
24<PAGE>
that Fund and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned.
There may be less publicly available information about a
foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing, and
financial reporting standards and requirements comparable to
or as uniform as those to which U.S. companies are subject.
Foreign securities markets, while growing in volume, have, for
the most part, substantially less volume than U.S. markets.
Securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S.
companies. Transactional costs in non-U.S. securities markets
are generally higher than in U.S. securities markets. There
is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the United
S t ates. A Fund might have greater difficulty taking
appropriate legal action with respect to foreign investments
in non-U.S. courts than with respect to domestic issuers in
U.S. courts. In addition, transactions in foreign securities
may involve greater time from the trade date until settlement
than domestic securities transactions and involve the risk of
p o s sible losses through the holding of securities by
custodians and securities depositories in foreign countries.
Dividend and interest income from foreign securities may
generally be subject to withholding taxes by the country in
which the issuer is located and may not be recoverable by a
Fund or its investors in all cases.
ADRs are certificates issued by a U.S. bank or trust
company representing the right to receive securities of a
foreign issuer deposited in a foreign subsidiary or branch or
a correspondent of that bank. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets and may
offer U.S. investors more liquidity than the underlying
securities. The Fund may invest in unsponsored ADRs. The
issuers of unsponsored ADRs are not obligated to disclose
material information in the U.S. and, therefore, there may not
be a correlation between such information and the market value
of such ADRs.
Restricted and Illiquid Securities
The Funds may invest in restricted securities such as
private placements, although a Fund may not invest in any
illiquid restricted security if, after acquisition thereof,
more than 15 percent of the Fund s assets would be invested in
illiquid securities. Once acquired, restricted securities may
be sold by a Fund only in privately negotiated transactions or
in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933. If
25<PAGE>
sold in a privately negotiated transaction, a Fund may have
difficulty finding a buyer and may be required to sell at a
price that is less than the Adviser had anticipated. Where
registration is required, a Fund may be obligated to pay all
or part of the registration expenses and a considerable period
may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided
to sell.
MANAGEMENT
The Trustees of the Trust decide upon matters of general
policy for the Trust. In addition, the Trustees review the
actions of the Trust s investment manager, as set forth below.
The Trust s officers supervise the daily business operations
of the Trust.
Conseco Capital Management, Inc. (the Adviser ), 11825
N. Pennsylvania Street, Carmel, Indiana 46032, has been
retained under Investment Advisory Agreements with the Trust,
to provide investment advice, and in general to supervise the
management and investment program of the Trust and each Fund.
The Adviser is a wholly-owned subsidiary of Conseco, Inc., a
publicly-owned financial services company, the principal
operations of which are in development, marketing, and
a d ministration of specialized annuity, life and health
insurance products. The Adviser generally manages the affairs
of the Trust, subject to the supervision of the Board of
Trustees. For information about the Board of Trustees and the
Trust s officers, see Management in the SAI.
Under the Investment Advisory Agreements, the Adviser
receives an investment advisory fee equal to an annual rate of
.45% of the daily net asset value of the Fixed Income Fund,
.70% of the daily net asset value of the Equity Fund, and .70%
of the daily net asset value of the Asset Allocation Fund.
T h e Adviser also manages another registered investment
company, all of the invested assets of its parent company,
Conseco, Inc., which owns or manages several life insurance
subsidiaries, and provides investment and servicing functions
to the Conseco companies and affiliates. Pursuant to
Investment Management Agreements between the Adviser and the
Funds, the Adviser will reduce its aggregate fees for any
fiscal year, or reimburse the Funds, to the extent required,
so that the Funds expenses do not exceed the expense
limitations applicable to the Trust under the securities laws
or regulations of those states or jurisdictions in which the
Funds shares are registered or qualified for sale. Expenses
26<PAGE>
f o r purposes of these expense limitations include the
management fee, but exclude brokerage commissions and fees,
taxes, interest and extraordinary expenses such as litigation,
paid or incurred by the Funds. In addition, the state with
the most restrictive expense limitation allows the Trust to
exclude distribution expenses. The Adviser has voluntarily
agreed to waive its investment advisory fee to the extent that
the ratio of expenses to net assets on an annual basis for
Class A Shares of the Equity Fund exceeds 1.50%, the Asset
Allocation Fund exceeds 1.50%, and the Fixed Income Fund
exceeds 1.25%. These voluntary limits may be discontinued at
any time after April 30, 1998.
The investment professionals primarily responsible for
the management of each Fund, with the respective
responsibilities and business experience for the past five
years are as follows:
Equity Fund : Thomas J. Pence, Vice President for the
Adviser. He is responsible for the management of the
Adviser s equity portfolios and oversight of the equity
investment process. Prior to joining the Adviser in 1992, Mr.
Pence worked for five years as a securities analyst in the
field of real estate acquisition and development in which he
s p ecialized in residential development and construction
finance and was responsible for overseeing a project portfolio
of $750 million in real estate assets.
Fixed Income: Gregory J. Hahn, Senior Vice President,
Portfolio Analytics, for the Adviser. He is responsible for
the portfolio analysis and management of the institutional
client accounts and analytical support for taxable portfolios.
I n addition, he has responsibility for SEC registered
investment products as well as investments in the insurance
industry. Mr. Hahn joined the Adviser in 1989.
Asset Allocation Fund: Gregory J. Hahn. See Mr. Hahn s
business experience above.
Thomas J. Pence, Portfolio Manager of the equity portion
of the Fund. See Mr. Pence s business experience above.
Administrative Fees
Pursuant to an administration agreement ( Administration
Agreement ), Conseco Services, LLC supervises the overall
administration of the Funds. These administrative services
i n clude supervising the preparation and filing of all
documents required for compliance by the Funds with applicable
laws and regulations, supervising the maintenance of books and
r e cords, and other general and administrative
responsibilities. For providing these services, Conseco
27<PAGE>
Services receives a fee from each Fund of .20% per annum of
its average daily Class A net assets. Pursuant to the
Administration Agreement, Conseco Services, LLC reserves the
right to employ one or more sub-administrators to perform
administrative services for the Funds.
Distribution and Service Plan for Class A Shares
The Funds have adopted a Distribution and Service Plan
for Class A shares to compensate the Distributor for the
distribution of Class A shares and servicing the accounts of
Class A shareholders. The Plan provides for periodic payments
to brokers who provide services to accounts that hold Class A
shares and for promotional and other sales related costs. The
Class A Plan provides for payments by each Fund to Conseco
Equity Sales, Inc. (the Distributor ) of up to 0.35% of that
Fund s average net assets attributable to Class A shares. The
Trustees currently limit payments under the Class A Plan to
the annual rate of .25% of such assets. Should the Trustees
decide in the future to approve payments in excess of this
amount, shareholders will be notified and this Prospectus will
be revised. Up to .25% of the fee may be used for shareholder
servicing expenses with the remainder used for distribution
expenses. Up to .25% of the fee may be paid to dealers in the
form of a trail or maintenance fee after the first full year
of investment in an amount equal to an annual rate of .25% of
Class A s daily net assets owned by clients of such dealers.
28<PAGE>
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
You may purchase shares from any broker-dealer that has a
selling agreement with the Distributor. In addition, as
discussed below, an account may be opened for the purchase of
shares of a Fund by mailing to the Tranfer Agent, 225 Franklin
Street, Boston, Massachusetts 02110, a completed account
application and a check payable to the appropriate Fund. Or
you may telephone 1-800-986-3384 to obtain the number of an
account to which you can wire or electronically transfer funds
and then send in a completed application.
Purchase orders for all Funds are accepted only on a
regular business day as defined below. Orders for shares
received by the Transfer Agent on any business day prior to
the close of trading on the New York Stock Exchange (the
NYSE ) (normally 4:00 p.m. Eastern Time) will receive that
day s offering price. Orders received by the Transfer Agency
after such time but prior to the close of business on the next
business day will receive the next business day s offering
price which is net asset value plus any applicable sales
charge. If you purchase shares through a broker-dealer, your
broker is responsible for forwarding payment promptly to the
Transfer Agent. A business day is any day on which the NYSE
is open for business. It is anticipated that the NYSE will be
closed Saturdays and Sundays and on days on which the NYSE
observes New Year s Day, President s Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The minimum initial investment by a shareholder is $500.
T h e minimum subsequent investment is $50, but these
requirements may be changed or waived at any time at
management s discretion. Each Fund and the Distributor or
Transfer Agent reserves the right to reject any order for the
purchase of shares in whole or in part. The offering price of
Class A is the net asset value plus a varying sales charge,
depending on the amount invested. The sales charge applicable
to shares of Class A is determined follows:
<TABLE>
<CAPTION>
Sales Charge
As % of Public As % of Net Dealer
Reallowance
Offering Price Amount Invested As % of
Offering
Price
29<PAGE>
On purchases of:
<S> <C> <C> <C>
$500 - 50,000 5.0% 5.56% 4.5%
$50,000 - 100,000 4.5% 4.71% 4.0%
$100,000 - 500,000 3.5% 3.63% 3.0%
$500,000 - 1,000,000 2.0% 2.04% 1.5%
over $1,000,000 None None 1.0%
</TABLE>
The sales charge assessed upon the purchase of shares of
Class A is not an expense of Class A and has no effect on the
net asset value of shares of Class A. The Distributor may
allow the selling financial service firms (such as broker-
dealer firms and banks) to retain 100% of the sales charge.
This may result in the selling firm being considered an
underwriter under the Securities Act of 1933, as amended.
T h e Distributor may provide promotional incentives
including cash compensation in excess of the applicable sales
charge to certain broker-dealers whose representatives have
sold or are expected to sell significant amounts of shares of
one or more of the Funds. Other programs may provide, subject
to certain conditions, additional compensation to broker-
dealers based on a combination of aggregate shares sold and
increases of assets under management. All of the above
payments will be made by the Distributor or its affiliates out
of their own assets. These programs will not change the price
an investor will pay for shares or the amount that a Fund will
receive from such sale.
You will receive a confirmation of each new transaction
in your account, which will also show you the number of Fund
shares you own and the number of shares being held in
safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as
evidence of your ownership. Certificates representing shares
of the Funds will not be issued.
Purchases By Wire
Purchase by wire transfer should be directed to the
Transfer Agent to receive an account number at (800) 986-3384
between the hours of 8:00 a.m. and 4:00 p.m. (Eastern Time) on
a regular business day (as defined above) on which your bank
is open for business. The following information will be
requested: your name, address, tax identification number,
dividend distribution election, amount being wired and the
wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to: ABA # __________, address,
30<PAGE>
Account # __________. If you arrange for receipt by the
Transfer Agent of federal funds prior to the close of trading
(currently 4:00 p.m. Eastern Time) of the NYSE on a regular
business day as defined above, you will receive that day s
offering price. Your bank may charge for these services.
Purchase Through Dealer
Orders for purchase of shares placed through dealers will
receive the net asset value next computed following receipt of
the order provided the dealer receives the order prior to the
close of the NYSE and transmits it to the Distributor prior to
its close of business that same day (normally 4:00 p.m.
Eastern Time). Dealers are required to provide payment within
three business days after placing an order. Dealers making
payment for confirmed purchases via Federal funds wire must
reference the confirmation number to ensure timely credit.
Purchases By Check
An initial investment made by check must be accompanied
by an Application, completed in its entirety. Additional
shares of the Funds may also be purchased by sending a check
payable to the applicable Fund, along with information
regarding your account, including the account number, to the
Transfer Agent. All checks should be drawn only on U.S. banks
in U.S. funds, in order to avoid fees and delays. A charge
may be imposed if any check submitted for investment does not
clear. Third party checks will not be accepted. When
purchases are made by check or periodic automatic investment,
redemptions will not be allowed until the investment being
redeemed has been in the account for 15 business days.
Pre-Authorized Investment Plan
For your convenience, a pre-authorized investment plan
(see Pre-Authorized Investment Plan on the Additional
Account Privileges Form) may be established where your
personal bank account is automatically debited and your Fund
Account is automatically credited with additional full and
fractional shares ($50 subsequent minimum investment). For
further information on pre-authorized investment plans, please
contact the Transfer Agent at (800) 986-3384. The minimum
investment requirements may be waived by the Fund for
purchases made pursuant to certain programs such as payroll
deduction plans and retirement plans.
Reduced Sales Charges for Class A Share Purchase
You may be eligible to buy Class A shares at reduced
sales charge rates in one or more of the following ways:
31<PAGE>
Combined Purchases
You may aggregate purchases of shares of the Funds with
the purchases of the other persons listed below to achieve
discounts in the applicable sales charges. The sales charge
applicable to a current purchase of Class A shares of each
Fund by a person listed below is determined by adding the
value of Class A shares to be purchased to the aggregate value
(at current net asset value) of all shares of any of the other
Funds in the Trust and shares of the money market fund managed
by Federated Investors (derived from the exchange of Conseco
Fund Group Shares on which an initial sales charge was paid)
previously purchased and then owned. In addition, if you own
a Great American Reserve Insurance Company variable annuity
contract the current cash value of such contract will be
aggregated with your shares to determine your sales charge.
The Transfer Agent must be notified by you or your broker-
dealer each time a qualifying purchase is made.
Qualifying investments include those by you, your spouse
and your children under the age of 21, if all parties are
purchasing Class A shares for their own account(s), which may
include tax qualified plans, such as an IRA, or by a company
solely controlled by such individuals as defined in the 1940
Act. Reduced sales charges also apply to purchases by a
trustee or other fiduciary if the investment is for a single
trust, estate or single fiduciary account, including pension,
p r ofit-sharing or other employee benefit trust created
pursuant to a plan qualified under the Code. Reduced sales
charges apply to combined purchases by qualified employee
benefit plans of a single corporation, or of corporations
affiliated with each other in accordance with the 1940 Act.
Purchases made for nominee or street name accounts (securities
held in the name of a broker or another nominee such as a bank
t r ust department instead of the customer) may not be
aggregated with those made for other accounts and may not be
aggregated with other nominee or street name accounts unless
otherwise qualified as described above.
Letter of Intent
You may reduce your sales charge on all investments by
meeting the terms of a letter of intent, a non-binding
commitment to invest a certain amount within a 13-month
period. Your existing holdings in the Trust may also be
combined with the investment commitment set forth in the
letter of intent to further reduce your sales charge. Up to
5% of the letter amount will be held in escrow to cover
additional sales charges which may be due if your total
investments over the letter period are not sufficient to
qualify for a sales charge reduction. See the SAI and the
Application for further details.
32<PAGE>
Rights of Accumulation
The sales charge for new purchases of Class A shares of a
Fund will be determined by aggregating the net asset value of
all the Funds owned by the shareholder at the time of the new
purchase. You must identify on the Application all accounts
to be linked for Rights of Accumulation.
Waiver of Class A Initial Sales Charge
No sales charge is imposed on sales of Class A shares to
certain investors. However, in order for the following sales
charge waivers to be effective, the Transfer Agent must be
notified of the waiver when the purchase order is placed. The
Transfer Agent may require evidence of your qualification for
the waiver. No sales charge is imposed on the following
investors: (1) current or retired officers, directors and
employees (and their parents, in-laws, spouses, and dependent
children) of the Trust, Conseco and its affiliates and the
Transfer Agent, (2) Conseco shareholders holding 100 or more
shares of Conseco common stock, (3) any participant in a tax
qualified retirement plan provided that the total initial
amount invested by the plan totals $500,000 or more, the plan
has 50 or more employees eligible to participate at the time
of purchase, or the plan certifies that it will have projected
annual contributions of $200,000 or more; (4) dealers, brokers
a n d wholesalers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or
for retirement plans for their employees; (5) employees and
registered representatives (and their parents, grandparents,
spouses and dependent children) of dealers, brokers and
wholesalers described above or financial institutions that
have entered into sales arrangements with such dealers or
brokers (and are identified to the Distributor) or with the
Distributor; the purchaser must certify to the Distributor at
the time of the purchase that the purchase is for the
purchaser's own account (or for the benefit of such
employee's parents, grandparents, spouse or minor children);
(6) any charitable organization, state, county, city, or any
instrumentality, department, authority or agency thereof which
h a s determined that Class A is a legally permissible
investment and which is prohibited by applicable investment
law from paying a sales charge or commission in connection
with the purchase of shares of any registered management
company; (7) one or more members of a group of at least 100
persons (and persons who are retirees from such group) engaged
in a common business, profession, civic or charitable endeavor
or other activity, and the spouses and minor dependent
children of such persons pursuant to a marketing program
between the Distributor and such group; (8)(i) through an
i n vestment adviser who makes such purchases through a
broker/dealer, bank or trust company (each of which may impose
33<PAGE>
transaction fees on the purchase), (ii) by an investment
adviser for its own account or for a bona fide advisory
account over which the investment adviser has investment
discretion or (iii) through a financial planner who charges a
fee and makes such purchases through a financial institution
which maintains a net asset value purchase program that
enables the Distributor to realize certain economies of scale;
(9) through bank trust departments or trust company on behalf
of bona fide trust or fiduciary accounts by notifying the
Distributor in advance of purchase. A bona fide advisory,
trust or fiduciary account is one which is charged an asset-
based fee and whose purpose is other than purchase of Fund
shares at net asset value; or (10) by purchasers in connection
with investments related to a bona fide medical savings
account.
Additionally, no sales charge is imposed on shares that
are (a) issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers, to which a Fund is a
party, (b) purchased by the reinvestment of loan repayments by
a participant in retirement plans, (c) purchased by the
reinvestment of dividends or other distributions reinvested
from a Fund, or (d) purchased and paid for with the proceeds
of shares redeemed in the prior 60 days from a mutual fund on
which an initial sales charge or contingent deferred sales
charge was paid (other than a fund managed by the Adviser or
any of its affiliates.)
How to Redeem Shares of the Funds
Shares of Class A are redeemed at net asset value next
determined after receipt of a redemption request in good form
on any day the NYSE is open for business, reduced by the
amount of any federal income tax required to be withheld.
Redemptions by Mail
A written request for redemption must be received by the
Transfer Agent to constitute a valid tender for redemption.
It will also be necessary for corporate investors and other
associations to have an appropriate certification authorizing
redemptions by a corporation or an association on file before
a redemption request will be considered in proper form. A
suggested form of such certification is provided on the
A p plication accompanying this Prospectus. A signature
guarantee by an eligible guarantor may be required as
stipulated in Rule 17Ad-15(a)(2) under the Securities Exchange
A c t of 1934. A signature guarantee is required for
redemptions of $50,000 or more.
Redemptions by Wire or Telephone
34<PAGE>
Brokers, dealers, or other sales agents may communicate
redemption orders by wire or telephone. These firms may
charge for their services in connection with your redemption
request but neither the Funds nor the Distributor impose any
such charges.
The Funds and the Transfer Agent will not be responsible
for the authenticity of phone instructions or losses, if any,
resulting from unauthorized shareholder transactions if the
Funds or the Transfer Agent reasonably believe that such
instructions are genuine. The Funds and the Transfer Agent
have established procedures that the Funds believe are
reasonably appropriate to confirm that instructions
communicated by telephone are genuine. These procedures
include: (i) recording telephone instructions for exchanges
and expedited redemptions; (ii) requiring the caller to give
certain specific identifying information; and (iii) providing
written confirmations to shareholders of record not later than
five days following any such telephone transactions. If the
Funds and the Transfer Agent do not employ these procedures,
they may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
Expedited Redemptions
You may have the payment of redemption requests (of $250
or more) wired or mailed directly to a domestic commercial
bank account that you have previously designated. Normally,
such payments will be transmitted on the second business day
following receipt of the request (provided redemptions may be
made). If no share certificates have been issued, you may
request a wire redemption by telephone or written request sent
to the Transfer Agent. For telephone redemptions, call the
Transfer Agent at (800) 986-3384. You must complete the
Expedited Redemptions section of the Application for this
privilege to be applicable.
Systematic Withdrawal Plan
You may elect to have regular monthly or quarterly
payments in any fixed amount in excess of $100 made to you, or
to anyone else properly designated as long as the account has
a value of at least $10,000 at the time of election.
There are no separate charges under this plan. A number
of full and fractional shares equal in value to the amount of
the requested payment will be redeemed. Such redemptions are
normally processed on or about the 25th day of each month or
quarter. Checks are then mailed on or about the first of the
following month. If you elect to have a Systematic Withdrawal
P l a n, you must have all dividends and capital gains
reinvested. To establish systematic cash withdrawals, please
35<PAGE>
complete the systematic cash withdrawal section on the
Additional Account Privileges Form.
You may change the amount, frequency, and payee, or
terminate this plan, by giving written notice to the Trust s
Transfer Agent. As shares of a Fund are redeemed under the
plan, you may realize a capital gain or loss to be reported
for income tax purposes. A Systematic Withdrawal Plan may be
terminated or modified at any time upon written notice by you
or a Fund.
General
P a y m e nt to shareholders for shares redeemed or
repurchased will be made within seven days after receipt by
the Transfer Agent. A Fund may delay the mailing of a
redemption check until the check used to purchase the shares
being redeemed has cleared, which may take up to 15 days or
longer. To reduce such delay, the Funds recommend that all
purchases be made by bank wire Federal funds. A Fund may
suspend the right of redemption under certain extraordinary
circumstances in accordance with the Rules of the SEC. Due to
the relatively high cost of handling small investments, the
Funds reserve the right upon 30-days written notice to
redeem, at net asset value, the shares of any shareholder
whose account has a value of less than $500 other than as a
result of a decline in the net asset value per share.
Dollar Cost Averaging
The Dollar Cost Averaging ( DCA ) program enables a
shareholder to transfer the value from the money market fund
managed by Federated Investors to another investment option on
a predetermined and systematic basis. The DCA program is
generally suitable for shareholders making a substantial
investment in the Funds and who desire to control the risk of
investing at the top of a market cycle. The DCA program
allows such investments to be made in equal installments over
time in an effort to reduce such risk.
If you have at least $5,000 invested in the money market
fund managed by Federated Investors, you may choose to have a
specified dollar amount transferred from this Fund to another
Fund (s) on a monthly basis. The main objective of DCA is to
shield your investment from short term price fluctuations.
Since the same dollar amount is transferred to other Funds
each month, more shares are purchased in a Fund if the value
per unit is low and less units are purchased if the value per
unit is high. Therefore, a lower average cost per unit may be
achieved over the long term. This plan of investing allows
investors to take advantage of market fluctuations but does
36<PAGE>
not assure a profit or protect against a loss in declining
markets.
DCA may be elected on the application form or at a later
date. The minimum amount that may be transferred each month
into any Fund is $250. The maximum amount which may be
transferred is equal to the amount invested in the money
market fund managed by Federated Investors when elected,
divided by 12.
The transfer date will be the same calendar day each
month. The dollar amount will be allocated to the Funds in
the proportions you specify on the appropriate form, or, if
n o n e are specified, in accordance with your original
investment allocation. If, on any transfer date, the amount
invested is equal to or less than the amount you have elected
to have transferred, the entire amount will be transferred and
the option will end. You may change the transfer amount once
each year, or cancel this option by sending the appropriate
form to our Administrative Office which must be received at
least seven days before the next transfer date.
Exchange Privilege
Class A shares of one Fund described in this Prospectus
may be exchanged for Class A shares of the other Funds or for
shares of the Federated Money Market Fund at the relative net
asset values per share at the time of the exchange. Shares of
the Federated Money Market Fund may be exchanged for Class A
shares at relative net asset values per share at the time of
the exchange to the extent that the shares of the Federated
Money Market Fund are attributable to Class A shares on which
an initial sales charge was previously payable and dividend
reinvestments on such Class A shares. An initial sales charge
will be imposed on other shares transferred from the Federated
Money Market Fund to the Class A Funds. The total value of
shares in a Fund after the exchange must at least equal the
minimum investment requirement of the Fund into which they are
being exchanged. You should consider the differences in
investment objectives and expenses of the Funds before making
an exchange. Shares are normally redeemed from one Fund and
purchased from the other Fund in the exchange transaction on
the same regular business day on which the Transfer Agent
receives an exchange request that is in proper form by the
c l o se of the NYSE that day. Exchanges are taxable
transactions and may be subject to special tax rules about
which you should consult your own tax adviser.
Electronic Transfers Through Automated Clearing House
Electronic Transfers Through Automated Clearing House
( ACH ) allows you to initiate a purchase or redemption for as
37<PAGE>
little as $100 or as much as $50,000 between your bank account
and Fund account using the ACH network. Sales charges and
initial purchase minimums apply. You must complete the ACH
S e c tion of the Application for this privilege to be
applicable.
Determination of Net Asset Value
The net asset value per share is determined for each
class of shares for each Fund as of the close of the NYSE
(normally 4:00 p.m. Eastern Time) on each regular business day
(as previously defined) by dividing the value of the Fund s
net assets attributable to a class by the number of shares of
that class outstanding. The assets of each Fund are valued
primarily on the basis of market quotations. If quotations
are not readily available, assets are valued by a method that
the Trustees of the Trust believe accurately reflects fair
value. Foreign securities are valued on the basis of
quotations from the primary market in which they are traded,
and are translated from the local currency into U.S. dollars
using current exchange rates. With respect to all Funds,
short-term investments that will mature in 60 days or less are
valued at amortized cost, which approximates market value.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund is treated as a separate taxable entity and
qualifies as a regulated investment company under applicable
provisions of the Internal Revenue Code of 1986 (the Code ).
As such and by complying with the applicable provisions of the
Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, each
Fund will be allowed a deduction for amounts distributed to
its shareholders from its ordinary income and net realized
capital gains and will not be subject to federal income tax on
such amounts. To qualify for treatment as a regulated
investment company, each Fund must, among other things,
derive in each taxable year at least 90% of its gross income
from dividends, interest and gains from the sale or other
disposition of securities, and derive less than 30% of its
gross income in each taxable year from the gains (without
deduction for losses) from the sale or other disposition of
securities held for less than three months.
Each Fund intends to distribute sufficient net investment
income to avoid the application of federal income tax on the
Trust. Each Fund also intends to distribute sufficient income
to
avoid the application of any federal excise tax. For
dividend purposes, the net investment income of each Fund will
consist of all payments of dividends or interest received and
38<PAGE>
any net short-term gains or losses from the sale of its
investments less its estimated expenses (including fees
payable to the Adviser). The Asset Allocation Fund is also
required to include in its gross income each year a portion of
the original issue discount at which it acquires zero coupon
securities, even though the Fund receives no interest payment
on the security during the year. Similarly, the Fund must
include in its gross income each year any interest distributed
in the form of additional securities by payment-in-kind
securities. Accordingly, to continue to qualify for treatment
as a regulated investment company under the Code, the Fund may
be required to distribute as a dividend an amount that is
greater than the total amount of cash the Fund actually
received. Those distributions will be made from the Fund s
cash assets or the proceeds from sales of Fund securities, if
necessary.
This information is only a summary of certain federal tax
information about your investment. More information is
contained in the SAI. You should consult with your tax
adviser about the effect of an investment in the Fund on your
particular tax situation.
Dividends from the Fixed Income Fund will be declared and
distributed monthly in additional full and fractional shares
of those respective Funds. Dividends from the Equity Fund and
the Asset Allocation Fund will be declared and distributed
quarterly. However, the Trustees may decide to declare
dividends at other intervals.
All net realized long-term capital gains of the Trust, if
any, are declared and distributed annually after the close of
the Trust s fiscal year to the shareholders of the Fund or
Funds to which such gains are attributable.
Distribution Options. When you open your account,
specify on your application how you want to receive your
distributions. For Conseco Mutual Funds retirement accounts,
all distributions are reinvested. For other accounts, you
have the following options:
Reinvest All Distributions in the Fund. You can elect to
r e i n v est all dividends and long term capital gains
distributions in additional shares of the Fund.
Reinvest Income Dividends Only. You can elect to
reinvest investment income dividends in a Fund while receiving
capital gains distributions by check or sent to your bank
account.
39<PAGE>
Reinvest Capital Gains Only. You can elect to reinvest
capital gains in the Fund while receiving dividends by check
or sent to your bank account.
Receive All Distributions in Cash. You can elect to
receive a check for all dividends and long-term capital gain
distributions or have them sent to your bank.
INVESTMENT PERFORMANCE
Because the Funds are being offered to the public for the
first time, as of the date of this Prospectus they do not have
any prior operating history or performance. However, the
Equity Fund, Asset Allocation Fund and Fixed Income Fund are
modeled after existing funds of the Conseco Series Trust (the
CST Funds ) that are managed by the Adviser and have
investment objectives and policies substantially similar to
the corresponding Funds. The CST Funds are used as investment
vehicles for the assets of variable annuity and variable life
insurance contracts issued by Conseco affiliates.
Below you will find information about the performance of
the CST Funds. Although the three comparable Funds discussed
above have substantially similar investment objectives and
policies, the same investment adviser and the same portfolio
managers as the CST Funds, you should not assume that the
Funds offered by this Prospectus will have the same future
performance as the CST Funds. For example, any Fund s future
performance may be greater or less than the performance of the
corresponding CST Fund due to, among other things, differences
i n e xpenses and cash flows between a Fund and the
c o r r e sponding CST Fund. Moreover, past performance
information is based on historical earnings and is not
intended to indicate future performance.
The investment characteristics of each Fund listed below
will closely resemble the investment characteristics of the
corresponding CST Fund. Depending on the Fund involved,
similarity of investment characteristics may involve factors
such as industry diversification, portfolio beta, portfolio
quality, average maturity of fixed-income assets, equity/non-
equity mixes, and individual holdings.
Certain Funds do have differences from their
corresponding CST Fund none of which the Adviser believes
would cause a significant change in investment results.
Investors should note the following differences: (1) the Funds
may invest in swaps, caps and floors; and (2) the Funds may
lend portfolio securities. See the SAI for further details.
T h e table below sets forth each Fund, and its
corresponding CST Fund, the date the Adviser began managing
40<PAGE>
the CST Fund (referred to as the inception date ) and asset
size as of October 31, 1996.
Corresponding CST Fund
Fund (Inception Date and Asset Size)
Equity Fund Common Stock Portfolio (Jan. 31, 1992)
$154,615,806
Asset Allocation Fund Asset Allocation Portfolio (Dec.1, 1991)
$14,792,025
Fixed Income Fund Corporate Bond Portfolio (July 31, 1990)
$17,031,312
The following two tables show the average annualized
total returns for the CST Funds for the one, three, five and
ten year (or life of the CST Fund if shorter than 10 years)
periods ended October 31, 1996. These figures are based on
the actual gross investment performance of the CST Funds.
From the gross investment performance figures, the maximum
Total Fund Operating Expenses reflected in the fee table on
page ___ are deducted to arrive at the net return. The first
table reflects a deduction for the maximum applicable sales
charges, while the second table reflects no deduction for
sales charges. Performance figures will be lower when sales
charges are taken into account.
41<PAGE>
Assuming Class A Share Total Fund Operating Expenses and the
Maximum Initial Sales Load Applicable to Class A Shares.
10 Years
CST Fund or Since
(Inception Date) 1 Year 3 Years 5 Years Inception
Common Stock Portfolio
(Jan. 31, 1992) 31.509% 20.088% N/A 17.512%
Asset Allocation
Portfolio 19.224% 14.012% N/A 14.011%
(Dec. 31, 1991)
Corporate Bond
Portfolio 0.514% 3.677% 7.216% 8.831%
(July 31, 1990)
Assuming Class A Share Total Fund Operating Expenses With No
Initial Sales Load.1/
10 Years
CST Fund or Since
(Inception Date) 1 Year 3 Years 5 Years Inception
Common Stock Portfolio
(Jan. 31, 1992) 38.439% 22.162% N/A 18.767%
Asset Allocation
Portfolio 25.507% 15.981% N/A 15.208%
(Dec. 31, 1991)
Corporate Bond
Portfolio 5.810% 5.467% 8.323% 9.717%
(July 31, 1990)
Each of the Funds may from time to time advertise certain
investment performance information. Performance information
m a y consist of yield and average annual total return
quotations reflecting the deduction of all applicable charges
over a period of time. A Fund also may use aggregate total
r e t u rn figures for various periods, representing the
cumulative change in value of an investment in a Fund for the
specific period. Performance information may be shown in
schedules, charts or graphs. These figures are based on
1/
Certain persons may purchase Class A shares that are not subject to the Class
A initial sale charge (see Waiver of Class A Initial Sales Charge in this
Prospectus) and certain other persons may purchase Class A shares subject to
less than the maximum initial sales charge.
42<PAGE>
historical earnings and are not intended to indicate future
performance.
The yield of a Fund refers to the annualized net income
generated by an investment in that Fund over a specified 30-
day period, calculated by dividing the net investment income
per share earned during the period by the maximum offering
price per share on the last day of the period.
The average annual total return of a Fund refers to the
total rate of return of an investment in the Fund. The figure
is computed by calculating average annual compounded rates of
return over the 1, 5 and 10 year periods that would equate to
the initial amount invested to the ending redeemable value,
assuming reinvestment of all income dividends and capital gain
distributions. Total return quotations reflect the
performance of the Fund and include the effect of capital
changes.
Further information about the performance of the Funds is
contained in the SAI and will be contained in the Funds
annual reports to shareholders, which you may obtain without
charge by writing the Funds address or calling the telephone
number set forth on the cover page of this Prospectus.
Brokerage Commissions
Although the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. prohibit its members
from seeking orders for the execution of investment company
portfolio transactions on the basis of their sales of
i n vestment company shares, under such Rules, sales of
investment company shares may be considered in selecting
brokers to effect portfolio transactions. Accordingly, some
portfolio transactions are, subject to such Rules and to
obtaining best prices and executions, effected through dealers
who sell shares of the Trust. The Adviser may also select an
affiliated broker-dealer to execute transactions for the
T r u s t, provided that the commissions, fees or other
remuneration paid to such affiliated broker are reasonable and
fair as compared to that paid to non-affiliated brokers for
comparable transactions.
Retirement Plans and Medical Savings Accounts
Class A has available prototype qualified retirement
plans for both corporations and self-employed individuals.
The Trust also has available prototype Individual Retirement
Account ( IRA ) plans (for both individuals and employers) and
Simplified Employee Pension ( SEP ) plans as well as Section
403(b)(7) Tax-Sheltered Retirement Plans which are designed
for employees of public educational institutions and certain
43<PAGE>
non-profit, tax-exempt organizations. The Trust also has
information concerning prototype Medical Savings Accounts.
F o r information, see the SAI and call or write the
Distributor.
Shares of Beneficial Interest
All shares of beneficial interest of the Trust are
entitled to one vote, and votes are generally on an aggregate
basis. However, on matters where the interests of the Funds
differ (such as approval of an investment advisory agreement
or a change in fundamental investment policies), the voting is
on a Fund-by-Fund basis. The Trust does not hold routine
annual shareholders meetings. The shares of each Fund
issued, are fully paid and non-assessable, have no preference,
conversion, exchange or similar rights, and are freely
transferable. In addition, each issued and outstanding share
in a Fund is entitled to participate equally in dividends and
distributions declared by such Fund.
Reports to Shareholders
Investors in the Funds will be informed of their progress
through periodic reports. Financial statements certified by
i n d e p endent public accountants will be submitted to
shareholders at least annually.
Class Y Shares
The Trust also offers Class Y Shares which are available
only to the following types of institutional investors: (i)
tax qualified retirement plans which have (A) at least $10
million in plan assets; (B) 750 or more employees eligible to
participate at the time of purchase; or (C) which certify that
they will have projected annual contributions of $2.5 million
or more, (ii) banks and insurance companies which are not
affiliated with the Adviser purchasing shares for their own
account, (iii) investment companies not affiliated with the
Adviser; (iv) tax-qualified retirement plans of the Adviser or
broker-dealer wholesalers and their affiliates.
Class Y shares are available to eligible institutional
investors at net asset value without the imposition of an
initial or deferred sales charge and are not subject to
ongoing distribution fees imposed under a plan adopted
pursuant to Rule 12b-1 under the 1940 Act. The minimum
initial investment in Class Y shares is $500,000, but this
requirement may be waived at the discretion of a Fund s
officers.
The Systematic Withdrawal Plan and Automatic Investment
Plan are not available for Class Y shares.
44<PAGE>
If you are considering a purchase of Class Y shares of a
Fund, please call the Transfer Agent, at (800) 986-3384 to
obtain information about eligibility.
Distributor
Conseco Equity Sales, 11815 N. Pennsylvania Street,
Carmel, Indiana 46032, serves as distributor of shares of the
Trust.
Transfer Agent
State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, serves as the Trust s transfer
agent.
Custodian
The Bank of New York, 90 Washington Street, 22nd Floor,
New York, New York 10826, serves as custodian of each Fund s
a s sets. The Bank of New York also performs certain
administrative services for the Funds pursuant to agreements
with Conseco Services, LLC.
Independent Public Accountants
The Trust s independent public accountant is Coopers &
Lybrand, L.L.P., Indianapolis, Indiana.
Legal Counsel
Certain legal matters for the Funds are passed upon by
Jorden Burt Berenson & Johnson LLP, 1025 Thomas Jefferson
Street, N.W., Suite 400 East, Washington, D.C. 20007.
This Prospectus is not an offering of the securities
herein described in any state in which such offering may not
lawfully be made. No salesman, dealer or other person is
a u thorized to give any information or make any
representations, other than those contained in this Prospectus
or the SAI.
45<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Page
General Information
Investment Objectives
Description of Securities and Investment Techniques
Investment Performance
Portfolio Turnover and Securities Transactions
Management
Net Asset Values of the Shares of the Funds
Funds Expenses
Distribution Arrangements
Purchase and Redemption of Shares
General
Taxes
Independent Accountants
Financial Statements
46<PAGE>
If you would like a free copy of the Statement of
Additional Information for this Prospectus, please complete
this form, detach, and mail to:
Conseco Fund Group
Attn:
11815 N. Pennsylvania Street, Carmel, Indiana 46032
Gentlemen:
Please send me a free copy of the Statement of Additional
Information for the Conseco Fund Group at the following
address:
Name:
Mailing Address:
Sincerely,
(Signature)
47<PAGE>
APPENDIX A SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
Moody s Investor Service, Inc. s Corporate Bond Ratings:
Aaa Bonds which are rated Aaa by Moody s Investor Service,
Inc. ( Moody s ) are judged to be the best quality and carry
the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin, and
principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group, they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
e l e ments may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
A-1<PAGE>
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
Standard & Poor s Corporation s Corporate Bond Ratings:
AAA This is the highest rating assigned by Standard & Poor s
( S&P ) to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
A A Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
BB/B/CCC/CC Bonds rated BB, B, CCC, and CC are regarded, on
balance, as predominantly speculative with respect to the
issuer s capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.
CI The rating CI is reserved for income bonds on which no
interest is being paid.
D Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-): The ratings from AA to B may be
modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Preferred Stock Ratings:
A-2<PAGE>
Both Moody s and S&P use the same designations for corporate
bonds as they do for preferred stock, except that in the case
of Moody s preferred stock ratings, the initial letter rating
is not capitalized. While the descriptions are tailored for
preferred stocks and relative quality, distinctions are
comparable to those described above for corporate bonds.
Conseco Fund Group
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
January 2, 1997
A-3<PAGE>
Information contained herein is subject to completion or
amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers
to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any
State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such State.
SUBJECT TO COMPLETION DECEMBER __, 1996
CONSECO FUND GROUP
Administrative Office: 11815 N. Pennsylvania Street, Carmel,
Indiana 46032 (317) 817-6300
Class Y Shares Prospectus
The Conseco Fund Group (the Trust ) is an open-end
diversified management investment company registered with the
Securities and Exchange Commission under the Investment
C o mpany Act of 1940. The Trust was organized as a
Massachusetts business trust on September 24, 1996. The Trust
is a series type of mutual fund which issues separate
classes (or series) of stock, each of which currently
represents a separate diversified portfolio of investments.
This Prospectus offers shares of three series ( Funds ) of the
Trust, each with its own investment objective or objectives
and investment policies. The Funds are divided into Class A
and Class Y shares. Class A shares are offered to individual
investors by a separate prospectus. Each class may have
different expenses which may affect performance.
The investment objectives of the Funds are as follows:
Equity Fund seeks to provide a high equity total return
consistent with preservation of capital and a prudent level of
risk primarily by investing in selected equity securities and<PAGE>
other securities having the investment characteristics of
common stocks.
Asset Allocation Fund seeks a high total investment
return, consistent with the preservation of capital and
prudent investment risk. The Fund seeks to achieve this
objective by pursuing an active asset allocation strategy
w h ereby investments are allocated, based upon thorough
investment research, valuation and analysis of market trends
and the anticipated relative total return available, among
various asset classes including debt securities, equity
securities, and money market instruments.
Fixed Income Fund seeks the highest level of income as is
consistent with preservation of capital by investing primarily
in investment grade debt securities.
The various Funds may be used independently or in
combination. You may also purchase shares of the money market
fund managed by Federated Investors, which seeks current
income consistent with stability of capital and liquidity, the
prospectus for which immediately follows this prospectus.
The investment policies of the respective Funds are
fundamental and cannot be changed without a vote of their
respective shareholders. There is no assurance that any of
the Funds will achieve their investment objectives.
Conseco Capital Management, Inc. (the Adviser ) serves
as the Trust s investment adviser. The Adviser supervises the
Trust s management and investment program, performs a variety
of administrative services on behalf of the Trust, and pays
all compensation of officers and Trustees of the Trust who are
affiliated persons of the Adviser or the Trust. The Trust
pays all other expenses incurred in the operation of the
Trust, including fees and expenses of Trustees who are
unaffiliated persons of the Adviser or the Trust.
This Prospectus sets forth concisely the information
about the Trust that an investor should know before investing.
A Statement of Additional Information (the SAI ) dated
January 2, 1997, containing additional information about the
Trust and the Funds, has been filed with the Securities and
Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the SAI
without charge by calling or writing the Trust.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE
REFERENCE.
2<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January 2, 1997.
3<PAGE>
TABLE OF CONTENTS
Page
Cover Page
Fee Table
Investment Objectives and Policies of the Funds
Investment Techniques and Other Investment Policies
Management
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
Investment Performance
Table of Contents of the Statement of
Additional Information
Appendix A Securities Ratings
4<PAGE>
FEE TABLE
The following fee table is provided to assist investors
in understanding the various costs and expenses which may be
borne directly or indirectly by an investment in Class Y
shares of the Funds.
<TABLE>
<CAPTION>
Asset Fixed
Shareholder Transaction Equity Allocation Income
Expenses
<S> <C> <C> <C>
Maximum Sales Charge
Imposed on Purchase (as None None None
a percentage of
offering price)
Maximum Sales Charge
Imposed on Reinvested None None None
Dividends (as a
percentage of offering
price)
Deferred Sales Charge None None None
Redemption Fees None None None
Annual Fund Operating
Expenses
(as a percentage of
average net assets)
Management Fees .70% .70% .45%
Administrative Fees .20% .20% .20%
12b-1 Distribution and None None None
Service Fees
.10% .10% (.05%)
Other Expenses (less
voluntary fee waivers
and reimbursements)
Total Operating 1.00% 1.00% .60%
Expenses (after
reimbursement)(1)
</TABLE>
5<PAGE>
(1) The Adviser has voluntarily agreed to waive its fees
and/or reimburse all expenses (exclusive of taxes, interest,
brokerage and other transaction expenses and any other
extraordinary expenses) through April 30, 1998, including
management fees, to the extent that the Class Y expenses of
the Equity, Asset Allocation and Fixed Income Funds exceed
1.00%, 1.00% and .60%, respectively, of the Fund s average
daily net assets. If the Adviser had not undertaken to limit
Fund expenses as described above, it is estimated that the
Total Operating Expenses would be 1.15%, 1.15% and .85% of the
average daily net assets of the Equity, Asset Allocation and
Fixed Income Funds, respectively.
Example
Assuming a hypothetical investment of $1,000, a 5% annual
return and redemption at the end of each time period, an
investor in Class Y of each of the Funds would have paid
transaction and operating expenses at the end of each year as
follows:
1 Year 3 Years
Equity $10 $32
Asset Allocation $10 $32
Fixed Income $6 $19
T h e same level of expenses would be incurred if the
investments were held throughout the period indicated.
These examples illustrate the effect of expenses, but are
not meant to suggest actual or expected costs or returns, all
of which may vary.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each of the Funds has a different investment objective or
objectives as described below. Each Fund is managed by the
Adviser. There can be no assurance that any of the Funds will
achieve their investment objective or objectives. Each Fund
is subject to the risk of changing economic conditions, as
well as the risk inherent in the ability of the Adviser to
make changes in a Fund s investments in anticipation of
changes in economic, business, and financial conditions.
T h e different types of securities and investment
techniques common to one or more Funds all have attendant
risks of varying degrees. For example, with respect to equity
6<PAGE>
securities, there can be no assurance of capital appreciation
and there is a substantial risk of decline. With respect to
debt securities, there can be no assurance that the issuer of
such securities will be able to meet its obligations on
interest or principal payments in a timely manner. In
addition, the value of debt instruments generally rises and
falls inversely with interest rates.
The investments and investment techniques common to one
or more Funds are described in greater detail, including the
risks of each, in the Description of Securities and
Investment Techniques in the SAI.
The Funds are subject to investment restrictions that are
described under Investment Restrictions in the SAI. The
investment restrictions are fundamental policies, which
means that they may not be changed without a majority vote of
shareholders of the affected Funds. The Trust has certain
fundamental policies, which prohibit each Fund, with respect
to 75 percent of its total assets, from (i) investing more
than 5 percent of its assets in the securities of any one
issuer (except U.S. government securities defined below); and
(ii) investing more than 25 percent of its assets in the
securities of issuers in the same industry (except cash
equivalent items and U.S. government securities). Except for
fundamental policies imposed by the Trust s investment
restrictions, all investment policies and practices described
in this Prospectus and in the SAI are not fundamental, meaning
that the Board of Trustees may change them without shareholder
approval. See Description of Securities and Investment
Techniques and Investment Restrictions in the SAI for
further information.
Equity Fund
In seeking its objective of providing a high equity total
return, the Equity Fund will attempt to achieve a total return
(i.e., price appreciation plus potential dividend yield)
primarily through investment in selected equities (i.e.,
common stocks and other securities having the investment
c h a racteristics of common stocks, such as convertible
debentures and warrants). However, if market conditions
indicate their desirability, the Adviser may, for defensive
purposes, temporarily invest all or a part of the assets of
the Equity Fund in money market instruments. See Debt
Securities under Description of Securities and Investment
Techniques in the SAI for further information.
The Adviser expects that the equity portion of the Fund
will be widely diversified by both industry and number of
issuers. The Adviser s stock selection methods will be based
7<PAGE>
in part upon the analysis of variables which it believes
significantly relate to the future market performance of a
stock, such as recent changes in earnings per share and their
deviations from analysts expectations, past growth trends,
price action of the stock itself, publicly recorded trading
transactions by corporate insiders, and relative price-
e a rnings ratios. The Adviser expects that investment
opportunities will often be sought among securities of larger,
established companies, although securities of smaller, less
well- known companies may also be selected.
By investing in securities that are subject to market
risk, the Equity Fund is also subject to greater fluctuations
in its market value and involves the assumption of a higher
degree of risk as compared to a fund seeking stability of
principal, such as a money market fund or a fund investing
primarily in obligations issued or guaranteed by the U.S.
g o vernment or its agencies or instrumentalities (these
obligations are referred to in this Prospectus as U.S.
government securities ). To maximize potential return, the
Adviser may utilize a variety of investment techniques and
strategies including but not limited to: writing covered and
secured listed put and call options, including options on
stock indices, and purchasing such options; purchasing and
selling, for hedging purposes, stock index, interest rate, and
other futures contracts, and purchasing options on such
futures contracts; purchasing warrants and preferred and
convertible preferred stocks; borrowing from banks to purchase
securities; purchasing foreign securities in the form of
American Depository Receipts; purchasing securities of other
investment companies; entering into repurchase agreements;
purchasing restricted securities; investing in when-issued or
delayed delivery securities; and selling securities short
against the box. See Description of Securities and
Investment Techniques in the SAI for further information.
The Equity Fund may also invest in high yield, high risk,
lower-rated debt securities. See Risks Associated With High
Yield Debt Securities in the SAI for further information.
Asset Allocation Fund
The investment objective of the Asset Allocation Fund is
to seek a high total investment return consistent with the
preservation of capital and prudent investment risk. The Fund
seeks to achieve this objective by pursuing an active asset
allocation strategy whereby investments are allocated based
upon thorough investment research, valuation and analysis of
market trends and the anticipated relative total return
a v a ilable among various asset classes, including debt
securities, equity securities and money market instruments.
Total investment return consists of current income, including
8<PAGE>
dividends, interest, and discount accruals, and capital
appreciation. Achieving this Fund s objective depends on the
Adviser s ability to assess the effect of economic and market
trends on different sectors of the market. In seeking to
maximize total return, the Asset Allocation Fund will follow
an asset allocation strategy contemplating shifts (which may
be frequent) among a wide range of investments and market
sectors. The Fund s investments will be designed to maximize
total return during all economic and financial environments,
consistent with prudent risk as determined by the Adviser.
The Asset Allocation Fund will invest in U.S. government
securities, intermediate and long-term debt securities and
equity securities of domestic and foreign issuers, including
common and preferred stocks, convertible debt securities, and
warrants. If the Adviser deems stock market conditions to be
favorable or debt market conditions to be uncertain or
unfavorable, a substantially higher percentage of the Fund s
total assets may be invested in equity securities. If,
however, the Adviser believes that the equity environment is
u n c e rtain or unfavorable, the Fund may decrease its
investments in equity securities and increase its investments
in debt securities. Furthermore, if the Adviser believes that
inflationary or monetary conditions warrant a significant
investment in companies involved in precious metals, the Fund
may invest up to 10 percent of its total assets in the equity
s e c urities of companies exploring, mining, developing,
producing, or distributing gold or other precious metals.
Additionally, the Asset Allocation Fund may make temporary
defensive investments (i.e., money market instruments) without
limit if it is believed that market conditions warrant a more
conservative investment strategy.
The Asset Allocation Fund may use various investment
strategies and techniques when the Adviser determines that
such use is appropriate in an effort to meet the Fund s
investment objective, including but not limited to: writing
covered and secured listed put and call options, including
options on stock indices, and purchasing such options;
purchasing and selling, for hedging purposes, stock index,
i n terest rate, gold, and other futures contracts, and
purchasing options on such futures contracts; purchasing
warrants and preferred and convertible preferred stocks;
purchasing foreign securities; entering into foreign currency
transactions and options on foreign currencies; borrowing from
banks to purchase securities; purchasing securities of other
investment companies; entering into repurchase agreements;
purchasing restricted securities; investing in when-issued or
delayed delivery securities; and selling securities short
against the box. See Description of Securities and
Investment Techniques in the SAI for further information.
9<PAGE>
The maturities of the debt securities in the Asset
Allocation Fund will vary based in large part on the Adviser s
expectations as to future changes in interest rates. However,
the Adviser anticipates that the debt component of the Fund
will generally be invested primarily in intermediate and/or
long-term debt securities. The Adviser anticipates that the
equity portion of the Fund will be widely diversified by both
industry and number of issuers. The Adviser s stock selection
methods will be based in part upon variables which it believes
significantly relate to the future market performance of a
stock, such as recent changes in earnings per share and their
deviations from analysts expectations, past growth trends,
price movement of the stock itself, publicly recorded trading
transactions by corporate insiders, and price-earnings ratios.
The Adviser anticipates that investment opportunities will
often be sought among securities of larger, established
companies, although securities of smaller, less well- known
companies may also be selected.
The Asset Allocation Fund may also invest in high yield,
high risk, lower-rated fixed income debt securities, which are
not believed to involve undue risk to income or principal.
The Asset Allocation Fund does not intend to invest more than
25% of its total assets (measured at the time of investment)
in high yield, high risk debt securities. Generally, higher
yielding bonds carry ratings assigned by Moody s Investor
Service, Inc. ( Moody s ) or Standard & Poor s Corporation
( S&P ) that are lower than those assigned to investment grade
debt securities, or are unrated, and the Adviser does not
determine such security is of comparable quality to securities
rated in one of the four highest rating categories. Such
securities carry higher investment risk than investment grade
debt securities. The market values of lower-rated securities
generally fluctuate more widely than those of higher-rated
securities. In addition, changes in economic conditions or
other circumstances are more likely to lead to a weakened
capacity for such securities to make principal and interest
payments than is generally the case for higher grade debt
securities. The lowest rating categories in which the Fund
will invest are CCC/Caa. Securities in these categories are
considered to be of poor standing and are predominantly
speculative. The Adviser seeks to enhance total return
specifically through purchasing securities which the Adviser
believes are undervalued and selling, when appropriate, those
securities the Adviser believes are overvalued. In order to
determine value, the Adviser utilizes independent fundamental
analysis of the issuer as well as an analysis of the specific
structure of the security. A debt security will be considered
investment grade if it is rated in one of the four highest
rating categories by at least one nationally recognized
statistical rating organization ( NRSRO ), or, in the case of
10<PAGE>
an unrated security, if the Adviser determines such security
is of comparable quality to securities rated in one of the
four highest rating categories. See Appendix A to this
Prospectus for further discussion regarding securities ratings
and Risks Associated With High Yield Debt Securities under
Description of Securities and Investment Techniques in the
SAI.
The Asset Allocation Fund may also invest in zero coupon
securities and payment-in-kind securities. A zero coupon
security pays no interest to its holders prior to maturity and
a payment-in-kind security pays interest in the form of
additional securities. These securities will be subject to
greater fluctuation in market value in response to changing
interest rates than securities of comparable maturities that
make periodic cash distributions of interest.
The Asset Allocation Fund may also invest in equity and
d e bt securities of foreign issuers, including non-U.S.
dollar denominated debt securities, Eurodollar securities and
s e c u r ities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities
thereof. As a non-fundamental operating policy, the Asset
Allocation Fund will not invest more than 50% of its total
assets (measured at the time of investment) in foreign
securities. See Foreign Securities under Description of
Securities and Investment Techniques in the SAI for further
information.
Fixed Income Fund
In seeking its investment objective of providing the
highest level of income as is consistent with the preservation
of capital, the Fixed Income Fund invests primarily in
investment grade debt securities. The Adviser seeks to reduce
risk, increase income, and preserve or enhance total return by
actively managing the Fund in light of market conditions and
t r e n ds. The Adviser seeks to enhance total return
specifically through purchasing securities which the Adviser
believes are undervalued and selling, when appropriate, those
securities the Adviser believes are overvalued. In order to
determine value, the Adviser utilizes independent fundamental
analysis of the issuer as well as an analysis of the specific
structure of the security. A debt security will be considered
investment grade if it is rated in one of the four highest
rating categories by at least one NRSRO, or, in the case of an
unrated security, if the Adviser determines such security is
of comparable quality to securities rated in one of the four
highest rating categories. See Appendix A to this
P r o spectus for further discussion regarding securities
ratings. The Fixed Income Fund may invest in debt securities
11<PAGE>
issued by publicly and privately held U.S. and foreign
c o m panies, the U.S. government and agencies and
instrumentalities thereof, and foreign governments and their
agencies and instrumentalities. The Fixed Income Fund may
also invest in mortgage-related debt securities, other types
of asset-backed debt securities, and other forms of debt
securities. See Debt Securities in the SAI. In addition,
up to 15% of the Fund may be invested directly in equity
securities, including preferred and common stocks, convertible
debt securities and debt securities carrying warrants to
purchase equity securities, and up to 10% of the Fund may be
invested in debt securities rated below investment grade.
Debt securities purchased by the Fixed Income Fund may be
of any maturity. It is anticipated that the dollar weighted
average life of the debt portfolio will be between seven and
15 years, but may be shorter or longer depending on market
conditions. While the Fixed Income Fund intends to invest in
fixed income securities in order to achieve its investment
objective of obtaining the highest level of income consistent
with preservation of capital, it may from time to time invest
i n fixed income securities which offer higher capital
appreciation potential. Such investments would be in addition
to that portion of the Fund which may be invested in common
stocks and other types of equity securities.
With respect to the Fund s investment in fixed income
securities, such securities will be affected by changes in
interest rates. When interest rates decline, the market value
of a Fund invested at higher yields can be expected to rise.
Conversely, when interest rates rise, the market value of a
Fund invested at lower yields can be expected to decline.
Therefore, the Fund may engage in portfolio trading to take
advantage of market developments and yield disparities; for
example, shortening the average maturity of the Fund in
anticipation of a rise in interest rates so as to minimize
depreciation of principal, or lengthening the average maturity
of the Fund in anticipation of a decline in interest rates so
as to maximize appreciation of principal.
T h e Fixed Income Fund may use various investment
strategies and techniques when the Adviser determines that
such use is appropriate in an effort to meet the Fund s
investment objective. Such strategies and techniques include,
but are not limited to, writing covered and secured listed
put and call options and purchasing such options; purchasing
and selling, for hedging purposes, interest rate and other
futures contracts, and purchasing options on such futures
contracts; borrowing from banks to purchase securities;
i n vesting in securities of other investment companies;
entering into repurchase agreements; investing in when-issued
12<PAGE>
or delayed delivery securities; and selling securities short
against the box. See Description of Securities and
Investment Techniques in the SAI for further information.
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES
Mortgage-Backed Securities
Each Fund may invest in mortgage-backed securities.
Mortgage-related securities are interests in pools of mortgage
loans made to residential home buyers, including mortgage
loans made by savings and loan institutions, mortgage bankers,
commercial banks and others. Pools of mortgage loans are
assembled as securities for sale to investors by various
governmental, government-related and private organizations
(see Mortgage Pass-Through Securities, below). The Funds
may also invest in debt securities which are secured with
collateral consisting of mortgage-related securities (see
Collateralized Mortgage Obligations, at page ), and in
other types of mortgage-related securities.
Mortgage Pass-Through Securities. These are securities
representing interests in pools of mortgages in which
periodic payments of both interest and principal on the
securities are made by passing through periodic payments
made by the individual borrowers on the residential mortgage
loans underlying such securities (net of fees paid to the
issuer or guarantor of the securities and possibly other
costs). Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to sale
of the underlying property, refinancing, or foreclosure, net
of fees and costs which may be incurred) may expose a Fund to
a lower rate of return upon reinvestment of principal.
Payment of principal and interest on some mortgage pass-
through securities may be guaranteed by the full faith and
credit of the U.S. government (in the case of securities
guaranteed by the Government National Mortgage Association,
GNMA ), or guaranteed by agencies or instrumentalities of the
U.S. government (in the case of securities guaranteed by the
Federal National Mortgage Association, FNMA, or the Federal
Home Loan Mortgage Corporation, FHLMC ). Mortgage pass-
through securities created by non-governmental issuers (such
as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers, and other
secondary market issuers) may be uninsured or may be supported
by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters
of credit, which may be issued by governmental entities,
private insurers, or the mortgage poolers.
13<PAGE>
GNMA Certificates. GNMA certificates are mortgage-backed
securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is
g u aranteed by the full faith and credit of the U.S.
Government. GNMA certificates differ from typical bonds
because principal is repaid monthly over the term of the loan
rather than returned in a lump sum at maturity. Although GNMA
guarantees timely payment even if homeowners delay or default,
tracking the pass-through payments may, at times, be
difficult. Expected payments may be delayed due to the delays
in registering the newly traded paper securities. The
custodian s policies for crediting missed payments while
errant receipts are tracked down may vary. Other mortgage-
backed securities, such as those of FHLMC and FNMA, trade in
book-entry form and are not subject to this risk of delays in
timely payment of income. Although the mortgage loans in the
pool will have maturities of up to 30 years, the actual
average life of the GNMA certificates typically will be
substantially less because the mortgages may be purchased at
any time prior to maturity, will be subject to normal
principal amortization, and may be prepaid prior to maturity.
Reinvestment of prepayments may occur at higher or lower rates
than the original yield on the certificates.
FNMA and FHLMC Mortgage-Backed Obligations. FNMA, a
federally chartered and privately owned corporation, issues
pass-through securities representing interests in a pool of
conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not
backed by the full faith and credit of the U.S. government.
FNMA also issues REMIC certificates, which represent interests
in a trust funded with FNMA certificates. REMIC certificates
are guaranteed by FNMA and not by the full faith and credit of
the U.S. Government.
F H L M C , a corporate instrumentality of the U.S.
government, issues participation certificates which represent
an interest in a pool of conventional mortgage loans. FHLMC
guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect
holders against losses due to default, but these securities
are not backed by the full faith and credit of the U.S.
government. As is the case with GNMA certificates, the actual
maturity of and realized yield on particular FNMA and FHLMC
pass-through securities will vary based on the prepayment
experience of the underlying pool of mortgages.
Collateralized Mortgage Obligations. All Funds may
p u rchase mortgage-backed securities issued by financial
institutions such as commercial banks, savings and loan
associations, mortgage banks, and securities broker-dealers
14<PAGE>
(or affiliates of such institutions established to issue these
securities) in the form of either collateralized mortgage
obligations ( CMOs ) or mortgage-backed bonds. CMOs are
obligations fully collateralized directly or indirectly by a
pool of mortgages on which payments of principal and interest
are dedicated to payment of principal and interest on the
CMOs. Payments are passed through to the holders on the same
schedule as they are received. Mortgage-backed bonds are
g e neral obligations of the issuer fully collateralized
directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer s payment obligations on
the bonds but interest and principal payments on the mortgages
a r e not passed through either directly (as with GNMA
certificates and FNMA and FHLMC pass-through securities) or on
a modified basis (as with CMOs). Accordingly, a change in the
rate of prepayments on the pool of mortgages could change the
effective maturity of a CMO but not that of a mortgage-backed
bond (although, like many bonds, mortgage-backed bonds may be
callable by the issuer prior to maturity). Although the
mortgage-related securities securing these obligations may be
subject to a government guarantee or third-party support, the
obligation itself is not so guaranteed. Therefore, if the
collateral securing the obligation is insufficient to make
payment on the obligation, a holder could sustain a loss. It
is expected that governmental, government-related, or private
entities may create mortgage loan pools and other mortgage-
backed securities offering mortgage pass-through and mortgage-
backed securities. If such securities are developed and
offered to other types of investors, investments in such new
types of mortgage-related securities will be considered.
Risks of Mortgage-Backed Securities. In the case of
mortgage pass-through securities, such as GNMA certificates or
FNMA and FHLMC mortgage-backed obligations, or modified pass-
through securities, such as CMOs issued by various financial
institutions, early repayment of principal arising from
prepayments of principal on the underlying mortgage loans due
to the sale of the underlying property, the refinancing of the
loan, or foreclosure may expose a Fund to a lower rate of
return upon reinvestment of the principal. Prepayment rates
vary widely and may be affected by changes in market interest
rates and other economic trends and factors. In periods of
falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the
mortgage-backed security. Conversely, when interest rates are
rising, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the mortgage-backed
security. Accordingly, it is not possible to accurately
predict the average life of a particular pool. Reinvestment
of prepayments may occur at higher or lower rates than the
original yield on the securities. Therefore, the actual
15<PAGE>
maturity and realized yield on pass-through or modified pass-
through mortgage-backed securities will vary based upon the
prepayment experience of the underlying pool of mortgages.
Debt Securities
All Funds may invest in U.S. dollar denominated corporate
debt securities of domestic issuers, and the Asset Allocation
Fund and the Fixed Income Fund may invest in debt securities
o f f o r e ign issuers that may or may not be U.S.
dollar denominated.
The investment return on a corporate debt security
reflects interest earnings and changes in the market value of
the security. The market value of corporate debt obligations
may be expected to rise and fall inversely with interest rates
generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on
interest or principal payments at the time called for by an
instrument. Debt securities rated BBB or Baa, which are
considered medium-grade category debt securities, do not have
economic characteristics that provide the high degree of
security with respect to payment of principal and interest
associated with higher rated debt securities, and generally
have some speculative characteristics. A debt security will
be placed in this rating category where interest payments and
principal security appear adequate for the present, but
economic characteristics that provide longer term protection
may be lacking. Any debt security, and particularly those
rated BBB or Baa (or below), may be susceptible to changing
conditions, particularly to economic downturns, which could
lead to a weakened capacity to pay interest and principal.
Risks Associated With High Yield Debt Securities. The
Funds may invest in high yield, high risk, lower-rated debt
securities. High yield debt securities are subject to all
risks inherent in any investment in debt securities. As
discussed below, these risks are significantly greater in the
case of high yield debt securities.
Lower-rated debt securities generally offer a higher
current yield than that available from higher-rated issues.
However, lower-rated securities involve higher risks in that
they are especially subject to (1) adverse changes in general
economic conditions and in the industries in which the issuers
are engaged, (2) changes in the financial condition of the
issuers and (3) price fluctuation in response to changes in
interest rates. Accordingly, the yield on lower-rated debt
securities will fluctuate over time. During periods of
economic downturn or rising interest rates, highly leveraged
issuers may experience financial stress which could adversely
16<PAGE>
affect their ability to make payments of principal and
interest, and increase the possibility of default. In
addition, the market for lower-rated securities has expanded
rapidly in recent years, and this expanded market has not been
tested in a period of extended economic downturn. This market
may be thinner and less active than the market for higher
quality securities, which may limit the ability to sell such
securities at their fair value in response to changes in the
economy or the financial markets. Adverse publicity and
investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower-
rated securities, especially in a thinly traded market.
Differing yields on fixed income securities of the same
maturity are a function of several factors, including the
relative financial strength of the issuers. Higher yields are
generally available from securities rated below investment
grade categories of recognized rating agencies: Ba1 or lower
by Moody s or BB+ or lower by Standard & Poor s. Debt
securities rated below investment grade are deemed by these
agencies to be predominantly speculative with respect to the
issuer s capacity to pay interest and repay principal and may
involve major risk exposure to adverse conditions.
Foreign Securities
The Asset Allocation Fund may invest in equity securities
of foreign issuers. That Fund may invest up to 50 percent of
its net assets in such securities. The Asset Allocation Fund
and Equity Fund may invest in American Depository Receipts
( ADRs ), which are described below. The Fixed Income Fund may
invest in debt obligations of foreign issuers, including
foreign governments and their agencies and instrumentalities.
Investments in foreign securities may offer unique potential
benefits such as substantial growth in industries not yet
developed in the particular country. Such investments also
permit a Fund to invest in foreign countries with economic
policies or business cycles different from those of the United
States, or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that may not move in a
manner parallel to U.S. markets. Investments in securities of
f o r e ign issuers involve certain risks not ordinarily
associated with investments in securities of domestic issuers.
Such risks include fluctuations in foreign exchange rates,
future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain
countries, there is the possibility of expropriation of
a s sets, confiscatory taxation, political or social
instability, or diplomatic developments that could adversely
affect investments in those countries. Since the Asset
17<PAGE>
Allocation Fund may invest in securities denominated or quoted
in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the value of securities in
that Fund and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned.
There may be less publicly available information about a
foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing, and
financial reporting standards and requirements comparable to
or as uniform as those to which U.S. companies are subject.
Foreign securities markets, while growing in volume, have, for
the most part, substantially less volume than U.S. markets.
Securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S.
companies. Transactional costs in non-U.S. securities markets
are generally higher than in U.S. securities markets. There
is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the United
S t ates. A Fund might have greater difficulty taking
appropriate legal action with respect to foreign investments
in non-U.S. courts than with respect to domestic issuers in
U.S. courts. In addition, transactions in foreign securities
may involve greater time from the trade date until settlement
than domestic securities transactions and involve the risk of
p o s sible losses through the holding of securities by
custodians and securities depositories in foreign countries.
Dividend and interest income from foreign securities may
generally be subject to withholding taxes by the country in
which the issuer is located and may not be recoverable by a
Fund or its investors in all cases.
ADRs are certificates issued by a U.S. bank or trust
company representing the right to receive securities of a
foreign issuer deposited in a foreign subsidiary or branch or
a correspondent of that bank. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets and may
offer U.S. investors more liquidity than the underlying
securities. The Fund may invest in unsponsored ADRs. The
issuers of unsponsored ADRs are not obligated to disclose
material information in the U.S. and, therefore, there may not
be a correlation between such information and the market value
of such ADRs.
Restricted and Illiquid Securities
The Funds may invest in restricted securities such as
private placements, although a Fund may not invest in any
illiquid restricted security if, after acquisition thereof,
more than 15 percent of the Fund s assets would be invested in
18<PAGE>
illiquid securities. Once acquired, restricted securities may
be sold by a Fund only in privately negotiated transactions or
in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933. If
sold in a privately negotiated transaction, a Fund may have
difficulty finding a buyer and may be required to sell at a
price that is less than the Adviser had anticipated. Where
registration is required, a Fund may be obligated to pay all
or part of the registration expenses and a considerable period
may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided
to sell.
MANAGEMENT
The Trustees of the Trust decide upon matters of general
policy for the Trust. In addition, the Trustees review the
actions of the Trust s investment manager, as set forth below.
The Trust s officers supervise the daily business operations
of the Trust.
Conseco Capital Management, Inc. (the Adviser ), 11825
N. Pennsylvania Street, Carmel, Indiana 46032, has been
retained under Investment Advisory Agreements with the Trust,
to provide investment advice, and in general to supervise the
management and investment program of the Trust and each Fund.
The Adviser is a wholly-owned subsidiary of Conseco, Inc., a
publicly-owned financial services company, the principal
operations of which are in development, marketing, and
a d ministration of specialized annuity, life and health
insurance products. The Adviser generally manages the affairs
of the Trust, subject to the supervision of the Board of
Trustees. For information about the Board of Trustees and the
Trust s officers, see Management in the SAI.
Under the Investment Advisory Agreements, the Adviser
receives an investment advisory fee equal to an annual rate of
.45% of the daily net asset value of the Fixed Income Fund,
.70% of the daily net asset value of the Equity Fund, and .70%
of the daily net asset value of the Asset Allocation Fund.
T h e Adviser also manages another registered investment
company, all of the invested assets of its parent company,
Conseco, Inc., which owns or manages several life insurance
subsidiaries, and provides investment and servicing functions
to the Conseco companies and affiliates. Pursuant to
Investment Management Agreements between the Adviser and the
Funds, the Adviser will reduce its aggregate fees for any
19<PAGE>
fiscal year, or reimburse the Funds, to the extent required,
so that the Funds expenses do not exceed the expense
limitations applicable to the Trust under the securities laws
or regulations of those states or jurisdictions in which the
Funds shares are registered or qualified for sale. Expenses
f o r purposes of these expense limitations include the
management fee, but exclude brokerage commissions and fees,
taxes, interest and extraordinary expenses such as litigation,
paid or incurred by the Funds. In addition, the state with
the most restrictive expense limitation allows the Trust to
exclude distribution expenses. The Adviser has voluntarily
agreed to waive its investment advisory fee to the extent that
the ratio of expenses to net assets on an annual basis for
Class Y shares of the Equity Fund exceeds 1.00%, the Asset
Allocation Fund exceeds 1.00%, and the Fixed Income Fund
exceeds .60%. These voluntary limits may be discontinued at
any time after April 30, 1998.
The investment professionals primarily responsible for
the management of each Fund, with the respective
responsibilities and business experience for the past five
years are as follows:
Equity Fund: Thomas J. Pence, Vice President for the
Adviser. He is responsible for the management of the
Adviser s equity portfolios and oversight of the equity
investment process. Prior to joining the Adviser in 1992, Mr.
Pence worked for five years as a securities analyst in the
field of real estate acquisition and development in which he
s p ecialized in residential development and construction
finance and was responsible for overseeing a project portfolio
of $750 million in real estate assets.
F i x ed Income Fund: Gregory J. Hahn, Senior Vice
President, Portfolio Analytics, for the Adviser. He is
responsible for the portfolio analysis and management of the
institutional client accounts and analytical support for
taxable portfolios. In addition, he has responsibility for
SEC registered investment products as well as investments in
the insurance industry. Mr. Hahn joined the Adviser in 1989.
Asset Allocation Fund: Gregory J. Hahn. See Mr. Hahn s
business experience above.
Thomas J. Pence, Portfolio Manager of the equity portion
of the Fund. See Mr. Pence s business experience above.
20<PAGE>
Administrative Fees
Pursuant to an administration agreement ( Administration
Agreement ), Conseco Services, LLC supervises the overall
administration of the Funds. These administrative services
i n clude supervising the preparation and filing of all
documents required for compliance by the Funds with applicable
laws and regulations, supervising the maintenance of books and
r e cords, and other general and administrative
responsibilities. For providing these services, Conseco
Services receives a fee from each Fund of .20% per annum of
its average daily Class Y net assets. Pursuant to the
Administration Agreement, Conseco Services, LLC reserves the
right to employ one or more sub-administrators to perform
administrative services for the Funds.
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
You may purchase shares from any broker-dealer that has a
selling agreement with Conseco Equity Sales, Inc. (the
Distributor ). In addition, as discussed below, an account
may be opened for the purchase of shares of a Fund by mailing
t o t he Transfer Agent, 225 Franklin Street, Boston,
Massachusetts 02110, a completed account application and a
check payable to the appropriate Fund. Or you may telephone
1-800-986-3384 to obtain the number of an account to which you
can wire or electronically transfer funds and then send in a
completed application.
In order to buy class Y shares you must qualify as one of
the following types of institutional investors: (i) tax
qualified retirement plans which have (a) at least $10 million
in plan assets, (b) have 750 or more employees eligible to
participate at the time of purchase, or (c) certify that they
will have projected annual contributions of $2.5 million or
more, (ii) banks and insurance companies which are not
affiliated with the Adviser purchasing shares for their own
account, (iii) investment companies not affiliated with the
Adviser, or (iv) tax-qualified retirement plans of the Adviser
or broker-dealer wholesalers and their affiliates.
Purchase orders for all Funds are accepted only on a
regular business day as defined below. Orders for shares
received by the Transfer Agent on any business day prior to
the close of trading on the New York Stock Exchange (the
NYSE ) (normally 4:00 p.m. Eastern Time) will receive that
day s offering price. Orders received by the Transfer Agency
after such time but prior to the close of business on the next
business day will receive the next business day s offering
21<PAGE>
price which is net asset value. If you purchase shares
through a broker-dealer, your broker is responsible for
forwarding payment promptly to the Transfer Agent. A
business day is any day on which the NYSE is open for
business. It is anticipated that the NYSE will be closed
Saturdays and Sundays and on days on which the NYSE observes
New Year s Day, President s Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
Your initial purchase amount must be at least $500,000.
However, the minimum may be waived at the discretion of a
Fund s officers. Each Fund and the Distributor or Transfer
Agent reserves the right to reject any order for the purchase
of shares in whole or in part. The Trust reserves the right
to cancel any purchase order for which payment has not been
received by the fifth business day following placement of the
order.
T h e Distributor may provide promotional incentives
including cash compensation in excess of the applicable sales
charge to certain broker-dealers whose representatives have
sold or are expected to sell significant amounts of shares of
one or more of the Funds. Other programs may provide, subject
to certain conditions, additional compensation to broker-
dealers based on a combination of aggregate shares sold and
increases of assets under management. All of the above
payments will be made by the Distributor or its affiliates out
of their own assets. These programs will not change the price
an investor will pay for shares or the amount that a Fund will
receive from such sale.
You will receive a confirmation of each new transaction
in your account, which will also show you the number of Fund
shares you own and the number of shares being held in
safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as
evidence of your ownership. Certificates representing shares
of the Funds will not be issued.
Purchases By Wire
Purchase by wire transfer should be directed to the
Transfer Agent to receive an account number at (800) 986-3384
between the hours of 8:00 a.m. and 4:00 p.m. (Eastern Time) on
a regular business day (as defined above) on which your bank
is open for business. The following information will be
requested: your name, address, tax identification number,
dividend distribution election, amount being wired and the
wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to: ABA # __________, address,
22<PAGE>
Account # __________. If you arrange for receipt by the
Transfer Agent of federal funds prior to the close of trading
(currently 4:00 p.m. Eastern Time) of the NYSE on a regular
business day as defined above, you will receive that day s
offering price. Your bank may charge for these services.
Purchase Through Dealer
Orders for purchase of shares placed through dealers will
receive the net asset value next computed following receipt of
the order provided the dealer receives the order prior to the
close of the NYSE and transmits it to the Distributor prior to
its close of business that same day (normally 4:00 p.m.
Eastern Time). Dealers are required to provide payment within
three business days after placing an order. Dealers making
payment for confirmed purchases via Federal funds wire must
reference the confirmation number to ensure timely credit.
Purchases By Check
An initial investment made by check must be accompanied
by an Application, completed in its entirety. Additional
shares of the Funds may also be purchased by sending a check
payable to the applicable Fund, along with information
regarding your account, including the account number, to the
Transfer Agent. All checks should be drawn only on U.S. banks
in U.S. funds, in order to avoid fees and delays. A charge
may be imposed if any check submitted for investment does not
clear. Third party checks will not be accepted. When
purchases are made by check or periodic automatic investment,
redemptions will not be allowed until the investment being
redeemed has been in the account for 15 business days.
How to Redeem Shares of the Funds
Shares of Class Y are redeemed at net asset value next
determined after receipt of a redemption request in good form
on any day the NYSE is open for business, reduced by the
amount of any federal income tax required to be withheld.
Redemptions by Mail
A written request for redemption must be received by the
Transfer Agent to constitute a valid tender for redemption.
It will also be necessary for corporate investors and other
associations to have an appropriate certification authorizing
redemptions by a corporation or an association on file before
a redemption request will be considered in proper form. A
suggested form of such certification is provided on the
A p plication accompanying this Prospectus. A signature
23<PAGE>
guarantee by an eligible guarantor may be required as
stipulated in Rule 17Ad-15(a)(2) under the Securities Exchange
A c t of 1934. A signature guarantee is required for
redemptions of $50,000 or more.
Redemptions by Wire or Telephone
Brokers, dealers, or other sales agents may communicate
redemption orders by wire or telephone. These firms may
charge for their services in connection with your redemption
request but neither the Funds nor the Distributor impose any
such charges.
The Funds and the Transfer Agent will not be responsible
for the authenticity of phone instructions or losses, if any,
resulting from unauthorized shareholder transactions if the
Funds or the Transfer Agent reasonably believe that such
instructions are genuine. The Funds and the Transfer Agent
have established procedures that the Funds believe are
reasonably appropriate to confirm that instructions
communicated by telephone are genuine. These procedures
include: (i) recording telephone instructions for exchanges
and expedited redemptions; (ii) requiring the caller to give
certain specific identifying information; and (iii) providing
written confirmations to shareholders of record not later than
five days following any such telephone transactions. If the
Funds and the Transfer Agent do not employ these procedures,
they may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
Expedited Redemptions
You may have the payment of redemption requests (of $250
or more) wired or mailed directly to a domestic commercial
bank account that you have previously designated. Normally,
such payments will be transmitted on the second business day
following receipt of the request (provided redemptions may be
made). You may request a wire redemption by telephone or
written request sent to the Transfer Agent. For telephone
redemptions, call the Transfer Agent at (800) 986-3384. You
must complete the Expedited Redemptions section of the
Application for this privilege to be applicable.
General
P a y m e nt to shareholders for shares redeemed or
repurchased will be made within seven days after receipt by
the Transfer Agent. A Fund may delay the mailing of a
redemption check until the check used to purchase the shares
being redeemed has cleared, which may take up to 15 days or
longer. To reduce such delay, the Funds recommend that all
24<PAGE>
purchases be made by bank wire Federal funds. A Fund may
suspend the right of redemption under certain extraordinary
circumstances in accordance with the Rules of the SEC.
Exchange Privilege
Class Y shares of one Fund described in this Prospectus
may be exchanged for Class Y shares of the other Funds or for
shares of the Federated Money Market Fund at the relative net
asset values per share at the time of the exchange. Shares of
the Federated Money Market Fund may be exchanged for Class Y
shares at relative net asset values per share at the time of
the exchange. The total value of shares in a Fund after the
e x c h ange must at least equal the minimum investment
requirement of the Fund into which they are being exchanged.
You should consider the differences in investment objectives
and expenses of the Funds before making an exchange. Shares
are normally redeemed from one Fund and purchased from the
other Fund in the exchange transaction on the same regular
business day on which the Transfer Agent receives an exchange
request that is in proper form by the close of the NYSE that
day. Exchanges are taxable transactions and may be subject to
special tax rules about which you should consult your own tax
adviser.
Electronic Transfers through Automated Clearing House
Electronic Transfers through Automated Clearing House
( ACH ) allows you to initiate a purchase or redemption for as
little as $100 or as much as $50,000 between your bank account
and fund account using the ACH network. Sales charges and
initial purchase minimums apply. You must complete the ACH
S e c tion of the Application for this privilege to be
applicable.
Determination of Net Asset Value
The net asset value per share is determined for each
class of shares for each Fund as of the close of the NYSE
(normally 4:00 p.m. Eastern Time) on each regular business day
(as previously defined) by dividing the value of the Fund s
net assets attributable to a class by the number of shares of
that class outstanding. The assets of each Fund are valued
primarily on the basis of market quotations. If quotations
are not readily available, assets are valued by a method that
the Trustees of the Trust believe accurately reflects fair
value. Foreign securities are valued on the basis of
quotations from the primary market in which they are traded,
and are translated from the local currency into U.S. dollars
using current exchange rates. With respect to all Funds,
25<PAGE>
short-term investments that will mature in 60 days or less are
valued at amortized cost, which approximates market value.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund is treated as a separate taxable entity and
qualifies as a regulated investment company under applicable
provisions of the Internal Revenue Code of 1986 (the Code ).
As such and by complying with the applicable provisions of the
Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, each
Fund will be allowed a deduction for amounts distributed to
its shareholders from its ordinary income and net realized
capital gains and will not be subject to federal income tax on
such amounts. To qualify for treatment as a regulated
investment company, each Fund must, among other things,
derive in each taxable year at least 90% of its gross income
from dividends, interest and gains from the sale or other
disposition of securities, and derive less than 30% of its
gross income in each taxable year from the gains (without
deduction for losses) from the sale or other disposition of
securities held for less than three months.
Each Fund intends to distribute sufficient net investment
income to avoid the application of federal income tax on the
Trust. Each Fund also intends to distribute sufficient income
to avoid the application of any federal excise tax. For
dividend purposes, the net investment income of each Fund will
consist of all payments of dividends or interest received and
any net short-term gains or losses from the sale of its
investments less its estimated expenses (including fees
payable to the Adviser). The Asset Allocation Fund is also
required to include in its gross income each year a portion of
the original issue discount at which it acquires zero coupon
securities, even though the Fund receives no interest payment
on the security during the year. Similarly, the Fund must
include in its gross income each year any interest distributed
in the form of additional securities by payment-in-kind
securities. Accordingly, to continue to qualify for treatment
as a regulated investment company under the Code, the Fund may
be required to distribute as a dividend an amount that is
greater than the total amount of cash the Fund actually
received. Those distributions will be made from the Fund s
cash assets or the proceeds from sales of Fund securities, if
necessary.
This information is only a summary of certain federal tax
information about your investment. More information is
contained in the SAI. You should consult with your tax
26<PAGE>
adviser about the effect of an investment in the Fund on your
particular tax situation.
Dividends from the Fixed Income Fund will be declared and
distributed monthly in additional full and fractional shares
of those respective Funds. Dividends from the Equity Fund and
the Asset Allocation Fund will be declared and distributed
quarterly. However, the Trustees may decide to declare
dividends at other intervals.
All net realized long-term capital gains of the Trust, if
any, are declared and distributed annually after the close of
the Trust s fiscal year to the shareholders of the Fund or
Funds to which such gains are attributable.
Distribution Options. When you open your account,
specify on your application how you want to receive your
distributions. For Conseco Mutual Funds retirement accounts,
all distributions are reinvested. For other accounts, you
have the following options:
Reinvest All Distributions in the Fund. You can elect to
r e i n v est all dividends and long term capital gains
distributions in additional shares of the Fund.
Reinvest Income Dividends Only. You can elect to
reinvest investment income dividends in a Fund while receiving
capital gains distributions by check or sent to your bank
account.
Reinvest Capital Gains Only. You can elect to reinvest
capital gains in the Fund while receiving dividends by check
or sent to your bank account.
Receive All Distributions in Cash. You can elect to
receive a check for all dividends and long-term capital gain
distributions or have them sent to your bank.
INVESTMENT PERFORMANCE
Because the Funds are being offered to the public for the
first time, as of the date of this Prospectus they do not have
any prior operating history or performance. However, the
Equity Fund, Asset Allocation Fund and Fixed Income Fund are
modeled after existing funds of the Conseco Series Trust (the
CST Funds ) that are managed by the Adviser and have
investment objectives and policies substantially similar to
the corresponding Funds. The CST Funds are used as investment
vehicles for the assets of variable annuity and variable life
insurance contracts issued by Conseco affiliates.
27<PAGE>
Below you will find information about the performance of the CST
Funds. Although the three comparable Funds discussed above have
substantially similar investment objectives and policies, the same
investment adviser and the same portfolio managers as the CST Funds, you
should not assume that the Funds offered by this Prospectus will have the
same future performance as the CST Funds. For example, any Fund s future
p e rformance may be greater or less than the performance of the
corresponding CST Fund due to, among other things, differences in expenses
and cash flows between a Fund and the corresponding CST Fund. Moreover,
past performance information is based on historical earnings and is not
intended to indicate future performance.
The investment characteristics of each Fund listed below
will
closely resemble the investment characteristics of the
corresponding
CST Fund. Depending on the Fund involved, similarity of
investment
characteristics may involve factors such as industry
diversification,
portfolio beta, portfolio quality, average maturity of
fixed-income
assets, equity/non-equity mixes, and individual holdings.
Certain Funds do have differences from their corresponding CST
Fund none of which the Adviser believes would cause a significant
change in investment results. Investors should note the following
differences: (1) the Funds may invest in swaps, caps and floors; (2)
the Funds may lend portfolio securities; and (3) the Funds may sell
securities short. See the SAI the for further details.
The table below sets forth each Fund, and its corresponding CST
Fund, the date the Adviser began managing the CST Fund (referred to
as the inception date ) and asset size as of October 31, 1996.
Corresponding CST Fund
(Inception Date and Asset Size)
Fund
Equity Fund Common Stock Portfolio
(Jan. 31, 1992)
$154,615,806
Asset Allocation Asset Allocation Portfolio
Fund (Dec. 31, 1991)
$14,792,025
Fixed Income Fund Corporate Bond Portfolio
(July 31, 1990)
$17,031,312
The following table shows the average annualized total returns
for the CST Funds for the one, three, five and ten year (or life of
CST Fund, if shorter) periods ended October 31, 1996. These
28<PAGE>
figures are based on the actual gross investment performance of the
CST Funds. From the gross investment performance figures, the
maximum Total Fund Operating Expenses reflected in the fee table on
page ___ are deducted to arrive at the net return.
<TABLE>
<CAPTION>
10 Years
or
CST Fund Since
(Inception Date) 1 Year 3 Years 5 Years Inception
<S> <C> <C> <C> <C>
Common Stock Portfolio
(Jan. 31, 1992) 39.115% 22.764% N/A 19.354%
Asset Allocation
Portfolio 26.125% 16.555% N/A 15.779%
(Dec. 31, 1991)
Corporate Bond
Portfolio 6.497% 6.151% 9.024% 10.427%
(July 31, 1990)
</TABLE>
Each of the Funds may from time to time advertise certain
investment performance information. Performance information
m a y consist of yield and average annual total return
quotations reflecting the deduction of all applicable charges
over a period of time. A Fund also may use aggregate total
r e t u rn figures for various periods, representing the
cumulative change in value of an investment in a Fund for the
specific period. Performance information may be shown in
schedules, charts or graphs. These figures are based on
historical earnings and are not intended to indicate future
performance.
The yield of a Fund refers to the annualized net income
generated by an investment in that Fund over a specified 30-
day period, calculated by dividing the net investment income
per share earned during the period by the maximum offering
price per share on the last day of the period.
The average annual total return of a Fund refers to the
total rate of return of an investment in the Fund. The figure
29<PAGE>
is computed by calculating the average annual compounded rates
of return over the 1, 5 and 10 year periods that would equate
to the initial amount invested to the ending redeemable value,
assuming reinvestment of all income dividends and capital gain
distributions. Total return quotations reflect the
performance of the Fund and include the effect of capital
changes.
Further information about the performance of the Funds is
contained in the SAI and will be contained in the Funds
annual reports to shareholders, which you may obtain without
charge by writing the Funds address or calling the telephone
number set forth on the cover page of this Prospectus.
Brokerage Commissions
Although the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. prohibit its members
from seeking orders for the execution of investment company
portfolio transactions on the basis of their sales of
i n vestment company shares, under such Rules, sales of
investment company shares may be considered in selecting
brokers to effect portfolio transactions. Accordingly, some
portfolio transactions are, subject to such Rules and to
obtaining best prices and executions, effected through dealers
who sell shares of the Trust. The Adviser may also select an
affiliated broker-dealer to execute transactions for the
T r u s t, provided that the commissions, fees or other
remuneration paid to such affiliated broker are reasonable and
fair as compared to that paid to non-affiliated brokers for
comparable transactions.
Shares of Beneficial Interest
All shares of beneficial interest of the Trust are
entitled to one vote, and votes are generally on an aggregate
basis. However, on matters where the interests of the Funds
differ (such as approval of an investment advisory agreement
or a change in fundamental investment policies), the voting is
on a Fund-by-Fund basis. The Trust does not hold routine
annual shareholders meetings. The shares of each Fund
issued, are fully paid and non-assessable, have no preference,
conversion, exchange or similar rights, and are freely
transferable. In addition, each issued and outstanding share
in a Fund is entitled to participate equally in dividends and
distributions declared by such Fund.
30<PAGE>
Reports to Shareholders
Investors in the Funds will be informed of their progress
through periodic reports. Financial statements certified by
i n d e p endent public accountants will be submitted to
shareholders at least annually.
Retirement Plans and Medical Savings Accounts
Class Y has available prototype qualified retirement
plans for both corporations and self-employed individuals.
The Trust also has available prototype Individual Retirement
Account ( IRA ) plans (for both individuals and employers) and
Simplified Employee Pension ( SEP ) plans as well as Section
403(b)(7) Tax-Sheltered Retirement Plans which are designed
for employees of public educational institutions and certain
non-profit, tax-exempt organizations. The Trust also has
information concerning prototype Medical Savings Accounts.
F o r information, see the SAI and call or write the
Distributor.
Class A Shares
In addition to Class Y Shares, the Trust also offers
Class A shares. Class A shares are available to individual
investors. Class A shares generally have operating expenses
similar to Class Y shares, except for certain sales charges
and distribution and transfer agent fees. Please call the
Transfer Agent at (800) 986-3384 for additional information on
the purchase of Class A shares.
Distributor
Conseco Equity Sales, 11815 N. Pennsylvania Street,
Carmel, Indiana 46032 serves as distributor to the Trust.
Transfer Agent
State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, serves as the Trust s transfer
agent.
Custodian
The Bank of New York, 90 Washington Street, 22nd Floor,
New York, New York 10826, serves as custodian of each Fund s
a s sets. The Bank of New York also performs certain
administrative services for the Funds pursuant to agreements
with Conseco Services, LLC.
Independent Public Accountants
31<PAGE>
The Trust s independent public accountant is Coopers &
Lybrand, L.L.P., Indianapolis, Indiana.
Legal Counsel
Certain legal matters for the Funds are passed upon by
Jorden Burt Berenson & Johnson LLP, 1025 Thomas Jefferson
Street, N.W., Suite 400 East, Washington, D.C. 20007.
This Prospectus is not an offering of the securities
herein described in any state in which such offering may not
lawfully be made. No salesman, dealer or other person is
a u thorized to give any information or make any
representations, other than those contained in this Prospectus
or the SAI.
32<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Page
General Information
Investment Restrictions
Description of Securities and Investment Techniques
Investment Performance
Portfolio Turnover and Securities Transactions
Management
Net Asset Values of the Shares of the Funds
Funds Expenses
Distribution Arrangements
Purchase and Redemption of Shares
General
Taxes
Independent Accountants
Financial Statements
33<PAGE>
If you would like a free copy of the Statement of
Additional Information for this Prospectus, please complete
this form, detach, and mail to:
Conseco Fund Group
Attn:
11815 N. Pennsylvania Street, Carmel, Indiana 46032
Gentlemen:
Please send me a free copy of the Statement of Additional
Information for the Conseco Group Fund Group at the following
address:
Name:
Mailing Address:
Sincerely,
(Signature)
34<PAGE>
APPENDIX A SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
Moody s Investor Service, Inc. s Corporate Bond Ratings:
Aaa Bonds which are rated Aaa by Moody s Investor Service,
Inc. ( Moody s ) are judged to be the best quality and carry
the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin, and
principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group, they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
e l e ments may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
A-1<PAGE>
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
Standard & Poor s Corporation s Corporate Bond Ratings:
AAA This is the highest rating assigned by Standard & Poor s
( S&P ) to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
A A Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
BB/B/CCC/CC Bonds rated BB, B, CCC, and CC are regarded, on
balance, as predominantly speculative with respect to the
issuer s capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.
CI The rating CI is reserved for income bonds on which no
interest is being paid.
D Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-): The ratings from AA to B may be
modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Preferred Stock Ratings:
A-2<PAGE>
Both Moody s and S&P use the same designations for corporate
bonds as they do for preferred stock, except that in the case
of Moody s preferred stock ratings, the initial letter rating
is not capitalized. While the descriptions are tailored for
preferred stocks and relative quality, distinctions are
comparable to those described above for corporate bonds.
Conseco Fund Group
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
January 2, 1997
A-3<PAGE>
PART B<PAGE>
Statement of Additional Information
Conseco Fund Group
Equity Fund
Asset Allocation Fund
Fixed Income Fund
Class A and Class Y Shares
January 2, 1997
This Statement of Additional Information ( SAI ) is not a
prospectus. It contains additional information about the
Conseco Fund Group (the Trust ) and the three series of the
Trust: Equity Fund, Asset Allocation Fund and Fixed Income
Fund (collectively, the Funds ). It should be read in
conjunction with the Fund s Class A and Class Y Prospectuses
dated January 2, 1997. You may obtain a copy by contacting
the Fund s Administrative Office, 11815 N. Pennsylvania
Street, Carmel, Indiana 46032.
TABLE OF CONTENTS
Page
General Information . . . . . . . . . . . B-2
Investment Objectives . . . . . . . . . . B-2
Description of Securities and
Investment Techniques . . . . . . . B-3
Investment Performance . . . . . . . . . B-24
Portfolio Turnover and Securities
Transactions . . . . . . . . . . . . B-27
Management . . . . . . . . . . . . . . . B-28
Net Asset Values of the Shares of
the Funds . . . . . . . . . . . . . B-30
Fund Expenses . . . . . . . . . . . . . B-31
Distribution Arrangements . . . . . . . . B-31
Purchase and Redemption of Shares . . . . B-33
General . . . . . . . . . . . . . . . . . B-35
Taxes . . . . . . . . . . . . . . . . . B-36
Financial Statements . . . . . . . . . . B-41<PAGE>
GENERAL INFORMATION
The Conseco Fund Group (the Trust ) was organized as a
Massachusetts business trust on September 24, 1996. The Trust
is an open-end management investment company registered with
the Securities and Exchange Commission under the Investment
Company Act of 1940 (the 1940 Act ). The Trust is a series
type of mutual fund which issues separate series of stock,
each of which currently represents a separate diversified
portfolio of investments. The Funds are divided into Class A
and Class Y shares. Each class may have different expenses
which may affect performance.
INVESTMENT OBJECTIVES
The Trust has adopted the following objectives and policies
relating to the investment of assets of the Funds and their
activities. These are fundamental policies and may not be
changed without the approval of the holders of a majority of
the outstanding shares of each Fund affected. Under the 1940
Act, the vote of such a majority means the vote of the
holders of the lesser of (i) 67 percent of the shares
represented at a meeting at which more than 50 percent of the
outstanding shares are represented or (ii) more than 50
percent of the outstanding shares. A change in policy
affecting only one Fund may be effected with the approval of
the holders of a majority of the outstanding shares of such
Fund. The Trust may not, and each Fund may not (except as
noted):
1. Purchase securities on margin, except that Funds engaged
in transactions in options, futures, and options on
futures may make margin deposits in connection with those
transactions, and except that effecting short sales
against the box will not be deemed to constitute a
purchase of securities on margin;
2. Purchase or sell commodities or commodity contracts
(which, for the purpose of this restriction, shall not
include foreign currency futures or forward currency
contracts), except: (a) any Fund may engage in interest
rate futures contracts, stock index futures, futures
contracts based on other financial instruments, and
options on such futures contracts; and (b) the Asset
Allocation Fund may engage in futures contracts on gold;
3. Borrow money or pledge, mortgage, or assign assets,
except that a Fund may: (a) borrow from banks, but only
if immediately after each borrowing and continuing
thereafter it will have an asset coverage of at least 300
percent; (b) enter into reverse repurchase agreements,
options, futures, options on futures contracts, foreign
B - 2<PAGE>
currency futures contracts and forward currency contracts
as described in the Prospectus and in this Statement of
Additional Information. (The deposit of assets in escrow
in connection with the writing of covered put and call
options and the purchase of securities on a when-issued
or delayed delivery basis and collateral arrangements
with respect to initial or variation margin deposits for
future contracts, and options on futures contracts and
foreign currency futures and forward currency contracts
will not be deemed to be pledges of a Fund s assets);
4. Underwrite securities of other issuers;
5. With respect to 75% of a Fund s total assets, invest more
than 5% of the value of its assets in the securities of
any one issuer if thereafter the Fund in question would
have more than 5% of its assets in the securities of any
issuer or would own more than 10% of the outstanding
voting securities of such issuer; this restriction does
not apply to U.S. government securities;
6. Invest in securities of a company for the purpose of
exercising control or management;
7. Write, purchase or sell puts, calls or any combination
thereof, except that the Funds may write listed covered
or secured calls and puts and enter into closing purchase
transactions with respect to such calls and puts if,
after writing any such call or put, not more than 25% of
the assets of the Fund are subject to covered or secured
calls and puts, and except that the Funds may purchase
calls and puts with a value of up to 5% of each such
Fund s net assets;
8. Participate on a joint or a joint and several basis in
any trading account in securities;
9. Invest in the securities of issuers in any one industry
if thereafter more than 25% of the assets of the Fund in
question would be invested in securities of issuers in
that industry; investing in cash items, U.S. government
s e c urities, or repurchase agreements as to these
securities, shall not be considered investments in an
industry;
10. Purchase or sell real estate, except that it may purchase
marketable securities which are issued by companies which
invest in real estate or interests therein;
11. Make loans of its assets, except the Funds may enter into
repurchase agreements and lend portfolio securities in an
amount not to exceed 15% of the value of a Fund s total
B - 3<PAGE>
assets. Any loans of portfolio securities will be made
according to guidelines established by the SEC and the
Board of Trustees; or
12. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except as permitted
herein and in Investment Restriction Nos. 1, 2 and 3.
Obligations under interest rate swaps will not be treated
as senior securities for purposes of this restriction so
long as they are covered in accordance with applicable
regulatory requirements. Other good faith hedging
transactions and similar investment strategies will also
not be treated as senior securities for purposes of this
restriction so long as they are covered in accordance
with applicable regulatory requirements and are
structured consistent with current SEC interpretations.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental
a n d may be changed by the Board of Trustees without
shareholder approval.
The Trust may not, and each Fund may not (except as noted):
1. With respect to in excess of 15% of a Fund s assets, sell
securities short, except that each Fund may, without
limit, make short sales against the box.
2. Purchase any high yield, high risk security if as a
result more than 35% of the Fund s assets would be
invested in high yield, high risk securities.
In order to limit the risks associated with entry into
repurchase agreements, the Trustees have adopted certain
criteria (which are not fundamental policies) to be followed
by the Funds. These criteria provide for entering into
repurchase agreement transactions (a) only with banks or
b r o k e r-dealers meeting certain guidelines for
c r editworthiness, (b) that are fully collateralized as
defined, (c) on an approved standard form of agreement and (d)
that meet limits on investments in the repurchase agreements
of any one bank, broker or dealer. In accordance with
regulatory requirements, the Board of Trustees has also
adopted procedures for segregating Fund assets whenever a Fund
enters into reverse repurchase agreements or dollar mortgage
rolls with institutions other than banks.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
B - 4<PAGE>
The following discussion describes in greater detail different
types of securities and investment techniques used by the
individual Funds, as described in Investment Objectives and
Policies of the Funds in each Prospectus, as well as the
risks associated with such securities and techniques.
U.S. Government Securities
All of the Funds may invest in U.S. government securities as
described in the Prospectus.
All Funds may also purchase obligations of the World Bank, the
Inter-American Development Bank, the Asian Development Bank
and the International Bank for Reconstruction and Development,
which, while technically not U.S. government agencies or
i n s trumentalities, have the right to borrow from the
participating countries, including the United States.
Asset-Backed Securities
E a ch Fund may invest in asset-backed securities which
represent fractional interests in pools of leases, retail
installment loans and revolving credit receivables, both
secured and unsecured. These assets are generally held by a
trust. Payments of principal and interest or interest only
a r e passed through to certificate holders and may be
guaranteed up to certain amounts by letters of credit issued
by a financial institution affiliated or unaffiliated with the
trustee or originator of the trust.
U n d e rlying automobile sales contracts or credit card
receivables are subject to prepayment, which may reduce the
o v e rall return to certificate holders. Nevertheless,
principal repayment rates tend not to vary much with interest
rates and the short-term nature of the underlying car loans or
other receivables tends to dampen the impact of any change in
the prepayment level. Certificate holders may also experience
delays in payment on the certificates if the full amounts due
on underlying sales contracts or receivables are not realized
by the trust because of unanticipated legal or administrative
costs of enforcing the contracts or because of depreciation or
damage to the collateral (usually automobiles) securing
certain contracts, or other factors. If consistent with its
investment objective and policies, the Funds may invest in
other asset-backed securities that may be developed in the
future.
Debt Securities
New issues of certain debt securities are often offered on a
when-issued or delayed delivery basis; that is, the payment
obligation and the interest rate are fixed at the time the
B - 5<PAGE>
buyer enters into the commitment, but delivery and payment for
the securities normally take place after the customary
settlement time. The value of when-issued or delayed delivery
securities may vary prior to and after delivery depending on
market conditions and changes in interest rate levels.
However, a Fund will not accrue any income on these securities
prior to delivery. A Fund will maintain in a segregated
account with the Trust s custodian an amount of cash or liquid
assets, including equity securities and debt securities of any
grade equal (on a daily mark-to-market basis) to the amount of
its commitment to purchase the when-issued or delayed delivery
securities.
As discussed more fully in the Prospectus, the Fixed Income
Fund will invest in rated debt securities only if they are
rated investment grade, except that the Fixed Income Fund
may invest up to 10 percent of the Fund s assets in
non investment grade debt securities. The Asset Allocation
Fund may also invest in high yield, high risk lower-rated
fixed income securities. The Asset Allocation Fund does not
intend to invest more than 25% of its total assets (measured
at the time of investment) in high yield, high risk debt
securities. The Equity and Asset Allocation Funds will not
invest in rated debt securities which are rated below CCC/Caa.
All Funds may invest in unrated securities as long as the
Adviser determines that such securities have investment
c h aracteristics comparable to securities that would be
eligible for investment by a Fund by virtue of a rating. Many
securities of foreign issuers are not rated by Moody s or
Standard & Poor s; therefore, the selection of such issuers
depends, to a large extent, on the credit analysis performed
or used by the Adviser.
B - 6<PAGE>
High Yield Debt Securities
Although the Adviser considers security ratings when making
investment decisions, it performs its own investment analysis
and does not rely principally on the ratings assigned by the
rating services. Rather, the Adviser performs research and
independently assesses the relative value of particular
securities the market. The Adviser s analysis may include
consideration of the issuer s experience and managerial
strength, changing financial condition, borrowing requirements
or debt maturity schedules, and the issuer s responsiveness to
changes in business conditions and interest rates. It also
considers relative values based on anticipated cash flow,
interest or dividend coverage, asset coverage and earnings
prospects.
Also, the Adviser buys and sells debt securities principally
in response to its evaluation of an issuer s continuing
ability to meet its obligations, the availability of better
investment opportunities, and its assessment of changes in
business conditions and interest rates. From time to time,
consistent with a Fund s investment objectives, the Adviser
may also trade high yield debt securities for the purpose of
seeking short-term profits. These securities may be sold in
anticipation of a market decline or bought in anticipation of
a market rise. They may also be traded for securities of
comparable quality and maturity to take advantage of perceived
short-term disparities in market values or yields.
When-Issued and Delayed Delivery Securities
Each Fund may purchase securities on a when-issued or delayed
delivery basis. When-issued and delayed delivery transactions
arise when securities are bought with payment and delivery
taking place in the future. The settlement dates of these
transactions, which may be a month or more after entering into
the transaction, are determined by mutual agreement of the
parties. A Fund bears the risk that, on the settlement date,
the market value of the securities may vary from the purchase
price. At the time a Fund makes a commitment to purchase
securities on a when- issued or delayed delivery basis, it
will record the transaction and reflect the value each day of
such securities in determining the Fund s net asset value.
There are no fees or other expenses associated with these
types of transactions other than normal transaction costs. To
the extent a Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring
instruments consistent with the investment objective and
policies of the respective and not for the purpose of
investment leverage or to speculate on interest rate changes.
When effecting when-issued and delayed delivery transactions,
cash and liquid securities of a Fund in an amount sufficient
B - 7<PAGE>
to make payment for the obligations to be purchased will be
segregated at the trade date and maintained until the
transaction has been settled. The Adviser will ensure that
such assets are segregated at all times and are sufficient to
satisfy these obligations. A Fund may dispose of these
securities before the issuance thereof. However, absent
extraordinary circumstances not presently foreseen, it is each
Fund s policy not to divest itself of its right to acquire
these securities prior to the settlement date thereof.
Variable and Floating Rate Securities
Each Fund may invest in variable and floating rate securities.
Variable rate securities provide for automatic establishment
of a new interest rate at fixed intervals (i.e., daily,
monthly, semi-annually, etc.). Floating rate securities
provide for automatic adjustment of the interest rate whenever
some specified interest rate index changes. The interest rate
o n variable or floating rate securities is ordinarily
determined by reference to, or is a percentage of, a bank s
prime rate, the 90-day U.S. Treasury bill rate, the rate of
return on commercial paper or bank certificates of deposit, an
index of short-term interest rates, or some other objective
measure.
Variable or floating rate securities frequently include a
demand feature entitling the holder to sell the securities to
the issuer at par value. In many cases, the demand feature
can be exercised at any time on seven days notice; in other
cases, the demand feature is exercisable at any time on 30
days notice or on similar notice at intervals of not more
than one year.
Banking Industry and Savings Industry Obligations
Each Fund may invest in certificates of deposit, time
deposits, bankers acceptances, and other short-term debt
obligations issued by commercial banks and in certificates of
deposit, time deposits, and other short-term obligations
issued by savings and loan associations ( S&Ls ). Certificates
of deposit are receipts from a bank or an S&L for funds
deposited for a specified period of time at a specified rate
of return. Time deposits in banks or S&Ls are generally
similar to certificates of deposit, but are uncertificated.
Bankers acceptances are time drafts drawn on commercial banks
b y borrowers, usually in connection with international
commercial transactions. The Equity Fund and Fixed Income
Fund may each invest in obligations of foreign branches of
domestic commercial banks and foreign banks so long as the
securities are U.S. dollar denominated. The Asset Allocation
Fund may also invest in these types of instruments but such
instruments will not necessarily be U.S. dollar denominated.
B - 8<PAGE>
See Foreign Securities below for information regarding risks
associated with investments in foreign securities.
The Funds will not invest in obligations issued by a
commercial bank or S&L unless:
1. The bank or S&L has total assets of at least $1 billion,
o r t he equivalent in other currencies, and the
institution has outstanding securities rated A or better
by Moody s or Standard & Poor s, or, if the institution
has no outstanding securities rated by Moody s or
Standard & Poor s, it has, in the determination of the
Adviser, similar creditworthiness to institutions having
outstanding securities so rated;
2. In the case of a U.S. bank or S&L, its deposits are
federally insured; and
3. In the case of a foreign bank, the security is, in the
determination of the Adviser, of an investment quality
comparable with other debt securities which may be
purchased by the Fund. These limitations do not prohibit
investments in securities issued by foreign branches of
U.S. banks, provided such U.S. banks meet the foregoing
requirements.
Repurchase Agreements and Reverse Repurchase Agreements
Each Fund may enter into repurchase agreements and reverse
repurchase agreements. Repurchase agreements permit an
investor to maintain liquidity and earn income over periods of
time as short as overnight. Repurchase agreements may be
characterized as loans collateralized by the underlying
securities. In these transactions, a Fund purchases U.S.
Treasury obligations or U.S. government securities (the
underlying securities ) from a broker or bank, which agrees
to repurchase the underlying securities on a certain date or
on demand and at a fixed price calculated to produce a
previously agreed upon return to the Fund. If the broker or
bank were to default on its repurchase obligation and the
underlying securities were sold for a lesser amount, the Fund
would realize a loss. A repurchase transaction will be
subject to guidelines approved by the Board of Trustees of the
Trust, which include monitoring the creditworthiness of the
p a r t i e s with which the Fund engages in repurchase
transactions, obtaining collateral at least equal in value to
the repurchase obligation, and marking the collateral to
market on a daily basis.
A reverse repurchase agreement involves the temporary sale of
a security by a Fund and its agreement to repurchase the
B - 9<PAGE>
instrument at a specified time and price. Such agreements are
short-term in nature and involve minimal credit risks.
Although not one of the Trust s fundamental policies, it is
the Trust s present policy not to enter into a repurchase
transaction which will cause more than 10 percent of the
assets of the Fixed Income Fund to be subject to repurchase
agreements having a maturity of more than seven days. This 10
percent limit also includes the aggregate of (i) fixed time
deposits subject to withdrawal penalties, other than overnight
deposits; and (ii) any restricted securities (i.e., securities
which cannot freely be sold for legal reasons) and any
securities for which market quotations are not readily
available; however, this 10 percent limit does not include any
obligations payable at principal amount plus accrued interest,
on demand or within seven days after demand, and thus does not
include repurchase agreements having a maturity of seven days
or less.
Warrants
The Equity and Asset Allocation Funds may invest in warrants.
Each of these Funds may invest up to 5 percent of its net
assets in warrants (not including those that have been
acquired in units or attached to other securities), measured
at the time of acquisition, and each such Fund may acquire a
warrant not listed on the New York or American Stock Exchanges
if, after such acquisition, no more than 2 percent of the
Fund s net assets would be invested in such warrants.
The holder of a warrant has the right to purchase a given
number of shares of a security of a particular issuer at a
specified price until expiration of the warrant. Such
investments provide greater potential for profit or loss than
a direct purchase of the same amount of the securities. Prices
of warrants do not necessarily move in tandem with the prices
of the underlying securities, and are considered speculative
investments. They pay no dividends and confer no rights other
than a purchase option. If a warrant is not exercised by the
date of its expiration, a Fund would lose its entire
investment in such warrant.
Interest Rate Transactions
Each Fund may seek to protect the value of its investments
from interest rate fluctuations by entering into various
hedging transactions, such as interest rate swaps and the
purchase or sale of interest rate caps and floors. A Fund
expects to enter into these transactions primarily to preserve
a return or spread on a particular investment or portion of
its portfolio. A Fund may also enter into these transactions
to protect against an increase in the price of securities a
B - 10<PAGE>
Fund anticipates purchasing at a later date. Each Fund
intends to use these transactions as a hedge and not as
speculative investments. Interest rate swaps involve the
exchange by a Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase
of an interest cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to
receive payments on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest
rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount
from the party selling such interest rate floor.
A Fund may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis depending on
whether it is hedging its assets or its liabilities, and will
only enter into such swaps, caps and floors on a net basis,
i.e., the two payment streams are netted out, with a Fund
receiving or paying, as the case may be, only the net amount
of the two payments. The net amount of the excess, if any, of
a Fund s obligations over its entitlements with respect to
each interest rate swap, cap or floor will be accrued on a
daily basis and an amount of cash or liquid securities having
an aggregate value at least equal to the accrued excess will
be maintained in a segregated account by the custodian. A
Fund will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-
paying ability of the other party thereto is rated in the
highest rating category of at least one NRSRO at the time of
entering into such transaction. If there is a default by the
other party to such transaction, a Fund will have contractual
r e m e d ies pursuant to the agreements related to the
transaction. The swap market has grown substantially in
recent years with a large number of banks and investment
banking firms acting both as principals and agents. As a
result, the swap market has become well established and
provides a degree of liquidity. Caps and floors are more
recent innovations which tend to be less liquid than swaps.
Lending Securities
Each Fund may lend its securities so long as such loans do not
represent in excess of 15% of the Fund s total assets. This
is a fundamental policy. The procedure for lending securities
is for the borrower to give the Fund collateral consisting of
cash or cash equivalents. The Fund may invest the cash
collateral and earn additional income or receive an agreed-
upon fee from a borrower which has delivered cash-equivalent
collateral. It is anticipated that securities will be loaned
only under the following conditions: (1) the borrower must
B - 11<PAGE>
furnish collateral equal at all times to the market value of
the securities loaned and the borrower must agree to increase
the collateral on a daily basis if the securities increase in
value; (2) the loan will be made in accordance with New York
Stock Exchange rules, which presently require the borrower,
after notice, to redeliver the securities within five business
days; (3) any cash collateral invested by a Fund will be in
short-term investments which give maximum liquidity so that
the collateral may be paid back to the borrower when the
securities are returned; (4) the Fund may pay reasonable
service, placement, custodian or other fees in connection with
loans of securities and share a portion of the interest from
these investments with the borrower of the securities; and (5)
the Fund will limit the amount of lending of securities so
that the aggregate amount of interest received attributed to
securities loaned, if considered other income for the
Federal tax purposes, will not cause the Fund to lose its
status as a regulated investment company.
Future Contracts
The Funds may engage in futures contracts and may purchase and
sell interest rate futures contracts. The Funds may purchase
and sell stock index futures contracts, interest rate futures
contracts, and futures contracts based upon other financial
instruments and components. The Asset Allocation Fund may
also engage in gold and other precious metals futures
contracts.
Such investments may be made by these Funds solely for the
purpose of hedging against the effect that changes in general
market conditions, interest rates, and conditions affecting
particular industries may have on the values of securities
held in a Fund or in which a Fund intends to purchase, and not
for purposes of speculation.
General Description of Futures Contracts. A futures contract
provides for the future sale by one party and purchase by
another party of a specified amount of a particular financial
instrument (debt security) or commodity for a specified price
at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and
p a yment for the underlying financial instruments, such
contracts are usually closed out before the delivery date.
Closing out an open futures contract position is effected by
entering into an offsetting sale or purchase, respectively,
for the same aggregate amount of the same financial instrument
on the same delivery date. Where a Fund has sold a futures
contract, if the offsetting price is more than the original
futures contract purchase price, the Fund realizes a gain; if
it is less, the Fund realizes a loss.
B - 12<PAGE>
At the time a Fund purchases a futures contract, an amount of
cash, U.S. government securities, or money market instruments,
equal to the fair market value less initial and variation
margin of the futures contract, will be deposited in a
segregated account with the Trust s custodian to collateralize
the position and thereby ensure that such futures contract is
covered. A Fund may be required to deposit additional cash
equivalent items in the segregated account in order to
continue covering the contract as market conditions change.
In addition, each Fund will comply with certain regulations of
the Commodity Futures Trading Commission to qualify for an
exclusion from being a commodity pool, which require a Fund
to set aside cash and short-term obligations with respect to
long positions in a futures contract.
Interest Rate Futures Contracts. The Funds may purchase and
sell interest rate futures contracts. An interest rate
futures contract is an obligation traded on an exchange or
board of trade that requires the purchaser to accept delivery,
and the seller to make delivery, of a specified quantity of
the underlying financial instrument, such as U.S. Treasury
bills and bonds, in a stated delivery month, at a price fixed
in the contract.
These Funds may purchase and sell interest rate futures as a
hedge against changes in interest rates that adversely impact
the value of debt instruments and other interest rate
sensitive securities being held by a Fund. A Fund might
employ a hedging strategy whereby it would purchase an
interest rate futures contract when it is not fully invested
in long-term debt securities but wishes to defer their
purchase until it can orderly invest in such securities or
because short-term yields are higher than long-term yields.
Such a purchase would enable the Fund to earn the income on a
short-term security while at the same time minimizing the
effect of all or part of an increase in the market price of
the long-term debt security which the Fund intends to purchase
in the future. A rise in the price of the long-term debt
security prior to its purchase either would be offset by an
increase in the value of the futures contract purchased by the
Fund or avoided by taking delivery of the debt securities
under the futures contract.
A Fund would sell an interest rate futures contract to
continue to receive the income from a long-term debt security,
while endeavoring to avoid part or all of the decline in
market value of that security which would accompany an
increase in interest rates. If interest rates rise, a decline
in the value of the debt security held by the Fund would be
substantially offset by the ability of the Fund to repurchase
at a lower price the interest rate futures contract previously
sold. While the Fund could sell the long-term debt security
B - 13<PAGE>
and invest in a short-term security, this would ordinarily
cause the Fund to give up income on its investment since long-
term rates normally exceed short-term rates.
Options on Futures Contracts. The Funds may purchase options
on interest rate futures contracts, although these Funds will
not write options on any such contracts. A futures option
gives a Fund the right, in return for the premium paid, to
assume a long position (in the case of a call) or short
position (in the case of a put) in a futures contract at a
specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the purchaser
acquires a long position in the futures contract and the
writer of the option is assigned the opposite short position.
In the case of a put option, the converse is true. In most
cases, however, a Fund would close out its position before
expiration by an offsetting purchase or sale.
The Funds would enter into options on futures contracts only
in connection with hedging strategies. Generally, these
strategies would be employed under the same market conditions
in which a Fund would use put and call options on debt
securities, as described in Options on Securities below.
S t ock Index Futures Contracts. The Equity and Asset
Allocation Funds may purchase and sell stock index futures
contracts. A stock index assigns relative values to the
common stocks included in an index (for example, the Standard
& Poor s 500 Index of common stocks or the New York Stock
Exchange Composite Index), and the index fluctuates with
changes in the market values of such stocks. A stock index
futures contract is a bilateral agreement to accept or make
payment, depending on whether a contract is purchased or sold,
of an amount of cash equal to a specified dollar amount
multiplied by the difference between the stock index value at
the close of the last trading day of the contract and the
price at which the futures contract is originally purchased or
sold.
To the extent that changes in the value of the Equity Fund or
Asset Allocation Fund correspond to changes in a given stock
index, the sale of futures contracts on that index ( short
hedge ) would substantially reduce the risk to the Fund of a
market decline and, by so doing, provide an alternative to a
liquidation of securities position, which may be difficult to
accomplish in a rapid and orderly fashion. Stock index
futures contracts might also be sold:
1. When a sale of Fund securities at that time would appear
to be disadvantageous in the long-term because such
liquidation would:
B - 14<PAGE>
a. Forego possible appreciation,
b. Create a situation in which the securities would be
difficult to repurchase, or
c. Create substantial brokerage commission;
2. When a liquidation of part of the investment portfolio
has commenced or is contemplated, but there is, in the
Adviser s determination, a substantial risk of a major
price decline before liquidation can be completed; or
3. To close out stock index futures purchase transactions.
Where the Adviser anticipates a significant market or market
sector advance, the purchase of a stock index futures contract
( long hedge ) affords a hedge against the possibility of not
participating in such advance at a time when a Fund is not
fully invested. Such purchases would serve as a temporary
substitute for the purchase of individual stocks, which may
then be purchased in an orderly fashion. As purchases of
stock are made, an amount of index futures contracts which is
c o mparable to the amount of stock purchased would be
terminated by offsetting closing sales transactions. Stock
index futures might also be purchased:
1. If the Fund is attempting to purchase equity positions in
issues which it may have or is having difficulty
purchasing at prices considered by the Adviser to be fair
value based upon the price of the stock at the time it
qualified for inclusion in the investment portfolio, or
2. To close out stock index futures sales transactions.
Gold and Other Precious Metals Futures Contracts. The Asset
Allocation Fund may enter into futures contracts on gold and
other precious metals. A gold or other precious metal futures
contract is a standardized contract which is traded on a
regulated commodity futures exchange, and which provides for
the future delivery of a specified amount of gold or other
precious metal at a specified date, time, and price. When the
Fund purchases a gold or other precious metal futures
contract, it becomes obligated to take delivery and pay for
the gold or other precious metal from the seller in accordance
with the terms of the contract. When the Fund sells a gold or
other precious metal futures contract, it becomes obligated to
make delivery of the gold or other precious metal to the
purchaser in accordance with the terms of the contract. The
Fund will enter into gold or other precious metal futures
contracts only for the purpose of hedging its holdings or
intended holdings of gold or other precious metal stocks. The
Fund will not engage in these contracts for speculation or for
achieving leverage. The hedging activities may include
purchases of futures contracts as an offset against the effect
B - 15<PAGE>
of anticipated increases in the price of gold or other
precious metal or sales of futures contracts as an offset
against the effect of anticipated declines in the price of
gold or other precious metals.
Risks Associated With Futures and Futures Options. There are
several risks associated with the use of futures and futures
options for hedging purposes. While hedging transactions may
protect a Fund against adverse movements in the general level
of interest rates and economic conditions, such transactions
could also preclude the Fund from the opportunity to benefit
from favorable movements in the underlying component. There
can be no guarantee that the anticipated correlation between
price movements in the hedging vehicle and in the portfolio
securities being hedged will occur. An incorrect correlation
could result in a loss on both the hedged securities and the
hedging vehicle so that the Fund return might have been better
if hedging had not been attempted. The degree of imperfection
of correlation depends on circumstances such as variations in
speculative market demand for futures and futures options,
including technical influences in futures trading and futures
options, and differences between the financial instruments
being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest
rate levels, maturities, and creditworthiness of issuers. A
decision as to whether, when, and how to hedge involves the
exercise of skill and judgment and even a well-conceived hedge
may be unsuccessful to some degree because of market behavior
or unexpected interest rate trends.
There can be no assurance that a liquid market will exist at a
time when a Fund seeks to close out a futures contract or a
futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures
contract prices during a single day. Once the daily limit has
been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain
of these instruments are relatively new and without a
significant trading history. As a result, there is no
assurance that an active secondary market will develop or
continue to exist. The daily limit governs only price
movements during a particular trading day and therefore does
not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily
limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions
a n d subjecting some holders of futures contracts to
substantial losses. Lack of a liquid market for any reason
may prevent a Fund from liquidating an unfavorable position
a n d the Fund would remain obligated to meet margin
requirements and continue to incur losses until the position
is closed.
B - 16<PAGE>
A Fund will only enter into futures contracts or futures
options which are standardized and traded on a U.S. exchange
or board of trade, or, in the case of futures options, for
which an established over-the-counter market exists. A Fund
will not enter into a futures contract or purchase a futures
option if immediately thereafter the initial margin deposits
for futures contracts held by the Fund plus premiums paid by
it for open futures options positions, less the amount by
which any such positions are in-the-money (i.e., the amount
by which the value of the contract exceeds the exercise
price), would exceed 5 percent of the Fund s net assets.
Options on Securities
The Funds may purchase put and call options on securities, and
the Equity and Asset Allocation Funds may purchase put and
call options on stock indices at such times as the Adviser
deems appropriate and consistent with a Fund s investment
objective. Such Funds may also write covered and secured
call and put options. A Fund may write covered and secured
options with respect to not more than 25 percent of its net
assets. A Fund may purchase call and put options with a value
of up to 5 percent of its net assets. Each of these Funds may
enter into closing transactions in order to terminate its
obligations either as a writer or a purchaser of an option
prior to the expiration of the option.
Purchasing Options on Securities. An option on a security is
a contract that gives the purchaser of the option, in return
for the premium paid, the right to buy a specified security
(in the case of a call option) or to sell a specified security
(in the case of a put option) from or to the seller
( writer ) of the option at a designated price during the term
of the option. A Fund may purchase put options on securities
to protect holdings in an underlying or related security
against a substantial decline in market value. Securities are
c o n sidered related if their price movements generally
correlate to one another. For example, the purchase of put
options on debt securities held by a Fund would enable a Fund
to protect, at least partially, an unrealized gain in an
appreciated security without actually selling the security.
In addition, the Fund would continue to receive interest
income on such security.
A Fund may purchase call options on securities to protect
against substantial increases in prices of securities which
the Fund intends to purchase pending its ability to invest in
such securities in an orderly manner. A Fund may sell put or
call options it has previously purchased, which could result
in a net gain or loss depending on whether the amount realized
on the sale is more or less than the premium and other
transactional costs paid on the option which is sold.
B - 17<PAGE>
Writing Covered Call and Secured Put Options. In order to
earn additional income on its portfolio securities or to
protect partially against declines in the value of such
securities, the Funds may each write covered and secured
call options. The exercise price of a call option may be
below, equal to, or above the current market value of the
underlying security at the time the option is written. During
the option period, a covered call option writer may be
assigned an exercise notice by the broker-dealer through whom
such call option was sold requiring the writer to deliver the
underlying security against payment of the exercise price.
This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer
effects a closing purchase transaction. Closing purchase
transactions will ordinarily be effected to realize a profit
on an outstanding call option, to prevent an underlying
security from being called, to permit the sale of the
underlying security, or to enable the Fund to write another
call option on the underlying security with either a different
exercise price or expiration date or both.
In order to earn additional income or to facilitate its
ability to purchase a security at a price lower than the
current market price of such security, the Funds may write
secured put options. During the option period, the writer of
a put option may be assigned an exercise notice by the broker-
dealer through whom the option was sold requiring the writer
to purchase the underlying security at the exercise price.
A Fund may write a call or put option only if the call option
is covered or the put option is secured by the Fund. Under
a covered call option, the Fund is obligated, as the writer of
the option, to own the underlying securities subject to the
option or hold a call at the same exercise price, for the same
exercise period, and on the same securities as the written
call. Under a secured put option, a Fund must maintain, in a
segregated account with the Trust s custodian, cash, cash
equivalents, or U.S. government securities with a value
sufficient to meet its obligation as writer of the option. A
put may also be secured if the Fund holds a put on the same
underlying security at an equal or greater exercise price.
Prior to exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same
Fund.
Options on Securities Indices. The Equity and Asset Allocation
Funds may purchase call and put options on securities indices.
Call and put options on securities indices also may be
purchased or sold by a Fund for the same purposes as the
purchase or sale of options on securities. Options on
securities indices are similar to options on securities,
except that the exercise of securities index options requires
cash payment and does not involve the actual purchase or sale
of securities. In addition, securities index options are
B - 18<PAGE>
d e signed to reflect price fluctuations in a group of
securities or segment of the securities market rather than
price fluctuations in a single security. The Equity and Asset
Allocation Funds may write put and call options on securities
indices. When such options are written, the Fund is required
to maintain a segregated account consisting of cash, or liquid
securities, or the Fund must purchase a like option of greater
value that will expire no earlier than the option written. The
purchase of such options may not enable a Fund to hedge
effectively against stock market risk if they are not highly
correlated with the value of a Fund s securities. Moreover,
the ability to hedge effectively depends upon the ability to
predict movements in the stock market, which cannot be done
accurately in all cases.
Risks of Options Transactions. The purchase and writing of
options involves certain risks. During the option period, the
covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price
increase in the underlying securities above the exercise
price, and, as long as its obligation as a writer continues,
has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no
control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer
has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation
under the option and must deliver the underlying securities at
the exercise price. If a put or call option purchased by a
Fund is not sold when it has remaining value, and if the
market price of the underlying security, in the case of a put,
remains equal to or greater than the exercise price or, in the
case of a call, remains less than or equal to the exercise
price, the Fund will lose its entire investment in the option.
Also, where a put or call option on a particular security is
purchased to hedge against price movements in a related
security, the price of the put or call option may move more or
less than the price of the related security.
There can be no assurance that a liquid market will exist when
a Fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options
markets, a Fund may be unable to close out a position. If a
Fund cannot effect a closing transaction, it will not be able
to sell the underlying security while the previously written
option remains outstanding, even though it might otherwise be
advantageous to do so. Possible reasons for the absence of a
liquid secondary market on a national securities exchange
could include: insufficient trading interest, restrictions
imposed by national securities exchanges, trading halts or
suspensions with respect to call options or their underlying
s e c u rities, inadequacy of the facilities of national
securities exchanges or The Options Clearing Corporation due
to a high trading volume or other events, and a decision by
B - 19<PAGE>
one or more national securities exchanges to discontinue the
trading of call options or to impose restrictions on certain
types of orders.
Since option premiums paid or received by a Fund, as compared
to underlying investments, are small in relation to the market
value of such investments, buying and selling put and call
options offer large amounts of leverage. Thus, the leverage
offered by trading in options could result in a Fund s net
asset value being more sensitive to changes in the value of
the underlying securities.
Foreign Currency Transactions
The Asset Allocation Fund may enter into foreign currency
futures contracts and forward currency contracts. A foreign
currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency,
at a future date at a price set at the time of the contract.
A forward currency contract is an obligation to purchase or
sell a currency against another currency at a future date at a
price agreed upon by the parties. The Fund may either accept
or make delivery of the currency at the maturity of the
c o ntract or, prior to maturity, enter into a closing
transaction involving the purchase or sale of an offsetting
contract. The Fund will engage in foreign currency futures
contracts and forward currency transactions in anticipation of
or to protect itself against fluctuations in currency exchange
rates. The Fund will not commit more than 15 percent of its
total assets computed at market value at the time of
commitment to a foreign currency futures or forward currency
contracts. The Fund will purchase and sell such contracts for
hedging purposes and not as an investment. The Fund will not
enter into a foreign currency contract with a term of greater
than one year.
Foreign currency futures and forward currency contracts are
not traded on regulated commodities exchanges. There can be
no assurance that a liquid market will exist when a Fund seeks
to close out a foreign currency futures or forward currency
position, in which case a Fund might not be able to effect a
closing purchase transaction at any particular time. In
addition, a Fund entering into a foreign currency futures or
forward currency contract incurs the risk of default by the
counter party to the transaction. While these contracts tend
to minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such
currency increase.
Although the Asset Allocation Fund values assets daily in U.S.
dollars, it does not intend to physically convert its holdings
of foreign currencies into U.S. dollars on a daily basis. The
Fund will do so from time to time and investors should be
B - 20<PAGE>
aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the spread )
between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
Options on Foreign Currencies
The Asset Allocation Fund may invest up to 5 percent of its
total assets, taken at market value at the time of investment,
in call and put options on domestic and foreign securities and
foreign currencies. The Fund may purchase call and put options
on foreign currencies as a hedge against changes in the value
of the U.S. dollar (or another currency) in relation to a
foreign currency in which portfolio securities of the Fund may
be denominated. A call option on a foreign currency gives the
purchaser the right to buy, and a put option the right to
sell, a certain amount of foreign currency at a specified
price during a fixed period of time. The Fund may enter into
closing sale transactions with respect to such options,
exercise them, or permit them to expire.
The Asset Allocation Fund may employ hedging strategies with
options on currencies before the Fund purchases a foreign
security denominated in the hedged currency, during the period
the Fund holds the foreign security, or between the day the
foreign security is purchased or sold and the date on which
payment therefor is made or received. Hedging against a
change in the value of a foreign currency in the foregoing
manner does not eliminate fluctuations in the prices of
portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions
reduce or preclude the opportunity for gain if the value of
the hedged currency should change relative to the U.S. dollar.
The Fund will purchase options on foreign currencies only for
hedging purposes and will not speculate in options on foreign
currencies. The Fund may invest in options on foreign
currency which are either listed on a domestic securities
exchange or traded on a recognized foreign exchange.
An option position on a foreign currency may be closed out
only on an exchange which provides a secondary market for an
option of the same series. Although the Asset Allocation Fund
will purchase only exchange-traded options, there is no
assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time.
In the event no liquid secondary market exists, it might not
be possible to effect closing transactions in particular
options. If the Fund cannot close out an exchange-traded
option which it holds, it would have to exercise its option in
B - 21<PAGE>
order to realize any profit and would incur transactional
costs on the sale of the underlying assets.
Borrowing
For temporary purposes, such as to facilitate redemptions, a
Fund may borrow money from a bank, but only if immediately
after each such borrowing and continuing thereafter the Fund
would have asset coverage of 300 percent. Leveraging by means
of borrowing will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Fund s net
asset value; money borrowed will be subject to interest and
other costs (which may include commitment fees and/or the cost
of maintaining minimum average balances), which may or may not
exceed the income received from the securities purchased with
borrowed funds. The use of borrowing tends to result in a
faster than average movement, up or down, in the net asset
value of a Fund s shares. A Fund also may be required to
maintain minimum average balances in connection with such
borrowing or to pay a commitment or other fee to maintain a
line of credit; either of these requirements would increase
the cost of borrowing over the stated interest rate.
Investment in Securities of Other Investment Companies
E a ch Fund may purchase securities of other investment
companies. Such securities have the potential to appreciate
as do any other securities, but tend to present less risk
because their value is based on a diversified portfolio of
investments. The 1940 Act expressly permits mutual funds such
as the Trust to invest in other investment companies within
prescribed limitations. An investment company may invest in
other investment companies if at the time of such investment
(1) it does not purchase more than 3 percent of the voting
securities of any one investment company, (2) it does not
invest more than 5 percent of its assets in any single
investment company, and (3) the investment in all investment
companies does not exceed 10 percent of assets. Each Fund
will comply with all of these limitations with respect to the
purchase of securities issued by other investment companies.
Investment companies in which the Funds may invest charge
advisory and administrative fees and may also assess a sales
load and/or distribution fees. Therefore, investors in a Fund
that invested in other investment companies would indirectly
bear costs associated with those investments as well as the
costs associated with investing in the Fund. The percentage
limitations described above significantly limit the costs a
Fund may incur in connection with such investments.
INVESTMENT PERFORMANCE
B - 22<PAGE>
Standardized Yield Quotations. Each class of the Fixed Income
Fund, Equity Fund, and Asset Allocation Fund may advertise
investment performance figures, including yield. Each class
yield will be based upon a stated 30-day period and will be
computed by dividing the net investment income per share
earned during the period by the maximum offering price per
share on the last day of the period, according to the
following formula:
YIELD = 2 [(A B/CD)+1)6 1]
Where:
A = the dividends and interest earned during the period.
B = t h e expenses accrued for the period (net of
reimbursements, if any).
C = the average daily number of shares outstanding during the
period that were entitled to
receive dividends.
D = the maximum offering price (which is the net asset value)
per share on the last day
of the period.
Standardized Average Annual Total Return Quotations. Each
class of the Funds may advertise its total return and its
cumulative total return. The total return will be based upon
a stated period and will be computed by finding the average
annual compounded rate of return over the stated period that
would equate an initial amount invested to the ending
redeemable value of the investment (assuming reinvestment of
all distributions), according to the following formula:
P (1+T)n=ERV
Where:
P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value at the end of the
stated period of a hypothetical $1,000 payment
made at the beginning of the stated period.
The cumulative total return will be based upon a stated period
and will be computed by dividing the ending redeemable value
of a hypothetical investment by the value of the initial
investment (assuming reinvestment of all distributions).
Each investment performance figure will be carried to the
nearest hundredth of one percent.
Non-Standardized Performance. In addition, in order to more
completely represent a Fund s performance or more accurately
compare such performance to other measures of investment
return, a Fund also may include in advertisements, sales
l i t erature and shareholder reports other total return
p e r f ormance data ( Non-Standardized Return ). Non-
B - 23<PAGE>
Standardized Return may be quoted for the same or different
periods as those for which Standardized Return is quoted; it
may consist of an aggregate or average annual percentage rate
of return, actual year-by-year rates or any combination
thereof. Non-Standardized Return may or may not take sales
charges into account; performance data calculated without
taking the effect of sales charges into account will be higher
than data including the effect of such charges. All non-
standardized performance will be advertised only if the
standard performance data for the same period, as well as for
the required periods, is also presented.
General Information. From time to time, the Funds may
advertise their performance compared to similar funds using
c e r tain unmanaged indices, reporting services and
publications. Descriptions of some of the indices which may
be used are listed below.
The Standard & Poor s 500 Composite Stock Price Index is a
well diversified list of 500 companies representing the U.S.
Stock Market.
The NASDAQ Composite OTC Price Index is a market value-
weighted and unmanaged index showing the changes in the
aggregate market value of approximately 3,500 stocks.
The Lehman Government Bond Index is a measure of the market
value of all public obligations of the U.S. Treasury; all
publicly issued debt of all agencies of the U.S. Government
and all quasi-federal corporations; and all corporate debt
g u a r anteed by the U.S. Government. Mortgage backed
securities, bonds and foreign targeted issues are not included
in the Lehman Government Index.
The Lehman Government/Corporate Bond Index is a measure of the
market value of approximately 5,300 bonds with a face value
currently in excess of $1.3 trillion. To be included in the
Lehman Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to
maturity and be rated Baa or higher ( investment grade ) by
a nationally recognized rating agency.
T h e Lehman Brothers Aggregate Bond Index is an index
consisting of the Lehman Brothers Government/Corporate Bond
Index, the Lehman Brothers Mortgage-Backed Securities Index,
and the Lehman-Brothers Assets-Backed Securities Index. The
Government/Corporate Bond Index is described above. The
Mortgage-Backed Securities Index consists of 15 and 30-year
fixed rate securities backed by mortgage pools of GNMA, FHLMC
and FNMA (excluding buydowns, manufactured homes and graduated
equity mortgages). The Asset-Backed Securities Index consists
of credit card, auto and home equity loans (excluding
subordinated tranches) with an average life of one year. Each
B - 24<PAGE>
Index includes income and distributions but does not reflect
fees, brokerage commissions or other expenses of investing.
In addition, from time to time in reports and promotions a
Fund s performance may be compared to: (1) other groups of
mutual funds tracked by: (a) Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds
by overall performance, investment objectives, and assets; (b)
Morningstar, Inc., another widely used independent research
f i rm which ranks mutual funds by overall performance,
investment objectives, and assets; or (c) other financial or
business publications, such as Business Week, Money Magazine,
Forbes and Barron s which provide similar information; (2) the
Consumer Price Index (measure for inflation) may be used to
assess the real rate of return from an investment in a Fund;
(3) other statistics such as GNP, and net import and export
figures derived from governmental publications, e.g., The
Survey of Current Business or other independent parties, e.g.,
the Investment Company Institute, may be used to illustrate
investment attributes to a Fund or the general economic,
business, investment, or financial environment in which a Fund
operates; (4) various financial economic and market statistics
developed by brokers, dealers and other persons may be used to
illustrate aspects of a Fund s performance; and (5) the
sectors or industries in which the Fund invests may be
compared to relevant indices or surveys (e.g., S&P Industry
S u r veys) in order to evaluate the Fund s historical
performance or current or potential value with respect to the
particular industry or sector.
PORTFOLIO TURNOVER AND SECURITIES TRANSACTIONS
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of
portfolio securities (excluding certain short-term securities)
for a year and dividing it by the monthly average of the
market value of such securities during the year. The Funds do
not have a predetermined rate of portfolio turnover since such
turnover will be incidental to transactions taken with a view
to achieving their respective objectives.
High turnover and short-term trading involve correspondingly
greater commission expenses and transaction costs. If a Fund
derives more than 30 percent of its gross income from the sale
of securities held less than three months, the Fund may fail
to qualify under the tax laws as a regulated investment
company in particular years and thereupon would lose certain
beneficial tax treatment of its income (see Dividends,
Distributions and Taxes in the Prospectus).
The Adviser is responsible for decisions to buy and sell
s e curities for each Fund, broker-dealer selection, and
negotiation of its brokerage commission rates. The Adviser s
B - 25<PAGE>
primary consideration in effecting a securities transaction
will be execution at the most favorable price and the Adviser
understands that a substantial majority of a Fund s portfolio
transactions will be transacted with primary market makers
acting as principal on a net basis, with no brokerage
commissions being paid by a Fund. In certain instances, the
Adviser may make purchases of underwritten issues at prices
which include underwriting fees, and, in selecting a broker-
dealer to execute each particular transaction, the Adviser
will take the following into consideration: the best net price
available; the reliability, integrity and financial condition
of the broker-dealer; and the size of contribution of the
broker-dealer to the investment performance of a Fund on a
continuing basis. The Adviser shall not be deemed to have
acted unlawfully or to have breached any duty created by the
Investment Advisory Agreement in question or otherwise solely
by reason of its having caused a Fund to pay a broker-dealer
that provides brokerage and research services to the Adviser
an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another
b r o k e r-dealer would have charged for effecting that
transaction, if the Adviser determines in good faith that such
amount of commission was reasonable in relation to the value
of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular
transaction or the Adviser s overall responsibilities with
respect to a Fund. The Adviser allocates the orders placed by
it on behalf of a Fund to such broker-dealers who also provide
research or statistical material, or other services to a Fund,
the Adviser or its clients. Such allocation shall be in such
amounts and proportions as the Adviser shall determine and the
Adviser will report on said allocations regularly to a Fund
indicating the broker-dealers to whom such allocations have
been made and the basis therefor. Broker-dealers may be
selected who provide brokerage and/or research services to a
Fund and/or other accounts over which the Adviser exercises
investment discretion. Such services may include advice
concerning the value of securities (including providing
quotations as to securities); the advisability of investing
in, purchasing or selling securities; the availability of
securities or the purchasers or sellers of securities;
furnishing analysis and reports concerning issuers,
industries, securities, economic factors and trends, portfolio
strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto, such
as clearance and settlement.
The receipt of research from broker-dealers may be useful to
the Adviser in rendering investment management services to the
Funds and/or the Adviser s other clients; conversely, such
information provided by broker-dealers who have executed
transaction orders on behalf of other clients may be useful to
the Adviser in carrying out its obligations to the Funds. The
receipt of such research will not be substituted for the
B - 26<PAGE>
independent research of the Adviser. It does enable the
Adviser to reduce costs to less than those which would have
been required to develop comparable information through its
own staff. The use of broker-dealers who supply research may
result in the payment of higher commissions than those
available from other broker-dealers who provide only the
execution of portfolio transactions. Orders on behalf of the
Funds may be bunched with orders on behalf of other clients of
the Adviser.
The Board of Trustees periodically reviews the Adviser s
performance of its responsibilities in connection with the
placement of portfolio transactions on behalf of the Trust.
MANAGEMENT
The Adviser
Conseco Capital Management, Inc. (the Adviser ) provides
investment advice and, in general, supervises the Trust s
management and investment program, furnishes office space,
prepares reports for the Funds, monitors compliance by the
Funds in their investment activities and pays all compensation
of officers and Trustees of the Trust who are affiliated
persons of the Adviser. Each Fund pays all other expenses
incurred in the operation of the Funds, including fees and
expenses of unaffiliated Trustees of the Trust.
The Investment Advisory Agreements, dated January 2, 1997,
provide that the Adviser shall not be liable for any error in
judgment or mistake of law or for any loss suffered by a Fund
in connection with any investment policy or the purchase, sale
or redemption of any securities on the recommendations of the
Adviser. The Agreements provide that the Adviser is not
protected against any liability to a Fund or its security
holders for which the Adviser shall otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by the
Agreements or the violation of any applicable law.
The Adviser has voluntarily agreed to waive its management fee
and/or reimburse each Fund through April 30, 1998, to the
extent that the ratio of expenses (exclusive of taxes,
interest, brokerage and other transaction expenses and any
other extraordinary expenses) to net assets on an annual basis
exceeds the following percentage of average annual net assets
of Class A shares each Fund: 1.50% for Equity, 1.50% for Asset
Allocation, and 1.25% for Fixed Income and of Class Y Shares
of each fund: 1.00% for Equity, 1.00% for Asset Allocation,
and .60% for Fixed Income.
B - 27<PAGE>
Trustees and Officers
The Trustees and officers of the Trust, their affiliations, if
any, with the Adviser and their principal occupations are set
forth below.
Name, Address Position Principal
and Age Held Occupation(s) During
With Trust Past 5 Years
or Adviser
William P. Daves, Jr. (71) Chairman of Consultant to
5723 Trail Meadow the Board, insurance and
Dallas, TX 75230 Trustee healthcare industries.
Director, President
and Chief Executive
Officer, FFG Insurance
Co.
Maxwell E. Bublitz* (41) President Chartered Financial
11825 N. Pennsylvania St. and Analyst. President,
Carmel, IN 46032 Trustee; Adviser. Previously,
President Sr. Vice President,
and a Adviser.
Director of
Adviser
Gregory J. Hahn* (35) Vice Chartered Financial
11825 N. Pennsylvania St. President Analyst. Senior Vice
Carmel, IN 46032 for President, Adviser.
Investments Portfolio Manager of
and the fixed income
Trustee; portion of Asset
Senior Vice Allocation and Fixed
President, Income Funds.
Adviser
Harold W. Hartley (73) Trustee Retired. Chartered
317 Peppard Drive, S.W. Financial Analyst.
Ft. Myers Beach, Fl 33913 Previously, Executive
Vice President,
Tenneco Financial
Services, Inc.
Dr. R. Jan LeCroy (65) Trustee President, Dallas
Dallas Citizens Council Citizens Council.
1201 Main Street, Suite
2444
Dallas, TX 75202
Trustee Former President,
Dr. Jesse H. Parrish (69) Midland College.
2805 Sentinel Higher Education
Midland, TX 79701 Consultant.
B - 28<PAGE>
William P. Latimer (61) Vice Vice President, Sr.
11825 N. Pennsylvania St. President Counsel and Secretary,
Carmel, IN 46032 and and Chief Compliance
Secretary; Officer of Adviser.
Vice Previously, Consultant
President, to securities
Director industry. Previously,
and Chief Senior Vice
Compliance President Compliance,
Officer of USF&G Investment
Adviser Services, Inc. and
Vice President, Axe-
Houghton Management
Inc.
James S. Adams (37) Treasurer Sr. Vice President,
11815 N. Pennsylvania St. Bankers National,
Carmel, IN 46032 Great American
Reserve.
William T. Devanney, Jr. Vice Sr. Vice President,
(41) President, Corporate Taxes,
11815 N. Pennsylvania St. Corporate Bankers National and
Carmel, IN 46032 Taxes Great American
Reserve.
* The Trustee so indicated is an interested person, as
defined in the Investment Company Act of 1940, of the Trust
due to the positions indicated with the Adviser.
NET ASSET VALUES OF THE SHARES OF THE FUNDS
Securities held by the Funds will be valued as follows: Fund
securities which are traded on stock exchanges are valued at
the last sale price as of the close of business on the day the
securities are being valued, or lacking any sales, at the mean
between the closing bid and asked prices. Securities traded in
the over-the-counter market are valued at the mean between the
bid and asked prices or yield equivalent as obtained from one
or more dealers that make markets in the securities. Fund
securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the
broadest and most representative market, and it is expected
that for debt securities this ordinarily will be the over-the-
counter market. Securities and assets for which market
quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the
Board of Trustees of the Trust. In valuing lower-rated debt
securities, it should be recognized that judgment plays a
greater role than is the case with respect to securities for
which a broader range of dealer quotations and last sale
B - 29<PAGE>
information is available. Debt securities with maturities of
sixty (60) days or less are valued at amortized cost.
FUND EXPENSES
Each Fund pays its own expenses including, without limitation
(i) expenses of maintaining the Fund and continuing its
existence, (ii) registration of the Fund under the Investment
Company Act, (iii) auditing, accounting and legal expenses,
(iv) taxes and interest, (v) governmental fees, (vi) expenses
of issue, sale, repurchase and redemption of Fund shares,
(vii) expenses of registering and qualifying the Fund and its
shares under federal and state securities laws and of
preparing and printing prospectuses for such purposes and for
distributing the same to shareholders, and fees and expenses
of registering and maintaining registrations of the Fund under
state securities laws, (viii) expenses and reports and notices
to shareholders and of meetings of shareholders and proxy
solicitations thereof, (ix) expenses of reports to
governmental officers and commissions, (x) insurance expenses,
(xi) association membership dues, (xii) fees, expenses and
disbursements of custodians for all services to the Fund,
(xiii) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Fund, (xiv) expenses for
servicing shareholder accounts, (xv) any direct charges to
Fund shareholders approved by the Trustees of the Trust, (xvi)
compensation and expenses of Trustees of the Trust who are not
i n terested persons of the Trust, and (xvii) such
nonrecurring items as may arise, including expenses incurred
in connection with litigation, proceedings and claims and the
obligation of the Fund to indemnify its Trustees and officers
with respect thereto.
DISTRIBUTION ARRANGEMENTS
Conseco Equity Sales, Inc. (The Distributor ) serves as the
p r i n c ipal underwriter for each Fund pursuant to an
Underwriting Agreement, dated January 2, 1997, initially
approved by the Board of Trustees. The Distributor, is a
r e g i s tered broker-dealer and member of the National
Association of Securities Dealers, Inc. (NASD). Shares of
each Fund will be continuously offered and will be sold by
selected broker-dealers who have executed selling agreements
with the Distributor. The Distributor bears all the expenses
of providing services pursuant to the Underwriting Agreement
including the payment of the expenses relating to the
distribution of Prospectuses for sales purposes as well as any
advertising or sales literature. The Underwriting Agreement
continues in effect for two years from initial approval and
for successive one-year periods thereafter, provided that each
such continuance is specifically approved (i) by the vote of a
majority of the Trustees of the Trust, including a majority of
B - 30<PAGE>
the Trustees who are not parties to the Underwriting Agreement
or interested persons of any such party (as the term
interested person is defined in the 1940 Act); or (ii) by the
vote of a majority of the outstanding voting securities of a
Fund. The Distributor is not obligated to sell any specific
amount of shares of any Fund.
The Distributor s principal address is 11815 N. Pennsylvania
Street, Carmel, Indiana 46032.
Distribution and Service Plan
The Trust has adopted a distribution and service plan (the
Plan ) for Class A shares of each Fund pursuant to
appropriate resolutions of the Trustees of the Trust in
accordance with the requirements of Rule 12b-1 under the 1940
Act and the requirements of the applicable rules of the NASD
regarding asset based sales charges.
Pursuant to the Class A Plan, a Fund may compensate the
Distributor for its expenditures in financing any activity
primarily intended to result in the sale of Fund shares and
for maintenance and personal service provided to existing
Class A shareholders. The expenses of a Fund pursuant to the
Class A Plan are currently being accrued on a fiscal year
basis with respect to the Class A Shares of each Fund at an
annual rate of 0.25% of the Fund s average daily net assets
attributable to Class A shares. The Plan as adopted
authorizes the Trustees to increase this annual rate to 0.35%
of such assets. Up to 0.25% of the fee may be used for
shareholder servicing expenses with the remainder used for
distribution expenses. Up to 0.25% of the fee may be paid to
dealers in the form of a trail or maintenance fee after the
first full year of investment in an amount equal to an annual
rate of 0.25% of Class A s daily net assets owned by clients
of such dealers.
In accordance with the terms of the Plan, the Distributor
provides to each Fund, for review by the Trustees, a quarterly
written report of the amounts expended under the Plan and the
purpose for which such expenditures were made. In the
Trustees quarterly review of the Plan, they will review the
level of compensation the Plan provides in considering the
continued appropriateness of the Plan.
The Plan was adopted by a majority vote of the Trustees of the
Trust, including at least a majority of Trustees who are not,
and were not at the time they voted, interested persons of
each Fund as defined in the 1940 Act and do not and did not
have any direct or indirect financial interest in the
operation of the Plan, cast in person at a meeting called for
the purpose of voting on the Plan. In approving the Plan, the
Trustees identified and considered a number of potential
benefits which the Plan may provide. The Trustees believe
B - 31<PAGE>
that there is a reasonable likelihood that the Plan will
benefit each Fund and its current and future shareholders.
Under their terms, the Plan remains in effect from year to
year provided such continuance is approved annually by vote of
the Trustees in the manner described above. The Plan may not
be amended to increase materially the amount to be spent for
distribution without approval of the shareholders of the
affected Fund, and material amendments to the Plan must also
be approved by the Trustees in a manner described above. The
Plan may be terminated at any time, without payment of any
penalty, by vote of the majority of the Trustees who are not
interested persons of the Trust and have no direct or indirect
financial interest in the operations of the Plan, or by a vote
of a majority of the outstanding voting securities (as
defined in the 1940 Act of the Fund affected thereby. The
Plan will automatically terminate in the event of its
assignment (as defined in the 1940 Act).
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase of Fund shares, see
How to Buy Shares in each Prospectus.
For a description of how a shareholder may have a Fund redeem
his or her shares, or how he or she may sell shares, see How
to Redeem Shares of the Funds in each Prospectus.
Rights of Accumulation. Each Fund offers to all qualifying
investors Rights of Accumulation under which investors are
permitted to purchase Class A shares of any Fund of the Trust
at the price applicable to the total of (a) the dollar amount
then being purchased plus (b) an amount equal to the then
current net asset value of the purchaser s holdings of shares
of any Funds of the Trust and the current cash value of the
v a riable annuity or variable life contracts issued by
affiliates of Conseco. Acceptance of the purchase order is
subject to confirmation of qualification. The rights of
accumulation may be amended or terminated at any time as to
subsequent purchases.
Letter of Intent. Any person may qualify for a reduced sales
charge on purchases of Class A shares made within a 13-month
period pursuant to a Letter of Intent (LOI). Class A shares
acquired through the reinvestment of distributions do not
constitute purchases for purposes of the LOI. A Class A
shareholder may include, as an accumulation credit towards the
completion of such LOI, the value of all shares of all Funds
of the Trust owned by the shareholder. Such value is
determined based on the public offering price of the date of
the LOI. During the term of an LOI, Boston Financial Data
Services ( BFDS ), the Trust s transfer agent, will hold
shares in escrow to secure payment of the higher sales charge
applicable for shares actually purchased if the indicated
B - 32<PAGE>
amount on the LOI is not purchased. Dividends and capital
gains will be paid on all escrowed shares and these shares
will be released when the amount indicated on the LOI has been
purchased. A LOI does not obligate the investor to buy or the
Fund to sell the indicated amount of the LOI. If a Class A
shareholder exceeds the specified amount of the LOI and
reaches an amount which would qualify for a further quantity
discount, a retroactive price adjustment will be made at the
time of the expiration of the LOI. The resulting difference
in offering price will purchase additional Class A shares for
the shareholder s account at the applicable offering price.
If the specified amount of the LOI is not purchased, the
shareholder shall remit to BFDS an amount equal to the
difference between the sales charge paid and the sales charge
that would have been paid had the aggregate purchases been
made at a single time. If the Class A shareholder does not
within 20 days after a written request by BFDS pay such
difference in sales charge, BFDS will redeem an appropriate
number of escrowed shares in order to realize such difference.
Additional information about the terms of the Letter of Intent
are available from your registered representative or from BFDS
at (800) 986-3384.
Systematic Withdrawal Plan. The Systematic Withdrawal Plan
( SWP ) is designed to provide a convenient method of
receiving fixed payments at regular intervals only from Class
A shares of a Fund deposited by the applicant under this SWP.
The applicant must deposit or purchase for deposit shares of
the Fund having a total value of not less than $5,000.
Periodic checks of $50 or more will be sent to the applicant,
or any person designated by him, monthly or quarterly.
Any income dividends or capital gains distributions on shares
under the SWP will be credited to the SWP account on the
payment date in full and fractional shares at the net asset
value per share in effect on the record date.
SWP payments are made from the proceeds of the redemption of
s h a res deposited in a SWP account. Redemptions are
potentially taxable transactions to shareholders. To the
extent that such redemptions for periodic withdrawals exceed
d i v i dend income reinvested in the SWP account, such
redemptions will reduce and may ultimately exhaust the number
of shares deposited in the SWP account. In addition, the
amounts received by a shareholder cannot be considered as an
actual yield or income on his or her investment because part
of such payments may be a return of his or her capital.
The SWP may be terminated at any time (1) by written notice to
the Fund or from the Fund to the shareholder; (2) upon receipt
by the Fund of appropriate evidence of the shareholder s
death; or (3) when all shares under the SWP have been
redeemed. The fees of the Fund for maintaining SWPs are paid
by the Fund.
B - 33<PAGE>
Suspension Of Redemptions
A Fund may not suspend a shareholder s right of redemption, or
postpone payment for a redemption for more than seven days,
unless the New York Stock Exchange (NYSE) is closed for other
than customary weekends or holidays, or trading on the NYSE is
restricted, or for any period during which an emergency exists
as a result of which (1) disposal by a Fund of securities
owned by it is not reasonably practicable, or (2) it is not
reasonably practicable for a Fund to fairly determine the
value of its assets, or for such other periods as the
S e curities and Exchange Commission may permit for the
protection of investors.
GENERAL
The Trustees themselves have the power to alter the number and
terms of office of the Trustees, and they may at any time
lengthen their own terms or make their terms of unlimited
duration (subject to certain removal procedures) and appoint
their own successors, provided that always at least a majority
of the Trustees have been elected by the shareholders of the
Trust. The voting rights of shareholders are not cumulative,
so that holders of more than 50 percent of the shares voting
can, if they choose, elect all Trustees being selected, while
the holders of the remaining shares would be unable to elect
any Trustees. The Trust is not required to hold Annual
Meetings of Shareholders for action by shareholders vote
except as may be required by the 1940 Act or the Declaration
of Trust. The Declaration of Trust provides that shareholders
can remove Trustees by a vote of two-thirds of the vote of the
outstanding shares. The Trustees will call a meeting of
shareholders to vote on the removal of a Trustee upon the
written request of the holders of 10 percent of the Trust s
shares. In addition, 10 or more shareholders meeting certain
conditions and holding the lesser of $25,000 worth or 1
percent of the Trust s shares may advise the Trustees in
writing that they wish to communicate with other shareholders
for the purpose of requesting a meeting to remove a Trustee.
The Trustees will then either give those shareholders access
t o t h e shareholder list or, if requested by those
s h a r eholders, mail at the shareholders expense the
shareholders communication to all other shareholders.
Each issued and outstanding share of each Fund is entitled to
participate equally in dividends and distributions of the
respective Fund and in the net assets of such Fund upon
liquidation or dissolution remaining after satisfaction of
outstanding liabilities. The shares of each Fund have no
p r eference, preemptive, conversion, exchange or similar
rights, and are freely transferable.
B - 34<PAGE>
Under Rule 18f-2 under the 1940 Act, as to any investment
company which has two or more series (such as the Funds)
outstanding and as to any matter required to be submitted to
shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a
majority (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting
requirements do not apply to the election of Trustees or the
ratification of the selection of accountants. The Rule
contains special provisions for cases in which an advisory
contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or
more series whose holders so approve the change even though
the required vote is not obtained as to the holders of other
affected series. Under Rule 18f-3 under the 1940 Act, the
Class A and Class Y shares of a Fund shall have exclusive
voting rights on any matters submitted to shareholders that
relates solely to a particular class arrangement, and shall
have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from
the interests of any other class.
Under Massachusetts law, shareholders of a trust such as the
Trust may, under certain circumstances, be held personally
liable as partners for the obligations of the Trust. The
Declaration of Trust, however, contains an express disclaimer
of shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed
by the Trust or its Trustees. The Declaration of Trust
provides for indemnification and reimbursement of expenses out
of Trust property for any shareholder held personally liable
for its obligations. The Declaration of Trust also provides
that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation
of the Trust and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a trust such as the
Trust to be held personally liable as a partner under certain
circumstances, the risk of a shareholder incurring financial
loss on account of shareholder liability is highly unlikely
and is limited to the relatively remote circumstances in which
the Trust would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees
will not be liable for errors of judgment or mistakes of fact
or law, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in
the conduct of his office.
The Trust and the Adviser have Codes of Ethics governing the
personal securities transactions of officers and employees.
These codes require prior approval for certain transactions
B - 35<PAGE>
and prohibit transactions which may be deemed to conflict with
the securities trading of the Adviser s clients.
TAXES
Each Fund is treated as a separate entity for accounting and
tax purposes. Each Fund intends to qualify and elect to be
treated as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the Code ),
and intends to continue to so qualify in the future. As such
and by complying with the applicable provisions of the Code
regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, each
Fund will be allowed a deduction for amounts distributed to
its shareholders from its ordinary income and net realized
capital gains and will not be subject to federal income tax on
such amounts distributed to its shareholders at least annually
in accordance with the timing requirements of the Code.
Each Fund will be subject to a 4% non-deductible federal
excise tax on certain amounts not distributed (and not treated
as having been distributed) on a timely basis in accordance
with annual minimum distribution requirements. Each Fund
intends under normal circumstances to avoid liability for such
tax by satisfying such distribution requirements.
If a Fund acquires stock in certain non-U.S. corporations that
receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, rents, royalties or
capital gain) or hold at least 50% of their assets in
investments producing such passive income ( passive foreign
investment companies ), that Fund could be subject to federal
income tax and additional interest charges on excess
distributions received from such companies or gain from the
sale of stock in such companies, even if all income or gain
actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to
its shareholders any credit or deduction for such a tax.
Certain elections may, if available, ameliorate these adverse
tax consequences, but any such election would require the
applicable Fund to recognize taxable income or gain without
the concurrent receipt of cash. Any Fund that is permitted to
acquire stock in foreign corporations may limit and/or manage
its holdings in passive foreign investment companies to
minimize its tax liability or maximize its return from these
investments.
Foreign exchange gains and losses realized by a Fund in
c o n nection with certain transactions involving foreign
currency-denominated debt securities, certain foreign currency
futures and options, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to
Section 988 of the Code, which generally causes such gains and
B - 36<PAGE>
losses to be treated as ordinary income and losses and may
affect the amount, timing and character of distributions to
shareholders. Any such transactions that are not directly
related to a Fund s investment in stock or securities,
possibly including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the
amount of gain it is deemed to recognize from the sale of
certain investments held for less than three months, which
gain is limited under the Code to less than 30% of its annual
gross income, and could under future Treasury regulations
produce income not among the types of qualifying income from
which the Fund must derive at least 90% of its annual gross
income.
Some Funds may be subject to withholding and other taxes
imposed by foreign countries with respect to their investments
in foreign securities. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes.
The Funds anticipate that they generally will not qualify to
pass such foreign taxes and any associated tax deductions or
credits through to their shareholders, who therefore generally
will not report such amounts on their own tax returns.
For federal income tax purposes, each Fund is permitted to
carry forward a net capital loss in any year to offset its own
capital gains, if any, during the eight years following the
year of the loss. To the extent subsequent capital gains are
offset by such losses, they would not result in federal income
tax liability to the applicable Fund and would not be
distributed as such to shareholders.
Each Fund that invests in certain PIKs, zero coupon securities
or certain deferred interest securities (and, in general, any
other securities with original issue discount or with market
discount if the Fund elects to include market discount in
income currently) must accrue income on such investments prior
to the receipt of the corresponding cash payments. However,
e a ch Fund must distribute, at least annually, all or
substantially all of its net income, including such accrued
income, to shareholders to qualify as a regulated investment
company under the Code and avoid federal income and excise
taxes. Therefore, a Fund may have to dispose of its portfolio
securities under disadvantageous circumstances to generate
cash, or may have to leverage itself by borrowing the cash, to
satisfy distribution requirements.
Investment in debt obligations that are at risk of or in
default presents special tax issues for any Fund that may hold
such obligations. Tax rules are not entirely clear about
issues such as when the Fund may cease to accrue interest,
original issue discount, or market discount, when and to what
extent deductions may be taken for bad debts or worthless
securities, how payments received on obligations in default
should be allocated between principal and income, and whether
B - 37<PAGE>
exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by any Fund
that may hold such obligations in order to reduce the risk of
distributing insufficient income to preserve its status as a
regulated investment company and seek to avoid becoming
subject to federal income or excise tax.
Limitations imposed by the Code on regulated investment
companies like the Funds may restrict a Fund s ability to
enter into futures, options, and forward transactions.
C e r tain options, futures and forward foreign currency
transactions undertaken by a Fund may cause the Fund to
recognize gains or losses from marking to market its positions
that have not been sold or terminated. The character of
capital gain or loss as long-term or short-term (or, in the
case of certain currency forwards, options and futures, as
ordinary income or loss), as well as the timing of the Fund s
capital gains and losses realized, may be affected. Also,
certain of a Fund s losses on its transactions involving
options, futures or forward contracts and/or offsetting
portfolio positions may be deferred rather than being taken
into account currently in calculating the Fund s taxable
income. Certain of the applicable tax rules may be modified
if a Fund is eligible and chooses to make one or more of
c e r tain tax elections that may be available. These
transactions may therefore affect the amount, timing and
character of a Fund s distributions to shareholders. The
Funds will take into account the special tax rules (including
consideration of available elections) applicable to options,
future or forward contracts in order to minimize any potential
adverse tax consequences to the Fund or its shareholders.
The federal income tax rules applicable to interest rate
swaps, caps and floors are unclear in certain respects, and a
Fund may be required to account for these transactions in a
manner that, in certain circumstances, may limit the degree to
which it may utilize these transactions.
Distributions from a Fund s current or accumulated earnings
and profits ( E&P ), as computed for federal income tax
purposes, will be taxable as described in the Fund s
prospectus whether taken in shares or in cash. Distributions,
if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor s tax basis in a Fund s
shares and thereafter (after such basis is reduced to zero)
will generally give rise to capital gains. Shareholders
electing to receive distributions in the form of additional
shares will have a cost basis for federal income tax purposes
in each share so received equal to the amount of cash they
w o u ld have received had they elected to receive the
distributions in cash, divided by the number of shares
received.
B - 38<PAGE>
At the time of an investor s purchase of shares of a Fund, a
portion of the purchase price is often attributable to
realized or unrealized appreciation in the Fund s portfolio or
undistributed taxable income of the Fund. Consequently,
subsequent distributions from such appreciation or income may
be taxable to such investor even if the net asset value of the
investor s shares is, as a result of the distributions,
reduced below the investor s cost for such shares, and the
distributions in reality represent a return of a portion of
the purchase price.
Upon a redemption of shares of a Fund (including by exercise
of the exchange privilege), a shareholder may realize a
taxable gain or loss depending upon his basis in his shares.
Such gain or loss will be treated as capital gain or loss if
the shares are capital assets in the shareholder s hands and
w i l l be long-term or short-term, depending upon the
shareholder s tax holding period for the shares. A sales
charge paid in purchasing shares of a Fund cannot be taken
into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after
t h eir purchase to the extent shares of the Fund are
subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. Such
d i s r egarded load will result in an increase in the
shareholder s tax basis in the share subsequently acquired.
Also, any loss realized on a redemption or exchange will be
disallowed to the extent the shares disposed of are replaced
with shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to an election to reinvest
dividends or capital gain distributions automatically. In
such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the
redemption of shares with a tax holding period of six months
or less will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
For purposes of the dividends received deduction available to
corporations, dividends received by a Fund, if any, from U.S.
domestic corporations in respect of the stock of such
corporations held by the Fund, for federal income tax
purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and designated by the Fund
m a y b e treated as qualifying dividends. Corporate
shareholders must meet the minimum holding period requirement
stated above (46 or 91 days) with respect to their shares of
the applicable Fund in order to qualify for the deduction and,
if they borrow to acquire such shares, may be denied a portion
of the dividends received deductions. The entire qualifying
dividend, including the otherwise deductible amount, will be
included in determining the excess (if any) of a corporate
B - 39<PAGE>
shareholder s adjusted current earnings over its alternative
minimum taxable income, which may increase its alternative
m i n i m um tax liability. Additionally, any corporate
shareholder should consult its tax adviser regarding the
possibility that its basis in its shares may be reduced, for
federal income tax purposes, by reason of extraordinary
dividends received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other
disposition of the shares.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-
retirement distributions and certain prohibited transactions,
is accorded to shareholder accounts maintained as qualified
retirement plans. Shareholders should consult their tax
advisers for more information.
The foregoing discussion relates solely to U.S. Federal income
tax law as applicable to U.S. persons (i.e., U.S. citizens or
residents and U.S. domestic corporations, partnerships, trusts
or estates) subject to tax under such law. The discussion
does not address special tax rules applicable to certain
classes of investors, such as tax-exempt entities, insurance
companies, and financial institutions. Dividends, capital
gain distributions, and ownership of or gains realized on the
redemption (including an exchange) of the shares of a Fund may
also be subject to state and local taxes. Shareholders should
consult their own tax advisers as to the federal, state or
local tax consequences of ownership of shares of, and receipt
o f distributions from, the Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business
with which their investment in a Fund is effectively connected
will be subject to U.S. Federal income tax treatment that is
different from that described above. These investors may be
subject to non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on
amounts treated as ordinary dividends from a Fund and, unless
an effective IRS Form W-8 or authorized substitute is on file,
to 31% backup withholding on certain other payments from the
Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes
to an investment in any Fund.
State and Local. Each Fund may be subject to state or local
taxes in jurisdictions in which such Fund may be deemed to be
doing business. In addition, in those states or localities
which have income tax laws, the treatment of such Fund and its
shareholders under such laws may differ from their treatment
under federal income tax laws, and investment in such Fund may
have different tax consequences for shareholders than would
direct investment in such Fund s portfolio securities.
B - 40<PAGE>
Shareholders should consult their own tax advisers concerning
these matters.
Custodian
Portfolio securities of each Fund are held pursuant to a
Custodian Agreement between the Trust and The Bank of New
Y o r k . The Bank of New York also performs certain
administrative services for the Funds pursuant to agreements
with Conseco Services, LLC.
Transfer Agency Services
State Street Bank and Trust Company is the transfer agent for
each Fund.
FINANCIAL STATEMENTS
An audited statement of assets and liabilities of the Trust,
together with the report of Coopers & Lybrand, L.L.P., is
included in this SAI.
B - 41<PAGE>
CONSECO FUND GROUP
Statement of Assets and Liabilities
December 18, 1996<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees
Conseco Fund Group
We have audited the accompanying statement of assets and
liabilities of the Conseco Fund Group (comprising,
respectively, the Equity, Asset Allocation and Fixed Income
Funds) (collectively, the "Trust" (a Massachusetts business
trust)) as of December 18, 1996. This financial statement is
t h e responsibility of the Trust s management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit 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 statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material respects,
the financial position of each of the respective Funds
constituting the Conseco Fund Group as of December 18, 1996,
in conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
December 18, 1996<PAGE>
CONSECO FUND GROUP
STATEMENT OF ASSETS AND LIABILITIES
December 18, 1996
<TABLE>
<CAPTION>
Accounts
Asset Fixed
Equity Allocation Income
Fund Fund Fund
<S> <C> <C> <C>
Assets:
Cash . . . . . . . . . . . . . . . . $33,350 $33,350 $33,350
Organizational costs . . . . . . . . 93,000 93,000 93,000
Total assets . . . . . . . . . . . . 126,350 126,350 126,350
Payable to Conseco, Inc. . . . . . . . 93,000 93,000 93,000
Net assets . . . . . . . . . . . . . $33,350 $33,350 $33,350
Net assets consist of:
Capital . . . . . . . . . . . . . . . $33,350 $33,350 $33,350
Outstanding shares - Class A . . . . . 1,668 1,668 1,668
Outstanding shares - Class Y . . . . . 1,667 1,667 1,667
Net asset value per share - Class A . . $10.00 $10.00 $10.00
Net asset value per share - Class Y . . $10.00 $10.00 $10.00
</TABLE>
The accompanying notes are an integral part of the statement
of assets and liabilities.<PAGE>
CONSECO FUND GROUP
Notes to Statement of Assets and Liabilities
December 18, 1996
____________________
1. ORGANIZATION
Conseco Fund Group (the "Trust") is an open-end diversified
management investment company registered with the Securities
and Exchange Commission under the Investment Company Act of
1940. The Trust was organized as a Massachusetts business
trust on September 24, 1996. The Trust is a "series" type of
mutual fund which issues separate classes of shares of
beneficial interest, each of which currently represents a
diversified portfolio of investments. The Trust consists of
three series ("Funds"), each with its own investment objective
or objectives and investment policies. The Funds include the
Equity Fund, the Asset Allocation Fund and the Fixed Income
Fund. Since the date of organization, the Trust s activities
have been limited to organizational matters with no operating
activities: the Funds are expected to become effective and
available for sale on or about January 2, 1997.
Each Fund has distinct investment objectives. The Equity
F u n d invests in selected equity securities and other
securities having the investment characteristics of common
stocks. The Asset Allocation Fund invests in several asset
classes including debt securities, equity securities, and
money market instruments. The Fixed Income Fund invests
primarily in investment grade debt securities.
The Funds offer two classes of shares: Class A and Class Y.
Sales of Class A shares may be subject to a front-end sales
charge. Class Y shares are available with no sales charge to
institutional investors. As of the date of this financial
statement, an affiliate, Conseco, Inc. ("Conseco"), holds all
of the outstanding shares of each class of the Funds.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Organizational Costs
Costs incurred by the Funds in connection with their
organization and public offering of shares, estimated at
$279,000, have been deferred and will be amortized over a
period of approximately 5 years beginning with the
initial date of sale of shares to the public. The costs
were advanced by Conseco, and will be reimbursed by the
Funds over a period of approximately 5 years. The<PAGE>
CONSECO FUND GROUP
Notes to Statement of Assets and Liabilities
December 18, 1996
____________________
proceeds of any redemption of the initial shares by any
holder thereof will be reduced by any unamortized
organizational costs in the same proportion as the number
of initial shares being redeemed to the number of initial
shares outstanding at the time of such redemption.
(b) Federal Income Taxes
For federal income tax purposes, the Funds intend to
comply in their initial fiscal year and thereafter under
Subchapter M of the Internal Revenue Code by distributing
substantially all of their taxable income to their
shareholders or otherwise complying with the requirements
for regulated investment companies.
(c) 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 statement.
3. INVESTMENT ADVISORY AGREEMENTS
Conseco Capital Management, Inc. (the "Adviser"), a wholly
owned subsidiary of Conseco, serves as investment adviser to
the Funds pursuant to investment advisory agreements. The
Adviser supervises the Trust s management and investment
program, performs a variety of services in connection with
m a n a gement and operation of the Funds and pays all
compensation of officers and Trustees of the Trust who are
affiliated persons of the Adviser or the Trust.
Under the investment advisory agreements, the Adviser
receives an investment advisory fee equal to an annual rate of
.45% of the daily net asset value of the Fixed Income Fund,
.70% of the daily net asset value of the Equity Fund, and .70%
of the daily net asset value of the Asset Allocation Fund.
T h e Adviser also manages another registered investment
company, all of the invested assets of its parent company,
C o nseco, which owns or manages several life insurance<PAGE>
CONSECO FUND GROUP
Notes to Statement of Assets and Liabilities
December 18, 1996
____________________
subsidiaries, and provides investment and servicing functions
to Conseco and affiliates. Pursuant to investment advisory
agreements between the Adviser and the Funds, the Adviser will
reduce its aggregate fees for any fiscal year, or reimburse
the Funds, to the extent required, so that the Funds expenses
do not exceed the expense limitations applicable to the Trust
under the securities laws or regulations of those states or
jurisdictions in which the Funds shares are registered or
qualified for sale. Expenses for purposes of these expense
limitations include the management fee, but exclude brokerage
commissions and fees, taxes, interest and extraordinary
expenses such as litigation, paid or incurred by the Funds.
In addition, the state with the most restrictive expense
limitation allows the Trust to exclude distribution expenses.
The Adviser has voluntarily agreed to waive its investment
advisory fee to the extent that the ratio of expenses to net
assets on an annual basis for Class A Shares exceeds: 1.50%
for the Equity Fund, 1.50% for the Asset Allocation Fund, and
1.25% for the Fixed Income Fund; and for Class Y Shares
exceeds: .95% for the Equity Fund, .95% for the Asset
Allocation Fund, and .50% for the Fixed Income Fund. These
voluntary limits may be discontinued by the Adviser at any
time after April 30, 1998.<PAGE>
PART C<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Statement of Assets and Liabilities of the Registrant,
Conseco Fund Group2/
(b) Exhibits:
(1) Agreement and Declaration of Trust1/
(2) By-laws1/
(3) Not Applicable
(4) Not Applicable
(5)(a) Form of Investment Advisory Agreement
b e t ween Conseco Fund Group and
Conseco Capital Management, Inc. with
Respect to the Equity Fund2/
(5)(b) Form of Investment Advisory Agreement
b e t ween Conseco Fund Group and
Conseco Capital Management, Inc. with
R e spect to the Asset Allocation
Fund2/
(5)(c) Form of Investment Advisory Agreement
b e t ween Conseco Fund Group and
Conseco Capital Management, Inc. with
Respect to the Fixed Income Fund2/
(6) Form of Underwriting Agreement between Conseco
Fund Group and Conseco Equity Sales, Inc.2/
(7) Not Applicable
(8) Form of Custody Agreement between Conseco Fund
Group and The Bank of New York2/
(9)(a) Form of Administrative Agreement between
Conseco Fund Group and Conseco Services,
LLC2/
(9)(b) Form of Transfer Agency Agreement between
Conseco Fund Group and State Street Bank
and Trust Company2/
(10) Opinion and Consent of Counsel as to the
Legality of the Securities being Registered2/<PAGE>
(11)(a) Consent of Coopers & Lybrand LLP2/
(11)(b) Consent of Jorden Burt Berenson & Johnson
LLP2/
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15)(a) Form of Distribution and Service Plan for
Class A Shares with Respect to the Equity
Fund2/
(15)(b) Form of Distribution and Service Plan for
Class A Shares with Respect to the Asset
Allocation Fund2/
(15)(c) Form of Distribution and Service Plan for
Class A Shares with Respect to the Fixed
Income Fund2/
(15)(d) Selling Group Agreement2/
(16) Not Applicable
(17) Not Applicable
(18) Multiple Class Plan2/
____________________
1/ Filed with Registrant s initial registration statement
on October 1, 1996, File No. 333-13185.
2/ Filed herewith.
Item 25. Persons Controlled By or Under Common Control with
Registrant.
None.
Item 26. Number of Holders of Securities.
None.
Item 27. Indemnification.
Reference is made to Articles II and V of the Agreement and
Declaration of Trust filed herewith.
C - 2<PAGE>
Item 28. Business and Other Connections of Investment
Adviser.
Certain of the officers and directors of the Registrant s
investment adviser also serve as officers and/or directors for
o t h e r subsidiaries of Conseco, Inc. For additional
information, please see Parts A and B.
Item 29. Principal Underwriters.
Conseco Equity Sales, Inc., the Registrant s principal
underwriter, also serves as principal underwriter for other
subsidiaries of Conseco, Inc. The following information is
furnished with respect to the officers and directors of
Conseco Equity Sales, Inc., the Registrant s principal
underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Office
Business Address with Principal Underwriter with Registrant
<S> <C> <C>
L. Gregory Gloeckner President
William P. Latimer Vice President, Senior Vice President
Counsel and Secretary and Secretary
James S. Adams Senior Vice President and Treasurer, Principal
Treasurer Financial and Accounting
Officer
</TABLE>
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be
maintained by the Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and the rules promulgated
thereunder are in the possession of the Adviser or the
Custodian.
Item 31. Management Services.
None.
Item 32. Undertakings.
1. Registrant hereby undertakes to file a post-effective
amendment, using financial statements which need not be
C - 3<PAGE>
certified, within four to six months from the effective date
of Registrant s 1933 Act Registration Statement.
2. Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Registrant s
latest annual report to shareholders upon request and without
charge.
3. Registrant hereby undertakes to hold a meeting of
shareholders for the purpose of voting upon the question of
removal of a Trustee or Trustees when requested to do so by
the holders of a least 10 percent of the outstanding shares,
a n d i n connection with such meeting to assist in
communications with other shareholders as required by section
16(c) of the 1940 Act.
C - 4<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, this Pre-Effective
Amendment No. 1 to this Registration Statement has been signed
on behalf of the Registrant in the City of Carmel and State of
Indiana on the 11th day of December, 1996.
CONSECO FUND GROUP
By: /s/ Maxwell E. Bublitz
Maxwell E. Bublitz
President (Principal
Executive
Officer) and Trustee
As required by the Securities Act of 1933, this Pre-
Effective Amendment No. 1 to this Registration Statement has
been signed by the following persons in the capacities with
the Registrant and on the dates indicated on this 11th day of
December, 1996.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Maxwell E. Bublitz President (Principal Executive December 11,
1996
Maxwell E. Bublitz Officer) and Trustee
/s/ James S. Adams Treasurer (Principal Financial December 11,
1996
James S. Adams and Accounting Officer)
Chairman of the Board and December __,
1996
William P. Daves, Jr. Trustee
/s/ Gregory J. Hahn * Trustee December 11,
1996
Gregory J. Hahn
/s/ Harold W. Hartley * Trustee December 11,
1996
Harold W. Hartley
S-1<PAGE>
/s/ R. Jan LeCroy * Trustee December 11,
1996
Dr. R. Jan LeCroy
/s/ Jesse H. Parrish * Trustee December 11,
1996
Dr. Jesse H. Parrish
* /s/ William P. Latimer December 11,
1996
William P. Latimer
Attorney-In-Fact
</TABLE>
S-2<PAGE>
Exhibits
(5)(a) Form of Investment Advisory Agreement between Conseco Fund Group
and Conseco Capital Management, Inc. with Respect to the Equity
Fund
(5)(b) Form of Investment Advisory Agreement between Conseco Fund Group
and Conseco Capital Management, Inc. with Respect to the Asset
Allocation Fund
(5)(c) Form of Investment Advisory Agreement between Conseco Fund Group and
Conseco Capital Management, Inc. with Respect to the Fixed Income Fund
(6) Form of Underwriting Agreement between Conseco Fund Group and Conseco
Equity Sales, Inc.
(8) Form of Custody Agreement between Conseco Fund Group and The Bank of
New York
(9)(a) Form of Administrative Agreement between Conseco Fund Group and
Conseco Services, LLC
(9)(b) Form of Transfer Agency Agreement between Conseco Fund Group and State
Street Bank and Trust Company
(10) Opinion and Consent of Counsel as to the Legality of the Securities
being Registered
(11)(a) Consent of Coopers & Lybrand LLP
(11)(b) Consent of Jorden Burt Berenson & Johnson LLP
(15)(a) Form of Distribution and Service Plan for Class A Shares with
Respect to the Equity Fund
(15)(b) Form of Distribution and Service Plan for Class A Shares with
Respect to the Asset Allocation Fund
(15)(c) Form of Distribution and Service Plan for Class A Shares with
Respect to the Fixed Income Fund
(15)(d) Selling Group Agreement
(18) Multiple Class Plan<PAGE>
INVESTMENT ADVISORY AGREEMENT
Between CONSECO FUND GROUP
and
CONSECO CAPITAL MANAGEMENT, INC.
THIS INVESTMENT ADVISORY AGREEMENT is entered into as of this
day of January, 1997, by and between Conseco Fund Group (the Trust ), a
Massachusetts business trust, on behalf of its series Equity Fund (the
Fund ), and Conseco Capital Management, Inc. (the Adviser ).
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company,
registered as such pursuant to the provisions of the Investment Company Act
of 1940 (the 1940 Act );
WHEREAS, the Fund is a diversified series of the Trust operating as
an open-end management investment company under the 1940 Act, and is
currently divided into Class A and Class Y shares to be offered to
individual and institutional investors, respectively;
WHEREAS, the Adviser is an investment adviser, registered as such
pursuant to the provisions of the Investment Advisers Act of 1940, and is
engaged in the business of rendering investment advice and investment
management services as an independent contractor;
WHEREAS, the Fund desires and has agreed to retain the Adviser to
render advice and services to the Fund in connection with management and
operation of the Fund pursuant to terms and conditions set forth herein;
and
WHEREAS, the Adviser desires and has agreed to render such advice and
furnish such services pursuant to the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, conditions and agreements contained herein, and for
such other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties, each intending to be legally
bound hereby, mutually agree as follows:
1. Employment. The Fund hereby employs the Adviser and the
Adviser hereby accepts such employment, to render investment advice and
investment management services with respect to the Fund, subject to the
supervision and direction of the Board of Trustees of the Trust (the
Trustees ). The Adviser shall, except as otherwise provided herein,
render or make available all services needed for the management and
operation of the Fund, and shall, as part of its duties hereunder, (i)<PAGE>
furnish the Fund with advice and recommendations with respect to the
investment of the assets of the Fund and the purchase and sale of the
portfolio securities of the Fund, including the taking of such other steps
as may be necessary to implement such advice and recommendations, (ii)
furnish the Fund with reports, statements and other data on securities,
economic conditions and other pertinent subjects which the Trustees may
request, (iii) furnish such office space and personnel as is needed by the
Fund, and (iv) in general, superintend and manage the investments of the
Fund, subject to the ultimate supervision and direction of the Trustees.
2. Best Efforts. The Adviser hereby agrees to use its best
judgment and efforts in rendering the advice and services with respect to
the Fund as contemplated by this Agreement. The Adviser further agrees to
use its best efforts in the furnishing of such advice and recommendations
with respect to the Fund, in the preparation of reports and information,
and in the management of the respective assets of the Fund pursuant to this
Agreement. For this purpose the Adviser shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with
such other persons as it shall from time to time determine to be necessary
to the performance of its obligations under this Agreement. Without
limiting the generality of the foregoing, the staff and personnel of the
Adviser shall be deemed to include persons employed or retained by the
Adviser to furnish statistical, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice
and assistance as the Adviser may desire and request.
3. Independent Contractor Status. The Adviser shall, for all
purposes herein, be deemed to be an independent contractor, and shall,
unless otherwise expressly provided and authorized, have no authority to
act for or represent the Trust or the Fund in any way, or in any way be
deemed an agent of the Trust or the Fund. It is expressly understood and
agreed that the services to be rendered by the Adviser to the Fund pursuant
to the provisions of this Agreement are not to be deemed exclusive with
respect to the Adviser s rendering of services, and the Adviser shall
therefore be free to render similar or different services to others,
provided that, its ability to render the services described herein shall
not be impaired thereby.
4. Furnishing of Information. The Fund shall from time to time
furnish to the Adviser detailed statements of the investments and assets of
the Fund and information pertaining to the investment objectives and needs
of the Fund, and shall make available to the Adviser such financial
reports, proxy statements, legal and other information in the possession of
or available to the Fund relating to its investments, as the same may be
relevant to the performance by the Adviser of its obligations hereunder.
The Fund shall furnish such other information as the Adviser may reasonably
request.
5. Fund Records. The Adviser agrees that all records which it
maintains for the Fund shall be the property of the Fund and that it will
surrender promptly to the designated officers of the Fund any of such
2<PAGE>
records upon request. The Adviser further agrees to preserve for the
period prescribed by the rules and regulations of the Securities and
Exchange Commission all such records as are required to be maintained
pursuant to said rules. The Adviser agrees that it will maintain all
records and accounts regarding the investment activities of the Fund in a
confidential manner. All such accounts or records shall be made available
within five (5) business days of request to the accountants or auditors of
the Fund during regular business hours at the Adviser s offices upon
reasonable prior written notice. In addition, the Adviser will provide any
materials reasonably related to the investment advisory services provided
hereunder as may be reasonably requested in writing by the designated
officers of the Fund or as may be required by any governmental agency
having jurisdiction.
6. Tender Offers. The Adviser hereby agrees that whenever the
Adviser has determined that the Fund should tender securities pursuant to a
tender offer solicitation, the Adviser shall designate an affiliate as
the tendering dealer, so long as such affiliate is legally permitted to
act in such capacity under the federal securities laws, the rules
promulgated thereunder and the rules of any securities exchange or
association of which such affiliate may be a member. Such affiliated
dealer shall not be obligated to make any additional commitments of
capital, expense or personnel beyond that committed as of the date of this
Agreement (other than normal periodic fees or payments necessary to
maintain its corporate existence and its membership in the National
Association of Securities Dealers, Inc.). This Agreement shall not
obligate the Adviser or such affiliate to (i) act pursuant to the foregoing
requirement under any circumstance in which either might reasonably believe
that liability might be imposed upon it as a result of so acting, or
(ii) institute legal or other proceedings to collect fees which may be
considered to be due to it from others as a result of such a tender, unless
the Fund shall enter into an agreement with the Adviser or such affiliate
to reimburse it for all expenses connected with attempting to collect such
f e es (including legal fees and expenses and that portion of the
compensation due to their respective employees, which amount is directly
attributable to the time involved in attempting to collect such fees).
7. Allocation of Costs and Expenses. The Adviser shall bear and
pay the costs of rendering its services pursuant to the terms of this
Agreement, including the fees paid to any sub-adviser which the Adviser may
retain and any value added taxes due in connection therewith. The Fund
shall bear and pay for all other expenses of its operation, including but
not limited to, organizational and offering expenses of the Fund and
expenses incurred in connection with the issuance and registration of
shares of the Fund; fees of the Fund s custodian, transfer and shareholder
servicing agent; costs and expenses of pricing and calculating the daily
net asset value of the shares of the Fund and of maintaining the books of
account required by the 1940 Act; expenditures in connection with meetings
of shareholders and Trustees, other than those called solely to accommodate
the Adviser; salaries of officers and fees and expenses of Trustees or
members of any advisory board or committee who are not affiliated with or
interested persons of the Fund or the Adviser; salaries of personnel
3<PAGE>
involved in placing orders for the execution of the portfolio transactions
of the Fund or in maintaining registration of shares of the Fund under
state securities laws; insurance premiums on property or personnel of the
Fund which inure to its benefit; the cost of preparing and printing
r e ports, proxy statements and prospectuses of the Trust or other
communications for distribution to its shareholders; legal, auditing, and
accounting fees; trade association dues; fees and expenses or registering
and maintaining registration of shares of the Fund for sale under
applicable federal and state securities laws; and all other charges and
costs associated with the Fund s operations, plus any extraordinary and
non-recurring expenses, except as otherwise prescribed herein. To the
extent the Adviser incurs any costs or performs any services which are an
obligation of the Fund as set forth herein and to the extent such costs or
services have been reasonably rendered, (a) the Fund shall promptly
reimburse the Adviser for such costs and expenses, and (b) the Adviser
shall be entitled to recover from the Fund the actual costs incurred by the
Adviser in rendering such services.
8. Management Fees. (a) In exchange for the rendering of
advice and services pursuant hereto, the Fund shall pay to the Adviser, and
the Adviser shall accept as full compensation for all investment management
services furnished or provided to the Fund and as full reimbursement for
all expenses assumed by the Adviser, a management fee computed at the
annual rate of .70% of the average daily net assets of the Fund.
(b) The management fee shall be accrued daily by the Fund and
paid to the Adviser at the end of each calendar month.
(c) In the case of termination of this Agreement during any
month, the management fee for that month shall be calculated on the basis
of the number of business days during which it is in effect for that month.
(d) To the extent that the gross operating costs and expenses
of the Fund (excluding any interest, taxes, brokerage commissions,
distribution expenses and, to the extent permitted, any extraordinary
expenses, such as litigation and non-recurring expenses) exceed the
allowable expense limitations of the state in which shares of the Fund are
registered for sale having the most stringent expenses reimbursement
provisions, the Adviser shall reimburse the Fund for the amount of such
excess.
(e) The management fee payable by the Fund hereunder shall be
reduced to the extent that an affiliate of the Adviser has actually
received cash payments of tender offer solicitation fees (less certain
costs and expenses incurred in connection therewith) as referred to in
Paragraph 6 hereof.
9. Prohibition on Purchase of Shares. The Adviser agrees that
neither it nor any of its officers or employees shall take any short
position in the shares of beneficial interest of the Fund. This
prohibition shall not prevent the purchase of such shares by any of the
officers and directors or bona fide employees of the Adviser or any trust,
4<PAGE>
pension, profit-sharing or other benefit plan for such persons or
affiliates thereof, at a price not less than the net asset value thereof at
the time of purchase, as allowed pursuant to rules promulgated under the
1940 Act.
10. Compliance with Applicable Law. Nothing contained herein
shall be deemed to require the Fund to take any action contrary to (a) the
Agreement and Declaration of Trust of the Trust, (b) the By-laws of the
Trust, or (c) any applicable statute or regulation. Nothing contained
herein shall be deemed to relieve or deprive the Trustees of their
responsibility for and control of the conduct of the affairs of the Fund.
11. Liability. (a) In the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Fund or to any shareholder of the Fund for any act or
omission in the course of or in connection with rendering services
hereunder or for any losses that may be sustained in the purchase, holding
or sale of any security by the Fund.
(b) Notwithstanding the foregoing, the Adviser agrees to
reimburse the Fund for any and all costs, expenses, and counsel and
Trustees fees reasonably incurred by the Fund in connection with
( i ) p reparation, printing and distribution of proxy statements,
(ii) amendments to its Registration Statement, (iii) the holding of
meetings of shareholders or Trustees, (iv) the conduct of factual
investigations, (v) any legal or administrative proceedings (including any
applications for exemptions or determinations by the Securities and
Exchange Commission) which the Fund incurs as a result of action or
inaction on the part of the Adviser or any of its shareholders where the
action or inaction necessitating such expenditures is (A) directly or
indirectly related to any transactions or proposed transaction in the
shares or control of the Adviser or its affiliates (or litigation related
to any transactions or proposed transaction involving such shares or
control) which shall have been undertaken without the prior express
approval of the Trustees, or (B) within the sole control of the Adviser or
any of its affiliates or any of their respective officers, directors,
employees or shareholders. The Adviser shall not be obligated pursuant to
the provisions of this Subparagraph 10(b) to reimburse the Fund for any
expenditures related to the institution of an administrative proceeding or
related to civil litigation by the Fund or by a shareholder of the Trust
seeking to recover all or a portion of the proceeds derived by any
shareholder of the Adviser or any of its affiliates from the sale of shares
of the Adviser or similar matters. So long as this Agreement remains in
effect, the Adviser shall pay to the Fund the amount due for expenses
subject to this Subparagraph 10(b) within thirty (30) days after a bill or
statement has been received by the Fund therefor. This provision shall not
be deemed to be a waiver of any claim which the Fund may have or may assert
against the Adviser or others for costs, expenses, or damages heretofore
incurred by the Trust or for costs, expenses, or damages the fund may
hereafter incur which are not reimbursable to it hereunder.
5<PAGE>
(c) No provision of this Agreement shall be construed to
protect any Trustee of the Trust or officer of the Fund, or any director or
officer of the Adviser, from liability in violation of Sections 17(h) and
(i) of the 1940 Act.
(d) The Adviser understands that the obligations of this
Agreement are not personally binding upon any shareholder of the Fund, but
bind only the Trust s property. The Adviser represents that it has notice
of the provisions of the Declaration of Trust of the Trust disclaiming
shareholder liability for acts or obligations of the Trust.
12. Term of Agreement. This Agreement shall become effective on
the date hereof and shall continue in effect for two years from such date
unless sooner terminated as hereinafter provided, and shall continue in
effect from year to year thereafter so long as such continuation is
approved at least annually by (i) the Trustees of the Trust or by the vote
of a majority of the outstanding voting securities of the Fund, and (ii)
the vote of a majority of the Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, with such vote
being cast in person at a meeting called for the purpose of voting on such
approval.
13. Termination. This Agreement may be terminated at any time
without payment of any penalty (a) by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities of the Fund, upon
delivery of sixty (60) days written notice to the Adviser, or (b) by the
Adviser upon sixty (60) days written notice to the Fund. This Agreement
shall terminate automatically in the event of any transfer or assignment
hereof, as defined in the 1940 Act.
14. No Waiver. The waiver by any party of any breach of or
default under any provision or portion of this Agreement shall not operate
as or be construed to be a waiver of any subsequent breach or default.
15. Severability. The provisions of this Agreement shall be
considered severable and if for any reason any provision of this Agreement
which is not essential to the effectuation of the basic purpose of this
Agreement is deemed to be invalid or contrary to any existing or future
law, such invalidity shall not impair the operation of or affect any other
provision of this Agreement which is valid.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
17. Entire Agreement. This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior understandings or agreements
between the parties pertaining to the subject matter hereof, whether oral
or written. This Agreement may only be modified or amended by mutual
written agreement of the parties hereto and, as required, upon approval of
a majority of the outstanding voting securities of the Fund.
6<PAGE>
18. Definitions. For purposes of application and operation of
the provisions of this Agreement, the term majority of the outstanding
voting securities shall have the meaning as set forth in the 1940 Act.
19. Use of Name. In consideration of the execution of this
Agreement, the Adviser hereby grants to the Trust the right to use the name
Conseco as part of its name and the names of series thereof. The Trust
agrees that in the event this Agreement is terminated, it shall immediately
take such steps as are necessary to amend its name to remove the reference
to Conseco.
20. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested by their duly authorized officers on the day
and year first above written.
CONSECO FUND GROUP,
on behalf of Equity Fund
ATTEST:
By:
[title]
CONSECO CAPITAL MANAGEMENT, INC.
ATTEST: By:
[title]
7<PAGE>
INVESTMENT ADVISORY AGREEMENT
Between CONSECO FUND GROUP
and
CONSECO CAPITAL MANAGEMENT, INC.
THIS INVESTMENT ADVISORY AGREEMENT is entered into as of this
day of January, 1997, by and between Conseco Fund Group (the Trust ), a
Massachusetts business trust, on behalf of its series Asset Allocation Fund
(the Fund ), and Conseco Capital Management, Inc. (the Adviser ).
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company,
registered as such pursuant to the provisions of the Investment Company Act
of 1940 (the 1940 Act );
WHEREAS, the Fund is a diversified series of the Trust operating as
an open-end management investment company under the 1940 Act, and is
currently divided into Class A and Class Y shares to be offered to
individual and institutional investors, respectively;
WHEREAS, the Adviser is an investment adviser, registered as such
pursuant to the provisions of the Investment Advisers Act of 1940, and is
engaged in the business of rendering investment advice and investment
management services as an independent contractor;
WHEREAS, the Fund desires and has agreed to retain the Adviser to
render advice and services to the Fund in connection with management and
operation of the Fund pursuant to terms and conditions set forth herein;
and
WHEREAS, the Adviser desires and has agreed to render such advice and
furnish such services pursuant to the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, conditions and agreements contained herein, and for
such other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties, each intending to be legally
bound hereby, mutually agree as follows:
1. Employment. The Fund hereby employs the Adviser and the
Adviser hereby accepts such employment, to render investment advice and
investment management services with respect to the Fund, subject to the
supervision and direction of the Board of Trustees of the Trust (the
Trustees ). The Adviser shall, except as otherwise provided herein,
render or make available all services needed for the management and
operation of the Fund, and shall, as part of its duties hereunder, (i)<PAGE>
furnish the Fund with advice and recommendations with respect to the
investment of the assets of the Fund and the purchase and sale of the
portfolio securities of the Fund, including the taking of such other steps
as may be necessary to implement such advice and recommendations, (ii)
furnish the Fund with reports, statements and other data on securities,
economic conditions and other pertinent subjects which the Trustees may
request, (iii) furnish such office space and personnel as is needed by the
Fund, and (iv) in general, superintend and manage the investments of the
Fund, subject to the ultimate supervision and direction of the Trustees.
2. Best Efforts. The Adviser hereby agrees to use its best
judgment and efforts in rendering the advice and services with respect to
the Fund as contemplated by this Agreement. The Adviser further agrees to
use its best efforts in the furnishing of such advice and recommendations
with respect to the Fund, in the preparation of reports and information,
and in the management of the respective assets of the Fund pursuant to this
Agreement. For this purpose the Adviser shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with
such other persons as it shall from time to time determine to be necessary
to the performance of its obligations under this Agreement. Without
limiting the generality of the foregoing, the staff and personnel of the
Adviser shall be deemed to include persons employed or retained by the
Adviser to furnish statistical, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice
and assistance as the Adviser may desire and request.
3. Independent Contractor Status. The Adviser shall, for all
purposes herein, be deemed to be an independent contractor, and shall,
unless otherwise expressly provided and authorized, have no authority to
act for or represent the Trust or the Fund in any way, or in any way be
deemed an agent of the Trust or the Fund. It is expressly understood and
agreed that the services to be rendered by the Adviser to the Fund pursuant
to the provisions of this Agreement are not to be deemed exclusive with
respect to the Adviser s rendering of services, and the Adviser shall
therefore be free to render similar or different services to others,
provided that, its ability to render the services described herein shall
not be impaired thereby.
4. Furnishing of Information. The Fund shall from time to time
furnish to the Adviser detailed statements of the investments and assets of
the Fund and information pertaining to the investment objectives and needs
of the Fund, and shall make available to the Adviser such financial
reports, proxy statements, legal and other information in the possession of
or available to the Fund relating to its investments, as the same may be
relevant to the performance by the Adviser of its obligations hereunder.
The Fund shall furnish such other information as the Adviser may reasonably
request.
5. Fund Records. The Adviser agrees that all records which it
maintains for the Fund shall be the property of the Fund and that it will
surrender promptly to the designated officers of the Fund any of such
2<PAGE>
records upon request. The Adviser further agrees to preserve for the
period prescribed by the rules and regulations of the Securities and
Exchange Commission all such records as are required to be maintained
pursuant to said rules. The Adviser agrees that it will maintain all
records and accounts regarding the investment activities of the Fund in a
confidential manner. All such accounts or records shall be made available
within five (5) business days of request to the accountants or auditors of
the Fund during regular business hours at the Adviser s offices upon
reasonable prior written notice. In addition, the Adviser will provide any
materials reasonably related to the investment advisory services provided
hereunder as may be reasonably requested in writing by the designated
officers of the Fund or as may be required by any governmental agency
having jurisdiction.
6. Tender Offers. The Adviser hereby agrees that whenever the
Adviser has determined that the Fund should tender securities pursuant to a
tender offer solicitation, the Adviser shall designate an affiliate as
the tendering dealer, so long as such affiliate is legally permitted to
act in such capacity under the federal securities laws, the rules
promulgated thereunder and the rules of any securities exchange or
association of which such affiliate may be a member. Such affiliated
dealer shall not be obligated to make any additional commitments of
capital, expense or personnel beyond that committed as of the date of this
Agreement (other than normal periodic fees or payments necessary to
maintain its corporate existence and its membership in the National
Association of Securities Dealers, Inc.). This Agreement shall not
obligate the Adviser or such affiliate to (i) act pursuant to the foregoing
requirement under any circumstance in which either might reasonably believe
that liability might be imposed upon it as a result of so acting, or
(ii) institute legal or other proceedings to collect fees which may be
considered to be due to it from others as a result of such a tender, unless
the Fund shall enter into an agreement with the Adviser or such affiliate
to reimburse it for all expenses connected with attempting to collect such
f e es (including legal fees and expenses and that portion of the
compensation due to their respective employees, which amount is directly
attributable to the time involved in attempting to collect such fees).
7. Allocation of Costs and Expenses. The Adviser shall bear and
pay the costs of rendering its services pursuant to the terms of this
Agreement, including the fees paid to any sub-adviser which the Adviser may
retain and any value added taxes due in connection therewith. The Fund
shall bear and pay for all other expenses of its operation, including but
not limited to, organizational and offering expenses of the Fund and
expenses incurred in connection with the issuance and registration of
shares of the Fund; fees of the Fund s custodian, transfer and shareholder
servicing agent; costs and expenses of pricing and calculating the daily
net asset value of the shares of the Fund and of maintaining the books of
account required by the 1940 Act; expenditures in connection with meetings
of shareholders and Trustees, other than those called solely to accommodate
the Adviser; salaries of officers and fees and expenses of Trustees or
members of any advisory board or committee who are not affiliated with or
interested persons of the Fund or the Adviser; salaries of personnel
3<PAGE>
involved in placing orders for the execution of the portfolio transactions
of the Fund or in maintaining registration of shares of the Fund under
state securities laws; insurance premiums on property or personnel of the
Fund which inure to its benefit; the cost of preparing and printing
r e ports, proxy statements and prospectuses of the Trust or other
communications for distribution to its shareholders; legal, auditing, and
accounting fees; trade association dues; fees and expenses or registering
and maintaining registration of shares of the Fund for sale under
applicable federal and state securities laws; and all other charges and
costs associated with the Fund s operations, plus any extraordinary and
non-recurring expenses, except as otherwise prescribed herein. To the
extent the Adviser incurs any costs or performs any services which are an
obligation of the Fund as set forth herein and to the extent such costs or
services have been reasonably rendered, (a) the Fund shall promptly
reimburse the Adviser for such costs and expenses, and (b) the Adviser
shall be entitled to recover from the Fund the actual costs incurred by the
Adviser in rendering such services.
8. Management Fees. (a) In exchange for the rendering of
advice and services pursuant hereto, the Fund shall pay to the Adviser, and
the Adviser shall accept as full compensation for all investment management
services furnished or provided to the Fund and as full reimbursement for
all expenses assumed by the Adviser, a management fee computed at the
annual rate of .70% of the average daily net assets of the Fund.
(b) The management fee shall be accrued daily by the Fund and
paid to the Adviser at the end of each calendar month.
(c) In the case of termination of this Agreement during any
month, the management fee for that month shall be calculated on the basis
of the number of business days during which it is in effect for that month.
(d) To the extent that the gross operating costs and expenses
of the Fund (excluding any interest, taxes, brokerage commissions,
distribution expenses and, to the extent permitted, any extraordinary
expenses, such as litigation and non-recurring expenses) exceed the
allowable expense limitations of the state in which shares of the Fund are
registered for sale having the most stringent expenses reimbursement
provisions, the Adviser shall reimburse the Fund for the amount of such
excess.
(e) The management fee payable by the Fund hereunder shall be
reduced to the extent that an affiliate of the Adviser has actually
received cash payments of tender offer solicitation fees (less certain
costs and expenses incurred in connection therewith) as referred to in
Paragraph 6 hereof.
9. Prohibition on Purchase of Shares. The Adviser agrees that
neither it nor any of its officers or employees shall take any short
position in the shares of beneficial interest of the Fund. This
prohibition shall not prevent the purchase of such shares by any of the
officers and directors or bona fide employees of the Adviser or any trust,
4<PAGE>
pension, profit-sharing or other benefit plan for such persons or
affiliates thereof, at a price not less than the net asset value thereof at
the time of purchase, as allowed pursuant to rules promulgated under the
1940 Act.
10. Compliance with Applicable Law. Nothing contained herein
shall be deemed to require the Fund to take any action contrary to (a) the
Agreement and Declaration of Trust of the Trust, (b) the By-laws of the
Trust, or (c) any applicable statute or regulation. Nothing contained
herein shall be deemed to relieve or deprive the Trustees of their
responsibility for and control of the conduct of the affairs of the Fund.
11. Liability. (a) In the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Fund or to any shareholder of the Fund for any act or
omission in the course of or in connection with rendering services
hereunder or for any losses that may be sustained in the purchase, holding
or sale of any security by the Fund.
(b) Notwithstanding the foregoing, the Adviser agrees to
reimburse the Fund for any and all costs, expenses, and counsel and
Trustees fees reasonably incurred by the Fund in connection with
( i ) p reparation, printing and distribution of proxy statements,
(ii) amendments to its Registration Statement, (iii) the holding of
meetings of shareholders or Trustees, (iv) the conduct of factual
investigations, (v) any legal or administrative proceedings (including any
applications for exemptions or determinations by the Securities and
Exchange Commission) which the Fund incurs as a result of action or
inaction on the part of the Adviser or any of its shareholders where the
action or inaction necessitating such expenditures is (A) directly or
indirectly related to any transactions or proposed transaction in the
shares or control of the Adviser or its affiliates (or litigation related
to any transactions or proposed transaction involving such shares or
control) which shall have been undertaken without the prior express
approval of the Trustees, or (B) within the sole control of the Adviser or
any of its affiliates or any of their respective officers, directors,
employees or shareholders. The Adviser shall not be obligated pursuant to
the provisions of this Subparagraph 10(b) to reimburse the Fund for any
expenditures related to the institution of an administrative proceeding or
related to civil litigation by the Fund or by a shareholder of the Trust
seeking to recover all or a portion of the proceeds derived by any
shareholder of the Adviser or any of its affiliates from the sale of shares
of the Adviser or similar matters. So long as this Agreement remains in
effect, the Adviser shall pay to the Fund the amount due for expenses
subject to this Subparagraph 10(b) within thirty (30) days after a bill or
statement has been received by the Fund therefor. This provision shall not
be deemed to be a waiver of any claim which the Fund may have or may assert
against the Adviser or others for costs, expenses, or damages heretofore
incurred by the Trust or for costs, expenses, or damages the fund may
hereafter incur which are not reimbursable to it hereunder.
5<PAGE>
(c) No provision of this Agreement shall be construed to
protect any Trustee of the Trust or officer of the Fund, or any director or
officer of the Adviser, from liability in violation of Sections 17(h) and
(i) of the 1940 Act.
(d) The Adviser understands that the obligations of this
Agreement are not personally binding upon any shareholder of the Fund, but
bind only the Trust s property. The Adviser represents that it has notice
of the provisions of the Declaration of Trust of the Trust disclaiming
shareholder liability for acts or obligations of the Trust.
12. Term of Agreement. This Agreement shall become effective on
the date hereof and shall continue in effect for two years from such date
unless sooner terminated as hereinafter provided, and shall continue in
effect from year to year thereafter so long as such continuation is
approved at least annually by (i) the Trustees of the Trust or by the vote
of a majority of the outstanding voting securities of the Fund, and (ii)
the vote of a majority of the Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, with such vote
being cast in person at a meeting called for the purpose of voting on such
approval.
13. Termination. This Agreement may be terminated at any time
without payment of any penalty (a) by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities of the Fund, upon
delivery of sixty (60) days written notice to the Adviser, or (b) by the
Adviser upon sixty (60) days written notice to the Fund. This Agreement
shall terminate automatically in the event of any transfer or assignment
hereof, as defined in the 1940 Act.
14. No Waiver. The waiver by any party of any breach of or
default under any provision or portion of this Agreement shall not operate
as or be construed to be a waiver of any subsequent breach or default.
15. Severability. The provisions of this Agreement shall be
considered severable and if for any reason any provision of this Agreement
which is not essential to the effectuation of the basic purpose of this
Agreement is deemed to be invalid or contrary to any existing or future
law, such invalidity shall not impair the operation of or affect any other
provision of this Agreement which is valid.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
17. Entire Agreement. This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior understandings or agreements
between the parties pertaining to the subject matter hereof, whether oral
or written. This Agreement may only be modified or amended by mutual
written agreement of the parties hereto and, as required, upon approval of
a majority of the outstanding voting securities of the Fund.
6<PAGE>
18. Definitions. For purposes of application and operation of
the provisions of this Agreement, the term majority of the outstanding
voting securities shall have the meaning as set forth in the 1940 Act.
19. Use of Name. In consideration of the execution of this
Agreement, the Adviser hereby grants to the Trust the right to use the name
Conseco as part of its name and the names of series thereof. The Trust
agrees that in the event this Agreement is terminated, it shall immediately
take such steps as are necessary to amend its name to remove the reference
to Conseco.
20. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested by their duly authorized officers on the day
and year first above written.
CONSECO FUND GROUP,
on behalf of Equity Fund
ATTEST:
By:
[title]
CONSECO CAPITAL MANAGEMENT, INC.
ATTEST: By:
[title]
7<PAGE>
INVESTMENT ADVISORY AGREEMENT
Between CONSECO FUND GROUP
and
CONSECO CAPITAL MANAGEMENT, INC.
THIS INVESTMENT ADVISORY AGREEMENT is entered into as of this
day of January, 1997, by and between Conseco Fund Group (the Trust ), a
Massachusetts business trust, on behalf of its series Fixed Income Fund
(the Fund ), and Conseco Capital Management, Inc. (the Adviser ).
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company,
registered as such pursuant to the provisions of the Investment Company Act
of 1940 (the 1940 Act );
WHEREAS, the Fund is a diversified series of the Trust operating as
an open-end management investment company under the 1940 Act, and is
currently divided into Class A and Class Y shares to be offered to
individual and institutional investors, respectively;
WHEREAS, the Adviser is an investment adviser, registered as such
pursuant to the provisions of the Investment Advisers Act of 1940, and is
engaged in the business of rendering investment advice and investment
management services as an independent contractor;
WHEREAS, the Fund desires and has agreed to retain the Adviser to
render advice and services to the Fund in connection with management and
operation of the Fund pursuant to terms and conditions set forth herein;
and
WHEREAS, the Adviser desires and has agreed to render such advice and
furnish such services pursuant to the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, conditions and agreements contained herein, and for
such other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties, each intending to be legally
bound hereby, mutually agree as follows:
1. Employment. The Fund hereby employs the Adviser and the
Adviser hereby accepts such employment, to render investment advice and
investment management services with respect to the Fund, subject to the
supervision and direction of the Board of Trustees of the Trust (the
Trustees ). The Adviser shall, except as otherwise provided herein,
render or make available all services needed for the management and
operation of the Fund, and shall, as part of its duties hereunder, (i)<PAGE>
furnish the Fund with advice and recommendations with respect to the
investment of the assets of the Fund and the purchase and sale of the
portfolio securities of the Fund, including the taking of such other steps
as may be necessary to implement such advice and recommendations, (ii)
furnish the Fund with reports, statements and other data on securities,
economic conditions and other pertinent subjects which the Trustees may
request, (iii) furnish such office space and personnel as is needed by the
Fund, and (iv) in general, superintend and manage the investments of the
Fund, subject to the ultimate supervision and direction of the Trustees.
2. Best Efforts. The Adviser hereby agrees to use its best
judgment and efforts in rendering the advice and services with respect to
the Fund as contemplated by this Agreement. The Adviser further agrees to
use its best efforts in the furnishing of such advice and recommendations
with respect to the Fund, in the preparation of reports and information,
and in the management of the respective assets of the Fund pursuant to this
Agreement. For this purpose the Adviser shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with
such other persons as it shall from time to time determine to be necessary
to the performance of its obligations under this Agreement. Without
limiting the generality of the foregoing, the staff and personnel of the
Adviser shall be deemed to include persons employed or retained by the
Adviser to furnish statistical, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice
and assistance as the Adviser may desire and request.
3. Independent Contractor Status. The Adviser shall, for all
purposes herein, be deemed to be an independent contractor, and shall,
unless otherwise expressly provided and authorized, have no authority to
act for or represent the Trust or the Fund in any way, or in any way be
deemed an agent of the Trust or the Fund. It is expressly understood and
agreed that the services to be rendered by the Adviser to the Fund pursuant
to the provisions of this Agreement are not to be deemed exclusive with
respect to the Adviser s rendering of services, and the Adviser shall
therefore be free to render similar or different services to others,
provided that, its ability to render the services described herein shall
not be impaired thereby.
4. Furnishing of Information. The Fund shall from time to time
furnish to the Adviser detailed statements of the investments and assets of
the Fund and information pertaining to the investment objectives and needs
of the Fund, and shall make available to the Adviser such financial
reports, proxy statements, legal and other information in the possession of
or available to the Fund relating to its investments, as the same may be
relevant to the performance by the Adviser of its obligations hereunder.
The Fund shall furnish such other information as the Adviser may reasonably
request.
5. Fund Records. The Adviser agrees that all records which it
maintains for the Fund shall be the property of the Fund and that it will
surrender promptly to the designated officers of the Fund any of such
2<PAGE>
records upon request. The Adviser further agrees to preserve for the
period prescribed by the rules and regulations of the Securities and
Exchange Commission all such records as are required to be maintained
pursuant to said rules. The Adviser agrees that it will maintain all
records and accounts regarding the investment activities of the Fund in a
confidential manner. All such accounts or records shall be made available
within five (5) business days of request to the accountants or auditors of
the Fund during regular business hours at the Adviser s offices upon
reasonable prior written notice. In addition, the Adviser will provide any
materials reasonably related to the investment advisory services provided
hereunder as may be reasonably requested in writing by the designated
officers of the Fund or as may be required by any governmental agency
having jurisdiction.
6. Tender Offers. The Adviser hereby agrees that whenever the
Adviser has determined that the Fund should tender securities pursuant to a
tender offer solicitation, the Adviser shall designate an affiliate as
the tendering dealer, so long as such affiliate is legally permitted to
act in such capacity under the federal securities laws, the rules
promulgated thereunder and the rules of any securities exchange or
association of which such affiliate may be a member. Such affiliated
dealer shall not be obligated to make any additional commitments of
capital, expense or personnel beyond that committed as of the date of this
Agreement (other than normal periodic fees or payments necessary to
maintain its corporate existence and its membership in the National
Association of Securities Dealers, Inc.). This Agreement shall not
obligate the Adviser or such affiliate to (i) act pursuant to the foregoing
requirement under any circumstance in which either might reasonably believe
that liability might be imposed upon it as a result of so acting, or
(ii) institute legal or other proceedings to collect fees which may be
considered to be due to it from others as a result of such a tender, unless
the Fund shall enter into an agreement with the Adviser or such affiliate
to reimburse it for all expenses connected with attempting to collect such
f e es (including legal fees and expenses and that portion of the
compensation due to their respective employees, which amount is directly
attributable to the time involved in attempting to collect such fees).
7. Allocation of Costs and Expenses. The Adviser shall bear and
pay the costs of rendering its services pursuant to the terms of this
Agreement, including the fees paid to any sub-adviser which the Adviser may
retain and any value added taxes due in connection therewith. The Fund
shall bear and pay for all other expenses of its operation, including but
not limited to, organizational and offering expenses of the Fund and
expenses incurred in connection with the issuance and registration of
shares of the Fund; fees of the Fund s custodian, transfer and shareholder
servicing agent; costs and expenses of pricing and calculating the daily
net asset value of the shares of the Fund and of maintaining the books of
account required by the 1940 Act; expenditures in connection with meetings
of shareholders and Trustees, other than those called solely to accommodate
the Adviser; salaries of officers and fees and expenses of Trustees or
members of any advisory board or committee who are not affiliated with or
interested persons of the Fund or the Adviser; salaries of personnel
3<PAGE>
involved in placing orders for the execution of the portfolio transactions
of the Fund or in maintaining registration of shares of the Fund under
state securities laws; insurance premiums on property or personnel of the
Fund which inure to its benefit; the cost of preparing and printing
r e ports, proxy statements and prospectuses of the Trust or other
communications for distribution to its shareholders; legal, auditing, and
accounting fees; trade association dues; fees and expenses or registering
and maintaining registration of shares of the Fund for sale under
applicable federal and state securities laws; and all other charges and
costs associated with the Fund s operations, plus any extraordinary and
non-recurring expenses, except as otherwise prescribed herein. To the
extent the Adviser incurs any costs or performs any services which are an
obligation of the Fund as set forth herein and to the extent such costs or
services have been reasonably rendered, (a) the Fund shall promptly
reimburse the Adviser for such costs and expenses, and (b) the Adviser
shall be entitled to recover from the Fund the actual costs incurred by the
Adviser in rendering such services.
8. Management Fees. (a) In exchange for the rendering of
advice and services pursuant hereto, the Fund shall pay to the Adviser, and
the Adviser shall accept as full compensation for all investment management
services furnished or provided to the Fund and as full reimbursement for
all expenses assumed by the Adviser, a management fee computed at the
annual rate of .45% of the average daily net assets of the Fund.
(b) The management fee shall be accrued daily by the Fund and
paid to the Adviser at the end of each calendar month.
(c) In the case of termination of this Agreement during any
month, the management fee for that month shall be calculated on the basis
of the number of business days during which it is in effect for that month.
(d) To the extent that the gross operating costs and expenses
of the Fund (excluding any interest, taxes, brokerage commissions,
distribution expenses and, to the extent permitted, any extraordinary
expenses, such as litigation and non-recurring expenses) exceed the
allowable expense limitations of the state in which shares of the Fund are
registered for sale having the most stringent expenses reimbursement
provisions, the Adviser shall reimburse the Fund for the amount of such
excess.
(e) The management fee payable by the Fund hereunder shall be
reduced to the extent that an affiliate of the Adviser has actually
received cash payments of tender offer solicitation fees (less certain
costs and expenses incurred in connection therewith) as referred to in
Paragraph 6 hereof.
9. Prohibition on Purchase of Shares. The Adviser agrees that
neither it nor any of its officers or employees shall take any short
position in the shares of beneficial interest of the Fund. This
prohibition shall not prevent the purchase of such shares by any of the
officers and directors or bona fide employees of the Adviser or any trust,
4<PAGE>
pension, profit-sharing or other benefit plan for such persons or
affiliates thereof, at a price not less than the net asset value thereof at
the time of purchase, as allowed pursuant to rules promulgated under the
1940 Act.
10. Compliance with Applicable Law. Nothing contained herein
shall be deemed to require the Fund to take any action contrary to (a) the
Agreement and Declaration of Trust of the Trust, (b) the By-laws of the
Trust, or (c) any applicable statute or regulation. Nothing contained
herein shall be deemed to relieve or deprive the Trustees of their
responsibility for and control of the conduct of the affairs of the Fund.
11. Liability. (a) In the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Fund or to any shareholder of the Fund for any act or
omission in the course of or in connection with rendering services
hereunder or for any losses that may be sustained in the purchase, holding
or sale of any security by the Fund.
(b) Notwithstanding the foregoing, the Adviser agrees to
reimburse the Fund for any and all costs, expenses, and counsel and
Trustees fees reasonably incurred by the Fund in connection with
( i ) p reparation, printing and distribution of proxy statements,
(ii) amendments to its Registration Statement, (iii) the holding of
meetings of shareholders or Trustees, (iv) the conduct of factual
investigations, (v) any legal or administrative proceedings (including any
applications for exemptions or determinations by the Securities and
Exchange Commission) which the Fund incurs as a result of action or
inaction on the part of the Adviser or any of its shareholders where the
action or inaction necessitating such expenditures is (A) directly or
indirectly related to any transactions or proposed transaction in the
shares or control of the Adviser or its affiliates (or litigation related
to any transactions or proposed transaction involving such shares or
control) which shall have been undertaken without the prior express
approval of the Trustees, or (B) within the sole control of the Adviser or
any of its affiliates or any of their respective officers, directors,
employees or shareholders. The Adviser shall not be obligated pursuant to
the provisions of this Subparagraph 10(b) to reimburse the Fund for any
expenditures related to the institution of an administrative proceeding or
related to civil litigation by the Fund or by a shareholder of the Trust
seeking to recover all or a portion of the proceeds derived by any
shareholder of the Adviser or any of its affiliates from the sale of shares
of the Adviser or similar matters. So long as this Agreement remains in
effect, the Adviser shall pay to the Fund the amount due for expenses
subject to this Subparagraph 10(b) within thirty (30) days after a bill or
statement has been received by the Fund therefor. This provision shall not
be deemed to be a waiver of any claim which the Fund may have or may assert
against the Adviser or others for costs, expenses, or damages heretofore
incurred by the Trust or for costs, expenses, or damages the fund may
hereafter incur which are not reimbursable to it hereunder.
5<PAGE>
(c) No provision of this Agreement shall be construed to
protect any Trustee of the Trust or officer of the Fund, or any director or
officer of the Adviser, from liability in violation of Sections 17(h) and
(i) of the 1940 Act.
(d) The Adviser understands that the obligations of this
Agreement are not personally binding upon any shareholder of the Fund, but
bind only the Trust s property. The Adviser represents that it has notice
of the provisions of the Declaration of Trust of the Trust disclaiming
shareholder liability for acts or obligations of the Trust.
12. Term of Agreement. This Agreement shall become effective on
the date hereof and shall continue in effect for two years from such date
unless sooner terminated as hereinafter provided, and shall continue in
effect from year to year thereafter so long as such continuation is
approved at least annually by (i) the Trustees of the Trust or by the vote
of a majority of the outstanding voting securities of the Fund, and (ii)
the vote of a majority of the Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, with such vote
being cast in person at a meeting called for the purpose of voting on such
approval.
13. Termination. This Agreement may be terminated at any time
without payment of any penalty (a) by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities of the Fund, upon
delivery of sixty (60) days written notice to the Adviser, or (b) by the
Adviser upon sixty (60) days written notice to the Fund. This Agreement
shall terminate automatically in the event of any transfer or assignment
hereof, as defined in the 1940 Act.
14. No Waiver. The waiver by any party of any breach of or
default under any provision or portion of this Agreement shall not operate
as or be construed to be a waiver of any subsequent breach or default.
15. Severability. The provisions of this Agreement shall be
considered severable and if for any reason any provision of this Agreement
which is not essential to the effectuation of the basic purpose of this
Agreement is deemed to be invalid or contrary to any existing or future
law, such invalidity shall not impair the operation of or affect any other
provision of this Agreement which is valid.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
17. Entire Agreement. This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior understandings or agreements
between the parties pertaining to the subject matter hereof, whether oral
or written. This Agreement may only be modified or amended by mutual
written agreement of the parties hereto and, as required, upon approval of
a majority of the outstanding voting securities of the Fund.
6<PAGE>
18. Definitions. For purposes of application and operation of
the provisions of this Agreement, the term majority of the outstanding
voting securities shall have the meaning as set forth in the 1940 Act.
19. Use of Name. In consideration of the execution of this
Agreement, the Adviser hereby grants to the Trust the right to use the name
Conseco as part of its name and the names of series thereof. The Trust
agrees that in the event this Agreement is terminated, it shall immediately
take such steps as are necessary to amend its name to remove the reference
to Conseco.
20. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested by their duly authorized officers on the day
and year first above written.
CONSECO FUND GROUP,
on behalf of Equity Fund
ATTEST:
By:
[title]
CONSECO CAPITAL MANAGEMENT, INC.
ATTEST: By:
[title]
7<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
Between CONSECO FUND GROUP
and
CONSECO EQUITY SALES, INC.
THIS PRINCIPAL UNDERWRITING AGREEMENT is entered into as of this
day of December, 1996, by and between Conseco Fund Group (the Trust ),
a Massachusetts business trust, and Conseco Equity Sales, Inc., a Texas
corporation (the Underwriter ).
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company,
registered as such pursuant to the provisions of the Investment Company Act
of 1940 (the 1940 Act ), and its shares are registered pursuant to the
Securities Act of 1933 (the 1933 Act ) ;
WHEREAS, the Trust consists of the Equity, Asset Allocation and Fixed
Income Funds (the Funds, each a Fund ), which are diversified series of
the Trust operating as open-end management investment companies under the
1940 Act, and are currently divided into Class A and Class Y shares to be
offered to individual and institutional investors, respectively;
WHEREAS, the Underwriter is registered as a broker-dealer pursuant to
the provisions of the Securities Exchange Act of 1934 (the 1934 Act ), and
is a member in good standing of the National Association of Securities
Dealer, Inc. ( NASD );
WHEREAS, the Trust desires to have its Funds shares sold and
distributed through the Underwriter pursuant to the terms and conditions
set forth herein; and
WHEREAS, the Underwriter desires and has agreed to sell and
distribute those shares pursuant to the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, conditions and agreements contained herein, and for
such other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties, each intending to be legally
bound hereby, mutually agree as follows:
1. Employment. The Trust hereby employs the Underwriter and the
Underwriter hereby accepts employment as the exclusive sales agent for
distribution of the shares, other than sales made directly by the Trust
without sales charge. The Underwriter agrees to use its best efforts to
promote the sale of the shares, but is not obligated to sell any specific<PAGE>
number of shares. The Trust agrees to deliver to the Underwriter such
shares as it may sell.
2. Independent Contractor. The Underwriter shall, for all
purposes herein, be deemed to be an independent contractor, and shall,
unless otherwise expressly provided and authorized, have no authority to
bind or obligate the Trust in any way, except that the Underwriter is
authorized to accept orders for the purchase or repurchase of shares as
sales agent of the Trust. The Underwriter may appoint sub-agents or
distribute shares through dealers or otherwise, as determined necessary or
desirable. It is expressly understood and agreed that the services to be
rendered by the Underwriter to the Trust pursuant to the provisions of this
Agreement are not to be deemed exclusive with respect to the Underwriter s
rendering of services, and the Underwriter shall therefore be free to
render similar or different services to others; provided that, its ability
to render the services described herein shall not be impaired thereby.
3. Furnishing of Information. The Trust shall furnish to the
Underwriter such information with respect to the Trust, the Funds and the
shares as the Underwriter may reasonably request. The Trust shall also
furnish such information and take such action as the Underwriter may
reasonably request in order to qualify the shares for sale to the public
under Blue Sky Laws in jurisdictions in which the Underwriter may wish to
offer them. The Trust shall furnish the Underwriter at least annually with
audited financial statements of its books and accounts certified by
i n d ependent public accountants and with such additional financial
information as the Underwriter may reasonably request from time to time.
4. Offering Price. The shares shall be offered at a price
equivalent to their net asset value plus, as appropriate, a variable
percentage of the public offering price as a sales load, as set forth in
each Fund s Prospectus. On each business day on which the New York Stock
Exchange ( NYSE ) is open for business, the Trust shall furnish the
Underwriter with the net asset value of the shares, which shall be
determined and become effective as of the close of business of the NYSE on
that day. The net asset value so determined shall apply to all orders for
the purchase of shares received by dealers prior to such determination and
the Underwriter is authorized in its capacity as agent to accept orders and
confirm sales at such net asset value; provided that, such dealers notify
the Underwriter of the time when they received the particular order and
that the order is placed with the Underwriter prior to its close of
business on the day on which the applicable net asset value is determined.
To the extent that the Trust s Transfer Agent (the Agent ) and the
Custodian(s) for any pension, profit-sharing, employer or self-employed
plan receive payments on behalf of the investors, such Agent and
Custodian(s) shall be required to record the time of such receipt with
respect to each payment, and the applicable net asset value shall be that
which is next determined and effective after the time of receipt. In all
events, the Underwriter shall forthwith notify all of the dealers
comprising its selling group and the Agent and Custodian(s) of the
effective net asset value as received from the Trust. Should the Trust at
any time calculate the net asset value more frequently than once each
2<PAGE>
business day, procedures comparable to those set forth above shall be
followed with respect to such additional price.
5. Payment of Shares. All premiums and any other monies payable
upon the sale, distribution, renewal or other transaction involving the
shares shall be paid or remitted directly to the Trust which shall retain
all such premiums and monies for its own account. The Underwriter
acknowledges that all premiums collected by the Underwriter are held in a
fiduciary capacity on behalf of the Trust and are to be paid over to the
Trust as soon as possible immediately following receipt and collection.
6. Sales Commission. (a) The Underwriter shall be entitled to
receive a sales commission on the sale of shares in the amounts and
according to the procedures set forth in each Fund s prospectuses then in
effect under the 1933 Act.
(b) In addition to the payment of the sales commission
provided for in (a) above, the Underwriter may also receive reimbursement
for expenses or a maintenance or service fee as may be required by and
described in a distribution plan adopted by each Fund pursuant to Rule 12b-
1 under the 1940 Act.
(c) The Underwriter may allow appointed sub-agents or dealers
such commissions or discounts as deemed advisable, so long as any such
commissions or discounts are set forth in the Funds then current
prospectuses to the extent required by the applicable federal and state
securities laws.
(d) It is the sole prerogative of the Trust to establish
commission rates to be paid to the Underwriter and the Trust at all times
retains an ultimate veto as to commission rates to be paid.
7. Purchases for Underwriter s Own Account. The Underwriter
shall not purchase shares for its own account for the purpose of resale to
the public, but the Underwriter may purchase shares for its own investment
account upon written assurance that the purchase is for investment purposes
only and that the shares shall not be resold except through redemption by
the Trust.
8. Sale of Shares to Affiliates. The Underwriter may sell the
shares at net asset value (plus a varying sales charge as appropriate)
pursuant to a uniform offer described in the Funds current prospectuses to
(i) the Trustees, officers and investment adviser of the Trust and to the
Underwriter and affiliated companies thereof, (ii) the bona fide, full-time
employees or sales representatives of any of the foregoing who have acted
as such for at least ninety (90) days, (iii) any trust, pension, profit-
sharing or other benefit plan for such persons, or (iv) any other person
set forth in the Funds current prospectuses; provided that, such sales are
made in accordance with the rules and regulations of the 1940 Act and upon
the written assurance of the purchaser that the purchases are made for
investment purposes only, not for the purpose of resale to the public, and
that the shares will not be resold except through redemption by the Trust.
3<PAGE>
9. Allocation of Expenses. (a) The Trust will pay the
following expenses in connection with the sale and distribution of shares
of the Funds:
(i) expenses pertaining to the preparation of audited
and certified financial statements to be included in any amendments
to the Registration Statements under the 1933 Act and 1940 Act,
i n c luding any Prospectuses and the Statements of Additional
Information included therein;
(ii) expenses pertaining to the preparation (including
legal fees) and printing of all amendments or supplements filed with
the Securities and Exchange Commission, including the copies of the
Prospectuses and Statements of Additional Information included in the
amendments, other than those necessitated by or related to the
Underwriter s activities where such amendments or supplements result
in expenses which the Trust would not otherwise have incurred;
(iii) expenses pertaining to the preparation, printing
a n d distribution of any reports or communications, including
Prospectuses and Statements of Additional Information, which are sent
to existing shareholders;
( i v) filing and other fees to federal and state
securities regulatory authorities necessary to register and maintain
registration of the shares; and
(v) expenses of the Agent, including all costs and
expenses in connection with the issuance, transfer and registration
of the shares, including but not limited to any taxes and other
government charges in connection therewith.
(b) Except to the extent that the Underwriter is entitled to
reimbursement under the provisions of any 12b-1 distribution plans, the
Underwriter shall pay the following expenses:
(i) expense of printing additional copies of the
Prospectuses and Statements of Additional Information and any
amendments or supplements thereto which are necessary to continue to
offer shares to the public;
(ii) expenses pertaining to the preparation (excluding
legal fees) and printing of all amendments and supplements to the
Registration Statements if the amendment or supplement arises from,
is necessitated by or related to the Underwriter s activities where
those expenses would not otherwise have been incurred;
(iii) expenses pertaining to the printing of additional
copies, for use by the Underwriter as sales literature, of reports or
other communications which have been prepared for distribution to
existing shareholders or expenses incurred by the Underwriter in
advertising, promoting and selling shares to the public.
4<PAGE>
10. Conduct of Business. Other than currently effective
Prospectuses and Statements of Additional Information, the Underwriter
shall not issue any sales material or statements except literature or
advertising which conforms to the requirements of federal and state
securities laws and regulations and have been filed, where necessary, with
the appropriate regulatory authorities. The Underwriter shall furnish the
Trust with copies of all such material prior to its use and no such
material shall be published if the Trust reasonably and promptly objects.
11. Redemption or Repurchase within Seven Days. If shares are
tendered to the Trust for redemption or are repurchased by the Trust within
seven (7) business days after the Underwriter s acceptance of the original
purchase order for the shares, the Underwriter shall immediately refund to
the Trust the full amount of any sales commission (net of allowances to
dealers or brokers) allowed to the Underwriter on the original sale, and
shall promptly, upon receipt thereof, pay to the Trust any refunds from
dealers or brokers of the balance of sales commissions reallowed by the
Underwriter. The Trust shall notify the Underwriter of such tender for
redemption within ten (10) days of the day on which notice of such tender
for redemption is received by the Trust.
12. Suspension of Sales. The Trust shall have the ultimate
right to cease to offer and issue any shares available to the Underwriter
hereunder. The Trust reserves the right at all times to suspend or limit
the public offering of the shares upon written notice to the Underwriter
and to reject any order in whole or in part.
13. Liability. In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of obligations or duties hereunder
on the part of the Underwriter, the Underwriter shall not be subject to
liability to the Trust or to any of its shareholders for any act or
omission in the course of or in connection with rendering services
hereunder or for any losses that may be sustained in the purchase, holding
or sale of any security.
14. Term of Agreement. This Agreement shall become effective on
the date hereof and shall continue in effect for two years from such date
unless sooner terminated as hereinafter provided, and shall continue in
effect from year to year thereafter so long as such continuation is
approved at least annually by (i) the Trustees of the Trust or by the vote
of a majority of the outstanding voting securities of the Fund(s) and (ii)
the vote of a majority of the Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, with such vote
being cast in person at a meeting called for the purpose of voting on such
approval.
15. Termination. This Agreement may be terminated at any time
without payment of any penalty (a) by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities of the Fund(s), upon
delivery of sixty (60) days written notice to the Underwriter, or (b) by
the Underwriter upon sixty (60) days written notice to the Trust. This
5<PAGE>
Agreement shall terminate automatically in the event of any transfer or
assignment hereof.
16. No Waiver. The waiver by any party of any breach of or
default under any provision or portion of this Agreement shall not operate
as or be construed to be a waiver of any subsequent breach or default.
17. Severability. The provisions of this Agreement shall be
considered severable and if for any reason any provision of this Agreement
which is not essential to the effectuation of the basic purpose of this
Agreement is deemed to be invalid or contrary to any existing or future
law, such invalidity shall not impair the operation of or affect any other
provision of this Agreement which is valid.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
19. Entire Agreement. This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior understandings or agreements
between the parties pertaining to the subject matter hereof, whether oral
or written. This Agreement may only be modified or amended by mutual
written agreement of the parties hereto and, as required, upon approval of
a majority of the outstanding voting securities of the Fund(s).
20. Definitions. For purposes of application and operation of
the provisions of this Agreement, the terms net asset value, offering
price, investment company, open-end investment company, assignment,
principal underwriter, interested person and majority of the
outstanding voting securities shall have the meanings set forth in the
1933 Act and 1940 Act, as applicable, and the rules and regulations
promulgated thereunder.
21. Notices. Any notice under this Agreement shall be in
writing, addressed and delivered or mailed postage prepaid to the other
party at the address such other party may designate from time to time for
the receipt of such notices.
22. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana.
23. Limitations of Liability of the Trustees and Shareholders. A
copy of the Agreement and Declaration of Trust of the Trust is on file with
the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees, and not individually, and that the obligations of this
instrument are not binding upon any of the Trustees or Shareholders
individually but are binding only upon the assets and property of the Trust.
6<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested by their duly authorized officers on the day
and year first above written.
CONSECO FUND GROUP
ATTEST:
By:
[title]
CONSECO EQUITY SALES, INC.
ATTEST:
By:
[title]
7<PAGE>
CUSTODY AGREEMENT
Agreement made as of this day of,1996, between CONSECO FUND
GROUP, a Massachusetts business trust organized and existing under the laws
of the Commonwealth of Massachusetts, having its principal office and place
of business at 11825 North Pennsylvania Street, Carmel, Indiana 46032
(hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York
corporation authorized to do a banking business, having its principal
office and place of business at 48 Wall Street, New York, New York 10286
(hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth,
the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
1. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal agency
securities, its successor or successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures Contracts,
and Futures Contract Options entitling the holder, upon timely exercise and
payment of the exercise price, as specified therein, to purchase from the
writer thereof the specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this Agreement to be
given to the Custodian which is actually received by the Custodian and
signed on behalf of the Fund by any two Officers, and the term Certificate
shall also include Instructions.
4. "Clearing Member" shall mean a registered broker-dealer
which is a clearing member under the rules of O.C.C. and a member of a
national securities exchange qualified to act as a custodian for an
investment company, or any broker-dealer reasonably believed by the
Custodian to be such a clearing member.
5. "Collateral Account" shall mean a segregated account so
denominated which is specifically allocated to a Series and pledged to the
Custodian as security for, and in consideration of, the Custodian's
issuance of (a) any Put Option guarantee letter or similar document<PAGE>
described in paragraph 8 of Article V herein, or (b) any receipt described
in Article V or VIII herein.
6. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof
the specified underlying Securities (excluding Futures Contracts) which are
owned by the writer thereof and subject to appropriate restrictions.
7. " C omposite Currency Unit" shall mean the European
Currency Unit or any other composite unit consisting of the aggregate of
specified amounts of specified Currencies as such unit may be constituted
from time to time.
8. "Currency" shall mean money denominated in a lawful
currency of any country or the European Currency Unit.
9. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission, its successor or successors and its nominee or nominees. The
term "Depository" shall further mean and include any other person
authorized to act as a depository under the Investment Company Act of 1940,
its successor or successors and its nominee or nominees, specifically
identified in a certified copy of a resolution of the Fund's Board of
Trustees specifically approving deposits therein by the Custodian.
10. " F i nancial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including, without
limitation, U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds,
domestic bank certificates of deposit, and Eurodollar certificates of
deposit, during a specified month at an agreed upon price.
11. " F utures Contract" shall mean a Financial Futures
Contract and/or Stock Index Futures Contracts.
12. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
13. "FX Transaction" shall mean any transaction for the
purchase by one party of an agreed amount in one Currency against the sale
by it to the other party of an agreed amount in another Currency.
14. "Instructions" shall mean instructions communications
transmitted by electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface, dedicated transmission line, facsimile
transmission (which may be signed by an Officer or unsigned) and tested
telex.
15. "Margin Account" shall mean a segregated account in the
name of a broker, dealer, futures commission merchant, or a Clearing
Member, or in the name of the Fund for the benefit of a broker, dealer,
f u tures commission merchant, or Clearing Member, or otherwise, in
accordance with an agreement between the Fund, the Custodian and a broker,
dealer, futures commission merchant or a Clearing Member (a "Margin Account<PAGE>
Agreement"), separate and distinct from the custody account, in which
certain Securities and/or money of the Fund shall be deposited and
withdrawn from time to time in connection with such transactions as the
Fund may from time to time determine. Securities held in the Book-Entry
System or the Depository shall be deemed to have been deposited in, or
withdrawn from, a Margin Account upon the Custodian's effecting an
appropriate entry in its books and records.
16. "Money Market Security" shall be deemed to include,
without limitation, certain Reverse Repurchase Agreements, debt obligations
issued or guaranteed as to interest and principal by the government of the
United States or agencies or instrumentalities thereof, any tax, bond or
revenue anticipation note issued by any state or municipal government or
public authority, commercial paper, certificates of deposit and bankers'
acceptances, repurchase agreements with respect to the same and bank time
deposits, where the purchase and sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale.
17. "O.C.C." shall mean the Options Clearing Corporation, a
clearing agency registered under Section 17A of the Securities Exchange Act
of 1934, its successor or successors, and its nominee or nominees.
18. "Officers" shall be deemed to include the President, any
Vice President, the Secretary, the Clerk, the Treasurer, the Controller,
any Assistant Secretary, any Assistant Clerk, any Assistant Treasurer, and
any other person or persons, whether or not any such other person is an
officer of the Fund, duly authorized by the Board of Trustees of the Fund
to execute any Certificate, instruction, notice or other instrument on
behalf of the Fund and listed in the Certificate annexed hereto as Appendix
A or such other Certificate as may be received by the Custodian from time
to time.
19. "Option" shall mean a Call Option, Covered Call Option,
Stock Index Option and/or a Put Option.
20. " O ral Instructions" shall mean verbal instructions
actually received by the Custodian from an Officer or from a person
reasonably believed by the Custodian to be an Officer.
21. "Put Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures Contracts,
and Futures Contract Options entitling the holder, upon timely exercise and
tender of the specified underlying Securities, to sell such Securities to
the writer thereof for the exercise price.
22. "Reverse Repurchase Agreement" shall mean an agreement
pursuant to which the Fund sells Securities and agrees to repurchase such
Securities at a described or specified date and price.
23. " S e c u rity" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Options, Stock Index
Options, Stock Index Futures Contracts, Stock Index Futures Contract
Options, Financial Futures Contracts, Financial Futures Contract Options,
Reverse Repurchase Agreements, common stocks and other securities having<PAGE>
c h a r acteristics similar to common stocks, preferred stocks, debt
obligations issued by state or municipal governments and by public
authorities, (including, without limitation, general obligation bonds,
revenue bonds, industrial bonds and industrial development bonds), bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase, sell or subscribe for the same, or evidencing or representing any
other rights or interest therein, or any property or assets.
24. " S e n ior Security Account" shall mean an account
maintained and specifically allocated to a Series under the terms of this
Agreement as a segregated account, by recordation or otherwise, within the
custody account in which certain Securities and/or other assets of the Fund
specifically allocated to such Series shall be deposited and withdrawn from
time to time in accordance with Certificates received by the Custodian in
connection with such transactions as the Fund may from time to time
determine.
25. "Series" shall mean the various portfolios, if any, of
the Fund listed on Appendix B hereto as amended from time to time.
26. "Shares" shall mean the shares of beneficial interest of
the Fund, each of which is, in the case of a Fund having Series, allocated
to a particular Series.
27. "Stock Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to take or make delivery of
an amount of cash equal to a specified dollar amount times the difference
between the value of a particular stock index at the close of the last
business day of the contract and the price at which the futures contract is
originally struck.
28. "Stock Index Option" shall mean an exchange traded option
entitling the holder, upon timely exercise, to receive an amount of cash
determined by reference to the difference between the exercise price and
the value of the index on the date of exercise.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as
custodian of the Securities and moneys at any time owned by the Fund and
allocated to a Series during the period of this Agreement.
2. T h e Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set
forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES<PAGE>
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to be delivered
to the Custodian all Securities and all moneys owned by it, at any time
during the period of this Agreement, and shall specify with respect to such
Securities and money the Series to which the same are specifically
allocated. The Custodian shall segregate, keep and maintain the assets of
the Series separate and apart. The Custodian will not be responsible for
any Securities and moneys not actually received by it. The Custodian will
be entitled to reverse any credits made on the Fund's behalf where such
credits have been previously made and moneys are not finally collected.
The Fund shall deliver to the Custodian a certified resolution of the Board
of Trustees of the Fund, substantially in the form of Exhibit A hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis to deposit in the Book-Entry System all Securities eligible
for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of
Securities, loans of Securities and deliveries and returns of Securities
collateral. Prior to a deposit of Securities specifically allocated to a
Series in the Depository, the Fund shall deliver to the Custodian a
certified resolution of the Board of Trustees of the Fund, substantially
in the form of Exhibit B hereto, approving, authorizing and instructing the
Custodian on a continuous and ongoing basis until instructed to the
contrary by a Certificate actually received by the Custodian to deposit in
the Depository all Securities specifically allocated to such Series
eligible for deposit therein, and to utilize the Depository to the extent
possible with respect to such Securities in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities, and deliveries and
returns of Securities collateral. Securities and moneys deposited in
either the Book-Entry System or the Depository will be represented in
accounts which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically allocated on
the Custodian's books to the separate account for the applicable Series.
Prior to the Custodian's accepting, utilizing and acting with respect to
Clearing Member confirmations for Options and transactions in Options for a
Series as provided in this Agreement, the Custodian shall have received a
certified resolution of the Fund's Board of Trustees, substantially in the
form of Exhibit C hereto, approving, authorizing and instructing the
Custodian on a continuous and on-going basis, until instructed to the
contrary by a Certificate actually received by the Custodian, to accept,
utilize and act in accordance with such confirmations as provided in this
Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the separate
account for each Series all moneys received by it for the account of the
Fund with respect to such Series. Money credited to a separate account for
a Series shall be disbursed by the Custodian only:
(a) As hereinafter provided;<PAGE>
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account
from which payment is to be made and the purpose for which payment is to be
made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the
Custodian shall furnish the Fund with confirmations and a summary, on a per
Series basis, of all transfers to or from the account of the Fund for a
Series, either hereunder or with any co-custodian or sub-custodian
appointed in accordance with this Agreement during said day. Where
Securities are transferred to the account of the Fund for a Series, the
Custodian shall also by book-entry or otherwise identify as belonging to
such Series a quantity of Securities in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or shown on the
Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall
furnish the Fund with a detailed statement, on a per Series basis, of the
Securities and moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the Custodian
hereunder, which are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be held by the
Custodian in that form; all other Securities held hereunder may be
registered in the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from time to time
determine, or in the name of the Book-Entry System or the Depository or
their successor or successors, or their nominee or nominees. The Fund
agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in
the name of its registered nominee or in the name of the Book-Entry System
or the Depository any Securities which it may hold hereunder and which may
from time to time be registered in the name of the Fund. The Custodian
shall hold all such Securities specifically allocated to a Series which are
not held in the Book-Entry System or in the Depository in a separate
account in the name of such Series physically segregated at all times from
those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless
otherwise instructed to the contrary by a Certificate, the Custodian by
itself, or through the use of the Book-Entry System or the Depository with
respect to Securities held hereunder and therein deposited, shall with
respect to all Securities held for the Fund hereunder in accordance with
preceding paragraph 4:
(a) Collect all income, dividends and distributions due
or payable;
(b) Give notice to the Fund and present payment and
collect the amount payable upon such Securities which are called, but only
if either (i) the Custodian receives a written notice of such call, or (ii)<PAGE>
notice of such call appears in one or more of the publications listed in
Appendix C annexed hereto, which may be amended at any time by the
Custodian without the prior notification or consent of the Fund;
(c) Present for payment and collect the amount payable
upon all Securities which mature;
(d) S u r r ender Securities in temporary form for
definitive Securities;
(e) Execute, as custodian, any necessary declarations
or certificates of ownership under the Federal Income Tax Laws or the laws
or regulations of any other taxing authority now or hereafter in effect;
and
(f) Hold directly, or through the Book-Entry System or
the Depository with respect to Securities therein deposited, for the
account of a Series, all rights and similar securities issued with respect
to any Securities held by the Custodian for such Series hereunder.
(g) Deliver to the Fund all notices, proxies, proxy
soliciting materials, consents and other written information (including,
without limitation, notices of tender offers and exchange offers, pendency
of calls, maturities of Securities and expiration of rights) relating to
Securities held pursuant to this Agrement which are actually received by
the Custodian, such proxies and other similar materials to be executed by
the registered owner (if Securities are registered otherwise than in the
name of the Fund), but without indicating the manner in which proxies or
consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System or the
Depository, shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authorizations, and any
other instruments whereby the authority of the Fund as owner of any
Securities held by the Custodian hereunder for the Series specified in such
Certificate may be exercised;
(b) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in exchange for
other Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of
any corporation, or the exercise of any conversion privilege and receive
and hold hereunder specifically allocated to such Series any cash or other
Securities received in exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold hereunder
specifically allocated to such Series such certificates of deposit, interim<PAGE>
receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(d) Make such transfers or exchanges of the assets of
the Series specified in such Certificate, and take such other steps as
shall be stated in such Certificate to be for the purpose of effectuating
a n y duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
(e) Present for payment and collect the amount payable
upon Securities not described in preceding paragraph 5(b) of this Article
which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein,
the Custodian shall not be required to obtain possession of any instrument
or certificate representing any Futures Contract, any Option, or any
Futures Contract Option until after it shall have determined, or shall have
received a Certificate from the Fund stating, that any such instruments or
certificates are available. The Fund shall deliver to the Custodian such a
Certificate no later than the business day preceding the availability of
any such instrument or certificate. Prior to such availability, the
Custodian shall comply with Section 17(f) of the Investment Company Act of
1940, as amended, in connection with the purchase, sale, settlement,
closing out or writing of Futures Contracts, Options, or Futures Contract
Options by making payments or deliveries specified in Certificates received
by the Custodian in connection with any such purchase, sale, writing,
settlement or closing out upon its receipt from a broker, dealer, or
futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures
Contracts, Options, or Futures Contract Options, as the case may be,
confirming that such Security is held by such broker, dealer or futures
commission merchant, in book-entry form or otherwise, in the name of the
Custodian (or any nominee of the Custodian) as custodian for the Fund,
provided, however, that notwithstanding the foregoing, payments to or
deliveries from the Margin Account and payments with respect to Securities
to which a Margin Account relates, shall be made in accordance with the
terms and conditions of the Margin Account Agreement. Whenever any such
i n s t r uments or certificates are available, the Custodian shall,
notwithstanding any provision in this Agreement to the contrary, make
payment for any Futures Contract, Option, or Futures Contract Option for
which such instruments or such certificates are available only against the
delivery to the Custodian of such instrument or such certificate, and
deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by
the Custodian of payment therefor. Any such instrument or certificate
delivered to the Custodian shall be held by the Custodian hereunder in
accordance with, and subject to, the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND<PAGE>
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund,
other than a purchase of an Option, a Futures Contract, or a Futures
Contract Option, the Fund shall deliver to the Custodian (i) with respect
to each purchase of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each purchase of Money Market
Securities, a Certificate or Oral Instructions, specifying with respect to
each such purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount purchased and
accrued interest, if any; (d) the date of purchase and settlement; (e) the
purchase price per unit; (f) the total amount payable upon such purchase;
(g) the name of the person from whom or the broker through whom the
purchase was made, and the name of the clearing broker, if any; and (h) the
name of the broker to whom payment is to be made. The Custodian shall,
upon receipt of Securities purchased by or for the Fund, pay to the broker
specified in the Certificate out of the moneys held for the account of such
Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or
Oral Instructions.
2. Promptly after each sale of Securities by the Fund, other
than a sale of any Option, Futures Contract, Futures Contract Option, or
any Reverse Repurchase Agreement, the Fund shall deliver to the Custodian
(i) with respect to each sale of Securities which are not Money Market
Securities, a Certificate, and (ii) with respect to each sale of Money
Market Securities, a Certificate or Oral Instructions, specifying with
respect to each such sale: (a) the Series to which such Securities were
specifically allocated; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and accrued
interest, if any; (d) the date of sale; (e) the sale price per unit; (f)
the total amount payable to the Fund upon such sale; (g) the name of the
broker through whom or the person to whom the sale was made, and the name
of the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the
Certificate against payment of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as
set forth in such Certificate or Oral Instructions. <PAGE>
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund,
the Fund shall deliver to the Custodian a Certificate specifying with
respect to each Option purchased: (a) the Series to which such Option is
specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or,
in the case of a Stock Index Option, the stock index to which such Option
relates and the number of Stock Index Options purchased; (d) the expiration
date; (e) the exercise price; (f) the dates of purchase and settlement; (g)
the total amount payable by the Fund in connection with such purchase; (h)
the name of the Clearing Member through whom such Option was purchased; and
(i) the name of the broker to whom payment is to be made. The Custodian
shall pay, upon receipt of a Clearing Member's statement confirming the
purchase of such Option held by such Clearing Member for the account of the
Custodian (or any duly appointed and registered nominee of the Custodian)
as custodian for the Fund, out of moneys held for the account of the Series
to which such Option is to be specifically allocated, the total amount
payable upon such purchase to the Clearing Member through whom the purchase
was made, provided that the same conforms to the total amount payable as
set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) the
Series to which such Option was specifically allocated; (b) the type of
Option (put or call); (c) the name of the issuer and the title and number
of shares subject to such Option or, in the case of a Stock Index Option,
the stock index to which such Option relates and the number of Stock Index
Options sold; (d) the date of sale; (e) the sale price; (f) the date of
settlement; (g) the total amount payable to the Fund upon such sale; and
(h) the name of the Clearing Member through whom the sale was made. The
Custodian shall consent to the delivery of the Option sold by the Clearing
Member which previously supplied the confirmation described in preceding
paragraph 1 of this Article with respect to such Option against payment to
the Custodian of the total amount payable to the Fund, provided that the
same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call
Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Call
Option: (a) the Series to which such Call Option was specifically
allocated; (b) the name of the issuer and the title and number of shares
subject to the Call Option; (c) the expiration date; (d) the date of
exercise and settlement; (e) the exercise price per share; (f) the total
amount to be paid by the Fund upon such exercise; and (g) the name of the
Clearing Member through whom such Call Option was exercised. The Custodian
shall, upon receipt of the Securities underlying the Call Option which was
exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable
to the Clearing Member through whom the Call Option was exercised, provided<PAGE>
that the same conforms to the total amount payable as set forth in such
Certificate.
4. Promptly after the exercise by the Fund of any Put Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series to which such Put Option was specifically allocated;
(b) the name of the issuer and the title and number of shares subject to
the Put Option; (c) the expiration date; (d) the date of exercise and
settlement; (e) the exercise price per share; (f) the total amount to be
paid to the Fund upon such exercise; and (g) the name of the Clearing
Member through whom such Put Option was exercised. The Custodian shall,
upon receipt of the amount payable upon the exercise of the Put Option,
deliver or direct the Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the amount payable
to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock
Index Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund
shall deliver to the Custodian a Certificate specifying with respect to
such Stock Index Option: (a) the Series to which such Stock Index Option
was specifically allocated; (b) the type of Stock Index Option (put or
call); (c) the number of Options being exercised; (d) the stock index to
which such Option relates; (e) the expiration date; (f) the exercise price;
(g) the total amount to be received by the Fund in connection with such
exercise; and (h) the Clearing Member from whom such payment is to be
received.
6. Whenever the Fund writes a Covered Call Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with
respect to such Covered Call Option: (a) the Series for which such Covered
Call Option was written; (b) the name of the issuer and the title and
number of shares for which the Covered Call Option was written and which
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Covered Call Option
was written; and (g) the name of the Clearing Member through whom the
premium is to be received. The Custodian shall deliver or cause to be
delivered, in exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such receipts as are
required in accordance with the customs prevailing among Clearing Members
dealing in Covered Call Options and shall impose, or direct the Depository
to impose, upon the underlying Securities specified in the Certificate
specifically allocated to such Series such restrictions as may be required
by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse
to issue any receipts for Securities in the possession of the Custodian and
not deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and
described in the preceding paragraph of this Article is exercised, the Fund
shall promptly deliver to the Custodian a Certificate instructing the
Custodian to deliver, or to direct the Depository to deliver, the
Securities subject to such Covered Call Option and specifying: (a) the
Series for which such Covered Call Option was written; (b) the name of the<PAGE>
issuer and the title and number of shares subject to the Covered Call
Option; (c) the Clearing Member to whom the underlying Securities are to be
delivered; and (d) the total amount payable to the Fund upon such
delivery. Upon the return and/or cancellation of any receipts delivered
pursuant to paragraph 6 of this Article, the Custodian shall deliver, or
direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth
in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to
such Put Option: (a) the Series for which such Put Option was written; (b)
the name of the issuer and the title and number of shares for which the Put
Option is written and which underlie the same; (c) the expiration date; (d)
the exercise price; (e) the premium to be received by the Fund; (f) the
date such Put Option is written; (g) the name of the Clearing Member
through whom the premium is to be received and to whom a Put Option
guarantee letter is to be delivered; (h) the amount of cash, and/or the
amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Senior Security Account for such Series; and
(i) the amount of cash and/or the amount and kind of Securities
specifically allocated to such Series to be deposited into the Collateral
Account for such Series. The Custodian shall, after making the deposits
into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the Custodian
on the date hereof, and deliver the same to the Clearing Member specified
in the Certificate against receipt of the premium specified in said
Certificate. Notwithstanding the foregoing, the Custodian shall be under
no obligation to issue any Put Option guarantee letter or similar document
if it is unable to make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described
in the preceding paragraph is exercised, the Fund shall promptly deliver
to the Custodian a Certificate specifying: (a) the Series to which such Put
Option was written; (b) the name of the issuer and title and number of
shares subject to the Put Option; (c) the Clearing Member from whom the
underlying Securities are to be received; (d) the total amount payable by
the Fund upon such delivery; (e) the amount of cash and/or the amount and
kind of Securities specifically allocated to such Series to be withdrawn
from the Collateral Account for such Series and (f) the amount of cash
and/or the amount and kind of Securities, specifically allocated to such
Series, if any, to be withdrawn from the Senior Security Account. Upon
the return and/or cancellation of any Put Option guarantee letter or
similar document issued by the Custodian in connection with such Put
Option, the Custodian shall pay out of the moneys held for the account of
the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set
forth in such Certificate against delivery of such Securities, and shall
make the withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with
respect to such Stock Index Option: (a) the Series for which such Stock
Index Option was written; (b) whether such Stock Index Option is a put or a<PAGE>
call; (c) the number of options written; (d) the stock index to which such
Option relates; (e) the expiration date; (f) the exercise price; (g) the
Clearing Member through whom such Option was written; (h) the premium to be
received by the Fund; (i) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited
in the Senior Security Account for such Series; (j) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to
such Series to be deposited in the Collateral Account for such Series; and
(k) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a Margin Account,
and the name in which such account is to be or has been established. The
Custodian shall, upon receipt of the premium specified in the Certificate,
make the deposits, if any, into the Senior Security Account specified in
the Certificate, and either (1) deliver such receipts, if any, which the
Custodian has specifically agreed to issue, which are in accordance with
the customs prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the Certificate,
or (2) make the deposits into the Margin Account specified in the
Certificate.
11. Whenever a Stock Index Option written by the Fund and
described in the preceding paragraph of this Article is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specifying with
respect to such Stock Index Option: (a) the Series for which such Stock
Index Option was written; (b) such information as may be necessary to
identify the Stock Index Option being exercised; (c) the Clearing Member
through whom such Stock Index Option is being exercised; (d) the total
amount payable upon such exercise, and whether such amount is to be paid by
or to the Fund; (e) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account for such Series; and the amount
of cash and/or the amount and kind of Securities, if any, to be withdrawn
from the Collateral Account for such Series. Upon the return and/or
cancellation of the receipt, if any, delivered pursuant to the preceding
paragraph of this Article, the Custodian shall pay out of the moneys held
for the account of the Series to which such Stock Index Option was
specifically allocated to the Clearing Member specified in the Certificate
the total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a
previously written Option described in paragraphs, 6, 8 or 10 of this
Article in a transaction expressly designated as a "Closing Purchase
Transaction" in order to liquidate its position as a writer of an Option,
the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to the Option being purchased: (a) that the transaction is a
Closing Purchase Transaction; (b) the Series for which the Option was
written; (c) the name of the issuer and the title and number of shares
subject to the Option, or, in the case of a Stock Index Option, the stock
index to which such Option relates and the number of Options held; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration
date; (g) the type of Option (put or call); (h) the date of such purchase;
(i) the name of the Clearing Member to whom the premium is to be paid; and
(j) the amount of cash and/or the amount and kind of Securities, if any, to<PAGE>
be withdrawn from the Collateral Account, a specified Margin Account, or
the Senior Security Account for such Series. Upon the Custodian's payment
of the premium and the return and/or cancellation of any receipt issued
pursuant to paragraphs 6, 8 or 10 of this Article with respect to the
Option being liquidated through the Closing Purchase Transaction, the
Custodian shall remove, or direct the Depository to remove, the previously
imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any Option purchased or
written by the Fund and described in this Article, the Custodian shall
delete such Option from the statements delivered to the Fund pursuant to
paragraph 3 Article III herein, and upon the return and/or cancellation of
any receipts issued by the Custodian, shall make such withdrawals from the
Collateral Account, and the Margin Account and/or the Senior Security
Account as may be specified in a Certificate received in connection with
such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract,
the Fund shall deliver to the Custodian a Certificate specifying with
respect to such Futures Contract, (or with respect to any number of
identical Futures Contract(s)): (a) the Series for which the Futures
Contract is being entered; (b) the category of Futures Contract (the name
of the underlying stock index or financial instrument); (c) the number of
identical Futures Contracts entered into; (d) the delivery or settlement
date of the Futures Contract(s); (e) the date the Futures Contract(s) was
(were) entered into and the maturity date; (f) whether the Fund is buying
(going long) or selling (going short) on such Futures Contract(s); (g) the
amount of cash and/or the amount and kind of Securities, if any, to be
deposited in the Senior Security Account for such Series; (h) the name of
the broker, dealer, or futures commission merchant through whom the Futures
Contract was entered into; and (i) the amount of fee or commission, if any,
to be paid and the name of the broker, dealer, or futures commission
merchant to whom such amount is to be paid. The Custodian shall make the
deposits, if any, to the Margin Account in accordance with the terms and
conditions of the Margin Account Agreement. The Custodian shall make
payment out of the moneys specifically allocated to such Series of the fee
or commission, if any, specified in the Certificate and deposit in the
Senior Security Account for such Series the amount of cash and/or the
amount and kind of Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or futures commission
merchant with respect to an outstanding Futures Contract, shall be made by
the Custodian in accordance with the terms and conditions of the Margin
Account Agreement. <PAGE>
(b) Any variation margin payment or similar payment
from a broker, dealer, or futures commission merchant to the Fund with
respect to an outstanding Futures Contract, shall be received and dealt
with by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement is made on
such Futures Contract, the Fund shall deliver to the Custodian a
Certificate specifying: (a) the Futures Contract and the Series to which
the same relates; (b) with respect to a Stock Index Futures Contract, the
total cash settlement amount to be paid or received, and with respect to a
Financial Futures Contract, the Securities and/or amount of cash to be
delivered or received; (c) the broker, dealer, or futures commission
merchant to or from whom payment or delivery is to be made or received;
and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the
payment or delivery specified in the Certificate, and delete such Futures
Contract from the statements delivered to the Fund pursuant to paragraph 3
of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to
offset a Futures Contract held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate specifying: (a) the items of
information required in a Certificate described in paragraph 1 of this
Article, and (b) the Futures Contract being offset. The Custodian shall
make payment out of the money specifically allocated to such Series of the
fee or commission, if any, specified in the Certificate and delete the
Futures Contract being offset from the statements delivered to the Fund
pursuant to paragraph 3 of Article III herein, and make such withdrawals
from the Senior Security Account for such Series as may be specified in
such Certificate. The withdrawals, if any, to be made from the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract
Option by the Fund, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to such Futures Contract Option: (a)
the Series to which such Option is specifically allocated; (b) the type of
Futures Contract Option (put or call); (c) the type of Futures Contract and
such other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option purchased; (d) the expiration date;
(e) the exercise price; (f) the dates of purchase and settlement; (g) the
amount of premium to be paid by the Fund upon such purchase; (h) the name
of the broker or futures commission merchant through whom such option was
purchased; and (i) the name of the broker, or futures commission merchant,
to whom payment is to be made. The Custodian shall pay out of the moneys
specifically allocated to such Series, the total amount to be paid upon
such purchase to the broker or futures commissions merchant through whom<PAGE>
the purchase was made, provided that the same conforms to the amount set
forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to
each such sale: (a) Series to which such Futures Contract Option was
specifically allocated; (b) the type of Future Contract Option (put or
call); (c) the type of Futures Contract and such other information as may
be necessary to identify the Futures Contract underlying the Futures
Contract Option; (d) the date of sale; (e) the sale price; (f) the date of
settlement; (g) the total amount payable to the Fund upon such sale; and
(h) the name of the broker of futures commission merchant through whom the
sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of
the total amount payable to the Fund, provided the same conforms to the
total amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund
pursuant to paragraph 1 is exercised by the Fund, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the Series to which
such Futures Contract Option was specifically allocated; (b) the particular
Futures Contract Option (put or call) being exercised; (c) the type of
Futures Contract underlying the Futures Contract Option; (d) the date of
exercise; (e) the name of the broker or futures commission merchant through
whom the Futures Contract Option is exercised; (f) the net total amount, if
any, payable by the Fund; (g) the amount, if any, to be received by the
Fund; and (h) the amount of cash and/or the amount and kind of Securities
to be deposited in the Senior Security Account for such Series. The
Custodian shall make, out of the moneys and Securities specifically
allocated to such Series, the payments, if any, and the deposits, if any,
into the Senior Security Account as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
4. Whenever the Fund writes a Futures Contract Option, the
Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to such Futures Contract Option: (a) the Series for which such
Futures Contract Option was written; (b) the type of Futures Contract
Option (put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract underlying
the Futures Contract Option; (d) the expiration date; (e) the exercise
price; (f) the premium to be received by the Fund; (g) the name of the
broker or futures commission merchant through whom the premium is to be
received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated
to such Series the deposits into the Senior Security Account, if any, as
specified in the Certificate. The deposits, if any, to be made to the
Margin Account shall be made by the Custodian in accordance with the terms
and conditions of the Margin Account Agreement. <PAGE>
5. Whenever a Futures Contract Option written by the Fund
which is a call is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures
Contract Option exercised; (c) the type of Futures Contract underlying the
Futures Contract Option; (d) the name of the broker or futures commission
merchant through whom such Futures Contract Option was exercised; (e) the
net total amount, if any, payable to the Fund upon such exercise; (f) the
net total amount, if any, payable by the Fund upon such exercise; and (g)
the amount of cash and/or the amount and kind of Securities to be deposited
in the Senior Security Account for such Series. The Custodian shall, upon
its receipt of the net total amount payable to the Fund, if any, specified
in such Certificate make the payments, if any, and the deposits, if any,
into the Senior Security Account as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
6. Whenever a Futures Contract Option which is written by
the Fund and which is a put is exercised, the Fund shall promptly deliver
to the Custodian a Certificate specifying: (a) the Series to which such
Option was specifically allocated; (b) the particular Futures Contract
Option exercised; (c) the type of Futures Contract underlying such Futures
Contract Option; (d) the name of the broker or futures commission merchant
through whom such Futures Contract Option is exercised; (e) the net total
amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount
and kind of Securities and/or cash to be withdrawn from or deposited in,
the Senior Security Account for such Series, if any. The Custodian shall,
upon its receipt of the net total amount payable to the Fund, if any,
specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits to and/or withdrawals from the Margin Account,
if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option
identical to a previously written Futures Contract Option described in this
Article in order to liquidate its position as a writer of such Futures
Contract Option, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to the Futures Contract Option being
purchased: (a) the Series to which such Option is specifically allocated;
(b) that the transaction is a closing transaction; (c) the type of Future
Contract and such other information as may be necessary to identify the
Futures Contract underlying the Futures Option Contract; (d) the exercise
price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the
premium is to be paid; and (h) the amount of cash and/or the amount and
kind of Securities, if any, to be withdrawn from the Senior Security
Account for such Series. The Custodian shall effect the withdrawals from
the Senior Security Account specified in the Certificate. The withdrawals,
if any, to be made from the Margin Account shall be made by the Custodian<PAGE>
in accordance with the terms and conditions of the Margin Account
Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Option written or
purchased by the Fund and described in this Article, the Custodian shall
(a) delete such Futures Contract Option from the statements delivered to
the Fund pursuant to paragraph 3 of Article III herein and, (b) make such
withdrawals from and/or in the case of an exercise such deposits into the
Senior Security Account as may be specified in a Certificate. The deposits
to and/or withdrawals from the Margin Account, if any, shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this Article shall be
subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund,
the Fund shall promptly deliver to the Custodian a Certificate specifying:
(a) the Series for which such short sale was made; (b) the name of the
issuer and the title of the Security; (c) the number of shares or principal
amount sold, and accrued interest or dividends, if any; (d) the dates of
the sale and settlement; (e) the sale price per unit; (f) the total amount
credited to the Fund upon such sale, if any, (g) the amount of cash and/or
the amount and kind of Securities, if any, which are to be deposited in a
Margin Account and the name in which such Margin Account has been or is to
be established; (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in a Senior Security Account, and (i)
the name of the broker through whom such short sale was made. The
Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if
any, as specified in the Certificate is held by such broker for the account
of the Custodian (or any nominee of the Custodian) as custodian of the
Fund, issue a receipt or make the deposits into the Margin Account and the
Senior Security Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the
Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to each such closing out: (a) the Series for which such
transaction is being made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or the principal amount, and accrued
interest or dividends, if any, required to effect such closing-out to be
delivered to the broker; (d) the dates of closing-out and settlement; (e)
the purchase price per unit; (f) the net total amount payable to the Fund
upon such closing-out; (g) the net total amount payable to the broker upon
such closing-out; (h) the amount of cash and the amount and kind of
Securities to be withdrawn, if any, from the Margin Account; (i) the amount
of cash and/or the amount and kind of Securities, if any, to be withdrawn<PAGE>
from the Senior Security Account; and (j) the name of the broker through
whom the Fund is effecting such closing-out. The Custodian shall, upon
receipt of the net total amount payable to the Fund upon such closing-out,
and the return and/or cancellation of the receipts, if any, issued by the
Custodian with respect to the short sale being closed-out, pay out of the
moneys held for the account of the Fund to the broker the net total amount
payable to the broker, and make the withdrawals from the Margin Account and
the Senior Security Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the Custodian
hereunder, the Fund shall deliver to the Custodian a Certificate, or in the
event such Reverse Repurchase Agreement is a Money Market Security, a
Certificate or Oral Instructions specifying: (a) the Series for which the
Reverse Repurchase Agreement is entered; (b) the total amount payable to
the Fund in connection with such Reverse Repurchase Agreement and
specifically allocated to such Series; (c) the broker or dealer through or
with whom the Reverse Repurchase Agreement is entered; (d) the amount and
kind of Securities to be delivered by the Fund to such broker or dealer;
(e) the date of such Reverse Repurchase Agreement; and (f) the amount of
cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Senior Security Account for
such Series in connection with such Reverse Repurchase Agreement. The
Custodian shall, upon receipt of the total amount payable to the Fund
specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement
described in preceding paragraph 1 of this Article, the Fund shall promptly
deliver a Certificate or, in the event such Reverse Repurchase Agreement is
a Money Market Security, a Certificate or Oral Instructions to the
Custodian specifying: (a) the Reverse Repurchase Agreement being terminated
and the Series for which same was entered; (b) the total amount payable by
the Fund in connection with such termination; (c) the amount and kind of
Securities to be received by the Fund and specifically allocated to such
Series in connection with such termination; (d) the date of termination;
(e) the name of the broker or dealer with or through whom the Reverse
Repurchase Agreement is to be terminated; and (f) the amount of cash and/or
the amount and kind of Securities to be withdrawn from the Senior
Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in
the Certificate or Oral Instructions, make the payment to the broker or
dealer, and the withdrawals, if any, from the Senior Security Account,
specified in such Certificate or Oral Instructions.
ARTICLE X<PAGE>
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. P r o mptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian hereunder, the
Fund shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan: (a) the Series to which the
loaned Securities are specifically allocated; (b) the name of the issuer
and the title of the Securities, (c) the number of shares or the principal
amount loaned, (d) the date of loan and delivery, (e) the total amount to
be delivered to the Custodian against the loan of the Securities, including
the amount of cash collateral and the premium, if any, separately
identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution
to which the loan was made upon receipt of the total amount designated as
to be delivered against the loan of Securities. The Custodian may accept
payment in connection with a delivery otherwise than through the Book-Entry
System or Depository only in the form of a certified or bank cashier's
check payable to the order of the Fund or the Custodian drawn on New York
Clearing House funds and may deliver Securities in accordance with the
customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities
by the Fund, the Fund shall deliver or cause to be delivered to the
Custodian a Certificate specifying with respect to each such loan
termination and return of Securities: (a) the Series to which the loaned
Securities are specifically allocated; (b) the name of the issuer and the
title of the Securities to be returned, (c) the number of shares or the
principal amount to be returned, (d) the date of termination, (e) the total
amount to be delivered by the Custodian (including the cash collateral for
such Securities minus any offsetting credits as described in said
Certificate), and (f) the name of the broker, dealer, or financial
institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof
shall pay, out of the moneys held for the account of the Fund, the total
amount payable upon such return of Securities as set forth in the
Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such
deposits to, or withdrawals from, a Senior Security Account as specified in
a Certificate received by the Custodian. Such Certificate shall specify
the Series for which such deposit or withdrawal is to be made and the
amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited in, or withdrawn from, such Senior
Security Account for such Series. In the event that the Fund fails to
specify in a Certificate the Series, the name of the issuer, the title and
the number of shares or the principal amount of any particular Securities<PAGE>
to be deposited by the Custodian into, or withdrawn from, a Senior
Securities Account, the Custodian shall be under no obligation to make any
such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a
Margin Account to the broker, dealer, futures commission merchant or
Clearing Member in whose name, or for whose benefit, the account was
established as specified in the Margin Account Agreement.
3. A m ounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Margin Account
shall be dealt with in accordance with the terms and conditions of the
Margin Account Agreement.
4. The Custodian shall have a continuing lien and security
interest in and to any property at any time held by the Custodian in any
Collateral Account described herein. In accordance with applicable law the
Custodian may enforce its lien and realize on any such property whenever
the Custodian has made payment or delivery pursuant to any Put Option
guarantee letter or similar document or any receipt issued hereunder by the
Custodian. In the event the Custodian should realize on any such property
net proceeds which are less than the Custodian's obligations under any Put
Option guarantee letter or similar document or any receipt, such deficiency
shall be a debt owed the Custodian by the Fund within the scope of Article
XIV herein.
5. On each business day the Custodian shall furnish the Fund
with a statement with respect to each Margin Account in which money or
Securities are held specifying as of the close of business on the previous
business day: (a) the name of the Margin Account; (b) the amount and kind
of Securities held therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker, dealer, or
futures commission merchant specified in the name of a Margin Account a
copy of the statement furnished the Fund with respect to such Margin
Account.
6. Promptly after the close of business on each business day
in which cash and/or Securities are maintained in a Collateral Account for
any Series, the Custodian shall furnish the Fund with a statement with
respect to such Collateral Account specifying the amount of cash and/or the
amount and kind of Securities held therein. No later than the close of
business next succeeding the delivery to the Fund of such statement, the
Fund shall furnish to the Custodian a Certificate specifying the then
market value of the Securities described in such statement. In the event
such then market value is indicated to be less than the Custodian's
obligation with respect to any outstanding Put Option guarantee letter or
similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral
Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS<PAGE>
1. The Fund shall furnish to the Custodian a copy of the
resolution of the Board of Trustees of the Fund, certified by the
Secretary, the Clerk, any Assistant Secretary or any Assistant Clerk,
either (i) setting forth with respect to the Series specified therein the
date of the declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall
be determined, the amount payable per Share of such Series to the
shareholders of record as of that date and the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund
on the payment date, or (ii) authorizing with respect to the Series
specified therein the declaration of dividends and distributions on a daily
basis and authorizing the Custodian to rely on Oral Instructions or a
Certificate setting forth the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and
the total amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay
out of the moneys held for the account of each Series the total amount
payable to the Dividend Agent and any sub-dividend agent or co-dividend
agent of the Fund with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver
to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date,
and price; and
(b) The amount of money to be received by the Custodian
for the sale of such Shares and specifically allocated to the separate
account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the
Custodian shall credit such money to the separate account in the name of
the Series for which such money was received.
3. Upon issuance of any Shares of any Series described in
the foregoing provisions of this Article, the Custodian shall pay, out of
the money held for the account of such Series, all original issue or other
taxes required to be paid by the Fund in connection with such issuance upon
the receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires
the Custodian to make payment out of the money held by the Custodian
hereunder in connection with a redemption of any Shares, it shall furnish
to the Custodian a Certificate specifying:<PAGE>
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting
forth the Series and number of Shares received by the Transfer Agent for
redemption and that such Shares are in good form for redemption, the
Custodian shall make payment to the Transfer Agent out of the moneys held
in the separate account in the name of the Series the total amount
specified in the Certificate issued pursuant to the foregoing paragraph 4
of this Article.
6. N o twithstanding the above provisions regarding the
redemption of any Shares, whenever any Shares are redeemed pursuant to any
check redemption privilege which may from time to time be offered by the
Fund, the Custodian, unless otherwise instructed by a Certificate, shall,
upon receipt of an advice from the Fund or its agent setting forth that the
redemption is in good form for redemption in accordance with the check
redemption procedure, honor the check presented as part of such check
redemption privilege out of the moneys held in the separate account of the
Series of the Shares being redeemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance
funds on behalf of any Series which results in an overdraft because the
moneys held by the Custodian in the separate account for such Series shall
be insufficient to pay the total amount payable upon a purchase of
Securities specifically allocated to such Series, as set forth in a
Certificate or Oral Instructions, or which results in an overdraft in the
separate account of such Series for some other reason, or if the Fund is
for any other reason indebted to the Custodian with respect to a Series,
including any indebtedness to The Bank of New York under the Fund's Cash
Management and Related Services Agreement, (except a borrowing for
investment or for temporary or emergency purposes using Securities as
collateral pursuant to a separate agreement and subject to the provisions
of paragraph 2 of this Article), such overdraft or indebtedness shall be
deemed to be a loan made by the Custodian to the Fund for such Series pay-
able on demand and shall bear interest from the date incurred at a rate per
annum (based on a 360-day year for the actual number of days involved)
equal to 1/2% over Custodian's prime commercial lending rate in effect from
time to time, such rate to be adjusted on the effective date of any change
in such prime commercial lending rate but in no event to be less than 6%
per annum. In addition, the Fund hereby agrees that the Custodian shall
have a continuing lien and security interest in and to any property
specifically allocated to such Series at any time held by it for the
benefit of such Series or in which the Fund may have an interest which is
then in the Custodian's possession or control or in possession or control
of any third party acting in the Custodian's behalf. The Fund authorizes
the Custodian, in its sole discretion, at any time to charge any such
overdraft or indebtedness together with interest due thereon against any<PAGE>
balance of account standing to such Series' credit on the Custodian's
books. In addition, the Fund hereby covenants that on each Business Day on
which either it intends to enter a Reverse Repurchase Agreement and/or
otherwise borrow from a third party, or which next succeeds a Business Day
on which at the close of business the Fund had outstanding a Reverse
Repurchase Agreement or such a borrowing, it shall prior to 9 a.m., New
York City time, advise the Custodian, in writing, of each such borrowing,
shall specify the Series to which the same relates, and shall not incur any
indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by
any bank (including, if the borrowing is pursuant to a separate agreement,
the Custodian) from which it borrows money for investment or for temporary
or emergency purposes using Securities held by the Custodian hereunder as
collateral for such borrowings, a notice or undertaking in the form
currently employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount of
collateral. The Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such borrowing: (a) the Series to which
such borrowing relates; (b) the name of the bank, (c) the amount and terms
of the borrowing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be
entered into, (e) the date on which the loan becomes due and payable, (f)
the total amount payable to the Fund on the borrowing date, (g) the market
value of Securities to be delivered as collateral for such loan, including
the name of the issuer, the title and the number of shares or the principal
amount of any particular Securities, and (h) a statement specifying whether
such loan is for investment purposes or for temporary or emergency purposes
and that such loan is in conformance with the Investment Company Act of
1940 and the Fund's prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified collateral and the
executed promissory note, if any, against delivery by the lending bank of
the total amount of the loan payable, provided that the same conforms to
the total amount payable as set forth in the Certificate. The Custodian
may, at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights therein
given the lending bank by virtue of any promissory note or loan agreement.
The Custodian shall deliver such Securities as additional collateral as may
be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released
from collateral status to be returned directly to the Custodian, and the
Custodian shall receive from time to time such return of collateral as may
be tendered to it. In the event that the Fund fails to specify in a
Certificate the Series, the name of the issuer, the title and number of
shares or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall not be under
any obligation to deliver any Securities.
ARTICLE XV
INSTRUCTIONS<PAGE>
1. With respect to any software provided by the Custodian to
a Fund in order for the Fund to transmit Instructions to the Custodian (the
"Software"), the Custodian grants to such Fund a personal, nontransferable
and nonexclusive license to use the Software solely for the purpose of
transmitting Instructions to, and receiving communications from, the
Custodian in connection with its account(s). The Fund agrees not to sell,
reproduce, lease or otherwise provide, directly or indirectly, the Software
or any portion thereof to any third party without the prior written consent
of the Custodian.
2. The Fund shall obtain and maintain at its own cost and
e x pense all equipment and services, including but not limited to
communications services, necessary for it to utilize the Software and
transmit Instructions to the Custodian. The Custodian shall not be
responsible for the reliability, compatibility with the Software or
availability of any such equipment or services or the performance or
nonperformance by any nonparty to this Agreement.
3. The Fund acknowledges that the Software, all data bases
made available to the Fund by utilizing the Software (other than data bases
relating solely to the assets of the Fund and transactions with respect
t h e r e t o), and any proprietary data, processes, information and
documentation (other than which are or become part of the public domain or
are legally required to be made available to the public) (collectively, the
"Information"), are the exclusive and confidential property of the
Custodian. The Fund shall keep the Information confidential by using the
same care and discretion that the Fund uses with respect to its own
confidential property and trade secrets and shall neither make nor permit
any disclosure without the prior written consent of the Custodian. Upon
termination of this Agreement or the Software license granted hereunder for
any reason, the Fund shall return to the Custodian all copies of the
Information which are in its possession or under its control or which the
Fund distributed to third parties.
4. The Custodian reserves the right to modify the Software
from time to time upon reasonable prior notice and the Fund shall install
new releases of the Software as the Custodian may direct. The Fund agrees
not to modify or attempt to modify the Software without the Custodian's
prior written consent. The Fund acknowledges that any modifications to the
Software, whether by the Fund or the Custodian and whether with or without
the Custodian's consent, shall become the property of the Custodian.
5. The Custodian makes no warranties or representations of
any kind with regard to the Software or the method(s) by which the Fund may
transmit Instructions to the Custodian, express or implied, including but
not limited to any implied warranties or merchantability or fitness for a
particular purpose.
6. Where the method for transmitting Instructions by the
Fund involves an automatic systems acknowledgment by the Custodian of its
receipt of such Instructions, then in the absence of such acknowledgment
the Custodian shall not be liable for any failure to act pursuant to such
Instructions the Fund may not claim that such Instructions were received by<PAGE>
the Custodian, and the Fund shall deliver a Certificate by some other
means.
7. (a) The Fund agrees that where it delivers to the
C u s t o d ian Instructions hereunder, it shall be the Fund's sole
responsibility to ensure that only persons duly authorized by the Fund
transmit such Instructions to the Custodian. The Fund will cause all
persons transmitting Instructions to the Custodian to treat applicable user
and authorization codes, passwords and authentication keys with extreme
care, and irrevocably authorizes the Custodian to act in accordance with
and rely upon Instructions received by it pursuant hereto.
(b) The Fund hereby represents, acknowledges and agrees
that it is fully informed of the protections and risks associated with the
various methods of transmitting Instructions to the Custodian and that
there may be more secure methods of transmitting instructions to the
Custodian than the method(s) selected by the Fund. The Fund hereby agrees
that the security procedures (if any) to be followed in connection with the
Fund's transmission of Instructions provide to it a commercially reasonable
degree of protection in light of its particular needs and circumstances.
8. The Fund hereby presents, warrants and covenants to the
Custodian that this Agreement has been duly approved by a resolution of its
Board of Trustees, and that its transmission of Instructions pursuant
hereto shall at all times comply with the Investment Company Act of 1940,
as amended.
9. The Fund shall notify the Custodian of any errors,
omissions or interruptions in, or delay or unavailability of, its ability
to send Instructions as promptly as practicable, and in any event within 24
hours after the earliest of (i) discovery thereof, (ii) the Business Day on
which discovery should have occurred through the exercise of reasonable
care and (iii) in the case of any error, the date of actual receipt of the
earliest notice which reflects such error, it being agreed that discovery
and receipt of notice may only occur on a business day. The Custodian
shall promptly advise the Fund whenever the Custodian learns of any errors,
omissions or interruption in, or delay or unavailability of, the Fund's
ability to send Instructions.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
i. The Custodian is authorized and instructed to
employ, as sub-custodian for each Series' Foreign
Securities (as such term is defined in paragraph
(c)(1) of Rule 17f-5 under the Investment Company
Act of 1940, as amended) and other assets, the
foreign banking institutions and foreign securities
depositories and clearing agencies designated on
Schedule I hereto ("Foreign Sub-Custodians") to
carry out their respective responsibilities in<PAGE>
accordance with the terms of the sub-custodian
agreement between each such Foreign Sub-Custodian
and the Custodian, copies of which have been
previously delivered to the Fund and receipt of
which is hereby acknowledged (each such agreement,
a "Foreign Sub-Custodian Agreement"). Upon receipt
o f a Certificate, together with a certified
resolution substantially in the form attached as
Exhibit E of the Fund's Board of Trustees, the Fund
may designate any additional foreign sub-custodian
with which the Custodian has an agreement for such
entity to act as the Custodian's agent, as its sub-
custodian and any such additional foreign sub-
custodian shall be deemed added to Schedule I.
Upon receipt of a Certificate from the Fund, the
Custodian shall cease the employment of any one or
more Foreign Sub-Custodians for maintaining custody
of the Fund's assets and such Foreign Sub-Custodian
shall be deemed deleted from Schedule I.
ii. Each Foreign Sub-Custodian Agreement shall be
substantially in the form previously delivered to
the Fund and will not be amended in a way that
materially adversely affects the Fund without the
Fund's prior written consent.
iii. The Custodian shall identify on its books as
belonging to each Series of the Fund the Foreign
Securities of such Series held by each Foreign Sub-
Custodian. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the
Custodian with respect to any claims by the Fund or
any Series against a Foreign Sub-Custodian as a
consequence of any loss, damage, cost, expense,
liability or claim sustained or incurred by the
Fund or any Series if and to the extent that the
Fund or such Series has not been made whole for any
such loss, damage, cost, expense, liability or
claim.
iv. Upon request of the Fund, the Custodian will,
consistent with the terms of the applicable Foreign
Sub-Custodian Agreement, use reasonable efforts to
arrange for the independent accountants of the Fund
to be afforded access to the books and records of
any Foreign Sub-Custodian insofar as such books and
records relate to the performance of such Foreign
S u b - Custodian under its agreement with the
Custodian on behalf of the Fund.
v. The Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements
in respect of the securities and other assets of
e a c h Series held by Foreign Sub-Custodians,<PAGE>
including but not limited to, an identification of
entities having possession of each Series' Foreign
S e curities and other assets, and advices or
notifications of any transfers of Foreign
Securities to or from each custodial account
maintained by a Foreign Sub-Custodian for the
Custodian on behalf of the Series.
vi. The Custodian shall furnish annually to the
F u n d , as mutually agreed upon, information
concerning the Foreign Sub-Custodians employed by
the Custodian. Such information shall be similar
in kind and scope to that furnished to the Fund in
connection with the Fund's initial approval of such
Foreign Sub-Custodians and, in any event, shall
include information pertaining to (i) the Foreign
Custodians' financial strength, general reputation
and standing in the countries in which they are
located and their ability to provide the custodial
services required, and (ii) whether the Foreign
Sub-Custodians would provide a level of safeguards
for safekeeping and custody of securities not
materially different form those prevailing in the
United States. The Custodian shall monitor the
general operating performance of each Foreign Sub-
Custodian. The Custodian agrees that it will use
reasonable care in monitoring compliance by each
F o reign Sub-Custodian with the terms of the
relevant Foreign Sub-Custodian Agreement and that
if it learns of any breach of such Foreign Sub-
Custodian Agreement believed by the Custodian to
have a material adverse effect on the Fund or any
Series it will promptly notify the Fund of such
b r e ach. The Custodian also agrees to use
reasonable and diligent efforts to enforce its
rights under the relevant Foreign Sub-Custodian
Agreement.
vii. The Custodian shall transmit promptly to the
F u n d all notices, reports or other written
information received pertaining to the Fund's
Foreign Securities, including without limitation,
notices of corporate action, proxies and proxy
solicitation materials.
viii. Notwithstanding any provision of this
Agreement to the contrary, settlement and payment
for securities received for the account of any
Series and delivery of securities maintained for
the account of such Series may be effected in
a c cordance with the customary or established
securities trading or securities processing
practices and procedures in the jurisdiction or
market in which the transaction occurs, including,<PAGE>
without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a
receipt with the expectation of receiving later
payment for such securities from such purchaser or
dealer.
ix. Notwithstanding any other provision in this
Agreement to the contrary, with respect to any
losses or damages arising out of or relating to any
actions or omissions of any Foreign Sub-Custodian
the sole responsibility and liability of the
Custodian shall be to take appropriate action at
the Fund's expense to recover such loss or damage
from the Foreign Sub-Custodian. It is expressly
understood and agreed that the Custodian's sole
responsibility and liability shall be limited to
a m o unts so recovered from the Foreign Sub-
Custodian.
ARTICLE XVII
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the
Fund shall promptly deliver to the Custodian a Certificate or Oral
Instructions specifying with respect to such FX Transaction: (a) the
Series to which such FX Transaction is specifically allocated; (b) the type
and amount of Currency to be purchased by the Fund; (c) the type and amount
of Currency to be sold by the Fund; (d) the date on which the Currency to
be purchased is to be delivered; (e) the date on which the Currency to be
sold is to be delivered; and (f) the name of the person from whom or
through whom such currencies are to be purchased and sold. Unless
otherwise instructed by a Certificate or Oral Instructions, the Custodian
shall deliver, or shall instruct a Foreign Sub-Custodian to deliver, the
Currency to be sold on the date on which such delivery is to be made, as
set forth in the Certificate, and shall receive, or instruct a Foreign Sub-
Custodian to receive, the Currency to be purchased on the date as set forth
in the Certificate.
2. Where the Currency to be sold is to be delivered on the
same day as the Currency to be purchased, as specified in the Certificate
or Oral Instructions, the Custodian or a Foreign Sub-Custodian may arrange
for such deliveries and receipts to be made in accordance with the customs
prevailing from time to time among brokers or dealers in Currencies, and
such receipt and delivery may not be completed simultaneously. The Fund
assumes all responsibility and liability for all credit risks involved in
connection with such receipts and deliveries, which responsibility and
liability shall continue until the Currency to be received by the Fund has
been received in full.
3. A n y foreign exchange transaction effected by the
Custodian in connection with this Agreement may be entered with the<PAGE>
Custodian, any office, branch or subsidiary of The Bank of New York
Company, Inc., or any Foreign Sub-Custodian acting as principal or
otherwise through customary banking channels. The Fund may issue a
standing Certificate with respect to foreign exchange transactions but the
Custodian may establish rules or limitations concerning any foreign
exchange facility made available to the Fund. The Fund shall bear all
risks of investing in Securities or holding Currency. Without limiting the
foregoing, the Fund shall bear the risks that rules or procedures imposed
by a Foreign Sub-Custodian or foreign depositories, exchange controls,
asset freezes or other laws, rules, regulations or orders shall prohibit or
impose burdens or costs on the transfer to, by or for the account of the
Fund of Securities or any cash held outside the Fund's jurisdiction or
denominated in Currency other than its home jurisdiction or the conversion
of cash from one Currency into another currency. The Custodian shall not
be obligated to substitute another Currency for a Currency (including a
Currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected by such
law, regulation, rule or procedure. Neither the Custodian nor any Foreign
Sub-Custodian shall be liable to the Fund for any loss resulting from any
of the foregoing events.
ARTICLE XVIII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article
XVI, neither the Custodian nor its nominee shall be liable for any loss or
damage, including counsel fees, resulting from its action or omission to
act or otherwise, either hereunder or under any Margin Account Agreement,
except for any such loss or damage arising out of its own negligence or
willful misconduct. In no event shall the Custodian be liable to the Fund
or any third party for special, indirect or consequential damages or lost
profits or loss of business, arising under or in connection with this
Agreement, even if previously informed of the possibility of such damages
and regardless of the form of action. The Custodian may, with respect to
questions of law arising hereunder or under any Margin Account Agreement,
apply for and obtain the advice and opinion of counsel to the Fund, at the
Fund's expense, or of its own counsel, which shall be at the expense of
the Fund only if the Fund has approved such expense, and otherwise shall be
at the Custodian's own expense, and shall be fully protected with respect
to anything done or omitted by it in good faith in conformity with such
advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence or willful misconduct on the part of
the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the
Custodian shall be under no obligation to inquire into, and shall not be
liable for:
(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality of the<PAGE>
purchase, sale or writing thereof, or the propriety of the amount paid or
received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any
dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securities,
nor shall the Custodian be under any duty or obligation to see to it that
any cash collateral delivered to it by a broker, dealer, or financial
institution or held by it at any time as a result of such loan of portfolio
Securities of the Fund is adequate collateral for the Fund against any loss
it might sustain as a result of such loan. The Custodian specifically, but
not by way of limitation, shall not be under any duty or obligation
periodically to check or notify the Fund that the amount of such cash
collateral held by it for the Fund is sufficient collateral for the Fund,
but such duty or obligation shall be the sole responsibility of the Fund.
In addition, the Custodian shall be under no duty or obligation to see that
any broker, dealer or financial institution to which portfolio Securities
of the Fund are lent pursuant to Article X of this Agreement makes payment
to it of any dividends or interest which are payable to or for the account
of the Fund during the period of such loan or at the termination of such
loan, provided, however, that the Custodian shall promptly notify the Fund
in the event that such dividends or interest are not paid and received when
due; or
(f) The sufficiency or value of any amounts of money
and/or Securities held in any Margin Account, Senior Security Account or
Collateral Account in connection with transactions by the Fund. In
addition, the Custodian shall be under no duty or obligation to see that
any broker, dealer, futures commission merchant or Clearing Member makes
payment to the Fund of any variation margin payment or similar payment
which the Fund may be entitled to receive from such broker, dealer, futures
commission merchant or Clearing Member, to see that any payment received by
the Custodian from any broker, dealer, futures commission merchant or
Clearing Member is the amount the Fund is entitled to receive, or to
notify the Fund of the Custodian's receipt or non-receipt of any such pay-
ment.
3. The Custodian shall not be liable for, or considered to
be the Custodian of, any money, whether or not represented by any check,
draft, or other instrument for the payment of money, received by it on
behalf of the Fund until the Custodian actually receives and collects such
money directly or by the final crediting of the account representing the
Fund's interest at the Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not
be liable for ascertaining or acting upon any calls, conversions, exchange
offers, tenders, interest rate changes or similar matters relating to<PAGE>
Securities held in the Depository, unless the Custodian shall have actually
received timely notice from the Depository. In no event shall the
Custodian have any responsibility or liability for the failure of the
Depository to collect, or for the late collection or late crediting by the
Depository of any amount payable upon Securities deposited in the
Depository which may mature or be redeemed, retired, called or otherwise
become payable. However, upon receipt of a Certificate from the Fund of an
overdue amount on Securities held in the Depository the Custodian shall
make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or
defend any action suit or proceeding in respect to any Securities held by
the Depository which in its opinion may involve it in expense or liability,
unless indemnity satisfactory to it against all expense and liability be
furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation
to take action to effect collection of any amount due to the Fund from the
Transfer Agent of the Fund nor to take any action to effect payment or
distribution by the Transfer Agent of the Fund of any amount paid by the
Custodian to the Transfer Agent of the Fund in accordance with this
Agreement.
6. The Custodian shall not be under any duty or obligation
to take action to effect collection of any amount if the Securities upon
which such amount is payable are in default, or if payment is refused after
due demand or presentation, unless and until (i) it shall be directed to
take such action by a Certificate and (ii) it shall be assured to its
satisfaction of reimbursement of its costs and expenses in connection with
any such action.
7. The Custodian may in addition to the employment of
Foreign Sub-Custodians pursuant to Article XVI appoint one or more banking
i n s t i tutions as Depository or Depositories, as Sub-Custodian or
Sub-Custodians, or as Co-Custodian or Co-Custodians including, but not
limited to, banking institutions located in foreign countries, of
Securities and moneys at any time owned by the Fund, upon such terms and
conditions as may be approved in a Certificate or contained in an agreement
executed by the Custodian, the Fund and the appointed institution.
8. The Custodian shall not be under any duty or obligation
(a) to ascertain whether any Securities at any time delivered to, or held
by it or by any Foreign Sub-Custodian, for the account of the Fund and
specifically allocated to a Series are such as properly may be held by the
Fund or such Series under the provisions of its then current prospectus, or
(b) to ascertain whether any transactions by the Fund, whether or not
involving the Custodian, are such transactions as may properly be engaged
in by the Fund.
9. The Custodian shall be entitled to receive and the Fund
agrees to pay to the Custodian such out-of-pocket expenses and such
compensation as are specified on Exhibit F hereto, as such Exhibit may be
amended from time to time by the Custodian and the Fund. The Custodian may
charge such compensation and any expenses with respect to a Series incurred
by the Custodian in the performance of its duties pursuant to such<PAGE>
agreement against any money specifically allocated to such Series. Unless
and until the Fund instructs the Custodian by a Certificate to apportion
any loss, damage, liability or expense among the Series in a specified
manner, the Custodian shall also be entitled to charge against any money
held by it for the account of a Series such Series' pro rata share (based
on such Series net asset value at the time of the charge to the aggregate
net asset value of all Series at that time) of the amount of any loss,
damage, liability or expense, including counsel fees, for which it shall be
entitled to reimbursement under the provisions of this Agreement. The
expenses for which the Custodian shall be entitled to reimbursement
hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by the
Custodian and reasonably believed by the Custodian to be a Certificate.
The Custodian shall be entitled to rely upon any Oral Instructions actually
received by the Custodian hereinabove provided for. The Fund agrees to
forward to the Custodian a Certificate or facsimile thereof confirming such
Oral Instructions in such manner so that such Certificate or facsimile
thereof is received by the Custodian, whether by hand delivery, telecopier
or other similar device, or otherwise, by the close of business of the same
day that such Oral Instructions are given to the Custodian. The Fund
agrees that the fact that such confirming instructions are not received, or
that contrary instructions are received, by the Custodian shall in no way
affect the validity of the transactions or enforceability of the transac-
tions hereby authorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral Instructions given
to the Custodian hereunder concerning such transactions provided such
instructions reasonably appear to have been received from an Officer.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian and reasonably
believed by the Custodian to be given in accordance with the terms and
conditions of any Margin Account Agreement. Without limiting the
generality of the foregoing, the Custodian shall be under no duty to
inquire into, and shall not be liable for, the accuracy of any statements
or representations contained in any such instrument or other notice
including, without limitation, any specification of any amount to be paid
to a broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which are in
the possession of the Custodian shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the
Investment Company Act of 1940, as amended, and other applicable securities
laws and rules and regulations. The Fund, or the Fund's authorized
representatives, shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by the
Custodian to the Fund or the Fund's authorized representative, and the Fund
shall reimburse the Custodian its expenses of providing such copies. Upon
reasonable request of the Fund, the Custodian shall provide in hard copy or<PAGE>
on micro-film, whichever the Custodian elects, any records included in any
such delivery which are maintained by the Custodian on a computer disc, or
are similarly maintained, and the Fund shall reimburse the Custodian for
its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting control of
the Book-Entry System, the Depository or O.C.C., and with such reports on
its own systems of internal accounting control as the Fund may reasonably
request from time to time.
14. The Fund agrees to indemnify the Custodian against and
save the Custodian harmless from all liability, claims, losses and demands
whatsoever, including attorney's fees, howsoever arising or incurred
because of or in connection with this Agreement, including the Custodian's
payment or non-payment of checks pursuant to paragraph 6 of Article XIII as
part of any check redemption privilege program of the Fund, except for any
such liability, claim, loss and demand arising out of the Custodian's own
negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agreement,
including, without limitation, those contained in Article XVI and XVII the
Custodian may deliver and receive Securities, and receipts with respect to
such Securities, and arrange for payments to be made and received by the
Custodian in accordance with the customs prevailing from time to time among
brokers or dealers in such Securities. When the Custodian is instructed to
deliver Securities against payment, delivery of such Securities and receipt
of payment therefor may not be completed simultaneously. The Fund assumes
all responsibility and liability for all credit risks involved in
connection with the Custodian's delivery of Securities pursuant to instruc-
tions of the Fund, which responsibility and liability shall continue until
final payment in full has been received by the Custodian.
16. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set
forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
ARTICLE XIX
TERMINATION
1. Either of the parties hereto may terminate this Agreement
by giving to the other party a notice in writing specifying the date of
such termination, which shall be not less than ninety (90) days after the
date of giving of such notice. In the event such notice is given by the
Fund, it shall be accompanied by a copy of a resolution of the Board of
Trustees of the Fund, certified by the Secretary, the Clerk, any Assistant
Secretary or any Assistant Clerk, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall be a
bank or trust company having not less than $2,000,000 aggregate capital,
surplus and undivided profits. In the event such notice is given by the
Custodian, the Fund shall, on or before the termination date, deliver to<PAGE>
the Custodian a copy of a resolution of the Board of Trustees of the Fund,
certified by the Secretary, the Clerk, any Assistant Secretary or any
Assistant Clerk, designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may designate a
successor custodian which shall be a bank or trust company having not less
than $2,000,000 aggregate capital, surplus and undivided profits. Upon the
date set forth in such notice this Agreement shall terminate, and the
Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as Custodian,
after deducting all fees, expenses and other amounts for the payment or
reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or
the Custodian in accordance with the preceding paragraph, the Fund shall
upon the date specified in the notice of termination of this Agreement and
upon the delivery by the Custodian of all Securities (other than Securities
held in the Book-Entry System which cannot be delivered to the Fund) and
moneys then owned by the Fund be deemed to be its own custodian and the
Custodian shall thereby be relieved of all duties and responsibilities
pursuant to this Agreement, other than the duty with respect to Securities
held in the Book Entry System which cannot be delivered to the Fund to hold
such Securities hereunder in accordance with this Agreement.
ARTICLE XX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by
two of the present Officers of the Fund under its seal, setting forth the
names and the signatures of the present Officers. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event
that any such present Officer ceases to be an Officer or in the event that
other or additional Officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully protected in
acting under the provisions of this Agreement upon Oral Instructions or
signatures of the present Officers as set forth in the last delivered
Certificate.
2. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered to
it at its offices at 90 Washington Street, New York, New York 10286, or at
such other place as the Custodian may from time to time designate in
writing.
3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be sufficiently
given if addressed to the Fund and mailed or delivered to it at its office
at the address for the Fund first above written, or at such other place as
the Fund may from time to time designate in writing.<PAGE>
4. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties with the same
formality as this Agreement and approved by a resolution of the Board of
Trustees of the Fund.
5. This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund without
the written consent of the Custodian, or by the Custodian without the
written consent of the Fund, authorized or approved by a resolution of the
Fund's Board of Trustees.
6. This Agreement shall be construed in accordance with the
laws of the State of New York without giving effect to conflict of laws
principles thereof. Each party hereby consents to the jurisdiction of a
state or federal court situated in New York City, New York in connection
with any dispute arising hereunder and hereby waives its right to trial by
jury.
7. T h is Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
8. A copy of the Declaration of Trust of the Fund is on file
with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Board of
Trustees of the Fund as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property
of the Fund; provided, however, that the Declaration of Trust of the Fund
provides that the assets of a particular Series of the Fund shall under no
circumstances be charged with liabilities attributable to any other Series
of the Fund and that all persons extending credit to, or contracting with
or having any claim against a particular Series of the Fund shall look only
to the assets of that particular Series for payment of such credit,
contract or claim. <PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers, thereunto duly
authorized and their respective seals to be hereunto affixed, as of the day
and year first above written.
CONSECO FUND GROUP
[SEAL] By:_______________________
Attest:
_______________________
THE BANK OF NEW YORK
[SEAL] By:_______________________
Name:
Title:
Attest:
_______________________<PAGE>
APPENDIX A
I , President and I , of
CONSECO FUND GROUP, a Massachusetts business trust (the "Fund"), do hereby
certify that:
The following individuals serve in the following positions with
the Fund and each has been duly elected or appointed by the Board of
Trustees of the Fund to each such position and qualified therefor in
conformity with the Fund's Declaration of Trust and By-Laws, and the
signatures set forth opposite their respective names are their true and
correct signatures:
Name Position Signature
____________________ ___________________ _________________<PAGE>
APPENDIX B
SERIES
Equity Fund
Asset Allocation Fund
Fixed Income Fund
<PAGE>
APPENDIX C
I, Marjorie A. McLaughlin, a Vice President with THE BANK OF
NEW YORK do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that
he or she is the duly elected and acting of CONSECO FUND GROUP, a
Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1996, at which a quorum was at all times present and
that such resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New York
and the Fund dated as of , 1996, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis to
deposit in the Book-Entry System, as defined in the Custody
A g reement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifically
allocated, and to utilize the Book-Entry System to the extent
p o ssible in connection with its performance thereunder,
including, without limitation, in connection with settlements
of purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
CONSECO FUND GROUP, as of the day of , 1996.
[SEAL]<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies that he
or she is the duly elected and acting of CONSECO FUND GROUP, a
Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1996, at which a quorum was at all times present and
that such resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New York
and the Fund dated as of , 1996, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
until such time as it receives a Certificate, as defined in the
C u s tody Agreement, to the contrary to deposit in the
Depository, as defined in the Custody Agreement, all securities
eligible for deposit therein, regardless of the Series to which
the same are specifically allocated, and to utilize the
Depository to the extent possible in connection with its
performance thereunder, including, without limitation, in
c o n nection with settlements of purchases and sales of
securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
CONSECO FUND GROUP, as of the day of , 1996.
[SEAL]<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies that he or
she is the duly elected and acting of CONSECO FUND GROUP, a Massachusetts
business trust (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Trustees of the Fund at a meeting
duly held on , 1996, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New York
and the Fund dated as of , 1996, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
until such time as it receives a Certificate, as defined in the
C u s tody Agreement, to the contrary to deposit in the
Participants Trust Company as Depository, as defined in the
Custody Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifically
allocated, and to utilize the Participants Trust Company to the
extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements
of purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
CONSECO FUND GROUP, as of the day of , 1996.
[SEAL]<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he or
she is the duly elected and acting of CONSECO FUND GROUP, a Massachusetts
business trust (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Trustees of the Fund at a meeting
duly held on , 1996, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New York
and the Fund dated as of , 1996, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary, to accept, utilize and act
with respect to Clearing Member confirmations for Options and
transaction in Options, regardless of the Series to which the
same are specifically allocated, as such terms are defined in
the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
CONSECO FUND GROUP, as of the day of , 1996.
[SEAL]<PAGE>
EXHIBIT D
The undersigned, , hereby certifies
that he or she is the duly elected and acting of CONSECO FUND GROUP, a
Massachusetts business trust (the "Fund"), further certifies that the
following resolutions were adopted by the Board of Trustees of the Fund at
a meeting duly held on , 1996, at which a quorum was at all times present
and that such resolutions have not been modified or rescinded and are in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
the Custody Agreement between The Bank of New York and the Fund dated as of
, 1996 (the "Custody Agreement") is authorized and instructed on a
continuous and ongoing basis to act in accordance with, and to rely on
Instructions (as defined in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant
use of such access codes only to Officers of the Fund as defined in the
Custody Agreement, shall establish internal safekeeping procedures to
safeguard and protect the confidentiality and availability of user and
access codes, passwords and authentication keys, and shall use Instructions
only in a manner that does not contravene the Investment Company Act of
1940, as amended, or the rules and regulations thereunder.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
CONSECO FUND GROUP, as of the day of , 1996.
[SEAL]<PAGE>
EXHIBIT E
The undersigned, , hereby certifies that he
or she is the duly elected and acting of CONSECO FUND GROUP, a
Massachusetts business trust (the "Fund"), further certifies that the
following resolutions were adopted by the Board of Trustees of the Fund at
a meeting duly held on , 1996, at which a quorum was at all times present
and that such resolutions have not been modified or rescinded and are in
full force and effect as of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in each
country listed in Schedule I hereto be, and hereby is, approved by the
Board of Trustees as consistent with the best interests of the Fund and its
shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with the
foreign branches of The Bank of New York (the "Bank") listed in Schedule I
located in the countries specified therein, and with the foreign sub-
custodians and depositories listed in Schedule I located in the countries
specified therein be, and hereby is, approved by the Board of Trustees as
consistent with the best interest of the Fund and its shareholders; and
further
RESOLVED, that the Sub-custodian Agreements presented to this
meeting between the Bank and each of the foreign sub-custodians and
depositories listed in Schedule I providing for the maintenance of the
Fund's assets with the applicable entity, be and hereby are, approved by
the Board of Trustees as consistent with the best interests of the Fund and
its shareholders; and further
RESOLVED, that the appropriate officers of the Fund are hereby
authorized to place assets of the Fund with the aforementioned foreign
branches and foreign sub-custodians and depositories as hereinabove
provided; and further
RESOLVED, that the appropriate officers of the Fund, or any of
them, are authorized to do any and all other acts, in the name of the Fund
and on its behalf, as they, or any of them, may determine to be necessary
or desirable and proper in connection with or in furtherance of the
foregoing resolutions.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of
CONSECO FUND GROUP, as of the day of , 1996.
[SEAL]<PAGE>
EXHIBIT F
Fee Schedule<PAGE>
wdc # : 4787<PAGE>
ADMINISTRATION AGREEMENT
Between CONSECO FUND GROUP
and
CONSECO SERVICES, LLC
THIS ADMINISTRATION AGREEMENT is entered into as of this day
of January, 1997, by and between Conseco Fund Group (the Trust ), a
Massachusetts business trust having its principal office and place of
business at 11825 N. Pennsylvania St., Carmel, Indiana, and Conseco
Services LLC (the Servicer ), an Indiana limited liability company having
its principal office and place of business at 11815 N. Pennsylvania St.,
Carmel, Indiana.
WITNESSETH:
WHEREAS, the Trust is authorized to issue shares of beneficial
interest ( Shares ) in separate series, with each series representing
interests in a separate portfolio of securities and other assets (the
Funds ); and
WHEREAS, the Trust, on behalf of the Funds, desires the Servicer to
provide administrative services, and the Servicer desires to provide said
services directly or through other entities;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, conditions and agreements contained herein, and for
such other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties, each intending to be legally
bound hereby, mutually agree as follows:
1. Terms of Appointment: Duties of the Servicer
1.1 Subject to the terms and conditions set forth in this Agreement, the
Trust, on behalf of the Funds, hereby engages the Servicer to
provide, and the Servicer agrees to provide, administrative services
to the Trust, to its Funds and to the shareholders of each of the
respective Funds of the Trust ( Shareholders ) as set out hereunder
and in the currently effective prospectus and statement of additional
information ( Prospectus ) of the Trust on behalf of the applicable
Fund.
1.2 The Servicer agrees that it will perform the following services:
(a) The Servicer shall provide administrative services on behalf of
the Funds which may be agreed upon in writing between the Trust
and the Servicer and will include (i) administering the
corporate affairs of the Funds, including supervising the
preparation and filing of all documents required for compliance
by the Funds with applicable laws and regulations, (ii)<PAGE>
furnishing the Funds with such office space, equipment, and
personnel as is needed in connection with their operation,
(iii) furnishing clerical and bookkeeping services as are
needed by the Funds in connection with their operation, (iv)
supervising the maintenance of books and records, (v) assisting
in the preparation of annual and other reports to shareholders
of the Funds, the Securities and Exchange Commission, and any
appropriate governmental body, (vi) fund accounting, (vii)
reviewing and filing any federal, state and local income tax
returns pertaining to the Funds as requested by the Trust,
(viii) preparing for meetings of the Trust s Board of Trustees
and shareholders, (ix) permitting its officers and employees to
serve without compensation as Trustees or officers of the Trust
if elected to such positions, (x) overseeing the determination
and publication of the Funds net asset value in accordance
with the Funds policies as adopted from time to time by the
Trustees, and (xi) in general, supervising the performance of
t h e administrative functions necessary to the Funds in
connection with their operation, subject to the ultimate
supervision and direction of the Trustees.
(b) The administrative services provided hereunder will exclude
(i) portfolio custodial services provided by the Trust s
custodian bank, (ii) transfer agency services provided by the
Trust s transfer agent, (iii) distribution services provided by
the distributor of the Trust s Shares, Conseco Equity Sales,
Inc., and (iv) any administrative services provided by the
Trust s investment adviser pursuant to its investment advisory
agreements with the Trust.
2. Fees and Expenses
2.1 For the performance by the Servicer pursuant to this Agreement, the
Trust agrees on behalf of the Funds to pay the Servicer annual fees
as set out below:
(a) From each Fund, a fee of .20% per annum of its Class A shares
average daily net assets.
(b) From each Fund, a fee of .20% per annum of its Class Y shares
average daily net assets.
The fees and the extraordinary expenses identified under Section 2.2
below may be changed from time to time subject to mutual written
agreement between the Trust and the Servicer.
2.2 In addition to the fees paid under Section 2.1 above, the Trust
agrees on behalf of the Funds to reimburse the Servicer for any
extraordinary expenses incurred by the Servicer at the request of the
Trust and upon the prior consent of the Trustees.
2.3 The Trust agrees on behalf of the Funds to pay all fees and
2<PAGE>
reimbursable expenses promptly. The Servicer will bill the Trust
monthly in arrears.
3. Representations and Warranties of the Servicer and the Trust
3.1 The Servicer represents and warrants to the Trust that:
(a) It is a limited liability company duly organized and existing,
in good standing, under the laws of the State of Indiana.
(b) It is duly qualified to carry on its business in the State of
Indiana.
(c) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
(d) A l l requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(e) It has and will continue to have access to the necessary
facilities equipment and personnel to perform its duties and
obligations under this Agreement.
3.2 The Trust represents and warrants to the Servicer that:
(a) It is a business trust duly organized and existing, in good
standing, under the laws of the Commonwealth of Massachusetts.
(b) It is empowered under applicable laws and by its Agreement and
Declaration of Trust and By-Laws to enter into and perform this
Agreement.
(c) All corporate proceedings required by said Agreement and
Declaration of Trust and By-Laws have been taken to authorize
it to enter into and perform this Agreement.
(d) It is an open-end diversified investment management company
registered under the Investment Company Act of 1940, as amended
(the 1940 Act ).
(e) A registration statement under the Securities Act of 1933, as
amended, and the 1940 Act, on behalf of the Funds is currently
effective and will remain effective, and appropriate securities
filings have been made and will continue to be made with
respect to all Shares of the Funds being offered for sale.
4. Confidentiality
Subject to the duty of the Trust or the Servicer to comply with
applicable law, each party hereto shall treat as confidential all
information with respect to the other party received pursuant to this
Agreement.
3<PAGE>
5. Indemnification
The Servicer and its shareholders, officers, directors or employees
shall not be responsible for, and the Trust shall on behalf of the
applicable Fund indemnify and hold the Servicer harmless from, any
and all losses, expenses and liability arising out of the Servicer s
activities hereunder, except for willful misconduct, bad faith or
negligence of the Servicer or that of its employees or the reckless
disregard by the Servicer of its obligations and duties hereunder.
Nothing herein shall in any way constitute a waiver or limitation of
any rights which may exist under any federal securities laws.
6. Standard of Care
The Servicer shall at all times act in good faith and use its best
efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement. The Servicer assumes no
responsibility and shall not be liable for loss or damage due to
errors unless said errors are caused by its negligence, bad faith, or
willful misconduct or that of its employees or subcontractors.
7. Covenants of the Servicer
The Servicer shall keep records relating to the services to be
performed hereunder in the form and manner as it may deem advisable.
To the extent required by Section 31 of the 1940 Act and the Rules
thereunder, the Servicer agrees that all said records prepared or
maintained by the Servicer relating to the services to be performed
hereunder are the property of the Trust, and will be preserved,
maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Trust on and in
accordance with its request.
8. Additional Funds
In the event that the Trust establishes one or more series of Shares
in addition to the existing Funds with respect to which it desires to
have the Servicer render administrative services under the terms
hereof, it shall so notify the Servicer in writing. If the Servicer
agrees in writing to provide said services, such series of Shares
shall become a Fund hereunder.
9. Amendment
This Agreement may be amended or modified by a written Agreement
executed by both parties and authorized or approved by a resolution
of the Trustees of the Trust.
4<PAGE>
10. Assignment
10.1 Except as provided in Section 10.3 below, neither this agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
10.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
10.3 The Servicer may, without further consent on the part of the Trust,
subcontract for the performance hereof with an affiliate or a non-
affiliate of the Servicer, provided, however, that the Servicer shall
be fully responsible to the Trust for the acts and omissions of any
subcontractor as it is for its own acts and omissions. The Servicer
s h all compensate any subcontractor retained pursuant to this
Agreement out of the fees it receives from the Funds pursuant to
Section 2.1 above.
11. Term of Agreement
This Agreement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner
terminated as hereinafter provided, and shall continue in effect from
year to year thereafter so long as such continuation is approved at
least annually by (i) the Trustees of the Trust or by the vote of a
majority of the outstanding voting securities of the Fund(s) and (ii)
the vote of a majority of the Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party,
with such vote being cast in person at a meeting called for the
purpose of voting on such approval.
12. Termination
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
13. Applicable Law
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of
Indiana.
14. Force Majeure
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure, or other causes reasonably beyond
its control, such party shall not be liable for damages to the other
resulting from such failure to perform or otherwise from such causes.
5<PAGE>
15. Consequential Damages
Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to
act hereunder.
16. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. Limitations of Liability of the Trustees and Shareholders
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of the Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of
the Trustees of the Trust as Trustees, and not individually, and that
the obligations of this instrument are not binding upon any of the
Trustees or Shareholders individually but are binding only upon the
assets and property of the Trust.
18. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested by their duly authorized officers on the day
and year first above written.
CONSECO FUND GROUP
ATTEST:
By:
[title]
CONSECO SERVICES, LLC
ATTEST:
By:
[title]
6<PAGE>
7<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
CONSECO FUND GROUP
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
<PAGE>
TABLE OF CONTENTS
Page
1. Terms of Appointment; Duties of the Bank 1
2. Fees and Expenses 3
3. Representations and Warranties of the Bank 4
4. Representations and Warranties of the Fund 4
5. Data Access and Proprietary Information 5
6 Indemnification 6
7. Standard of Care 7
8. Covenants of the Fund and the Bank 8
9. Termination of Agreement 9
10. Additional Funds 9
11. Assignment 9
12. Amendment 9
13. Massachusetts Law to Apply 10
14. Force Majeure 10
15. Consequential Damages 10
16. Merger of Agreement 10
17. Limitations of Liability of the Trustees
or Shareholders 10
18. Counterparts 10
TRANSFER AGENCY AND SERVICE AGREEMENT
<PAGE>
AGREEMENT made as of the 2nd day of January, 1997, by and between Conseco
Fund Group, a Massachusetts business trust, having its principal office and
place of business at 11815 N. Pennsylvania Street, Carmel, Indiana 46032
(the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
trust company having its principal office and place of business at 225
Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in three series, the
Equity Fund, Balanced Fund and Fixed Income Fund (each such series,
together with all other series subsequently established by the Fund and
made subject to this Agreement in accordance with Article 10, being herein
referred to as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank
as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and
the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement,
the Fund, on behalf of the Portfolios, hereby employs and appoints
the Bank to act as, and the Bank agrees to act as its transfer
agent for the Fund's authorized and issued shares of its common
stock, $ par value, ("Shares"), dividend disbursing agent,
custodian of certain retirement plans and agent in connection with
any accumulation, open-account or similar plans provided to the
shareholders of each of the respective Portfolios of the Fund
("Shareholders") and set out in the currently effective prospectus
and statement of additional information ("prospectus") of the Fund
o n b ehalf of the applicable Portfolio, including without
limitation any periodic investment plan or periodic withdrawal
program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to
time by agreement between the Fund on behalf of each of the
Portfolios, as applicable and the Bank, the Bank shall:
<PAGE>
(i) Receive for acceptance, orders for the
purchase of Shares, and promptly deliver payment and
appropriate documentation thereof to the Custodian of
the Fund authorized pursuant to the Declaration of
Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the
appropriate number of Shares and hold such Shares in
the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests
and redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items
(i), (ii) and (iii) above, the Bank shall execute
transactions directly with broker-dealers authorized by
the Fund who shall thereby be deemed to be acting on
behalf of the Fund;
(v) At the appropriate time as and when it
receives monies paid to it by the Custodian with
respect to any redemption, pay over or cause to be paid
o v e r in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) E f f e ct transfers of Shares by the
registered owners thereof upon receipt of appropriate
instructions;
(vii) Prepare and transmit payments for
dividends and distributions declared by the Fund on
behalf of the applicable Portfolio;
(viii) Issue replacement certificates for
those certificates alleged to have been lost, stolen or
destroyed upon receipt by the Bank of indemnification
satisfactory to the Bank and protecting the Bank and
the Fund, and the Bank at its option, may issue
replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise
the Fund and its Shareholders as to the foregoing; and
<PAGE>
(x) Record the issuance of shares of the Fund
and maintain pursuant to SEC Rule 17Ad-10(e) a record
of the total number of shares of the Fund which are
authorized, based upon data provided to it by the Fund,
and issued and outstanding. The Bank shall also
provide the Fund on a regular basis with the total
number of shares which are authorized and issued and
o u t standing and shall have no obligation, when
recording the issuance of shares, to monitor the
issuance of such shares or to take cognizance of any
laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of the
Fund.
(b) I n a d dition to and neither in lieu nor in
contravention of the services set forth in the above
paragraph (a), the Bank shall: (i) perform the customary
services of a transfer agent, dividend disbursing agent,
custodian of certain retirement plans and, as relevant, agent
in connection with accumulation, open-account or similar
plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, mailing
Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms
1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
S h a r eholder accounts, preparing and mailing activity
s t atements for Shareholders, and providing Shareholder
account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in
each State.
(c) In addition, the Fund shall (i) identify to the Bank
in writing those transactions and assets to be treated as
exempt from blue sky reporting for each State and (ii) verify
the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of the Bank for
the Fund's blue sky State registration status is solely
<PAGE>
limited to the initial establishment of transactions subject
to blue sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these
services in Section 1 may be established from time to time by
agreement between the Fund on behalf of each Portfolio and
the Bank per the attached service responsibility schedule.
The Bank may at times perform only a portion of these
services and the Fund or its agent may perform these services
on the Fund's behalf.
(e) The Bank shall provide additional services on behalf
of the Fund (i.e., escheatment services) which may be agreed
upon in writing between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the
Fund agrees on behalf of each of the Portfolios to pay the Bank an
annual maintenance fee for each Shareholder account as set out in
t h e initial fee schedule attached hereto. Such fees and
out-of-pocket expenses and advances identified under Section 2.2
below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund
agrees on behalf of each of the Portfolios to reimburse the Bank
f o r out-of-pocket expenses, including but not limited to
confirmation production, postage, forms, telephone, microfilm,
microfiche, tabulating proxies, records storage, or advances
incurred by the Bank for the items set out in the fee schedule
attached hereto. In addition, any other expenses incurred by the
Bank at the request or with the consent of the Fund, will be
reimbursed by the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within five days following the receipt of
the respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all shareholder
accounts shall be advanced to the Bank by the Fund at least seven
(7) days prior to the mailing date of such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
<PAGE>
3.1 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth
of Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective
and will remain effective, and appropriate state securities law
filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
5. Data Access and Proprietary Information
5.1 The Fund acknowledges that the data bases, computer programs,
screen formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of
the Fund's ability to access certain Fund-related data ("Customer
Data") maintained by the Bank on data bases under the control and
<PAGE>
ownership of the Bank or other third party ("Data Access Services")
c o n stitute copyrighted, trade secret, or other proprietary
i n f ormation (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event
shall Proprietary Information be deemed Customer Data. The Fund
agrees to treat all Proprietary Information as proprietary to the
Bank and further agrees that it shall not divulge any Proprietary
Information to any person or organization except as may be provided
hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents:
(a) to access Customer Data solely from locations as may
be designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
portion of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing the data acquired
hereunder from being retransmitted to any other computer
facility or other location, except with the prior written
consent of the Bank;
(e) that the Fund shall have access only to those
authorized transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the
Bank to protect at the Bank's expense the rights of the Bank
in Proprietary Information at common law, under federal
copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section
shall survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services
do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall endeavor in a
timely manner to correct such failure. Organizations from which
the Bank may obtain certain data included in the Data Access
<PAGE>
Services are solely responsible for the contents of such data and
the Fund agrees to make no claim against the Bank arising out of
the contents of such third-party data, including, but not limited
to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER
PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY
DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN
I N C LUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i)
effect the transfer or movement of cash or Shares or (ii) transmit
Shareholder information or other information, then in such event
the Bank shall be entitled to rely on the validity and authenticity
of such instruction without undertaking any further inquiry as long
as such instruction is undertaken in conformity with security
procedures established by the Bank from time to time.
6. Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall on behalf
of the applicable Portfolio indemnify and hold the Bank harmless
from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) A l l a c tions of the Bank or its agents or
s u bcontractors required to be taken pursuant to this
Agreement, provided that such actions are taken in good faith
and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
m i s c o n duct which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services
which (i) are received by the Bank or its agents or
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf
of the Fund including but not limited to any previous
transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or
its agents or subcontractors of any instructions or requests
<PAGE>
of the Fund on behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations
or the securities laws or regulations of any state that such
Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such
Shares in such state.
(f) The negotiation and processing by the Bank of checks
not made payable to the order of the Bank, the Fund, the
Fund s management company, transfer agent or distributor or
the retirement account custodian or trustee for a plan
account investing in Shares, which checks are tendered to the
Bank for the purchase of Shares (i.e., checks made payable to
p r ospective or existing Shareholders, such checks are
commonly known as third party checks ).
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to
any matter arising in connection with the services to be performed
by the Bank under this Agreement, and the Bank and its agents or
subcontractors shall not be liable and shall be indemnified by the
Fund on behalf of the applicable Portfolio for any action taken or
omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors
shall be protected and indemnified in acting upon any paper or
document furnished by or on behalf of the Fund, reasonably believed
to be genuine and to have been signed by the proper person or
persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar
means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written
n o tice thereof from the Fund. The Bank, its agents and
s u b contractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of
the Fund, and the proper countersignature of any former transfer
a g e nt or former registrar, or of a co-transfer agent or
co-registrar.
6.3 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which the
Fund may be required to indemnify the Bank, the Bank shall promptly
<PAGE>
notify the Fund of such assertion, and shall keep the Fund advised
with respect to all developments concerning such claim. The Fund
shall have the option to participate with the Bank in the defense
of such claim or to defend against said claim in its own name or in
the name of the Bank. The Bank shall in no case confess any claim
or make any compromise in any case in which the Fund may be
required to indemnify the Bank except with the Fund's prior written
consent.
7. Standard of Care
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all
s e r v i ces performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to
errors unless said errors are caused by its negligence, bad faith,
or willful misconduct or that of its employees.
8. Covenants of the Fund and the Bank
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish
to the Bank the following:
(a) A certified copy of the resolution of the Board of
Trustees of the Fund authorizing the appointment of the Bank
and the execution and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the
Fund and all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of
stock certificates, check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping
account of, such certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem
advisable. To the extent required by Section 31 of the Investment
Company Act of 1940, as amended, and the Rules thereunder, the Bank
agrees that all such records prepared or maintained by the Bank
relating to the services to be performed by the Bank hereunder are
the property of the Fund and will be preserved, maintained and made
available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its
request.
<PAGE>
8.4 The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying
out of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be
required by law.
8.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify
the Fund and to secure instructions from an authorized officer of
the Fund as to such inspection. The Bank reserves the right,
however, to exhibit the Shareholder records to any person whenever
it is advised by its counsel that it may be held liable for the
failure to exhibit the Shareholder records to such person.
9. Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will
be borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a
charge equivalent to the average of three (3) months' fees.
10. Additional Funds
In the event that the Fund establishes one or more series of Shares
in addition to the Equity Fund, Balanced Fund and Fixed Income Fund
with respect to which it desires to have the Bank render services
as transfer agent under the terms hereof, it shall so notify the
Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
11. Assignment
11.1 Except as provided in Section 11.3 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
<PAGE>
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial
Data Services, Inc., a Massachusetts corporation ("BFDS") which is
duly registered as a transfer agent pursuant to Section 17A(c)(2)
of the Securities Exchange Act of 1934, as amended ("Section
17A(c)(2)"), (ii) a BFDS subsidiary duly registered as a transfer
agent pursuant to Section 17A(c)(2) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to
the Fund for the acts and omissions of any subcontractor as it is
for its own acts and omissions.
12. Amendment
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution
of the Board of Trustees of the Fund.
13. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
i n terpreted under and in accordance with the laws of the
Commonwealth of Massachusetts.
14. Force Majeure
In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such
causes.
15. Consequential Damages
Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to
act hereunder.
16. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the
<PAGE>
subject matter hereof whether oral or written.
17. Limitations of Liability of the Trustees and Shareholders
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the
Trustees or Shareholders individually but are binding only upon the
assets and property of the Fund.
18. Counterparts
This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall
be deemed to constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
CONSECO FUND GROUP
BY:
ATTEST:
STATE STREET BANK AND TRUST
COMPANY
BY:
Executive Vice President
ATTEST:
STATE STREET BANK & TRUST COMPANY *
FUND SERVICE RESPONSIBILITIES
Service Performed Responsibility
Bank
Fund
1. Receives orders for the purchase
of Shares.<PAGE>
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.<PAGE>
Service Performed Responsibility
Bank
Fund
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Section 1.2 (a), (b) and
(c) of the Agreement.
CONSECO FUND GROUP
BY:
ATTEST:
STATE STREET BANK AND TRUST
COMPANY
BY:
Executive Vice President
ATTEST:
<PAGE>
December 11, 1996
Board of Trustees
Conseco Fund Group
Re: Registration Statement on Form N-1A
Gentlemen:
I am Executive Vice President, Secretary and General Counsel of
Conseco, Inc. Lawyers under my supervision and I have acted as counsel to
Conseco Fund Group (the Registrant or Trust ) in connection with the
Registrant s Registration Statement on Form N-1A filed pursuant to the
Securities Act of 1933 (the 1933 Act ) and the Investment Company Act of
1940 (the 1940 Act ). This opinion is being furnished pursuant to the
1933 Act in connection with the Registrant s Registration Statement on
Form N-1A relating to the shares of beneficial interest that will be issued
by the Trust.
We have examined copies of the Registration Statement and such other
documents as we have deemed necessary or appropriate for the giving of this
opinion. In such examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. As
to any facts material to the opinions expressed herein which were not
independently established or verified, we have relied upon oral or written
statements and representations of officers and other representatives of the
Trust.
Based on the foregoing, I am of the opinion that:
1. The Trust has been duly organized and is an existing business
trust pursuant to the applicable laws of the Commonwealth of
Massachusetts;
2. The Trust is an investment company registered under the 1940
Act;
3. The shares that will be issued by the Trust as described in the
Registration Statement will be duly authorized and upon
issuance will be validly issued, fully paid and non-assessable.<PAGE>
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Lawrence W. Inlow
Lawrence W. Inlow
Executive Vice President, Secretary and General Counsel<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated December 18, 1996 on
our audit of the Statement of Assets and Liabilities of the Conseco Fund
Group (comprising, respectively, the Equity, Asset Allocation and Fixed
Income Funds) with respect to this Pre-Effective Amendment No. 1 to the
Registration Statement (File Nos. 333-13185 and 811-7839) filed under the
Securities Act of 1933 on Form N-1A of the Conseco Fund Group. We also
consent to the reference to our Firm under the caption "Independent Public
Accountants" in the Prospectus and under the caption "Financial Statements"
in the Statement of Additional Information.
/s/COOPERS & LYBRNAD L.L.P.
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
December 18, 1996<PAGE>
JORDEN BURT BERENSON & JOHNSON
Suite 400 East
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
December 20, 1996
Conseco Fund Group
11825 North Pennsylvania Street
Carmel, Indiana 46032
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
Legal Counsel in the Prospectuses contained in Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A filed by Conseco Fund
Group with the Securities and Exchange Commission under the Securities Act
of 1933 and the Investment Company Act of 1940.
Very truly yours,
/s/Jorden Burt Berenson & Johnson LLP
Jorden Burt Berenson & Johnson LLP<PAGE>
Class A
Plan of Distribution and Service
Pursuant to Rule 12b-1
CONSECO FUND GROUP
Equity Fund
December ___, 1996
WHEREAS, Conseco Fund Group, a Massachusetts business trust (the
Trust ), intends to engage in business as an open-end management
investment company and has filed a registration statement on Form N-1A with
the Securities and Exchange Commission;
WHEREAS, the Trust has engaged Conseco Equity Sales, Inc. (the
Distributor ) as distributor of the shares of the Trust pursuant to a
Distribution Agreement dated as of ____________, 1996;
WHEREAS, the Trust is authorized to issue shares in separate series
(the Series ); the Trustees, to date, have created three Series of shares
one of which series is the Equity Fund (the Fund ); and the Trustees may
create additional Series in the future as the Trustees deem necessary and
appropriate;
WHEREAS, the Trust is authorized to issue shares of each Series in
one or more classes, and to date, the Trustees have created two classes:
Class A Shares and Class Y Shares ;
WHEREAS, the Trust desires to adopt a Plan of Distribution and
Service pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the Act ) on behalf of the Fund and the Trustees of the Trust have
determined that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders; and
WHEREAS, expenditures under the Plan of Distribution and Service are
primarily intended to result in the sale of Class A Shares of the Fund
within the meaning of paragraph (a)(2) of Rule 12b-1 under the Act.
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Fund, and
the Distributor hereby agrees to the terms of, this Plan of Distribution
and Service (the Plan ) in accordance with Rule 12b-1, on the following
terms and conditions:
1. (a) The Trust is authorized to compensate the Distributor for
services performed and expenses incurred by the Distributor in
connection with the distribution of Class A Shares of the Fund
and the servicing of accounts holding such Shares of the Fund.
(b) The Fund shall pay to the Distributor, at the end of each
month, an amount equal to the average daily net assets of the
Fund multiplied by that portion of 0.35% which the number of
days in the month bears to 365. Such payment represents
reimbursement for (i) expenses incurred by the Distributor for<PAGE>
the promotion and distribution of Class A Shares of the Fund
( Distribution Fee ) and (ii) fees paid to Authorized Dealers
(defined below).
(c) Such compensation shall be calculated and accrued daily and
paid monthly or at such other intervals as the Board of
Trustees may determine.
(d) The Distributor shall:
(i) (1) retain that portion of the Distribution Fee necessary
t o c ompensate it for costs associated with the
distribution of Class A Shares of the Fund; and (2)
d i sburse that portion of the Distribution Fee to
Authorized Dealers necessary to reimburse expenses of
A u t horized Dealers incurred in the promotion and
distribution of Class A Shares of the Fund; and
(ii) pay any Service Fee it receives under the Plan for which
a particular underwriter, dealer, broker, bank or selling
entity having a Selling Group Agreement in effect (the
Authorized Dealers ) is the dealer of record (which may
include the Distributor) to such Authorized Dealers to
compensate such Authorized Dealers for providing personal
services to shareholders relating to their investment
and/or maintaining shareholder accounts.
(e) Expenses for which the Distributor, or an Authorized Dealer,
may receive Distribution Fee payments include, but are not
limited to, the printing of prospectuses, statements of
additional information and reports used for sales purposes,
expenses of preparation of sales literature and related
expenses, advertisements, other distribution-related expenses
(including personnel of the Distributor), certain overhead
expenses attributable to the distribution of Class A Shares of
the Fund such as communications, salaries, training, supplies,
photocopying and similar types of expenses and fees paid to
Authorized Dealers.
(f) Services for which Authorized Dealers may receive Service Fee
payments include, but are not limited to, any or all of the
following: maintaining account records for shareholders who
beneficially own Shares; answering inquiries relating to the
shareholders accounts, the policies of the Trust and the
performance of their investment; providing assistance and
handling transmission of funds in connection with purchase,
redemption and exchange orders for Shares; providing assistance
in connection with changing account setups and enrolling in
various optional Trust services; producing and disseminating
shareholder communications or servicing materials; the ordinary
or capital expenses, such as equipment, rent, fixtures,
salaries, bonuses, reporting and recordkeeping and third party
2<PAGE>
consultancy or similar expenses, relating to any activity for
which payment is authorized by the Board of Trustees; and the
financing of any other activity for which payment is authorized
by the Board of Trustees.
(g) In no event shall the sum of the Distribution Fee and Service
Fee exceed the Distributor s actual expenses incurred during
the period for which such Fees will be paid. Notwithstanding
the foregoing, the sum of the Distribution Fee and Service Fee
may exceed actual expenses incurred by the Distributor,
p r o v ided, that such excess represents payment to the
Distributor for unreimbursed expenses incurred under this Plan
not more than three years prior to the date upon which the Fund
will make payment of Distribution Fees and Service Fees to the
Distributor. Reimbursement of expenses shall be calculated on
a first-in, first-out basis.
2. This Plan shall not take effect until the Plan, together with any
related agreement(s), has been approved by votes of a majority of
both (a) the Board of Trustees of the Trust, and (b) those Trustees
of the Trust who are not interested persons of the Trust (as
defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to
the Plan (the Rule 12b-1 Trustees ) cast in person at a meeting
called for the purpose of voting on the Plan and such related
agreement(s).
3. This Plan shall remain in effect until December ___, 1997, and shall
continue in effect thereafter so long as such continuance is
specifically approved at least annually in the manner provided for
approval of this Plan in paragraph 2.
4. The Distributor shall provide to the Trustees of the Trust and the
Trustees shall review, at least quarterly, a written report of
distribution and service related activities, Distribution Fees,
Service Fees, and the purposes for which such activities were
performed and expenses incurred.
5. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees or by vote of a majority (as defined in the Act)
of the Class A outstanding voting securities of the Fund.
6. This Plan may not be amended to increase materially the amount of
compensation payable by the Trust with respect to Class A Shares of
the Fund under paragraph 1 hereof unless such amendment is approved
by a vote of at least a majority (as defined in the Act) of the Class
A outstanding voting securities of the Fund. No material amendment
to the Plan shall be made unless approved in the manner provided in
paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of
3<PAGE>
the Trust shall be committed to the discretion of the Trustees who
are not such interested persons.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a
period of not less than six years from the date of the Plan, any such
agreement, or any such report, as the case may be, the first two
years in an easily accessible place.
9. Any agreement related to this Plan shall be in writing and shall
provide that (a) the agreement may be terminated at any time upon
sixty (60) days written notice, without the payment of any penalty,
by vote of a majority of the Rule 12b-1 Trustees, or by vote of a
majority of the Class A outstanding voting securities of the Fund,
(b) the agreement shall automatically terminate in the event of its
assignment (as defined in the Act), and (c) the agreement shall
continue in effect for a period of more than one year from the date
of its execution or adoption only so long as such continuance is
specifically approved at least annually by a majority of Trustees of
the Trust and a majority of the Rule 12b-1 Trustees by votes cast in
person at a meeting called for the purpose of voting on such
agreement.
IN WITNESS WHEREOF, the Trust and Distributor have executed this Plan
of Distribution and Service as of the day and year first above written.
CONSECO FUND GROUP
By:
CONSECO EQUITY SALES, INC.
By:
4<PAGE>
Class A
Plan of Distribution and Service
Pursuant to Rule 12b-1
CONSECO FUND GROUP
Asset Allocation Fund
December ___, 1996
WHEREAS, Conseco Fund Group, a Massachusetts business trust (the
Trust ), intends to engage in business as an open-end management
investment company and has filed a registration statement on Form N-1A with
the Securities and Exchange Commission;
WHEREAS, the Trust has engaged Conseco Equity Sales, Inc. (the
Distributor ) as distributor of the shares of the Trust pursuant to a
Distribution Agreement dated as of ____________, 1996;
WHEREAS, the Trust is authorized to issue shares in separate series
(the Series ); the Trustees, to date, have created three Series of shares
one of which series is the Asset Allocation Fund (the Fund ); and the
Trustees may create additional Series in the future as the Trustees deem
necessary and appropriate;
WHEREAS, the Trust is authorized to issue shares of each Series in
one or more classes, and to date, the Trustees have created two classes:
Class A Shares and Class Y Shares ;
WHEREAS, the Trust desires to adopt a Plan of Distribution and
Service pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the Act ) on behalf of the Fund and the Trustees of the Trust have
determined that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders; and
WHEREAS, expenditures under the Plan of Distribution and Service are
primarily intended to result in the sale of Class A Shares of the Fund
within the meaning of paragraph (a)(2) of Rule 12b-1 under the Act.
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Fund, and
the Distributor hereby agrees to the terms of, this Plan of Distribution
and Service (the Plan ) in accordance with Rule 12b-1, on the following
terms and conditions:
1. (a) The Trust is authorized to compensate the Distributor for
services performed and expenses incurred by the Distributor in
connection with the distribution of Class A Shares of the Fund
and the servicing of accounts holding such Shares of the Fund.
(b) The Fund shall pay to the Distributor, at the end of each
month, an amount equal to the average daily net assets of the
Fund multiplied by that portion of 0.35% which the number of
days in the month bears to 365. Such payment represents
reimbursement for (i) expenses incurred by the Distributor for<PAGE>
the promotion and distribution of Class A Shares of the Fund
( Distribution Fee ) and (ii) fees paid to Authorized Dealers
(defined below).
(c) Such compensation shall be calculated and accrued daily and
paid monthly or at such other intervals as the Board of
Trustees may determine.
(d) The Distributor shall:
(i) (1) retain that portion of the Distribution Fee necessary
t o c ompensate it for costs associated with the
distribution of Class A Shares of the Fund; and (2)
d i sburse that portion of the Distribution Fee to
Authorized Dealers necessary to reimburse expenses of
A u t horized Dealers incurred in the promotion and
distribution of Class A Shares of the Fund; and
(ii) pay any Service Fee it receives under the Plan for which
a particular underwriter, dealer, broker, bank or selling
entity having a Selling Group Agreement in effect (the
Authorized Dealers ) is the dealer of record (which may
include the Distributor) to such Authorized Dealers to
compensate such Authorized Dealers for providing personal
services to shareholders relating to their investment
and/or maintaining shareholder accounts.
(e) Expenses for which the Distributor, or an Authorized Dealer,
may receive Distribution Fee payments include, but are not
limited to, the printing of prospectuses, statements of
additional information and reports used for sales purposes,
expenses of preparation of sales literature and related
expenses, advertisements, other distribution-related expenses
(including personnel of the Distributor), certain overhead
expenses attributable to the distribution of Class A Shares of
the Fund such as communications, salaries, training, supplies,
photocopying and similar types of expenses and fees paid to
Authorized Dealers.
(f) Services for which Authorized Dealers may receive Service Fee
payments include, but are not limited to, any or all of the
following: maintaining account records for shareholders who
beneficially own Shares; answering inquiries relating to the
shareholders accounts, the policies of the Trust and the
performance of their investment; providing assistance and
handling transmission of funds in connection with purchase,
redemption and exchange orders for Shares; providing assistance
in connection with changing account setups and enrolling in
various optional Trust services; producing and disseminating
shareholder communications or servicing materials; the ordinary
or capital expenses, such as equipment, rent, fixtures,
salaries, bonuses, reporting and recordkeeping and third party
2<PAGE>
consultancy or similar expenses, relating to any activity for
which payment is authorized by the Board of Trustees; and the
financing of any other activity for which payment is authorized
by the Board of Trustees.
(g) In no event shall the sum of the Distribution Fee and Service
Fee exceed the Distributor s actual expenses incurred during
the period for which such Fees will be paid. Notwithstanding
the foregoing, the sum of the Distribution Fee and Service Fee
may exceed actual expenses incurred by the Distributor,
p r o v ided, that such excess represents payment to the
Distributor for unreimbursed expenses incurred under this Plan
not more than three years prior to the date upon which the Fund
will make payment of Distribution Fees and Service Fees to the
Distributor. Reimbursement of expenses shall be calculated on
a first-in, first-out basis.
2. This Plan shall not take effect until the Plan, together with any
related agreement(s), has been approved by votes of a majority of
both (a) the Board of Trustees of the Trust, and (b) those Trustees
of the Trust who are not interested persons of the Trust (as
defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to
the Plan (the Rule 12b-1 Trustees ) cast in person at a meeting
called for the purpose of voting on the Plan and such related
agreement(s).
3. This Plan shall remain in effect until December ___, 1997, and shall
continue in effect thereafter so long as such continuance is
specifically approved at least annually in the manner provided for
approval of this Plan in paragraph 2.
4. The Distributor shall provide to the Trustees of the Trust and the
Trustees shall review, at least quarterly, a written report of
distribution and service related activities, Distribution Fees,
Service Fees, and the purposes for which such activities were
performed and expenses incurred.
5. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees or by vote of a majority (as defined in the Act)
of the Class A outstanding voting securities of the Fund.
6. This Plan may not be amended to increase materially the amount of
compensation payable by the Trust with respect to Class A Shares of
the Fund under paragraph 1 hereof unless such amendment is approved
by a vote of at least a majority (as defined in the Act) of the Class
A outstanding voting securities of the Fund. No material amendment
to the Plan shall be made unless approved in the manner provided in
paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of
3<PAGE>
the Trust shall be committed to the discretion of the Trustees who
are not such interested persons.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a
period of not less than six years from the date of the Plan, any such
agreement, or any such report, as the case may be, the first two
years in an easily accessible place.
9. Any agreement related to this Plan shall be in writing and shall
provide that (a) the agreement may be terminated at any time upon
sixty (60) days written notice, without the payment of any penalty,
by vote of a majority of the Rule 12b-1 Trustees, or by vote of a
majority of the Class A outstanding voting securities of the Fund,
(b) the agreement shall automatically terminate in the event of its
assignment (as defined in the Act), and (c) the agreement shall
continue in effect for a period of more than one year from the date
of its execution or adoption only so long as such continuance is
specifically approved at least annually by a majority of Trustees of
the Trust and a majority of the Rule 12b-1 Trustees by votes cast in
person at a meeting called for the purpose of voting on such
agreement.
IN WITNESS WHEREOF, the Trust and Distributor have executed this Plan
of Distribution and Service as of the day and year first above written.
CONSECO FUND GROUP
By:
CONSECO EQUITY SALES, INC.
By:
4<PAGE>
Class A
Plan of Distribution and Service
Pursuant to Rule 12b-1
CONSECO FUND GROUP
Fixed Income Fund
December ___, 1996
WHEREAS, Conseco Fund Group, a Massachusetts business trust (the
Trust ), intends to engage in business as an open-end management
investment company and has filed a registration statement on Form N-1A with
the Securities and Exchange Commission;
WHEREAS, the Trust has engaged Conseco Equity Sales, Inc. (the
Distributor ) as distributor of the shares of the Trust pursuant to a
Distribution Agreement dated as of ____________, 1996;
WHEREAS, the Trust is authorized to issue shares in separate series
(the Series ); the Trustees, to date, have created three Series of shares
one of which series is the Fixed Income Fund (the Fund ); and the Trustees
may create additional Series in the future as the Trustees deem necessary
and appropriate;
WHEREAS, the Trust is authorized to issue shares of each Series in
one or more classes, and to date, the Trustees have created two classes:
Class A Shares and Class Y Shares ;
WHEREAS, the Trust desires to adopt a Plan of Distribution and
Service pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the Act ) on behalf of the Fund and the Trustees of the Trust have
determined that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders; and
WHEREAS, expenditures under the Plan of Distribution and Service are
primarily intended to result in the sale of Class A Shares of the Fund
within the meaning of paragraph (a)(2) of Rule 12b-1 under the Act.
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Fund, and
the Distributor hereby agrees to the terms of, this Plan of Distribution
and Service (the Plan ) in accordance with Rule 12b-1, on the following
terms and conditions:
1. (a) The Trust is authorized to compensate the Distributor for
services performed and expenses incurred by the Distributor in
connection with the distribution of Class A Shares of the Fund
and the servicing of accounts holding such Shares of the Fund.
(b) The Fund shall pay to the Distributor, at the end of each
month, an amount equal to the average daily net assets of the
Fund multiplied by that portion of 0.35% which the number of
days in the month bears to 365. Such payment represents
reimbursement for (i) expenses incurred by the Distributor for<PAGE>
the promotion and distribution of Class A Shares of the Fund
( Distribution Fee ) and (ii) fees paid to Authorized Dealers
(defined below).
(c) Such compensation shall be calculated and accrued daily and
paid monthly or at such other intervals as the Board of
Trustees may determine.
(d) The Distributor shall:
(i) (1) retain that portion of the Distribution Fee necessary
t o c ompensate it for costs associated with the
distribution of Class A Shares of the Fund; and (2)
d i sburse that portion of the Distribution Fee to
Authorized Dealers necessary to reimburse expenses of
A u t horized Dealers incurred in the promotion and
distribution of Class A Shares of the Fund; and
(ii) pay any Service Fee it receives under the Plan for which
a particular underwriter, dealer, broker, bank or selling
entity having a Selling Group Agreement in effect (the
Authorized Dealers ) is the dealer of record (which may
include the Distributor) to such Authorized Dealers to
compensate such Authorized Dealers for providing personal
services to shareholders relating to their investment
and/or maintaining shareholder accounts.
(e) Expenses for which the Distributor, or an Authorized Dealer,
may receive Distribution Fee payments include, but are not
limited to, the printing of prospectuses, statements of
additional information and reports used for sales purposes,
expenses of preparation of sales literature and related
expenses, advertisements, other distribution-related expenses
(including personnel of the Distributor), certain overhead
expenses attributable to the distribution of Class A Shares of
the Fund such as communications, salaries, training, supplies,
photocopying and similar types of expenses and fees paid to
Authorized Dealers.
(f) Services for which Authorized Dealers may receive Service Fee
payments include, but are not limited to, any or all of the
following: maintaining account records for shareholders who
beneficially own Shares; answering inquiries relating to the
shareholders accounts, the policies of the Trust and the
performance of their investment; providing assistance and
handling transmission of funds in connection with purchase,
redemption and exchange orders for Shares; providing assistance
in connection with changing account setups and enrolling in
various optional Trust services; producing and disseminating
shareholder communications or servicing materials; the ordinary
or capital expenses, such as equipment, rent, fixtures,
salaries, bonuses, reporting and recordkeeping and third party
2<PAGE>
consultancy or similar expenses, relating to any activity for
which payment is authorized by the Board of Trustees; and the
financing of any other activity for which payment is authorized
by the Board of Trustees.
(g) In no event shall the sum of the Distribution Fee and Service
Fee exceed the Distributor s actual expenses incurred during
the period for which such Fees will be paid. Notwithstanding
the foregoing, the sum of the Distribution Fee and Service Fee
may exceed actual expenses incurred by the Distributor,
p r o v ided, that such excess represents payment to the
Distributor for unreimbursed expenses incurred under this Plan
not more than three years prior to the date upon which the Fund
will make payment of Distribution Fees and Service Fees to the
Distributor. Reimbursement of expenses shall be calculated on
a first-in, first-out basis.
2. This Plan shall not take effect until the Plan, together with any
related agreement(s), has been approved by votes of a majority of
both (a) the Board of Trustees of the Trust, and (b) those Trustees
of the Trust who are not interested persons of the Trust (as
defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to
the Plan (the Rule 12b-1 Trustees ) cast in person at a meeting
called for the purpose of voting on the Plan and such related
agreement(s).
3. This Plan shall remain in effect until December ___, 1997, and shall
continue in effect thereafter so long as such continuance is
specifically approved at least annually in the manner provided for
approval of this Plan in paragraph 2.
4. The Distributor shall provide to the Trustees of the Trust and the
Trustees shall review, at least quarterly, a written report of
distribution and service related activities, Distribution Fees,
Service Fees, and the purposes for which such activities were
performed and expenses incurred.
5. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees or by vote of a majority (as defined in the Act)
of the Class A outstanding voting securities of the Fund.
6. This Plan may not be amended to increase materially the amount of
compensation payable by the Trust with respect to Class A Shares of
the Fund under paragraph 1 hereof unless such amendment is approved
by a vote of at least a majority (as defined in the Act) of the Class
A outstanding voting securities of the Fund. No material amendment
to the Plan shall be made unless approved in the manner provided in
paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of
3<PAGE>
the Trust shall be committed to the discretion of the Trustees who
are not such interested persons.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a
period of not less than six years from the date of the Plan, any such
agreement, or any such report, as the case may be, the first two
years in an easily accessible place.
9. Any agreement related to this Plan shall be in writing and shall
provide that (a) the agreement may be terminated at any time upon
sixty (60) days written notice, without the payment of any penalty,
by vote of a majority of the Rule 12b-1 Trustees, or by vote of a
majority of the Class A outstanding voting securities of the Fund,
(b) the agreement shall automatically terminate in the event of its
assignment (as defined in the Act), and (c) the agreement shall
continue in effect for a period of more than one year from the date
of its execution or adoption only so long as such continuance is
specifically approved at least annually by a majority of Trustees of
the Trust and a majority of the Rule 12b-1 Trustees by votes cast in
person at a meeting called for the purpose of voting on such
agreement.
IN WITNESS WHEREOF, the Trust and Distributor have executed this Plan
of Distribution and Service as of the day and year first above written.
CONSECO FUND GROUP
By:
CONSECO EQUITY SALES, INC.
By:
4<PAGE>
Conseco Equity Sales, Inc.
11815 North Pennsylvania Street
Carmel, Indiana 46032
SELLING GROUP AGREEMENT
Ladies and Gentlemen:
As Principal Underwriter and exclusive Selling Agent for each of the mutual
funds of Conseco Fund Group (the Company ), listed on Schedule A hereto
and referred to collectively as the "Funds" or individually as the "Fund,"
we understand that you are a member of the National Association of
Securities Dealers, Inc. (the "NASD"), and, on the basis of such
understanding, invite you to become a member of the Selling Group to
distribute the shares of the Funds on the following terms.
1. Compliance with Applicable Law: Reference is hereby specifically
made to the Conduct Rules of the NASD (the "NASD Rules"), which are
incorporated herein as if set forth in full. It is agreed that you will
comply with all of the requirements of said Rules and all other rules or
regulations that are now or may become applicable to you in connection with
the offer or sale of shares of the Funds, including federal securities laws
and state securities ("blue sky") laws.
2. Orders: (a) An order for shares of any Fund received from you will
be confirmed only at the appropriate offering price applicable to that
order, as described in such Fund s then current Prospectus. The procedure
relating to orders and the handling thereof will be subject to instructions
released by us from time to time. Orders should be transmitted to our
office at P.O. Box 8017, Boston, Massachusetts 02266-8017 or other offices
authorized by us for this purpose. You or your customer may, however, mail
a completed application with a check payable to the Fund directly to the
Fund s transfer agent for transmission to the Fund s office at P.O. Box
8017, Boston, Massachusetts 02266-8017. All orders are subject to
acceptance in Carmel, Indiana, and we as agent for the Funds reserve the
right in our sole discretion to reject any order. The minimum initial
investment for each Fund is set forth in its then current Prospectus.
(b) You agree to offer and sell shares of the Funds only in those
jurisdictions in which such offers and sales are lawful, and only in those
jurisdictions in which you are licensed to offer and sell securities. We
will advise you as to the jurisdictions in which we believe the shares of
the Funds have been qualified for offer and sale.
3. S u p ervision: You agree that you will have full and sole
responsibility for the training and supervision of all persons, including
your agents, employees, and/or other affiliated persons or organizations,
who are engaged directly or indirectly in the offer or sale of shares of
the Funds. You also agree that all such persons or organizations shall be
subject to your control with respect to their activities in connection with
the offer or sale of shares of the Funds.
4. S u i t a bility: You agree that you will have full and sole
r e sponsibility for compliance with all suitability requirements in<PAGE>
connection with the sale or exchange of shares of the funds, including the
obtaining of pertinent information from prospective purchasers, and the
making of all suitability determinations. You and your agents shall
understand, and where appropriate, explain the features of the various
classes of shares of the Funds, including, but not limited to, applicable
sales charges and distribution fees pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the 1940 Act ).
5. Licensing: All persons under your supervision engaged in the offer or
sale of shares of the Funds shall be licensed in accordance with applicable
NASD Rules and state securities laws.
6. Concessions: (a) Any sales charges and dealers concessions will be
as set forth in Schedule A hereto and the current Prospectus of each Fund.
(b) We agree to pay your concession subject to the provisions of
this Agreement as set forth in Schedule A hereto and the Fund s then-
current prospectus on all purchases made by your customers pursuant to
orders accepted by us (i) where an order for the purchase of shares of the
Funds is obtained by your agent and remitted to us promptly by you, or (ii)
where a subsequent investment is made to an account established by your
agent.
(c) Certain classes of shares of the Funds have adopted a
distribution and service plan pursuant to Rule 12b-1 under the 1940 Act
( Distribution and Service Plan ), as described in the Funds prospectus.
To the extent you provide distribution and marketing services in the
promotion of the sale of the shares of these Funds, including furnishing
services and assistance to your customers who invest in and own shares of
such Funds, you will be entitled to receive compensation from us as set
forth in Schedule A hereto and the Funds then-current prospectus.
(d) Where payment is due hereunder, we agree to send payment for
dealers concessions and payments made in accordance with the Funds
Distribution and Service Plan to your address as it appears on our records.
You must notify us of address changes and promptly negotiate such payments.
Any such payments that remain outstanding for 12 months shall be void and
the obligation represented thereby shall be extinguished.
7. Expense Reports: You agree to provide us and the Company, at least
quarterly, a written report of amounts expended by you in connection with
the provision of sales support services hereunder and the purposes for
which such expenditures were made. In addition, you will furnish us or the
Company with such information as we may reasonably request (including,
without limitation, periodic certifications confirming the provision to
your customers of the services described herein), and will otherwise
cooperate with us and the Company (including, without limitation, any
auditors or legal counsel designated by us or the Company), in connection
with the preparation of reports to the Company s Board of Trustees
concerning this Agreement and the monies paid or payable by us pursuant
hereto, as well as any other reports or filings that may be required by
law.
2<PAGE>
8. Remittance: Remittance by you should be made by check or wire,
payable to the appropriate Fund (not to us) and sent to the Company s
transfer agent. Payments must be received promptly pursuant to Rule
2830(m) of the NASD Rules, otherwise the right is reserved, without notice,
to cancel the sale, in which event you will be held responsible for any
loss to the Company, Fund, or to us, including the loss of profit resulting
from your failure to make payment.
9. Selling Group Activities: (a) Shares of any Fund may be liquidated
by sale thereof to such Fund or to us as Agent for such Fund at the
applicable net asset value, determined in the manner described in such
Fund s then current Prospectus and Statement of Additional Information.
(b) In no event shall you withhold placing orders so as to profit
from such withholding by a change in the net asset value from that used in
determining the price to your customer, or otherwise. You shall make no
purchases of Fund shares from the Fund except for the purpose of covering
orders received by you and then such purchases must be made only at the
applicable offering price (less your concession), provided, however, that
the foregoing does not prevent the purchase of shares by you for your own
bona fide investment. All sales to your customers shall be at the
applicable offering prices determined in accordance with the Fund s then
current Prospectus.
10. Refund of Sales Charge: If the shares of any Fund confirmed to you
hereunder is repurchased by such Fund, or by us as Agent for such Fund, or
is tendered for liquidation to such Fund, within seven (7) business days
after such confirmation of your original order, then you shall forthwith
repay to such Fund the full concession allowed to you on such sale and we
shall forthwith repay to such Fund our share of the sales charge thereon.
We shall notify you of such repurchase or redemption within ten (10) days
from the day on which the redemption order is delivered to us or to such
Fund.
11. R e p resentations: (a) No person is authorized to make any
representation relating to the shares of any Fund, except those contained
in its then current Prospectus and Statement of Additional Information
which you agree to deliver to investors in accordance with applicable
regulations and in such information as we may issue as supplemental
information to such Prospectus and Statement of Additional Information. In
ordering shares of any Fund you shall rely solely and conclusively on the
representations contained in that Fund s then current Prospectus, Statement
of Additional Information, and supplemental information, if any, additional
copies of which are and will be available on request.
(b) You agree not to furnish or cause to be furnished to any person,
or display or publish any information or materials relating to any Fund
(including, without limitation, promotional materials, sales literature,
advertisements, press releases, announcements, posters, signs and other
similar materials), except such information and materials as may be
furnished to you by us or the Funds. All other materials must receive our
written approval before distribution or display to the public. Use of all
3<PAGE>
approved advertising and sales literature materials is restricted to
appropriate distribution channels.
(c) You agree that in connection with the offer and sale of shares of
the Funds neither you nor persons under your supervision shall:
(i) employ any device, scheme, or artifice to defraud; or
(ii) make any untrue statement of material fact or omit to
state a material fact necessary in order to make the
statements made, in light of the circumstances under
which they were made, not misleading; or
(iii) engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any
person.
(d) In no transaction shall you have any authority whatever to act as
agent for any Fund, or for us, or for any other distributor, and nothing in
this Agreement shall constitute either of us the agent of the other, or
shall constitute you or any Fund the agent of the other.
12. Assignments: This Agreement shall automatically terminate in the
event of its assignment by you.
13. Modification and Termination: We reserve the right, in our
discretion, with or without cause, and with such notice to you as we deem
appropriate, to suspend sales, to withdraw any offering, to change the
offering prices or to modify or cancel this Agreement (including the
provision for Distribution and Service Plan payments described in Section
6). This agreement may be terminated by you at any time by giving thirty
(30) days written notice to us.
14. Indemnification: You hereby agree to indemnify and hold harmless the
Principal Underwriter, its officers and directors, employees, agents,
parents, affiliates, and subsidiaries, and any person who is or may be
deemed to be a controlling person of the Principal Underwriter, from and
against any losses, claims, damages, liabilities or expenses (including
reasonable fees of counsel), whether joint or several, to which any such
person or entity may become subject insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) arise out
of or are based upon, any act or omission by you or persons under your
supervision.
15. Governing Law: This Agreement shall be governed and construed in
accordance with the laws of the State of Indiana, without giving effect to
conflict of laws.
16. Arbitration: You acknowledge and agree that all disputes between the
parties regarding the interpretation of terms or performance hereunder, or
in any way relating to the offer or sale of Fund shares, shall be resolved
through NASD arbitration, as required by applicable NASD rules.
4<PAGE>
17. Headings: The headings in this Agreement are solely for the
convenience of reference and shall be given no effect in the construction
or interpretation of this Agreement.
18. Acceptance of Terms: If the foregoing completely expresses the terms
of the Agreement between us, please so signify by executing, in the space
provided, the annexed duplicate of this Agreement and return it to us,
retaining the original copy for your own files. This Agreement shall
become effective upon the earliest of our receipt of a signed copy hereof
or the first order placed by you for any of the Funds shares after the
date below, which order shall constitute acceptance of this Agreement.
This Agreement shall supersede all prior Selling Group Agreements relating
to the shares of any of the Funds. All amendments to this Agreement,
including any changes made pursuant to Schedule A, shall take effect as of
the date of the first order placed by you for any of the Fund s shares
after the date set forth in the notice of amendment sent to you by the
undersigned.
Very truly yours,
_____________________
Principal Underwriter
Dealer s
Acceptance:_________________ By:_______________________
Firm s Name Authorized Person(s)
Date: ___________, 19___ Address: ________________________
________________________
5<PAGE>
CONSECO EQUITY SALES, INC.
SCHEDULE A
TO THE
SELLING GROUP AGREEMENT
RELATING TO SHARES OF
CONSECO FUND GROUP
DATED ____________, 199_
Equity Fund Class A
Equity Fund Class Y
Balanced Fund Class A
Balanced Fund Class Y
Fixed Income Fund Class A
Fixed Income Fund Class Y
A. Dealer Concessions as a Percentage of Offering Price:
Amount of Sale Class A Shares Class Y Shares
Less than $50,000 4.5% None
$50,000 but less
than $100,000 4.0% None
$100,000 but less
than $500,000 3.0% None
$500,000 but less
than $1,000,000 1.5% None
Over $1,000,000 1.00% None
B. Distribution and Service Fees
In addition to the Dealer Concession, the Dealer shall be entitled to
receive a trail or maintenance fee ( Service Fee ), which will be
prorated and paid quarterly after the first full year of investment,
in an amount equal to an annual rate of 0.25% of Class A s respective
daily net assets held in accounts by customers for whom the Dealer is
the holder or agent of record.<PAGE>
CONSECO FUND GROUP
Multiple Class Plan
Pursuant to Rule 18f-3
WHEREAS, Conseco Fund Group, a Massachusetts business trust (the
Trust ), intends to engage in business as an open-end management
investment company and has filed a registration statement on Form N-1A with
the Securities and Exchange Commission;
WHEREAS, the Trust is authorized to and will issue shares of
beneficial interest in separate series, with shares of each series
representing interests in a separate portfolio of securities and other
assets (the Trust s series together with all other such series subsequently
established by the Trust referred to herein individually as a Series and
collectively as the Series );
WHEREAS, the Trust is authorized to and has divided the shares of
each Series into classes, and has currently designated two classes: Class
A Shares and Class Y Shares ; and
WHEREAS, the Trustees of the Trust, including the Trustees who are
not interested persons of the Trust (as defined in the Investment Company
Act of 1940, as amended (the Act )) (the Non-Interested Trustees ), after
having been furnished and having evaluated information reasonably necessary
to evaluate this Multiple Class Plan (the Plan ), have determined in the
exercise of their reasonable business judgment that the Plan is in the best
interests of each class of each Series individually, and each Series and
the Trust as a whole.
NOW, THEREFORE, the Trust hereby adopts this Plan, effective the date
hereof, in accordance with Rule 18f-3 under the Act.
Section 1. Class Differences. Each class of shares of a Series shall
represent an equal pro rata interest in the same portfolio of
investments of that Series and shall have identical voting,
dividend, liquidation, and other rights, preferences, powers,
r e s trictions, limitations, qualifications and terms and
conditions, and, except as otherwise set forth in this Plan,
shall differ solely with respect to: (i) distribution, service
and other charges and expenses as provided for in Sections 2
and 3 of this Plan; (ii) the exclusive right of each class of
shares to vote on matters submitted to shareholders that relate
solely to that class or for which the interests of one class
differ from the interests of another class; (iii) such
differences relating to eligible investors as may be set forth
in the prospectus and statement of additional information of
each Series, as the same may be amended or supplemented from
time to time (each a Prospectus and SAI and collectively,
the Prospectus and SAI ); (iv) the designation of each class
of shares; and (v) conversion features, if any.
Section 2. Distribution and Service Arrangements. Class A Shares and
Class Y Shares of each Series shall differ in the manner in<PAGE>
which such shares are distributed and in the services provided
to shareholders of each such class as follows:
(a) Class A Shares:
(i) Class A Shares shall be sold to individual investors at
net asset value subject to a front-end sales charge as
set forth in the Prospectus and SAI;
(ii) Class A Shares shall be subject to an annual service fee
( Service Fee ) pursuant to a Plan of Distribution and
Service Pursuant to Rule 12b-1 (the 12b-1 Plan ) not to
exceed 0.25 of 1% of the average daily net assets of the
Series allocable to Class A Shares, which, as set forth
in the Prospectus, SAI, and the 12b-1 Plan, may be used
to compensate certain authorized dealers for providing
ongoing account services to shareholders of Class A
Shares;
(iii) Class A Shares shall be subject to an annual distribution
fee ( Distribution Fee ) pursuant to the 12b-1 Plan
which, as set forth in the Prospectus, SAI and the 12b-1
Plan, will be used to reimburse Conseco Equity Sales,
Inc., the Trust s distributor, for certain expenses
incurred in the distribution of Class A Shares of the
Trust. The sum of the Distribution Fee and the Service
Fee shall not exceed 0.35 of 1%, of average daily net
assets of the Series allocable to Class A Shares; and
(iv) Class A Shares shall not be subject to a contingent-
deferred sales charge.
(b) Class Y Shares:
(i) Class Y Shares shall be sold to institutional investors
at net asset value without a front-end sales charge
subject to an initial minimum purchase payment of
$500,000;
(ii) Class Y Shares shall not be subject to a Service Fee;
(iii) Class Y Shares shall not be subject to a Distribution
Fee; and
(iv) Class Y Shares shall not be subject to a contingent-
deferred sales charge.
Section 3. Allocation of Income, Expenses, Gains and Losses
(a) Investment Income, and Realized and Unrealized Gains and
Losses. The daily investment income, and realized and
unrealized gains and losses, of a Series will be allocated to
2<PAGE>
each class of shares based on each class relative percentage
of the total value of shares outstanding of the Series at the
beginning of the day, after such net assets are adjusted for
the prior day s capital share transactions.
(b) Series Level Expenses. Expenses that are attributable to a
Series, but not a particular class thereof ( Series level
expenses ), will be allocated to each class of shares based on
each class relative percentage of the total value of shares
outstanding of the Series at the beginning of the day, after
such net assets are adjusted for the prior day s capital share
transactions. Series level expenses include fees for services
that are received equally by the classes under the same fee
arrangement. All expenses attributable to a Series that are
not class level expenses (as defined below) shall be Series
level expenses, including but not limited to advisory fees,
custodial fees, share registration expenses, and shareholder
reporting expenses.
(c) Class Level Expenses. Expenses that are directly attributable
to a particular class of shares, including the expenses
relating to the distribution of a class shares, or to services
provided to the shareholders of a class, as set forth in
Section 2 of this Plan, will be incurred by that class of
shares. Class level expenses include expenses for services
that are unique to a class of shares in either form or amount.
Class level expenses shall include, but not be limited to,
12b-1 Plan Service Fees, 12b-1 Plan Distribution Fees, expenses
associated with the addition of share classes to the Trust (to
the extent that the expenses were not fully accrued prior to
the issuance of the new classes of shares), expenses of
administrative personnel and services required to support the
shareholders of a specific class, litigation or other legal
expenses relating to a specific class of shares, Trustees fees
or expenses incurred as a result of issues relating to a
specific class of shares, and accounting expenses relating to a
specific class of shares, and transfer agency fees and
expenses.
(d) Fee Waivers and Expense Reimbursements. On a daily basis, if
the Series level expenses and the class level expenses (not
including 12b-1 Plan payments) exceed the daily expense cap, if
any, for the Series, an appropriate waiver/reimbursement will
be made to the Series. The amount of such reimbursement to
each class will be in an amount such that the expenses of the
class with the highest expense ratio (excluding Service Fees
and Distribution Fees) will be equal to the daily expense cap
after reimbursement. The expense reimbursement will be
allocated to each class of shares based on each class relative
percentage of the total value of shares outstanding of the
Series as the beginning of the day, after such net assets are
adjusted for the prior day s capital share transactions.
3<PAGE>
Section 4. Exchange Privilege. Shares of a class of a Series may be
exchanged only for shares of the same class of another Series,
or for shares of the Federated Money Market Fund, as set forth
in the Prospectus and SAI.
Section 5. Term and Termination.
(a) The Series. This Plan shall become effective with respect to
each Series on the date hereof, and shall continue in effect
with respect to such Class A and Class Y Shares of each such
Series until terminated in accordance with the provisions of
Section 5(c) hereof.
(b) Additional Series or Classes. This Plan shall become effective
with respect to any class of shares of a Series other than
Class A or Class Y and with respect to each additional Series
or class thereof established by the Trust after the date hereof
and made subject to this Plan upon commencement of the initial
public offering thereof (provided that the Plan has previously
been approved with respect to such additional Series or class
by votes of a majority of both (i) the Trustees of the Trust,
and (ii) the Non-Interested Trustees, cast at a meeting held
before the initial public offering of such additional Series or
classes thereof), and shall continue in effect with respect to
each such additional Series or class until terminated in
accordance with provisions of Section 5(c) hereof. An addendum
setting forth such specific and different terms of such
additional Series or classes shall be attached to or made part
of this Plan.
(c) Termination. This Plan may be terminated at any time with
respect to the Trust or any Series or class thereof, as the
case may be, by vote of a majority of both the Trustees of the
Trust and the Non-Interested Trustees. The Plan may remain in
effect with respect to the Trust or any Series or class thereof
even if it has been terminated in accordance with this Section
5(c) with respect to any other Series or class of the Trust.
Section 6. Amendments. Except as set forth below, any material amendment
to this Plan affecting the Trust or Series or class thereof
shall require the affirmative vote of a majority of both the
Trustees of the Trust and the Non-Interested Trustees that the
amendment is in the best interests of each class of each Series
individually and each Series as a whole.
Dated: December 5, 1996
4<PAGE>
