<PAGE>
As Filed With The Securities And Exchange Commission On
October 1, 1996
Registration No. _______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. ____
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 X
Amendment No. ____
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.
Washington, D.C. 20007
<PAGE>
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:
. Cover Sheet
. Contents of Registration Statement
. Cross Reference Sheet
. Part A - Conseco Fund Group, Class A prospectus
Conseco Fund Group, Class Y prospectus
. Part B - Statement of Additional Information
. Part C - Other Information
. Signature Pages
. Exhibits
<PAGE>
CONSECO FUND GROUP
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Location in
Item No. Registration
Statement
Part A: Information Required In Prospectus
<S> <C>
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
<PAGE>
15. Control Persons and Principal Not Applicable
Holders of Securities
16. Investment Advisory and Other Services Management
17. Brokerage Allocation Portfolio Turnover
and Securities
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Transactions
<PAGE>
N-1A Location in
Item No. Registration
Statement
18. Capital Stock and Other Securities General
19. Purchase, Redemption and Pricing of Purchase and
Redemption of
Securities Being Offered 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 Controlled
by or Under
Common Control Common Control
26. Number of Holders of Securities Number of Holders
of Securities
27. Indemnification Indemnification
28. Business and Other Connections Business and Other
Connections
of Investment Adviser of
Investment Adviser
29. Principal Underwriters Principal
Underwriters
30. Location of Accounts and Records Location of
Accounts and Records
31. Management Services Management
Services
32. Undertakings Undertakings
</TABLE>
<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.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 1, 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
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 (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
whereby investments are allocated, based upon thorough
investment research, valuation and analysis of market trends
and the anticipated relative total return available, among
various asset classes including debt securities, equity
securities, and money market instruments.
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
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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
_________ ______, 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 ____________, ____.
2
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TABLE OF CONTENTS
Page
Cover Page . . . . . . . . . . . . . . . . . . . . . . .
Fee Table . . . . . . . . . . . . . . . . . . . . . . .
Investment Objectives and Policies of the Funds . . . .
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 . . . . . . . . . . . . .
3
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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>
Asset Fixed
Shareholder Transaction Expenses Equity Allocation Income
<S> <C> <C> <C>
Maximum Sales Charge Imposed on 5% 5% 5%
Purchase (as a percentage of
offering price)
Maximum Sales Charge Imposed on
Reinvested Dividends (as a None None None
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 Service .25% .25% .25%
Fees (1)
Other Expenses (less voluntary .35% .35% .35%
fee waivers and reimbursements)
Total Operating Expenses (after 1.50% 1.50% 1.25%
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
the Rules of the National Association of Securities Dealers,
Inc.
4
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(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
The 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.
The 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
5
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<PAGE>
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
characteristics of common stocks, such as convertible
debentures and warrants). However, if market conditions
indicate their desirability, the Adviser may, for defensive
purposes, temporarily invest all or a part of the assets of
the 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
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,
6
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<PAGE>
price action of the stock itself, publicly recorded trading
transactions by corporate insiders, and relative price-
earnings ratios. The Adviser expects that investment
opportunities will often be sought among securities of larger,
established companies, although securities of smaller, less
well- known companies may also be selected.
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.
government or its agencies or instrumentalities (these
obligations are referred to in this Prospectus as "U.S.
government securities"). To maximize potential return, the
Adviser may utilize a variety of investment techniques and
strategies including but not limited to: writing "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
available among various asset classes, including debt
securities, equity securities and money market instruments.
Total investment return consists of current income, including
dividends, interest, and discount accruals, and capital
appreciation. Achieving this 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
7
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<PAGE>
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
uncertain 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
securities 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,
interest rate, gold, and other futures contracts, and
purchasing options on such futures contracts; purchasing
warrants and preferred and convertible preferred stocks;
purchasing foreign securities; entering into foreign currency
transactions and options on foreign currencies; borrowing from
banks to purchase securities; purchasing securities of other
investment companies; entering into repurchase agreements;
purchasing restricted securities; investing in when-issued or
delayed delivery securities; and selling securities short
"against the box." See "Description of Securities and
Investment Techniques" in the SAI for further information.
The maturities of the debt securities in the Asset
Allocation 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
8
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<PAGE>
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
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
9
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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
debt securities of foreign issuers, including non-U.S.
dollar denominated debt securities, Eurodollar securities and
securities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities
thereof. As a non-fundamental operating policy, the Asset
Allocation 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
trends. The Adviser seeks to enhance total return specifically
through purchasing securities which the Adviser believes are
undervalued and selling, when appropriate, those securities
the Adviser believes are overvalued. In order to determine
value, the Adviser utilizes independent fundamental analysis
of the issuer as well as an analysis of the specific structure
of the security. A debt security will be considered
"investment grade" if it is rated in one of the four highest
rating categories by at least one 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. The Fixed Income Fund may invest in debt securities
issued by publicly and privately held U.S. and foreign
companies, the U.S. government and agencies and
instrumentalities thereof, 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
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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
in 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.
The 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;
investing in securities of other investment companies;
entering into repurchase agreements; investing in when-issued
or delayed delivery securities; and selling securities short
"against the box." See "Description of Securities and
Investment Techniques" in the SAI for further information.
MANAGEMENT
The Trustees of the Trust decide upon matters of general
policy for the Trust. In addition, the Trustees review the
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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
administration 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. The
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
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 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:
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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
specialized 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.
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.
Administrative Fees
Pursuant to an administration agreement ("Administration
Agreement"), Conseco Services, LLC supervises the overall
administration of the Funds. These administrative services
include 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
records, 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 A net assets.
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 GARCO
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
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be revised. Up to .15% of the fee may be used for shareholder
servicing expenses with the remainder used for distribution
expenses.
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 Conseco Fund Group, 11815
N. Pennsylvania Street, Carmel, Indiana, 46032, 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 Boston Financial Data Services ("BFDS") (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.
The 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:
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<TABLE>
<CAPTION>
Sales Charge
As % of As % of Dealer
Public Net Reallowance
Offering Amount As % of
Price Invested Offering
Price
<S> <C> <C> <C>
On purchases of:
$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 None
</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.
The 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.
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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,
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 5:00 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, except those payable to an
existing shareholder who is a natural person (as opposed to a
corporation or partnership), credit cards, and cash 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
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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:
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,
profit-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
trust 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.
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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.
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) present or former officers, directors and
employees (and their parents, 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
and 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);
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(6) any charitable organization, state, county, city, or any
instrumentality, department, authority or agency thereof which
has 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
investment adviser who makes such purchases through a
broker/dealer, bank or trust company (each of which may impose
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
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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
Application included in this Prospectus. A signature
guarantee by an eligible guarantor may be required as
stipulated in Rule 17Ad-15(a)(2) under the Securities Exchange
Act of 1934. To determine whether a signature guarantee or
order documentation is required, shareholders may call BFDS at
(800) 986-3384.
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). 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.
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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. During the withdrawal period,
you may purchase additional shares for deposit to your account
if the additional purchases are equal to at least one year's
scheduled withdrawals, or $1,200, whichever is greater.
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 the fifth business day prior to the end
of the month or quarter. Checks are then mailed on or about
the first of the following month. If you elect to have a
Systematic Withdrawal Plan, you must have all dividends and
capital gains reinvested. To establish systematic cash
withdrawals, please 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
Payment 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
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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
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
none 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, provided
the shares have been held for a minimum of 30 days. 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
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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
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"
Section 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
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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
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.
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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
reinvest 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.
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
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
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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.
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 June 28, 1996.
Corresponding CST Fund
Fund (Inception Date and Asset
Size)
Equity Fund Common Stock Portfolio
(Jan. 31, 1992)
$109,635,525
Asset Allocation Fund Asset Allocation Portfolio
(Dec.1, 1991)
$9,583,375
Fixed Income Fund Corporate Bond Portfolio
(July 31, 1990)
$16,046,368
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 June 28, 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 effect.
26
<PAGE>
Assuming Class A Share Total Fund Operating Expenses and the
Maximum Initial Sales Load Applicable to Class A Shares.
<TABLE>
<CAPTION>
CST Fund 10
Years or
(Inception Date) 1 Year 3 Years 5 Years Since
Inception
<S> <C> <C> <C> <C>
Common Stock Portfolio 31.54% 16.26% N/A
16.13%
(Jan. 31, 1992)
Asset Allocation
Portfolio 19.66% 12.21% N/A%
13.10%
(Dec. 31, 1991)
Corporate Bond
Portfolio -1.10% 3.22% 7.76%
8.29%
(July 31, 1990)
</TABLE>
Assuming Class A Share Total Fund Operating Expenses With No
Initial Sales Load.1/
<TABLE>
<CAPTION>
CST Fund 10
Years or
(Inception Date) 1 Year 3 Years 5 Years Since
Inception
<C> <C> <C> <C>
<S> 38.46% 18.26% N/A
17.47%
Common Stock Portfolio
(Jan. 31, 1992)
Asset Allocation
Portfolio 25.96% 14.14% N/A
14.37%
(Dec. 31, 1991)
Corporate Bond
Portfolio 4.11% 5.00% 8.87%
9.22%
(July 31, 1990)
</TABLE>
<PAGE>
Each of the Funds may from time to time advertise certain
investment performance information. Performance information
may consist of yield and average annual total return
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.
27
<PAGE>
quotations reflecting the deduction of all applicable charges
over a period of time. A Fund also may use aggregate total
return 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
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
investment 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
Trust, 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.
28
<PAGE>
<PAGE>
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
non-profit, tax-exempt organizations. The Trust also has
information concerning prototype Medical Savings Accounts.
For information, see the SAI and call or write the
Distributor.
Reports to Shareholders
Investors in the Funds will be informed of their progress
through periodic reports. Financial statements certified by
independent 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.
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.
29
<PAGE>
<PAGE>
Distributor
GARCO Equity Sales, 11815 N. Pennsylvania Street,
Carmel, Indiana 46032, serves as distributor of shares of the
Trust.
Transfer Agent
BFDS, P.O. Box 8017, Quincy, Massachusetts 02266, serves
as the Trust's transfer agent.
Custodian
Bank of New York, 90 Washington Street, 22nd Floor, New
York, New York 10826, serves as custodian of each Fund's
assets.
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
authorized to give any information or make any
representations, other than those contained in this Prospectus
or the SAI.
30
<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 . . . . . . . . . . . . . . . . . .
31
<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)
32
<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
elements may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of 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.
Caa Bonds which are rated Caa are of poor standing. Such
A-1
<PAGE>
<PAGE>
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
Standard & Poor's Corporation's Corporate Bond Ratings:
AAA This is the highest rating assigned by Standard & Poor's
("S&P") to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
BB/B/CCC/CC Bonds rated BB, B, CCC, and CC are regarded, on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the
lowest degree of 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.
A-2
<PAGE>
<PAGE>
Preferred Stock Ratings:
Both Moody's and S&P use the same designations for corporate
bonds as they do for preferred stock, except that in the case
of Moody's preferred stock ratings, the initial letter rating
is not capitalized. While the descriptions are tailored for
preferred stocks and relative quality, distinctions are
comparable to those described above for corporate bonds.
Conseco Fund Group
Administrative Office
11815 N. Pennsylvania Street
Carmel, Indiana 46032
____________, 199_
A-3
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 1, 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 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 (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 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 whereby investments are allocated,
based upon thorough investment research, valuation and
analysis of market trends and the anticipated relative
total return available, among various asset classes
including debt securities, equity securities, and
money market instruments.
<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 the
money market fund managed by Federated Investors,
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1996
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
__________________, 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 __________________.
2
<PAGE>
TABLE OF CONTENTS
Page
Cover Page . . . . . . . . . . . . . . . . . . . . . . .
Fee Table . . . . . . . . . . . . . . . . . . . . . . .
Investment Objectives and Policies of the Funds . . . .
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 . . . . . . . . . . . . .
3
<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 Expenses Equity Allocation Income
<S> <C> <C> <C>
Maximum Sales Charge Imposed on None None None
Purchase (as a percentage of
offering price)
Maximum Sales Charge Imposed on
Reinvested Dividends (as a None None None
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 Service None None None
Fees
.05% .05% (.15%)
Other Expenses (less voluntary
fee waivers and reimbursements)
Total Operating Expenses (after .95% .95% .50%
reimbursement)(1)
</TABLE?
(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
.95%, .95% and .50%, 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
4
<PAGE>
<PAGE>
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 $30
Asset Allocation $10 $30
Fixed Income $ 5 $16
The 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.
The 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
5
<PAGE>
<PAGE>
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
characteristics of common stocks, such as convertible
debentures and warrants). However, if market conditions
indicate their desirability, the Adviser may, for defensive
purposes, temporarily invest all or a part of the assets of
the 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
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-
earnings ratios. The Adviser expects that investment
opportunities will often be sought among securities of larger,
established companies, although securities of smaller, less
well- known companies may also be selected.
6
<PAGE>
<PAGE>
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.
government or its agencies or instrumentalities (these
obligations are referred to in this Prospectus as "U.S.
government securities"). To maximize potential return, the
Adviser may utilize a variety of investment techniques and
strategies including but not limited to: writing "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
available among various asset classes, including debt
securities, equity securities and money market instruments.
Total investment return consists of current income, including
dividends, interest, and discount accruals, and capital
appreciation. Achieving this 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.
7
<PAGE>
<PAGE>
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
uncertain 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
securities 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,
interest rate, gold, and other futures contracts, and
purchasing options on such futures contracts; purchasing
warrants and preferred and convertible preferred stocks;
purchasing foreign securities; entering into foreign currency
transactions and options on foreign currencies; borrowing from
banks to purchase securities; purchasing securities of other
investment companies; entering into repurchase agreements;
purchasing restricted securities; investing in when-issued or
delayed delivery securities; and selling securities short
"against the box." See "Description of Securities and
Investment Techniques" in the SAI for further information.
The maturities of the debt securities in the Asset
Allocation 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
8
<PAGE>
<PAGE>
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
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
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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
debt securities of foreign issuers, including non-U.S.
dollar denominated debt securities, Eurodollar securities and
securities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities
thereof. As a non-fundamental operating policy, the Asset
Allocation 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
trends. The Adviser seeks to enhance total return specifically
through purchasing securities which the Adviser believes are
undervalued and selling, when appropriate, those securities
the Adviser believes are overvalued. In order to determine
value, the Adviser utilizes independent fundamental analysis
of the issuer as well as an analysis of the specific structure
of the security. A debt security will be considered
"investment grade" if it is rated in one of the four highest
rating categories by at least one 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. The Fixed Income Fund may invest in debt securities
issued by publicly and privately held U.S. and foreign
companies, the U.S. government and agencies and
instrumentalities thereof, 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.
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<PAGE>
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
in 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.
The 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;
investing in securities of other investment companies;
entering into repurchase agreements; investing in when-issued
or delayed delivery securities; and selling securities short
"against the box." See "Description of Securities and
Investment Techniques" in the SAI for further information.
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
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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
administration 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. The
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
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 Y shares of the Equity Fund exceeds .95%, the Asset
Allocation Fund exceeds .95%, and the Fixed Income Fund
exceeds .50%. 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
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<PAGE>
real estate acquisition and development in which he
specialized in residential development and construction
finance and was responsible for overseeing a project portfolio
of $750 million in real estate assets.
Fixed 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.
Administrative Fees
Pursuant to an administration agreement ("Administration
Agreement"), Conseco Services, LLC supervises the overall
administration of the Funds. These administrative services
include 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
records, 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.
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
You may purchase shares from any broker-dealer that has a
selling agreement with GARCO 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
to the Conseco Funds Group, 11815 N. Pennsylvania Street,
Carmel, Indiana, 46032, 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
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<PAGE>
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 Boston Financial Data Services ("BFDS"), (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. 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.
The 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
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<PAGE>
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,
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 5:00 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, except those payable to an
existing shareholder who is a natural person (as opposed to a
corporation or partnership), credit cards, and cash 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.
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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
Application included in this Prospectus. A signature
guarantee by an eligible guarantor may be required as
stipulated in Rule 17Ad-15(a)(2) under the Securities Exchange
Act of 1934. To determine whether a signature guarantee or
order documentation is required, shareholders may call the
Transfer Agent at (800) 986-3384.
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.
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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.
General
Payment 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.
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, provided
the shares have been held for a minimum of 30 days. 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
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 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
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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"
Section 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
any net short-term gains or losses from the sale of its
investments less its estimated expenses (including fees
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<PAGE>
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
reinvest 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.
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<PAGE>
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
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 June 28, 1996.
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<PAGE>
Corresponding CST Fund
(Inception Date and Asset
Fund Size)
Equity Fund Common Stock Portfolio
(Jan. 31, 1992)
$109,635,525
Asset Allocation Fund Asset Allocation
Portfolio
(Dec. 31, 1991)
$9,583,375
Fixed Income Fund Corporate Bond Portfolio
(July 31, 1990)
$16,046,368
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 June 28,
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.
</TABLE>
<TABLE>
<CAPTION>
CST Fund 10
Years or
(Inception Date) 1 Year 3 Years 5 Years Since
Inception
<S> <C> <C> <C> <C>
Common Stock Portfolio 39.21% 18.90% N/A
18.10%
(Jan. 31, 1992)
Asset Allocation
Portfolio 26.65% 14.77% N/A
15.00%
(Dec. 31, 1991)
Corporate Bond
Portfolio 5.14% 6.05% 9.95%
10.30%
(July 30, 1990)
</TABLE>
Each of the Funds may from time to time advertise certain
investment performance information. Performance information
may consist of yield and average annual total return
quotations reflecting the deduction of all applicable charges
<PAGE>
over a period of time. A Fund also may use aggregate total
return figures for various periods, representing the
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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
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
investment 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
Trust, 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.
Reports to Shareholders
Investors in the Funds will be informed of their progress
through periodic reports. Financial statements certified by
independent public accountants will be submitted to
shareholders at least annually.
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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.
For 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 BFDS
at (800) 986-3384 for additional information on the purchase
of Class A shares.
Distributor
GARCO Equity Sales, 11815 N. Pennsylvania Street, Carmel,
Indiana 46032 serves as distributor to the Trust.
Transfer Agent
BFDS, P.O. Box 8017, Quincy, Massachusetts 02266, serves
as the Trust's transfer agent.
Custodian
Bank of New York, 90 Washington Street, 22nd Floor, New
York, New York 10826, serves as custodian of each Fund's
assets.
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.
23
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<PAGE>
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
authorized to give any information or make any
representations, other than those contained in this Prospectus
or the SAI.
24
<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 . . . . . . . . . . . . . . . . . .
25
<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)
26
<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
elements may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of 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.
Caa Bonds which are rated Caa are of poor standing. Such
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issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
Standard & Poor's Corporation's Corporate Bond Ratings:
AAA This is the highest rating assigned by Standard & Poor's
("S&P") to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
BB/B/CCC/CC Bonds rated BB, B, CCC, and CC are regarded, on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.
CI The rating CI is reserved for income bonds on which no
interest is being paid.
D Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-): The ratings from AA to B may be
modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Preferred Stock Ratings:
Both Moody's and S&P use the same designations for corporate
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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
____________, 199_ 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
_________________, 1996
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 _____________, 1996. 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
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<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. Invest more than 5 percent of the value of its assets in
the securities of any one issuer if thereafter the Fund
in question would have more than 5 percent of its assets
in the securities of any issuer; this restriction does
not apply to U.S. government securities;
6. Invest in securities of a company for the purpose of
exercising control or management;
7. Write, purchase or sell puts, calls or any combination
thereof, except that the 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
percent 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 percent
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 percent of the assets of the
Fund in question would be invested in securities of
issuers in that industry; investing in cash items
(including time and demand deposits such as certificates
of deposit of domestic banks), U.S. government
securities, or repurchase agreements as to these
securities, shall not be considered investments in an
industry;
10. Purchase or sell real estate, except that it may purchase
marketable securities which are issued by companies which
invest in real estate or interests therein;
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
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<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
and may be changed by the Board of Trustees without
shareholder approval.
The Trust may not, and each Fund may not (except as noted):
1. Sell securities short, except that each Fund may 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
broker-dealers meeting certain guidelines for
creditworthiness, (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
The following discussion describes in greater detail different
types of securities and investment techniques used by the
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<PAGE>
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
instrumentalities, have the right to borrow from the
participating countries, including the United States.
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
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<PAGE>
as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers, and other
secondary market issuers) may be uninsured or may be supported
by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters
of credit, which may be issued by governmental entities,
private insurers, or the mortgage poolers.
GNMA Certificates. GNMA certificates are mortgage-backed
securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S.
Government. GNMA certificates differ from typical bonds
because principal is repaid monthly over the term of the loan
rather than returned in a lump sum at maturity. Although 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.
FHLMC, a corporate instrumentality of the U.S. government,
issues participation certificates which represent an interest
in a pool of conventional mortgage loans. FHLMC guarantees the
timely payment of interest and the ultimate collection of
principal, and maintains reserves to protect holders against
losses due to default, but these securities are not backed by
the full faith and credit of the U.S. government. As is the
case with GNMA certificates, the actual maturity of and
realized yield on particular FNMA and FHLMC pass-through
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securities will vary based on the prepayment experience of the
underlying pool of mortgages.
Collateralized Mortgage Obligations. All Funds may purchase
mortgage-backed securities issued by financial institutions
such as commercial banks, savings and loan associations,
mortgage banks, and securities broker-dealers (or affiliates
of such institutions established to issue these securities) in
the form of either collateralized mortgage obligations
("CMOs") or mortgage-backed bonds. CMOs are obligations fully
collateralized directly or indirectly by a pool of mortgages
on which payments of principal and interest are dedicated to
payment of principal and interest on the CMOs. Payments are
passed through to the holders on the same schedule as they are
received. Mortgage-backed bonds are general obligations of the
issuer fully collateralized directly or indirectly by a pool
of mortgages. The mortgages serve as collateral for the
issuer's payment obligations on the bonds but interest and
principal payments on the mortgages are not passed through
either directly (as with GNMA certificates and FNMA and FHLMC
pass-through securities) or on a modified basis (as with
CMOs). Accordingly, a change in the rate of prepayments on the
pool of mortgages could change the effective maturity of a CMO
but not that of a mortgage-backed bond (although, like many
bonds, mortgage-backed bonds may be callable by the issuer
prior to maturity). Although the mortgage-related securities
securing these obligations may be subject to a government
guarantee or third-party support, the obligation itself is not
so guaranteed. Therefore, if the collateral securing the
obligation is insufficient to make payment on the obligation,
a holder could sustain a loss. 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
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<PAGE>
rising, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the mortgage-backed
security. Accordingly, it is not possible to accurately
predict the average life of a particular pool. Reinvestment of
prepayments may occur at higher or lower rates than the
original yield on the securities. Therefore, the actual
maturity and realized yield on pass-through or modified pass-
through mortgage-backed securities will vary based upon the
prepayment experience of the underlying pool of mortgages.
Asset-Backed Securities
Each 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
are passed through to certificate holders and may be
guaranteed up to certain amounts by letters of credit issued
by a financial institution affiliated or unaffiliated with the
trustee or originator of the trust.
Underlying automobile sales contracts or credit card
receivables are subject to prepayment, which may reduce the
overall return to certificate holders. Nevertheless,
principal repayment rates tend not to vary much with interest
rates and the short-term nature of the underlying car loans or
other receivables tends to dampen the impact of any change in
the prepayment level. Certificate holders may 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
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 of
foreign issuers that may or may not be U.S.
dollar denominated.
The investment return on a corporate debt security reflects
interest earnings and changes in the market value of the
security. The market value of corporate debt obligations may
be expected to rise and fall inversely with interest rates
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generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on
interest or principal payments at the time called for by an
instrument. Debt securities rated BBB or Baa, which are
considered medium-grade category debt securities, do not have
economic characteristics that provide the high degree of
security with respect to payment of principal and interest
associated with higher rated debt securities, and generally
have some speculative characteristics. A debt security will be
placed in this rating category where interest payments and
principal security appear adequate for the present, but
economic characteristics that provide longer term protection
may be lacking. Any debt security, and particularly those
rated BBB or Baa (or below), may be susceptible to changing
conditions, particularly to economic downturns, which could
lead to a weakened capacity to pay interest and principal.
New issues of certain debt securities are often offered on a
when-issued or delayed delivery basis; that is, the payment
obligation and the interest rate are fixed at the time the
buyer enters into the commitment, but delivery and payment for
the securities normally take place after the customary
settlement time. The value of when-issued or delayed delivery
securities may vary prior to and after delivery depending on
market conditions and changes in interest rate levels.
However, a 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
characteristics 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.
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Risks Associated With High Yield Debt Securities. The Asset
Allocation Fund and the Equity Fund 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 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.
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
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<PAGE>
changes in business conditions and interest rates. It also
considers relative values based on anticipated cash flow,
interest or dividend coverage, asset coverage and earnings
prospects.
Also, the Adviser buys and sells debt securities principally
in response to its evaluation of an issuer's continuing
ability to meet its obligations, the availability of better
investment opportunities, and its assessment of changes in
business conditions and interest rates. From time to time,
consistent with the Equity Fund's and the Asset Allocation
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
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.
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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
on variable or floating rate securities is ordinarily
determined by reference to, or is a percentage of, a bank's
prime rate, the 90-day U.S. Treasury bill rate, the rate of
return on commercial paper or bank certificates of deposit, an
index of short-term interest rates, or some other objective
measure.
Variable or floating rate securities frequently include a
demand feature entitling the holder to sell the securities to
the issuer at par value. In many cases, the demand feature can
be exercised at any time on seven days' notice; in other
cases, the demand feature is exercisable at any time on 30
days' notice or on similar notice at intervals of not more
than one year.
Banking Industry and Savings Industry Obligations
Each 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
by 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. 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,
or the equivalent in other currencies, and the
institution has outstanding securities rated A or better
by Moody's or Standard & Poor's, or, if the institution
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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 parties
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
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
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deposits; and (ii) any restricted securities (i.e., securities
which cannot freely be sold for legal reasons) and any
securities for which market quotations are not readily
available; however, this 10 percent limit does not include any
obligations payable at principal amount plus accrued interest,
on demand or within seven days after demand, and thus does not
include repurchase agreements having a maturity of seven days
or less.
Restricted and Illiquid Securities
The 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 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.
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.
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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
Fund anticipates purchasing at a later date. Each Fund
intends to use these transactions as a hedge and not as
speculative investment. 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
remedies 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.
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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
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.
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
foreign 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
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laws or restrictions. In addition, with respect to certain
countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social
instability, or diplomatic developments that could adversely
affect investments in those countries. Since the Asset
Allocation 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
States. 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
possible losses through the holding of securities by
custodians and securities depositories in foreign countries.
Dividend and interest income from foreign securities may
generally be subject to withholding taxes by the country in
which the issuer is located and may not be recoverable by a
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.
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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
payment for the underlying financial instruments, such
contracts are usually closed out before the delivery date.
Closing out an open futures contract position is effected by
entering into an offsetting sale or purchase, respectively,
for the same aggregate amount of the same financial instrument
on the same delivery date. Where a 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.
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
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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
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
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in which a Fund would use put and call options on debt
securities, as described in "Options on Securities" below.
Stock 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:
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
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comparable to the amount of stock purchased would be
terminated by offsetting closing sales transactions. Stock
index futures might also be purchased:
1. If the 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
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,
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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 and 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 and the Fund would remain obligated to
meet margin requirements and continue to incur losses until
the position is closed.
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"
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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
considered 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.
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
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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
designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than
price fluctuations in a single security. The 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
B-23
<PAGE>
<PAGE>
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
securities, inadequacy of the facilities of national
securities exchanges or The Options Clearing Corporation due
to a high trading volume or other events, and a decision by
one or more national securities exchanges to discontinue the
trading of call options or to impose restrictions on certain
types of orders.
Since option premiums paid or received by a 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.
B-24
<PAGE>
<PAGE>
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
contract 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
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.
B-25
<PAGE>
<PAGE>
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 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
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<PAGE>
<PAGE>
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
Each 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
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
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<PAGE>
<PAGE>
computed by dividing the net investment income per share
earned during the period by the maximum offering price per
share on the last day of the period, according to the
following formula:
YIELD = 2 [(A B/CD)+1)6 1]
Where:
A = the dividends and interest earned during the period.
B = the expenses accrued for the period (net of
reimbursements, if any).
C = the average daily number of shares outstanding during the
period that were entitled to
receive dividends.
D = the maximum offering prices (which is the net asset value)
per share on the last day
of the period.
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
literature and shareholder reports other total return
performance data ("Non-Standardized Return"). Non-
Standardized Return may be quoted for the same or different
periods as those for which Standardized Return is quoted; it
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<PAGE>
<PAGE>
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
certain 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
guaranteed 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.
The 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
Index includes income and distributions but does not reflect
B-29
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<PAGE>
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
firm 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
Surveys) 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
securities for each Fund, broker-dealer selection, and
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<PAGE>
<PAGE>
negotiation of its brokerage commission rates. The Adviser's
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
broker-dealer would have charged for effecting that
transaction, if the Adviser determines in good faith that such
amount of commission was reasonable in relation to the value
of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular
transaction or the Adviser's overall responsibilities with
respect to 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
B-31
<PAGE>
<PAGE>
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
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 ________, 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
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<PAGE>
<PAGE>
of each fund: .95% for Equity,.95% for Asset Allocation, and
.50% for Fixed Income.
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.
B-33
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position Held Principal
Occupation(s)
and Age With Trust or
During
Adviser Past
5 Years
<S> <C> <C>
William P. Daves, Jr. ( ) Chairman of the Consultant
to insurance and
5723 Trail Meadow Board, Trustee healthcare
industries.
Dallas, TX 75230 Director,
President and
Chief
Executive Officer, FFG
Insurance
Co.
Maxwell E. Bublitz* ( ) President and President,
Adviser.
11825 N. Pennsylvania St. Trustee; Previously,
Sr. Vice
Carmel, IN 46032 President and a President,
Adviser.
Director of
Adviser
Gregory J. Hahn* ( ) Trustee Senior Vice
President,
11825 N. Pennsylvania St. Adviser;
Portfolio Manager
Carmel, IN 46032 of the fixed
income portion
of Asset
Allocation and
Fixed Income
Funds.
Harold W. Hartley ( ) Trustee Retired.
Chartered Financial
317 Peppard Drive, S.W. Analyst.
Previously,
Ft. Myers Beach, Fl 33913 Executive
Vice President,
Tenneco
Financial Services,
Inc.
Dr. R. Jan LeCroy ( ) Trustee President,
Dallas Citizens
Dallas Citizens Council Council.
1201 Main Street
<PAGE>
Dallas, TX 75202
Dr. Jesse H. Parrish ( ) Trustee Former
President, Midland
2805 Sentinel College.
Higher Education
Midland, TX 79701 Consultant.
William P. Latimer ( ) Vice President Vice
President, Sr. Counsel
11825 N. Pennsylvania St. and Secretary; and
Secretary, and Chief
Carmel, IN 46032 Vice President, Compliance
Officer of
Director and Adviser.
Previously,
Chief Consultant
to securities
Compliance industry.
Previously,
Officer of Senior Vice
Adviser President
Compliance, USF&G
Investment
Services, Inc.
And Vice
President, Axe-
Houghton
Management Inc.
B-34
<PAGE>
James S. Adams ( ) Treasurer Sr. Vice
President, Bankers
11815 N. Pennsylvania St. National,
Great American
Carmel, IN 46032 Reserve.
William T. Devanney, Jr. ( ) Vice President, Sr. Vice
President,
11815 N. Pennsylvania St. Corporate Taxes Corporate
Taxes, Bankers
Carmel, IN 46032 National and
Great American
Reserve.
</TABLE>
* The Trustee so indicated is an "interested person," as
defined in the Investment Company Act of 1940, of the Trust
due to the positions indicated with the Adviser.
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
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
<PAGE>
shares under federal and state securities laws and of
preparing and printing prospectuses for such purposes and for
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<PAGE>
distributing the same to shareholders and investors, and fees
and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as
broker-dealer or agent 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 "interested 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
GARCO Equity Sales, Inc. (The "Distributor") serves as the
principal underwriter for each Fund pursuant to an
Underwriting Agreement, dated _______, initially approved by
the Board of Trustees. The Distributor, is a registered
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
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.
B-36
<PAGE>
<PAGE>
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 0.15% of the fee may be used for
shareholder servicing expenses with the remainder used for
distribution expenses. All or any portion of this fee may be
remitted to brokers who provide distribution or shareholder
account services.
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
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 Fund
affected thereby, 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
B-37
<PAGE>
<PAGE>
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
variable 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
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
B-38
<PAGE>
<PAGE>
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
shares deposited in a SWP account. Redemptions are
potentially taxable transactions to shareholders. To the
extent that such redemptions for periodic withdrawals exceed
dividend 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.
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
B-39
<PAGE>
<PAGE>
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
Securities 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
to the shareholder list or, if requested by those
shareholders, 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
preference, preemptive, conversion, exchange or similar
rights, and are freely transferable.
Under Rule 18f-2 under the 1940 Act, as to any investment
company which has two or more series (such as the Funds)
outstanding and as to any matter required to be submitted to
shareholder vote, such matter is not deemed to have been
B-40
<PAGE>
<PAGE>
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
and prohibit transactions which may be deemed to conflict with
the securities trading of the Adviser's clients.
B-41
<PAGE>
<PAGE>
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
connection 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
losses to be treated as ordinary income and losses and may
affect the amount, timing and character of distributions to
B-42
<PAGE>
<PAGE>
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,
each 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-43
<PAGE>
<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.
Certain 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
certain 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
would have received had they elected to receive the
distributions in cash, divided by the number of shares
B-44
<PAGE>
<PAGE>
received.
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
will 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
their 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
disregarded 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
may be 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
B-45
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<PAGE>
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
shareholder's adjusted current earnings over its alternative
minimum taxable income, which may increase its alternative
minimum 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
of 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
B-46
<PAGE>
<PAGE>
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.
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 Bank of New York
Transfer Agency Services
Boston Financial Data Services 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-47
<PAGE>
PART C
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements2/
(b) Exhibits:
(1) Agreement and Declaration of Trust1/
(2) By-laws1/
(3) Not Applicable
(4) Not Applicable
(5) Investment Advisory Agreement between Conseco
Fund Group and Conseco Capital Management,
Inc.2/
(6) Underwriting Agreement between Conseco Fund
Group and GARCO Equity Sales, Inc.2/
(7) Not Applicable
(8) Custody Agreement between Conseco Fund Group
and Bank of New York2/
(9)(a) Administrative Agreement between Conseco
Fund Group and Conseco Services, LLC2/
(9)(b) Transfer Agency Agreement between Conseco
Fund Group and Boston Financial Data
Services2/
(10) Opinion and Consent of Counsel as to the
Legality of the Securities being Registered2/
(11)(a) Consent of Coopers & Lybrand LLP 2/
(11)(b) Consent of Jorden Burt Berenson & Johnson
LLP2/
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Distribution and Service Plan for Class A
Shares2/
<PAGE>
(16) Not Applicable
(17) Not Applicable
(18) Multiple Class Plan2/
____________________
1/ Filed herewith.
2/ To be filed by amendment.
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.
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
other subsidiaries of Conseco, Inc. For additional
information, please see Parts A and B.
Item 29. Principal Underwriters.
GARCO 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 GARCO
Equity Sales, Inc., the Registrant's principal underwriter:
<TABLE>
<CAPTION>
Positions and Offices
Name and Principal with Principal Positions and
Office
Business Address Underwriter with
Registrant
<S> <C> <C>
L. Gregory Gloeckner President
<PAGE>
C-2
<PAGE>
William P. Latimer Vice President, Senior
Counsel and Secretary
James S. Adams Senior Vice President and
Treasuer, 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
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. C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, this Registration
Statement has been signed on behalf of the Registrant in the
City of Dallas and State of Texas on the 27th day of
September, 1996.
CONSECO FUND GROUP
By: /s/ William P. Daves, Jr.
William P. Daves, Jr.
Chairman of the Board of Trustees
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with the Registrant and on the dates indicated on
this 27th day of September, 1996.
<TABLE>
<CAPTION>
Signature Title
Date
<S> <C> <C>
/s/ William P. Daves, Jr. Chairman of the Board
September 27, 1996
William P. Daves, Jr. and Trustee
____________________ President and Trustee
_________ ___, 1996
Maxwell E. Bublitz
/s/ Gregory J. Hahn Trustee
September 27, 1996
Gregory J. Hahn
____________________ Trustee
_________ ___, 1996
Harold W. Hartley
____________________ Trustee
_________ ___, 1996
Dr. R. Jan LeCroy
____________________ Trustee
_________ ___, 1996
Dr. Jesse H. Parrish
____________________ Treasurer
<PAGE>
_________ ___, 1996
James S. Adams (Principal Financial and
Accounting Officer)
</TABLE>
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, this Registration
Statement has been signed on behalf of the Registrant in the
City of __________ and State of _________ on the ____ day of
___________, 1996.
CONSECO FUND GROUP
By:
William P. Daves, Jr.
Chairman of the Board of Trustees
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with the Registrant and on the dates indicated on
this 27th day of September, 1996.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
____________________ Chairman of the Board ___________,
1996
William P. Daves, Jr. and Trustee
/s/ Maxwell E. Bublitz President and Trustee September 27,
1996
Maxwell E. Bublitz
/s/ Gregory J. Hahn Trustee September 27,
1996
Gregory J. Hahn
____________________ Trustee _________
___, 1996
Harold W. Hartley
____________________ Trustee _________
___, 1996
Dr. R. Jan LeCroy
____________________ Trustee _________
___, 1996
Dr. Jesse H. Parrish
/s/ James S. Adams Treasurer September 27,
<PAGE>
1996
James S. Adams (Principal Financial and
Accounting Officer)
</TABLE>
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, this Registration
Statement has been signed on behalf of the Registrant in the
City of ____________ and State of __________ on the _____ day
of ___________, 1996.
CONSECO FUND GROUP
By:
William P. Daves, Jr.
Chairman of the Board of Trustees
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with the Registrant and on the dates indicated on
this 27th day of September , 1996.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
____________________ Chairman of the Board _________
___, 1996
William P. Daves, Jr. and Trustee
____________________ President and Trustee _________
___, 1996
Maxwell E. Bublitz
/s/ Gregory J. Hahn Trustee September 27,
1996
Gregory J. Hahn
____________________ Trustee _________
___, 1996
Harold W. Hartley
/s/ R. Jan LeCroy Trustee September 27,
1996
Dr. R. Jan LeCroy
____________________ Trustee _________
___, 1996
Dr. Jesse H. Parrish
____________________ Treasurer _________
___, 1996
James S. Adams (Principal Financial and
<PAGE>
Accounting Officer)
</TABLE>
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, this Registration
Statement has been signed on behalf of the Registrant in the
City of _________ and State of _________ on the _____ day of
_____________, 1996.
CONSECO FUND GROUP
By:
William P. Daves, Jr.
Chairman of the Board of Trustees
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with the Registrant and on the dates indicated on
this 27th day of September, 1996.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
____________________ Chairman of the Board
_________ ___, 1996
William P. Daves, Jr. and Trustee
____________________ President and Trustee
_________ ___, 1996
Maxwell E. Bublitz
/s/ Gregory J. Hahn Trustee
September 27, 1996
Gregory J. Hahn
/s/ Harold W. Hartley Trustee
September 27, 1996
Harold W. Hartley
____________________ Trustee
_________ ___, 1996
Dr. R. Jan LeCroy
____________________ Trustee
_________ ___, 1996
Dr. Jesse H. Parrish
____________________ Treasurer
_________ ___, 1996
<PAGE>
James S. Adams (Principal Financial and
Accounting Officer)
</TABLE>
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, this Registration
Statement has been signed on behalf of the Registrant in the
City of ________ and State of ________ on the _____ day of
_____________, 1996.
CONSECO FUND GROUP
By:
William P. Daves, Jr.
Chairman of the Board of Trustees
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with the Registrant and on the dates indicated on
this 27th day of September, 1996.
<TABLE>
<CAPTION>
Signature Title
Date
<S> <C> <C>
____________________ Chairman of the Board
_________ ___, 1996
William P. Daves, Jr. and Trustee
____________________ President and Trustee
_________ ___, 1996
Maxwell E. Bublitz
/s Gregory J. Hahn Trustee
September 27, 1996
Gregory J. Hahn
____________________ Trustee
_________ ___, 1996
Harold W. Hartley
____________________ Trustee
_________ ___, 1996
Dr. R. Jan LeCroy
/s/ Jesse H. Parrish Trustee
September 27, 1996
Dr. Jesse H. Parrish
<PAGE>
____________________ Treasurer
_________ ___, 1996
James S. Adams (Principal Financial and
Accounting Officer)
</TABLE>
S-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints William P. Latimer and Karl W.
Kindig, and each of them, jointly and severally, his or her
true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, for him or her and
in his or her name, place, and stead, in all of his or her
capacities as a Trustee of Conseco Fund Group (the "Trust"),
to sign on his or her behalf any and all Registration
Statements (including any post-effective amendments to
Registration Statements) under the Securities Act of 1933, as
amended, and/or the Investment Company Act of 1940, as
amended, filed by the Trust and any amendments and supplements
thereto, and other documents in connection therewith, and to
file the same, with all exhibits thereto, and other documents
in connection therewith, with the U.S. Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, and
each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and
agent, and each of them, may lawfully do or cause to be done
by virtue hereof. This power of attorney hereby revokes any
and all powers of attorney previously granted by the
undersigned in connection with the aforementioned matters.
DATED this 27th day of September, 1996.
/s/ Maxwell E. Bublitz
Maxwell E. Bublitz
Trustee of Conseco Fund
Group
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints William P. Latimer and Karl W.
Kindig, and each of them, jointly and severally, his or her
true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, for him or her and
in his or her name, place, and stead, in all of his or her
capacities as a Trustee of Conseco Fund Group (the "Trust"),
to sign on his or her behalf any and all Registration
Statements (including any post-effective amendments to
Registration Statements) under the Securities Act of 1933, as
amended, and/or the Investment Company Act of 1940, as
amended, filed by the Trust and any amendments and supplements
thereto, and other documents in connection therewith, and to
file the same, with all exhibits thereto, and other documents
in connection therewith, with the U.S. Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, and
each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and
agent, and each of them, may lawfully do or cause to be done
by virtue hereof. This power of attorney hereby revokes any
and all powers of attorney previously granted by the
undersigned in connection with the aforementioned matters.
DATED this 27th day of September, 1996.
/s/ Gregory J. Hahn
Gregory J. Hahn
Trustee of Conseco Fund Group
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints William P. Latimer and Karl W.
Kindig, and each of them, jointly and severally, his or her
true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, for him or her and
in his or her name, place, and stead, in all of his or her
capacities as a Trustee of Conseco Fund Group (the "Trust"),
to sign on his or her behalf any and all Registration
Statements (including any post-effective amendments to
Registration Statements) under the Securities Act of 1933, as
amended, and/or the Investment Company Act of 1940, as
amended, filed by the Trust and any amendments and supplements
thereto, and other documents in connection therewith, and to
file the same, with all exhibits thereto, and other documents
in connection therewith, with the U.S. Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, and
each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and
agent, and each of them, may lawfully do or cause to be done
by virtue hereof. This power of attorney hereby revokes any
and all powers of attorney previously granted by the
undersigned in connection with the aforementioned matters.
DATED this 27th day of September, 1996.
/s/ Harod W. Hartley
Harold W. Hartley
Trustee of Conseco Fund Group
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints William P. Latimer and Karl W.
Kindig, and each of them, jointly and severally, his or her
true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, for him or her and
in his or her name, place, and stead, in all of his or her
capacities as a Trustee of Conseco Fund Group (the "Trust"),
to sign on his or her behalf any and all Registration
Statements (including any post-effective amendments to
Registration Statements) under the Securities Act of 1933, as
amended, and/or the Investment Company Act of 1940, as
amended, filed by the Trust and any amendments and supplements
thereto, and other documents in connection therewith, and to
file the same, with all exhibits thereto, and other documents
in connection therewith, with the U.S. Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, and
each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and
agent, and each of them, may lawfully do or cause to be done
by virtue hereof. This power of attorney hereby revokes any
and all powers of attorney previously granted by the
undersigned in connection with the aforementioned matters.
DATED this 27th day of September, 1996.
/s/ R. Jan LeCroy
Dr. R. Jan LeCroy
Trustee of Conseco Fund Group
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints William P. Latimer and Karl W.
Kindig, and each of them, jointly and severally, his or her
true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, for him or her and
in his or her name, place, and stead, in all of his or her
capacities as a Trustee of Conseco Fund Group (the "Trust"),
to sign on his or her behalf any and all Registration
Statements (including any post-effective amendments to
Registration Statements) under the Securities Act of 1933, as
amended, and/or the Investment Company Act of 1940, as
amended, filed by the Trust and any amendments and supplements
thereto, and other documents in connection therewith, and to
file the same, with all exhibits thereto, and other documents
in connection therewith, with the U.S. Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, and
each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and
agent, and each of them, may lawfully do or cause to be done
by virtue hereof. This power of attorney hereby revokes any
and all powers of attorney previously granted by the
undersigned in connection with the aforementioned matters.
DATED this 27th day of September, 1996.
/s/ Jesse H. Parrish
Dr. Jesse H. Parrish
Trustee of Conseco Fund Group
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
(1) -- Agreement and Declaration of Trust
(2) -- By-Laws
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
CONSECO FUND GROUP
<PAGE>
TABLE OF CONTENTS
Page
RECITAL
ARTICLE I
THE TRUST
SECTION 1.1 Name . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Location . . . . . . . . . . . . . . . . . 2
SECTION 1.3 Nature of Trust . . . . . . . . . . . . . 2
SECTION 1.4 Definitions . . . . . . . . . . . . . . . 2
ARTICLE II
POWERS OF TRUSTEES
SECTION 2.1 General . . . . . . . . . . . . . . . . . 3
SECTION 2.2 Investments . . . . . . . . . . . . . . . 4
SECTION 2.3 Legal Title . . . . . . . . . . . . . . . 4
SECTION 2.4 Disposition of Assets . . . . . . . . . . 5
SECTION 2.5 Taxes . . . . . . . . . . . . . . . . . . 5
SECTION 2.6 Rights as Holder of Securities . . . . . . 5
SECTION 2.7 Delegation; Committees . . . . . . . . . . 6
SECTION 2.8 Collection . . . . . . . . . . . . . . . . 6
SECTION 2.9 Expenses . . . . . . . . . . . . . . . . . 6
SECTION 2.10 Borrowing . . . . . . . . . . . . . . . . 7
SECTION 2.11 Deposits . . . . . . . . . . . . . . . . . 7
SECTION 2.12 Allocation . . . . . . . . . . . . . . . . 7
SECTION 2.13 Valuation . . . . . . . . . . . . . . . . 7
SECTION 2.14 Fiscal Year . . . . . . . . . . . . . . . 7
SECTION 2.15 Concerning the Trust and Certain
Affiliates . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.16 Power to Contract . . . . . . . . . . . . 9
SECTION 2.17 Insurance . . . . . . . . . . . . . . . . 9
SECTION 2.18 Pension and Other Plans . . . . . . . . .10
SECTION 2.19 Seal . . . . . . . . . . . . . . . . . . .10
SECTION 2.20 Charitable Contributions . . . . . . . . .10
SECTION 2.21 Indemnification . . . . . . . . . . . . .10
SECTION 2.22 Remedies . . . . . . . . . . . . . . . . .10
SECTION 2.23 Separate Accounting . . . . . . . . . . .10
SECTION 2.24 Further Powers . . . . . . . . . . . . . .11
ARTICLE III
ADVISER AND DISTRIBUTOR
SECTION 3.1 Appointment . . . . . . . . . . . . . . .11
<PAGE>
SECTION 3.2 Provisions of Agreement . . . . . . . . .11
ARTICLE IV
INVESTMENTS
i
<PAGE>
SECTION 4.1 Statement of Investment Objectives
and Policies . . . . . . . . . . . . . . . . . . . 11
SECTION 4.2 Restrictions . . . . . . . . . . . . . . .11
SECTION 4.3 Percentage Restrictions . . . . . . . . .12
SECTION 4.4 Amendment of Investment Objectives
and Policies and of Investment
Limitations . . . . . . . . . . . . . . .12
ARTICLE V
LIMITATIONS OF LIABILITY
SECTION 5.1 Liability to Third Persons . . . . . . . .12
SECTION 5.2 Liability to Trust or to Shareholders . .12
SECTION 5.3 Indemnification . . . . . . . . . . . . .12
SECTION 5.4 Surety Bonds . . . . . . . . . . . . . . .15
SECTION 5.5 Apparent Authority . . . . . . . . . . . .15
SECTION 5.6 Recitals . . . . . . . . . . . . . . . . .15
SECTION 5.7 Reliance on Experts, etc. . . . . . . . .15
SECTION 5.8 Liability Insurance . . . . . . . . . . .15
ARTICLE VI
CHARACTERISTICS OF SHARES
SECTION 6.1 General . . . . . . . . . . . . . . . . .15
SECTION 6.2 Division of Beneficial Interest . . . . .16
SECTION 6.3 Evidence of Share Ownership . . . . . . .17
SECTION 6.4 Death of Shareholders . . . . . . . . . .18
SECTION 6.5 Repurchase of Shares . . . . . . . . . . .18
SECTION 6.6 Trustees as Shareholders . . . . . . . . .18
SECTION 6.7 Redemption and Stop Transfers for Tax
Purposes; Redemption to Maintain
Constant Net Asset Value . . . . . . . . .18
SECTION 6.8 Information from Shareholders . . . . . .19
SECTION 6.9 Redemptions . . . . . . . . . . . . . . .19
SECTION 6.10 Suspension of Redemption; Postponement
of Payment . . . . . . . . . . . . . . . .19
SECTION 6.11 Power of Trustees to Change Provisions
Relating to Shares . . . . . . . . . . . .20
SECTION 6.12 Establishment and Designation of
Series and Classes . . . . . . . . . . . .21
ARTICLE VII
RECORD AND TRANSFER OF SHARES
SECTION 7.1 Share Register . . . . . . . . . . . . . .24
SECTION 7.2 Transfer Agent . . . . . . . . . . . . . .24
SECTION 7.3 Owner of Record . . . . . . . . . . . . .24
<PAGE>
SECTION 7.4 Transfers of Shares . . . . . . . . . . .25
SECTION 7.5 Limitation of Fiduciary Responsibility . .25
SECTION 7.6 Notices . . . . . . . . . . . . . . . . .25
ii
<PAGE>
ARTICLE VIII
SHAREHOLDERS
SECTION 8.1 Meetings of Shareholders . . . . . . . . .25
SECTION 8.2 Quorums . . . . . . . . . . . . . . . . .26
SECTION 8.3 Notice of Meetings . . . . . . . . . . . .26
SECTION 8.4 Record Date for Meetings . . . . . . . . .26
SECTION 8.5 Proxies, etc. . . . . . . . . . . . . . .26
SECTION 8.6 Reports . . . . . . . . . . . . . . . . .27
SECTION 8.7 Inspection of Records . . . . . . . . . .27
SECTION 8.8 Shareholder Action By Written Consent . .27
SECTION 8.9 Voting Rights of Shareholders . . . . . .27
ARTICLE IX
TRUSTEES
SECTION 9.1 Number and qualification . . . . . . . . .27
SECTION 9.2 Term and Election . . . . . . . . . . . .28
SECTION 9.3 Resignation and Removal . . . . . . . . .28
SECTION 9.4 Vacancies . . . . . . . . . . . . . . . .29
SECTION 9.5 Meetings . . . . . . . . . . . . . . . . .29
SECTION 9.6 Officers . . . . . . . . . . . . . . . . .30
SECTION 9.7 By-laws . . . . . . . . . . . . . . . . .30
<PAGE>
iii
<PAGE>
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND
DETERMINATION OF NET ASSET VALUE AND NET INCOME
SECTION 10.1 General . . . . . . . . . . . . . . . . .31
SECTION 10.2 Retained Earnings . . . . . . . . . . . .31
SECTION 10.3 Source of Distributions . . . . . . . . .31
SECTION 10.4 Net Asset Value . . . . . . . . . . . . .31
SECTION 10.5 Power to Modify Valuation Procedures . . .32
ARTICLE XI
CUSTODIAN
SECTION 11.1 Appointment and Duties . . . . . . . . . .32
SECTION 11.2 Central Certificate System . . . . . . . .33
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
SECTION 12.1 Recording . . . . . . . . . . . . . . . .33
ARTICLE XIII
AMENDMENT OR TERMINATION OF TRUST
SECTION 13.1 Amendment or Termination . . . . . . . . .33
SECTION 13.2 Power to Effect Reorganization . . . . . .35
SECTION 13.3 Other Amendments . . . . . . . . . . . . .35
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Governing Law . . . . . . . . . . . . . .35
SECTION 14.2 Counterparts . . . . . . . . . . . . . . .35
SECTION 14.3 Reliance by Third Parties . . . . . . . .35
SECTION 14.4 Provisions in Conflict with Law or Regulations36
SECTION 14.5 Section Headings . . . . . . . . . . . . .36
SECTION 14.6 Construction of 1940 Act . . . . . . . . .36
SECTION 14.7 Action of Prospectus or Proxy Statement .36
<PAGE>
iv
<PAGE>
ARTICLE XV
DURATION OF TRUST
SECTION 15.1 Duration . . . . . . . . . . . . . . . . .37
<PAGE>
v
<PAGE>
CONSECO FUND GROUP
AGREEMENT AND DECLARATION OF TRUST
This Agreement and Declaration of Trust is made the 20th
day of September, 1996 by the Trustee(s) hereunder and holders
of shares of beneficial interest issued hereunder and to be
issued hereunder as hereinafter provided.
WITNESSETH that:
W H E R E AS, the Trustee(s) desire to establish an
unincorporated voluntary association commonly known as a
business trust, as described in the provisions of Chapter 182
of the General Laws of Massachusetts, for the principal
p u r p ose of the investment and reinvestment of funds
contributed thereto; and
WHEREAS, the Trustee(s) desire that such trust be a
registered open-end investment company under the Investment
Company Act of 1940; and
WHEREAS, it is proposed that the beneficial interest in
the trust s assets shall be divided into transferable shares
of beneficial interest, which shall be evidenced by the Share
Register maintained by the trust or its agent, as hereinafter
provided;
NOW, THEREFORE, the Trustee(s) hereby declare that they
will hold all property of every type and description which
t h e y are acquiring or may hereafter acquire as such
Trustee(s), together with the proceeds thereof, in trust, to
manage and dispose of the same for the benefit of the holders
of record from time to time of the Shares being issued and to
be issued hereunder and in the manner and subject to the
provisions hereof.
ARTICLE I
THE TRUST
1.1 Name. The name of the trust created by this
Declaration of Trust shall be Conseco Fund Group (hereinafter
called the "Trust") and so far as may be practicable the
Trustees shall conduct the Trust s activities, execute all
documents and sue or be sued under that name, which name (and
the word "Trust" wherever used in this Declaration of Trust,
except where the context otherwise requires) shall refer to
t h e Trustees in their capacity as Trustees, and not
individually or personally and shall not refer to the
officers, agents, employees or Shareholders of the Trust or of
such Trustees. Should the Trustees determine that the use of
such name is not practicable, legal or convenient, they may
<PAGE>
use such other designation or they may adopt such other name
for the Trust as they deem proper and the Trust may hold
property and conduct its activities under such designation or
name.
1.2 Location. The principal office of the Trust shall
be located within or without the Commonwealth Massachusetts,
as the Trustees may from time to time determine.
1.3 Nature of Trust. The Trust shall be of the type
commonly termed a business trust. The Trust is not intended
to be, shall not be deemed to be and shall not be treated as,
a general partnership, limited partnership, joint venture,
corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be
solely in that capacity in accordance with the rights
conferred upon them hereunder. The Trust is intended to have
the status of a registered open-end investment company under
the Investment Company Act of 1940 and of a "regulated
investment company" as that term is defined in Section 851 of
the Internal Revenue Code of 1954, and this Declaration of
Trust and all actions of the Trustees hereunder shall be
construed in accordance with such intent.
1.4 Definitions. As used in this Declaration of Trust,
the following terms shall have the following meanings unless
the context hereof otherwise requires:
(a) 1940 Act" shall mean the Investment Company Act
of 1940, as amended from time to time.
(b) "Adviser" and "Distributor" shall mean any
Person or Persons appointed, employed or contracted
with by the Trustee under the applicable provisions
of Section 3.1 hereof.
(c) "Affiliate" shall have the same meaning as the
term Affiliated Person under the 1940 Act.
(d) "Assignment," "Commission," and "Prospectus"
shall have the meanings given them in the 1940 Act.
(e) "Declaration of Trust" shall mean this Agreement
a n d Declaration of Trust as may be amended,
restated, or modified from time to time. References
in this Declaration of Trust to "Declaration,"
"hereof," "herein," "hereby" and "hereunder" shall
be deemed to refer to the Declaration of Trust and
<PAGE>
shall not be limited to the particular text,
article, or section in which such words appear.
2
<PAGE>
(f) "Person" shall mean and include individuals,
corporations, limited partnerships, general
partnerships, joint stock companies or associations,
joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts
or other entities whether or not legal entities and
governments and agencies and political subdivisions
thereof.
(g) "Securities" shall mean any stock, shares,
voting trust certificates, bonds, debentures, notes,
or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise
or, in general, any instruments commonly known as
"securities" or any certificates of interest, shares
or participations in temporary or interim
certificates for, guarantees of, or any right to
subscribe to, purchase or acquire any of the
foregoing.
(h) "Shareholders" shall mean, as of any particular
time, all holders of record of outstanding Shares at
such time.
(i) "Shares" shall mean the equal proportionate
transferable units of interest into which the
beneficial interest in the Trust or in the Trust
property belonging to any series of the Trust or in
any class of Shares of the Trust (as the context may
require) shall be divided from time to time, as
described in Article VI.
(j) Series Company shall mean the form of
registered open-end investment company described in
Section 18(f)(2) of the 1940 Act or in any successor
statutory provision.
1. The term Series refers to series of
Shares established and designated under or
in accordance with the provisions of
Article VI;
2. The term Multi-Class Series refers to
s e ries of Shares established and
designated as Multi-Class Series under or
in accordance with the provisions of
Article VI; and
<PAGE>
3. The terms Class and Class of Shares
refer to the division of Shares
representing any Multi-Class Series into
3
<PAGE>
two or more classes in accordance with the
provisions of Article VI.
( k ) Trust Property" shall mean, as of any
p a rticular time, any and all property, real,
personal, or otherwise, tangible or intangible,
which is transferred, conveyed or paid to the Trust
or Trustees and all income, profits and gains
therefrom and which at such time is owned or held
by, or for the account of, the Trust or the
Trustees.
4
<PAGE>
ARTICLE II
POWERS OF TRUSTEES
2.1 General. The Trustees shall have, without other or
further authorization, full, exclusive and absolute power,
control and authority over the Trust Property and over the
business of the Trust to the same extent as if the Trustees
were the sole and absolute owners of the Trust Property and
business in their own right, and with such powers of
delegation as may be permitted by this Declaration of Trust.
The Trustees may do and perform such acts and things as in
their sole judgment and discretion are necessary and proper
for conducting the business and affairs of the Trust or
promoting the interests of the Trust and the Shareholders.
The enumeration of any specific power or authority herein
shall not be construed as limiting the aforesaid power or
authority or any specific power or authority. The Trustees
shall have the power to enter into commitments to make any
investment, purchase or acquisition, or to exercise any power
authorized by this Declaration of Trust. Such powers of the
Trustees may be exercised without order of or resort to any
court.
2.2 Investments. The Trustees shall have power, subject
in all respects to Article IV hereof,
(a) to conduct, operate and carry on the business
of an investment company; and
(b) for such consideration as they may deem proper,
to subscribe for, invest in, reinvest in,
purchase or otherwise acquire, hold, pledge,
sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of negotiable or
n o nnegotiable instruments, obligations,
e v i d ences of indebtedness, bankers
acceptances, certificates of deposit or
i n debtedness, commercial paper, securities
subject to repurchase agreements and other
money market securities, including, without
limitation, those issued, guaranteed or
sponsored by the United States Government or
i t s agencies or instrumentalities, or
international instrumentalities, or by any of
the several states of the United States of
A m e rica or their political subdivisions,
agencies or instrumentalities, or any bank or
savings institution, or by any corporation
<PAGE>
organized under the laws of the United States
or of any state, territory or possession
thereof, or by corporations organized under
foreign laws; marketable straight debt
5
<PAGE>
securities; securities (payable in U.S.
dollars) of, or guaranteed by, the government
of Canada or of a Province of Canada; common
s t ock, securities convertible into common
stock, purchase rights, warrants and options;
and nothing herein shall be construed to mean
the Trustees shall not have the foregoing
powers with respect to any Securities in which
the Trust may invest in accordance with Article
IV hereof.
In the exercise of their powers, the Trustees
shall not be limited, except as otherwise
provided hereunder, to investing in Securities
maturing before the possible termination of the
Trust, nor shall the Trustees be limited by any
law now or hereafter in effect limiting the
investments which may be held or retained by
trustees or other fiduciaries, but they shall
have full authority and power to make any and
all investments within the limitations of this
Declaration of Trust, that they, in their
a b solute discretion, shall determine, and
without liability for loss, even though such
investments shall be of a character or in
amount not considered proper for the investment
of trust funds.
2.3 Legal Title. Legal title to all the Trust Property
shall be vested in the Trustees as joint tenants and held by
and transferred to the Trustees, except that the Trustees
shall have power to cause legal title to any Trust Property to
be held by, or in the name of, one or more of the Trustees
with suitable reference to their trustee status, or in the
name of the Trust, or in the name of any other Person as
nominee, on such terms, in such manner and with such powers as
the Trustees may determine, so long as in their judgment the
interest of the Trust is adequately protected.
The right, title and interest of the Trustees in and to
the Trust Property shall vest automatically in all persons who
may hereafter become Trustees upon their due election and
qualification without any further act. Upon the resignation,
removal or death of a Trustee, he (and in the event of his
death, his estate) shall automatically cease to have any
right, title or interest in or to any of the Trust Property,
and the right, title and interest of such Trustee in and to
the Trust Property shall vest automatically in the remaining
<PAGE>
Trustees without any further act. Such vesting and cessation
of title shall be effective whether or not conveyancing
documents have been executed and delivered.
6
<PAGE>
2.4 Disposition of Assets. Subject in all respects to
Article IV hereof, the Trustees shall have power to sell,
lease, exchange or otherwise dispose of or grant options with
respect to any and all Trust Property free and clear of any
and all trusts, at public or private sale, for cash or on
terms, without advertisement, and subject to such res-
trictions, stipulations, agreements and reservations as they
shall deem proper, and to execute and deliver any deed or
other instrument in connection with the foregoing. The
Trustees shall also have the power, subject in all respects to
Article IV hereof, to:
(a) rent, lease or hire from others for terms which
may extend beyond the termination of this
Declaration of Trust any property or rights to
property, real, personal or mixed, tangible or
intangible, and, except for real property, to
own, manage, use and hold such property and
such rights;
(b) give consents and make contracts relating to
Trust Property or its use;
(c) g r ant security interests in or otherwise
encumber Trust Property in connection with
borrowings; and
(d) release any Trust Property.
2.5 Taxes. The Trustees shall have power to pay all
taxes or assessments, of whatever kind or nature, imposed upon
or against the Trust or the Trustees in connection with the
Trust Property or upon or against the Trust Property or income
or any part thereof, to settle and compromise disputed tax
liabilities and, for the foregoing purposes, to make such
returns and do all other such acts and things as may be deemed
by the Trustees to be necessary or desirable.
2.6 Rights as Holder of Securities. The Trustees shall
have the power to exercise all the rights, powers and
privileges appertaining to the ownership of all or any
Securities or other property forming part of the Trust
Property to the same extent that any individual might, and,
without limiting the generality of the foregoing, to vote or
give any consent, request or notice or waive any notice either
in person or by proxy or power of attorney with or without
power of substitution, to one or more Persons, which proxies
and powers of attorney may be for meetings or action generally
<PAGE>
or for any particular meetings or action, and may include the
exercise of discretionary powers.
7
<PAGE>
2.7 Delegation; Committees. The Trustees shall have
power, consistent with their continuing exclusive authority
over the management of the Trust, the conduct of its affairs
and the management and disposition of Trust Property, to
delegate from time to time to such one or more of their number
(who may be designated as constituting a Committee of the
Trustees) or to officers, employees or agents of the Trust the
doing of such things and the execution of such instruments
either in the name of the Trust or the names of the Trustees
or as their attorney or attorneys or otherwise as the Trustees
may from time to time deem expedient.
2.8 Collection. The Trustees shall have power to
collect, sue for, receive and receipt for all sums of money or
other property due to the Trust, to consent to extensions of
the time for payment, or to the renewal of any Securities or
obligations; to engage or intervene in, prosecute, defend,
compound, compromise, abandon or adjust by arbitration or
otherwise any actions, suits, proceedings, disputes, claims,
demands or things relating to the Trust Property; to foreclose
a n y Security or other instrument securing any notes,
debentures, bonds, obligations or contracts, by virtue of
which any sums of money are owed to the Trust; to exercise any
power of sale held by them, and to convey good title
thereunder free of any and all trusts, and in connection with
any such foreclosure or sale, to purchase or otherwise acquire
title to any property; to be parties to reorganization and to
transfer to and deposit with any corporation, committee,
voting trustee or other Person any Securities or obligations
of any corporation, trust, association or other organization,
the Securities of which form a part of the Trust Property, for
the purpose of any reorganization of any such corporation,
trust, association or other organization, or otherwise, to
participate in any arrangement for enforcing or protecting the
interests of the Trustees as the owners or holders of such
Securities or obligations and to pay any assessment levied in
connection with such reorganization or arrangement; to extend
the time (with or without security) for the payment or
delivery of any debts or property and to execute and enter
into releases, agreements and other instruments; and to pay or
satisfy any debts or claims upon any evidence that the
Trustees shall think sufficient.
2.9 Expenses. The Trustees shall have power to incur
and pay any charges or expenses which, in the opinion of the
Trustees, are necessary or incidental to or proper for
carrying out any of the purposes of this Declaration of Trust,
and to reimburse others for the payment therefor, and to pay
<PAGE>
appropriate compensation or fees from the funds of the Trust
to themselves as Trustees and to Persons with whom the Trust
has contracted or transacted business. The Trustees shall fix
the compensation of all officers, employees and Trustees. The
8
<PAGE>
Trustees may be paid reasonable compensation for their general
services as Trustees and officers hereunder, and the Trustees
may pay themselves or any one or more of themselves such
compensation for special services, including legal services,
as they in good faith may deem reasonable and reimbursement
for expenses reasonably incurred by themselves or any one or
more of themselves on behalf of the Trust. Each Series or
Class must pay the expenses directly attributable to it.
However, to the extent that the Trustees can effect cost
savings by the sharing of expenses they are authorized to do
so. Such general administrative expenses will be allocated on
the basis of the asset size of the respective Series or Class.
2.10 Borrowing. The Trustees shall have power to borrow
money only to the extent, for the purposes and in the manner
authorized by Article IV hereof.
2.11 Deposits. The Trustees shall have power to deposit
any monies or Securities included in the Trust Property with
o n e or more banks, trust companies or other banking
institutions whether or not such deposits will draw interest.
Such deposits are to be subject to withdrawal in such manner
as the Trustees may determine, and the Trustees shall have no
responsibility for any loss which may occur by reason of the
f a i lure of the bank, trust company or other banking
institution with whom the monies or Securities have been
deposited.
2.12 Allocation. The Trustees shall have power to
determine whether monies or other assets received by the Trust
shall be charged or credited to income or capital or allocated
between income and capital, including the power to amortize or
fail to amortize any part or all of any premium or discount,
to treat any part or all the profit resulting from the
maturity or sale of any asset, whether purchased at a premium
or at a discount, as income or capital or apportion the same
between income and capital, to apportion the sale price of any
asset between income and capital and to determine in what
manner any expenses or disbursements are to be borne as
between income and capital, whether or not in the absence of
the power and authority conferred by this Section 2.12, such
assets would be regarded as income or as capital or such
expense or disbursement would be charged to income or to
capital; to treat any dividend or other distribution on any
investment as income or capital or apportion the same between
income and capital; to provide or fail to provide reserves for
depreciation, amortization or obsolescence in respect of any
Trust Property in such amounts and by such methods and for
<PAGE>
such purposes as they shall determine, and to allocate to the
share of beneficial interest account less than all of the
consideration received for Shares and to allocate the balance
9
<PAGE>
thereof to paid-in capital, all as the Trustees may reasonably
deem proper.
2.13 Valuation. The Trustees shall have power to
determine in good faith, conclusively, the value of any of the
Trust Property and of any services, Securities, assets or
other consideration hereafter to be acquired or disposed of by
the Trust, and to revalue the Trust Property.
2.14 Fiscal Year. The Trustees shall have power to
determine the fiscal year of the Trust and the method or form
in which its accounts shall be kept and, from time to time, to
change the fiscal year or method or form of accounts.
2.15 Concerning the Trust and Certain Affiliates.
(a) The Trust may enter into transactions with any
Affiliate of the Trust or the Adviser or any
Affiliate of any Trustee, director, officer or
employee of the Trust or of the Adviser if (i)
each such transaction has, after disclosure of
such affiliation, been approved or ratified by
the affirmative vote of a majority of the
Trustees, including a majority of the Trustees
who are not Affiliates of any Person (other
t h an the Trust) who is a party to the
transaction with the Trust, (ii) such
transaction is, in the opinion of the Trustees,
on terms fair and reasonable to the Trust and
the Shareholders and at least as favorable to
them as similar arrangements for comparable
t r ansactions (of which the Trustees have
knowledge) with organizations unaffiliated with
the Trust or with the Person who is a party to
the transaction with the Trust, and (iii) such
transaction is in accordance with the 1940 Act
or an exemption granted thereunder.
(b) Except as otherwise provided by this
Declaration of Trust and in the absence of
fraud, a contract, act or other transaction,
between the Trust and any other Person, or in
which the Trust is interested, is valid and no
Trustee, officer, employee or agent of the
Trust has any liability as a result of entering
into any such contract, act or transaction even
though (i) one or more of the Trustees,
officers, employees or agents of the Trust is
<PAGE>
d i r ectly or indirectly interested in or
affiliated with, or are trustees, partners,
directors, employees, officers or agents of
such other Person, or (ii) one or more of the
10
<PAGE>
Trustees, officers, employees or agents of the
Trust, individually or jointly with others, is
a party or are parties to, or directly
i n t erested in, or affiliated with, such
contract, act or transaction, provided that (A)
such interest or affiliation is disclosed to
the Trustees and the Trustees authorized such
contract, act or other transaction by a vote of
a majority of the unaffiliated Trustees, or (B)
such interest or affiliation is disclosed to
the Shareholders, and such contract, act or
transaction is approved by the Shareholders.
(c) Any Trustee or officer, employee or agent of
the Trust may acquire, own, hold and dispose of
Shares for his individual account, and may
exercise all rights of a holder of such Shares
to the same extent and in the same manner as if
he were not such a Trustee or officer, employee
or agent. The Trustees shall use their best
efforts to obtain through the Adviser or other
Persons a continuing and suitable investment
program, consistent with the policies and
objectives of each Series or Class. Any
Trustee or officer, employee or agent of the
Trust may, in his personal capacity, or in a
capacity as trustee, officer, director,
s t o ckholder, partner, member, adviser or
employee of any Person, have business interests
and engage in business activities in addition
to those relating to the Trust, which interests
and activities may be similar to those of the
Trust and include the acquisition, syndication,
holding, management, operation or disposition,
of his own account or for the account of such
Person, and each Trustee, officer, employee and
agent of the Trust shall be free of any
o b l igation to present to the Trust any
investment opportunity which comes to him in
any capacity other than solely as Trustee,
officer, employee or agent of the Trust, even
if such opportunity is of a character which, if
presented to the Trust, could be taken by the
Trust.
Subject to the provisions of Article III
hereof, any Trustee or officer, employee or
agent of the Trust may be interested as
<PAGE>
Trustee, officer, director, stockholder,
partner, member, adviser or employee of, or
otherwise have a direct or indirect interest
in, any Person who may be engaged to render
11
<PAGE>
advice or services to the Trust, and may
receive compensation from such Person as well
as compensation as Trustee, officer, employee
or agent of the Trust or otherwise hereunder.
None of the activities referred to in this
paragraph shall be deemed to conflict with his
duties and powers as Trustee, officer, employee
or agent of the Trust. To the extent that any
other provision of this Declaration of Trust
conflicts with, or is otherwise contrary to,
t h e provisions of this Section 2.15 the
provisions of this Section shall be deemed
controlling.
2.16 Power to Contract. Subject to the provisions of
Sections 2.7 and 3.1 hereof with respect to delegation of
authority by the Trustees, the Trustees shall have power to
appoint, employ or contract with any Person (including one or
more of themselves) and any corporation, partnership or trust
of which one or more of them may be an Affiliate, subject to
the applicable, requirements of Section 2.15 hereof as the
Trustees may deem necessary or desirable for the transaction
of the business of the Trust, including any Person, who, under
the supervision of the Trustees, may, among other things:
serve as the Trust s investment adviser and consultant in
connection with policy decisions made by the Trustees; furnish
reports to the Trustees and provide research, economic and
statistical data in connection with the Trust s investments;
act as consultants, accountants, technical advisers,
a t torneys, brokers, underwriters, corporate fiduciaries,
e s c row agents, depositories, custodians or agents for
collection, insurers or insurance agents, transfer agents or
registrars for Shares or in any other capacity deemed by the
Trustees necessary or desirable; investigate, select, and, on
behalf of the Trust, conduct relations with Persons acting in
such capacities and pay appropriate fees to, and enter into
appropriate contracts with, or employ, or retain services
performed or to be performed by, any of them in connection
with the investments acquired, sold, or otherwise disposed of,
or committed, negotiated, or contemplated to be acquired, sold
or otherwise disposed of; substitute any other Person for any
such Person; act as attorney-in-fact or agent in the purchase
or sale or other disposition of investments, and in the
handling, prosecuting or settling of any claims of the Trust,
including, the foreclosure or other enforcement of any lien or
security securing investments; and assist in the performance
of such ministerial functions necessary in the management of
the Trust as may be agreed upon with the Trustees or officers
<PAGE>
of the Trust.
2.17 Insurance. The Trustees shall have the power to
purchase and pay for, entirely out of Trust Property,
12
<PAGE>
i n surance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, including
t h e Adviser or independent contractors of the Trust,
individually against all claims and liabilities of every
nature arising by reason of holding, being or having held any
such office or position, or by reason of any action alleged to
have been, taken or omitted by any such Person as Shareholder,
Trustee, officer, employee, agent, investment adviser or
independent contractor, including any action taken or omitted
that may be determined to constitute negligence. However,
such policies shall not pay or reimburse any director,
officer, investment adviser or principal underwriter for any
liability arising by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of duties. Such
policies are to set forth a reasonable and fair means for
determining whether payment or reimbursement shall be made.
2.18 Pension and Other Plans. The Trustees shall have
the power to pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry
o u t pension, profit-sharing, savings, thrift and other
r e t i r ement, incentive and benefit plans, trust, and
provisions, including, without limitation, the purchasing of
life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
2.19 Seal. The Trustees shall have the power to adopt and
use a seal for the Trust, but, unless otherwise required by
the Trustees, it shall not be necessary for the seal to be
placed on, and its absence shall not impair the validity of,
any document, instrument or other paper executed and delivered
by or on behalf of the Trust.
2.20 Charitable Contributions. The Trustees shall have
the power to make donations, irrespective of benefit to the
Trust, for the public welfare or for community fund, hospital,
charitable, religious, educational, scientific, literary,
civic or similar purpose and, in time of war or other national
emergency, in aid thereof.
2.21 Indemnification. In addition to the mandatory
indemnification provided for in Section 5.3 hereof, the
Trustees shall have power, to the extent permitted by law, to
i n d e m nify or enter into agreements with respect to
indemnification with any Person with whom the Trust has
d e alings, including, without limitation, any investment
adviser, including the Adviser, or any principal underwriter,
<PAGE>
including the Distributor, or independent contractor, to such
extent as the Trustees shall determine.
13
<PAGE>
2.22 Remedies. Notwithstanding any provision in this
Declaration of Trust, when the Trustees deem that there is a
significant risk that an obligor to the Trust may default or
is in default under the terms of any obligation to the Trust,
the Trustees shall have power to pursue any remedies permitted
by law which, in their sole judgment, are in the interests of
the Trust, and the Trustees shall have the power to enter into
a n y investment, commitment or obligation of the Trust
resulting from the pursuit of such remedies as are necessary
or desirable to dispose of property acquired in the pursuit of
such remedies.
2.23 Separate Accounting. The Trustees shall establish
the books and records for each Series and maintain such
records separately as if each Series were a separate legal
entity.
2.24 Further Powers. The Trustees shall have power to do
all such other matters and things and execute all such
instruments as they deem necessary, proper or desirable in
order to carry out, promote or advance the interests of the
T r ust although such matters or things are not herein
specifically mentioned. Any determination as to what is in
the best interests of the Trust made by the Trustees in good
faith shall be conclusive. In construing the provisions of
this Declaration of Trust, the presumption shall be in favor
of a grant of power to the Trustees. The Trustees will not be
required to obtain any court order to deal with the Trust
Property.
ARTICLE III
ADVISER AND DISTRIBUTOR
3.1 Appointment. The Trustees are responsible for the
general investment policy of the Trust, the distribution of
its Shares and for the general supervision of the business of
the Trust conducted by officers, agents, employees, investment
advisers, distributors or independent contractors of the
Trust. However, the Trustees are not required personally to
conduct all of the business of the Trust and, consistent with
their ultimate responsibility as stated herein, the Trustees
may appoint, employ or contract with an investment adviser
(the "Adviser") and/or a distributor and underwriter for the
Trust s Shares (the "Distributor"), and may grant or delegate
such authority to the Adviser and/or Distributor (pursuant to
the terms of Section 2.16 hereof) or to any other Person the
services of whom are obtained by the Adviser or Distributor,
as the Trustees may, in their sole discretion, deem to be
<PAGE>
necessary or desirable, without regard to whether such
authority is normally granted or delegated by trustees.
14
<PAGE>
3.2 Provisions of Agreement. The Trustees shall not
enter into any agreement with the Adviser or Distributor
pursuant to the provisions of Section 3.1 hereof unless such
agreement is consistent with the provisions of Section 15 of
the 1940 Act.
ARTICLE IV
INVESTMENTS
4.1 Statement of Investment Objectives and Policies.
The Trustees shall be guided in their actions by the
Investment Objectives and Policies as set forth in the most
current effective registration statement for the Trust as
filed with the Securities and Exchange Commission. Because
the Trust is divided into separate Series, the Trustees shall
supervise the investments and the record- keeping for each
Series within the Trust as if it was a separate legal entity.
In addition to any other power granted to the Trustees, the
Trustees may, as they deem appropriate, provide for additional
Series or Classes in a manner consistent with the Investment
Company Act.
4.2 Restrictions. Notwithstanding anything in this
Declaration of Trust which may be deemed to authorize the
contrary, the Trust, with respect to each Series, shall
c o nduct its affairs in accordance with the Investment
Limitations (Restrictions) as set forth in the most current,
effective registration statement for the Trust as filed with
the Securities and Exchange Commission.
4.3 P e r c entage Restrictions. If the percentage
restrictions as set forth in the Investment Limitation
described in Section 4.2 above are adhered to at the time of
each investment, a later increase or decrease in percentage
resulting from a change in the value of a Series assets is
not a violation of such investment restrictions.
4.4 Amendment of Investment Objectives and Policies and
of Investment Limitations. The Investment Objectives and
policies and the Investment Limitations are deemed to be
fundamental policies and may not be changed without the
approval of the holders of a majority of the outstanding
voting Shares of each Series affected which, for purpose
herein, shall mean the lesser of (i) 67% of the Shares repre-
sented at a meeting which more than 50% of the outstanding
S h ares are represented or (ii) more than 50% of the
outstanding Shares. A change in policy affecting only one
Series may be effected only with the approval of a majority of
<PAGE>
the outstanding Shares of such Series.
ARTICLE V
LIMITATIONS OF LIABILITY
15
<PAGE>
5.1 Liability to Third Persons. No Shareholder shall be
subject to any personal liability whatsoever, in tort,
contract or otherwise, to any other Person or Persons in
connection with the Trust Property or the affairs of the
Trust; and no Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever, in
tort, contract or otherwise; to any other Person or Persons in
connection with Trust Property or the affairs of the Trust,
e x c ept for that arising from his bad faith, willful
misconduct, gross negligence or reckless disregard of his
duties or for his Failure to act in good faith in the
reasonable belief that his action was in the best interest of
the Trust; and all such other Persons shall look solely to the
Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee or agent, as such, of
the Trust is made a party to any suit or proceedings to
enforce any such liability, he shall not on account thereof be
held to any personal liability.
5.2 Liability to Trust or to Shareholders. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust or to any Shareholder, Trustee, officer, employee or
agent of the Trust for any action or failure to act
(including, without limitation, the failure to compel in any
way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard for his duties.
5.3 Indemnification.
(a) T h e Trust shall indemnify and hold each
Shareholder harmless from and against all
claims and liabilities, whether they proceed to
judgment or are settled or otherwise brought to
a conclusion, to which such Shareholder may
become subject by reason of his being or having
been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses
reasonably incurred by him in connection with
any such claim or liability. The rights
accruing to a Shareholder under this Section
5.3 shall not exclude any other right to which
such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the
right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even
t h o ugh not specifically provided herein;
<PAGE>
provided, however, that the Trust shall have no
liability to reimburse Shareholders for taxes
assessed against them by reason of their
o w nership of Shares, nor for any losses
16
<PAGE>
suffered by reason of changes in the market
value of Shares.
(b) (1) As used in this subsection (b) of this
Section 5.3, the following terms shall have the
meanings set forth below:
(i) the term indemnitee shall mean
a n y present or former Trustee,
officer or employee of the Trust, any
present or former Trustee or officer
of another trust or corporation whose
securities are or were owned by the
Trust or of which the Trust is or was
a creditor and who served or serves
in such capacity at the request of
the Trust, any present or former
investment adviser, sub-adviser or
principal underwriter of the Trust
a n d the heirs, executors,
administrators, successors and
assigns of any of the foregoing;
h o wever, whenever conduct by an
i n d emnitee is referred to, the
conduct shall be that of the original
indemnitee rather than that of the
heir, executor, administrator,
successor or assignee;
(ii) the term covered proceeding
shall mean any threatened, pending or
completed action, suit or proceeding,
w h e t h e r civil, criminal,
administrative or investigative, to
which an indemnitee is or was a party
or is threatened to be made a party
by reason of the fact or facts under
which he or it is an indemnitee as
defined above;
(iii) the term disabling conduct
shall mean willful misfeasance, bad
faith, gross negligence or reckless
disregard of the duties involved in
t h e conduct of the office in
question;
(iv) the term covered expenses
<PAGE>
shall mean expenses (including
attorney s fees), judgments, fines
a n d amounts paid in settlement
actually and reasonably incurred by
17
<PAGE>
an indemnitee in connection with a
covered proceeding; and
( v ) the term adjudication of
liability shall mean, as to any
covered proceeding and as to any
indemnitee, an adverse determination
as to the indemnitee whether by
j u d gment, order, settlement,
conviction or upon a plea of nolo
contendere or its equivalent.
(2) T h e Trust shall not indemnify any
indemnitee for any covered expenses in any
c o vered proceeding if there has been an
adjudication of liability against such
indemnitee expressly based on a finding of
disabling conduct.
(3) Except as set forth in (2) above, the
T r ust shall indemnify any indemnitee for
covered expenses in any covered proceeding,
whether or not there is an adjudication of
l i a b ility as to such indemnitee, if a
determination has been made that the indemnitee
was not liable by reason of disabling conduct
by (i) a final decision of the court or other
body before which the covered proceeding was
brought; or (ii) in the absence of such
decision, a reasonable determination, based on
a review of the facts, by either (A) the vote
of a majority of a quorum of Trustees who are
neither interested persons , as defined in the
1940 Act nor parties to the covered proceeding
or (B) an independent legal counsel in a
written opinion; provided that such Trustees or
counsel, in reaching such determination, may
but need not presume the absence of disabling
conduct on the part of the indemnitee by reason
of the manner in which the covered proceeding
was terminated.
(4) Covered expenses incurred by an indemnitee
in connection with a covered proceeding shall
be advanced by the Trust to an indemnitee prior
t o t he final disposition of a covered
proceeding upon the request of the indemnitee
for such advance and the undertaking by or on
<PAGE>
behalf of the indemnitee to repay the advance
unless it is ultimately determined that the
i n demnitee is entitled to indemnification
thereunder, but only if one or more of the
18
<PAGE>
following is the case: (i) the indemnitee shall
provide a security for each undertaking; (ii)
the Trust shall be insured against losses
arising out of any lawful advances; or (iii)
there shall have been a determination, based on
a review of the readily available facts (as
opposed to a full trial-type inquiry) that
t h e re is a reason to believe that the
indemnitee ultimately will be found entitled to
indemnification by either independent legal
counsel in a written opinion or by the vote of
a majority of a quorum of trustees who are
neither interested persons as defined in the
1940 Act nor parties to the covered proceeding.
(5) Nothing herein shall be deemed to affect
the right of the Trust and/or any indemnitee to
acquire and pay for any insurance covering any
or all indemnitees to the extent permitted by
t h e 1 940 Act or to affect any other
indemnification rights to which any indemnitee
may be entitled to the extent permitted by the
1940 Act.
5.4 Surety Bonds. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the
performance of his duties.
5.5 Apparent Authority. No purchaser, lender, transfer
agent or other Person dealing with the Trustees or any
officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by such officer,
employee or agent or make inquiry concerning or be liable for
the application of money or property paid, loaned or delivered
to or on the order of the Trustees or of such officer,
employee or agent.
5.6 Recitals. Any written instrument creating an
obligation of the Trust shall be conclusively taken to have
been executed or done by a Trustee or Trustees or an officer,
employee or agent of the Trust only in their or his capacity
as Trustees or Trustee under this Declaration of Trust or in
the capacity of officer, employee or agent of the Trust. Any
written instrument creating an obligation of the Trust shall
refer to this Declaration of Trust and contain a recital to
the effect that the obligations thereunder are not personally
binding upon, nor shall resort be had to the private property
<PAGE>
of, any of the Trustees, Shareholders, officers, employees or
agents of the Trust, but the Trust Property or a specific
portion thereof only shall be bound, and may contain any
further recital which they or he may deem appropriate, but the
19
<PAGE>
omission of such recital shall not operate to impose personal
liability on any of the Trustees, Shareholders, officers,
employees or agents of the Trust.
5.7 Reliance on Experts, etc. Each Trustee and each
officer of the Trust shall, in the performance of his duties,
be fully and completely justified and protected with regard to
any act or any failure to act resulting from reliance in good
faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust
by any of its officers or employees or by the Adviser,
accountants, appraisers or other experts or consultants
selected with reasonable care by the Trustees or officers of
the Trust, regardless of whether such counsel or expert may
also be a Trustee.
5.8 Liability Insurance. The Trustees shall, at all
times, maintain insurance for the protection of the Trust
Property, its Shareholders, Trustees, officers, employees and
agents in such amount as the Trustees shall deem adequate to
cover all foreseeable tort liability to the extent available
at reasonable rates.
ARTICLE VI
CHARACTERISTICS OF SHARES
6.1 General. The ownership of the Trust Property of
every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees,
and the Shareholders shall have no interest therein other than
the beneficial interest conferred by their Shares, and they
shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor
can they be called upon to share or assume any losses of the
Trust or suffer an assessment of any kind by virtue of their
ownership of Shares, except as provided in Section 10.5
hereof. The Shares shall be personal property giving only the
rights specifically set forth in this Declaration of Trust.
6.2 Division of Beneficial Interest. The beneficial
interest in the Trust shall at all times be divided into an
unlimited number of transferable Shares, having no par value.
The Shares of the Trust shall be issued in one or more Series
or Classes, as the Trustees may, without Shareholder approval,
authorize. The Shares shall have the characteristics set
forth in (a) through and including (f) below. The Trustees
may from time to time divide or combine the Shares of each
Series or Class into a greater or lesser number without
<PAGE>
thereby changing the proportionate beneficial interest of that
Series or Class in the assets belonging to that Series or
Class, attributable to that Series or Class, or in any way
affecting the rights of Shares of any other Series or Class.
20
<PAGE>
Except as provided in Section 6.12 of this Article VI, with
respect to Shares of Multi-Class Series, no Share shall have
priority of preference over another. Contributions to the
Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or 1/1,000ths of a Share or multiple thereof.
The Board of Trustees may classify unissued Shares into one or
more additional Series or Classes which shall, together with
the issued Shares of each Series or Class, have such
designations as the Trustees may determine and shall, subject
to any applicable rule, regulation or order of the Commission
or other applicable law or regulation, have the
characteristics set forth in (a) through and including (f)
below.
(a) All consideration received by the Trust for the
issue or sale of Shares of each Series or
Class, together with all income, earnings,
profits and proceeds thereof, including any
proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments
derived from any reinvestment of such proceeds
in whatever form the same may be, shall, for
all purposes, irrevocably belong to the Series
or Class with respect to which such assets,
payments, or funds were received by the Trust,
subject only to the rights of creditors, and
shall be so handled upon the books of account
of the Trust. Such assets, income, earnings,
profits and proceeds thereof, any asset derived
from any reinvestment of such proceeds, in
whatever form the same may be, are herein
referred to as assets belonging to such
Series or Class.
(b) Dividends or distributions on Shares of any
Series or Class, whether payable in Shares or
cash, shall be paid only out of earnings,
surplus or other assets belonging to such
Series or Class.
(c) In the event of the liquidation or dissolution
of the Trust, Shareholders of each such Series
or Class shall be entitled to receive, as a
class, out of the assets of the Trust available
for distribution to Shareholders, but other
than general assets not belonging to any
p a r t icular Series or Class, the assets
belonging to such Series or Class; and the
<PAGE>
assets so distributable to the Shareholders of
any such Class shall be distributed among such
Shareholders in proportion to the number of
Shares of such Series or Class held by them and
21
<PAGE>
recorded on the books of the Trust. In the
event that there are any general assets not
belonging to any particular Series or Class and
available for distribution, such distribution
shall be made to the holders of Shares of all
Series and Classes in proportion to the asset
value of the respective Series or Class.
(d) The assets belonging to any such Series or
Class shall be charged with the liabilities in
respect to such Series or Class and shall be
c h arged with their share of the general
liabilities of the Trust. The determination of
the Trustees shall be conclusive as to the
a m o unt of liabilities, including accrued
expenses and reserves, and as to the allocation
of the same as to a given Series or Class, and
as to whether the same, or general assets of
the Trust, are allocable to one or more Series
or Class. The liabilities so allocated are
herein referred to as liabilities belonging
to such Series or Class.
(e) At all meetings of Shareholders, each
Shareholder of each Share of each Series or
Class shall be entitled to one vote for each
Share, irrespective of the Series or Class,
standing in his name on the books of the Trust,
except that where a vote of the holders of the
Shares of any Series or Class, or of more than
one Series or Class, voting by Series or Class,
is required by the 1940 Act and/or
Massachusetts law as to any proposal, only the
holders of such Series or Class(es), voting by
Series or Class, shall be entitled to vote upon
such proposal and the holders of any other
Series or Class(es) shall not be entitled to
vote thereon. Any fractional Share, if any
such fractional Shares are outstanding, shall
carry proportionately all the rights of a whole
Share, including the right to vote and the
right to receive dividends. There shall be no
cumulative voting rights with respect to any
Shares or Series or Class of the Trust.
(f) When the Trust has more than one Series or
Class: (i) the redemption rights provided to
the holders of the Trust s Shares in Section
<PAGE>
6.9 shall be deemed to apply only to the assets
belonging to the Series or Class in question;
a n d (ii) the net asset value per Share
computation as provided for in Section 10.4
22
<PAGE>
shall be applied as if each Series or Class
w e r e the Trust as referred to in such
computation, but with its assets limited to the
assets belonging to such Series or Class and
its liabilities limited to the liabilities
belonging to such Series or Class.
6.3 Evidence of Share Ownership. Evidence of Share
ownership shall be reflected in the Share register maintained
by or on behalf of the Trust pursuant to Section 7.1 hereof,
and the Trust shall not be required to issue certificates as
evidence of Share ownership; provided, however, that the
Trustees may, in their discretion, authorize the use of cer-
tificates as a means of evidencing the ownership of Shares by
setting forth in the Trust s By-laws or in a resolution,
provisions for the form of certificates and regulations
governing their execution, issuance and transfer. Subject to
Section 6.7 hereof, such certificates shall be treated as
negotiable and title thereto and to the Shares represented
thereby shall be transferred by delivery thereof to the same
extent in all respects as a stock certificate, and the Shares
represented thereby, of a Massachusetts business corporation.
6.4 Death of Shareholders. The death of a Shareholder
during the continuance of the Trust shall not terminate this
Declaration of Trust nor give such Shareholder s legal
representatives a right to an accounting or to take any action
in the courts or otherwise against other Shareholders or the
Trustees or the Trust Property, but shall simply entitle the
legal representatives of the deceased Shareholder to require
the recordation of such legal representative s ownership of or
rights in the deceased Shareholder s Shares, and, upon the
acceptance thereof, such legal representative shall succeed to
all the rights of the deceased Shareholder under this
Declaration of Trust.
6.5 Repurchase of Shares. The Trustees may, on behalf
of the Trust, purchase or otherwise acquire outstanding Shares
from time to time for such consideration and on such terms as
they may deem proper. Shares so purchased or acquired by the
Trustees for the account of the Trust shall not, so long as
they belong to the Trust, receive distributions (other than,
at the option of the Trustees, distributions in Shares) or be
entitled to any voting rights. Such Shares may, in the
discretion of the Trustees, be canceled and the number of
Shares issued thereby reduced, or such Shares may, in the
discretion of the Trustees, be held in the treasury and may be
disposed of by the Trustees at such time or times, to such
<PAGE>
party or parties and for such considerations as the Trustees
may determine.
23
<PAGE>
6.6 Trustees as Shareholders. Any Trustee in his
individual capacity may purchase and otherwise acquire or sell
and otherwise dispose of Shares or other Securities issued by
the Trust, and may exercise all the rights of a Shareholder to
the same extent as though he were not a Trustee.
6.7 Redemption and Stop Transfers for Tax Purposes;
Redemption to Maintain Constant Net Asset Value. If the
Trustees shall, at any time and in good faith, be of the
opinion that direct or indirect ownership of Shares or other
Securities of the Trust has or may become concentrated in any
person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code,
then the Trustees shall have the power by lot or other means
deemed equitable by them (i) to call for redemption a number,
or principal amount, of Shares or other Securities of the
Trust sufficient, in the opinion of the Trustees, to maintain
or bring the direct or indirect ownership of Shares or other
Securities of the Trust into conformity with the requirements
for such qualification and (ii) to refuse to transfer or issue
Shares or other Securities of the Trust to any Person whose
acquisition of the Shares or other Securities of the Trust in
question would, in the opinion of the Trustees, result in such
disqualification. The redemption shall be effected at a
redemption price determined in accordance with Section 6.9.
The Shares of the Trust shall also be subject to
r e demption pursuant to the procedure for reduction of
outstanding Shares set forth in Section 10.5 hereof in order
to maintain the constant net asset value per Share.
6.8 Information from Shareholders. The holders of
Shares or other securities of the Trust shall, upon demand,
disclose to the Trustees in writing such information with
respect to direct and indirect ownership of Shares or other
Securities of the Trust, as the Trustees reasonably deem
necessary, to comply with the provisions of the Internal
Revenue Code, or to comply with the requirements of any other
taxing authority.
6.9 Redemptions. All outstanding Shares may be redeemed
at the option of the holders thereof, upon and subject to the
terms and conditions provided in this Declaration of Trust.
The Trust shall, upon application of any Shareholder, redeem
or repurchase from such Shareholder outstanding Shares for an
amount per Share determined by the application of a formula
adopted for such purpose by the Trustees (which formula shall
be consistent with the 1940 Act and the rules and regulations
<PAGE>
promulgated thereunder); provided that such amount per Share
shall not exceed the cash equivalent of the proportionate
interest of each Share in the assets of the Trust at the time
of the purchase or redemption. The procedures for effecting
24
<PAGE>
redemption shall be as adopted by the Trustees and set forth
in the Prospectus from time to time.
6.10 Suspension of Redemption: Postponement of Payment.
The Trustees may suspend the right of redemption or postpone
the date of payment for the whole or any part of any period
(i) during which the New York Stock Exchange is closed other
than customary weekend and holiday closings, (ii) during which
trading on the New York Stock Exchange is restricted, (iii)
during which an emergency exists as a result of which disposal
by the Trust of Securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Trust
to determine fairly the value of its net assets, or (iv)
during any other period when the Securities and Exchange
Commission (or any succeeding governmental authority) may for
the protection of security holders of the Trust by order
permit suspension of the right of redemption or postponement
of the date of payment on redemption; provided that applicable
rules and regulations of the Commission (or any succeeding
governmental authority) shall govern as to whether the
conditions prescribed in (ii), (iii) or (iv) exist. Such
suspensions shall take effect at such time as the Trustees
shall specify but not later than the close of business on the
business day next following the declaration of suspension, and
thereafter there shall be no right of redemption or payment
until the Trustees shall declare the suspension at an end,
except that the suspension shall terminate in any event on the
first day on which said stock exchange shall have reopened or
the period specified in (ii), (iii), or (iv) shall have
expired (as to which in the absence of an official ruling by
said Commission or succeeding authority, the determination of
the Trustees shall be conclusive). In the case of a
suspension of the right of redemption, a Shareholder may
either withdraw his request for redemption or receive payment
based on the net asset value existing after the termination of
the suspension.
6.11 Power of Trustees to Change Provisions Relating to
Shares.
(a) Notwithstanding any other provisions of this
Declaration of Trust and without limiting the
power of the Trustees to amend the Declaration
of Trust as provided elsewhere herein, the
Trustees shall have the power to amend this
Declaration of Trust, at any time and from time
to time, in such manner as the Trustees may
determine in their sole discretion, without the
<PAGE>
need for Shareholder action, so as to add to,
d e l ete, replace or otherwise modify any
provisions relating to the Shares contained in
this Declaration of Trust for the purpose of
25
<PAGE>
r e sponding to or complying with any
regulations, orders, rulings or interpretations
of any governmental agency or any laws, now or
hereafter applicable to the Trust, provided
that before adopting any such amendment without
Shareholder approval the Trustees shall
determine that it is consistent with the fair
and equitable treatment of all Shareholders.
(b) The Trustees may designate or establish Series
or Classes of Shares. The establishment and
designation of any Series or Class of Shares
shall be effective upon the adoption by vote or
written consent of a majority of the then
Trustees of a resolution setting forth such
establishment and designation and the relative
rights and preferences of such Series or Class
a n d such eligibility requirements for
i n v e stment therein as the Trustees may
determine, or as otherwise provided in such
resolution. Without limiting the generality of
the foregoing, the Trustees may, for the above-
stated purposes:
(i) create one or more Series or Classes of
Shares (in addition to any Series or
Class(es) already existing or otherwise)
with such rights and preferences and such
eligibility requirements for investment
therein as the Trustees shall determine
and reclassify any or all outstanding
Shares as shares of particular Series or
C l a sses in accordance with such
eligibility requirements;
(ii) amend any of the provisions set forth in
paragraphs (a) through (i) of Section 6.12
of this Article VI;
(iii) combine one or more Series or Classes
of Shares into a single Series or
Class on such terms and conditions as
the Trustees shall determine;
(iv) c h a nge or eliminate any eligibility
requirements for investment in Shares of
any Series or Class, including without
limitation, the power to provide for the
<PAGE>
issuance of Shares of any Series or Class
in connection with any merger or
consolidation of the Trust with another
trust or company or any acquisition by the
26
<PAGE>
Trust of part or all of the assets of
another trust or company;
(v) change the designation of any Series or
Class of Shares;
(vi) change the method of allocating dividends
among the various Series and Classes of
Shares;
(vii) a l locate any specific assets or
liabilities of the Trust or any
specific items of income or expense
of the Trust to one or more Series or
Classes of Shares;
(viii) terminate any Series or Class of
Shares by written notice to the
Shareholders of such Series or Class;
and
(ix) specifically allocate assets to any or all
Series or Classes of Shares or create one
or more additional Series or Classes of
Shares which are preferred over all other
Series or Classes of Shares in respect of
assets specifically allocated thereto or
any dividends paid by the Trust with
r e s pect to any net income, however
determined, earned from the investment and
reinvestment of any assets so allocated or
otherwise and provide for any special
voting or other rights with respect to
such Series or Classes.
6.12 Establishment and Designation of Series and Classes.
Shares of each Series shall have the following rights and
preferences relative to Shares of each other Series, and
Shares of each Class of a Multi-Class Series shall have such
rights and preferences relative to other Classes of the same
Series as are set forth below, together with such other rights
and preferences relative to such other Classes as are set
forth in any resolution of the Trustees establishing and
designating such Class of Shares:
(a) Assets Belonging to Series. Subject to the
provisions of paragraph (c) of this Section
6.12:
<PAGE>
All consideration received by the Trust
for the issuance or sale of Shares of a
particular Series, together with all assets in
27
<PAGE>
w h i ch such consideration is invested or
reinvested, all income, earnings, profits and
proceeds thereof from whatever source derived,
including without limitation, any proceeds
derived from the sale, exchange or liquidation
of such assets, and any funds or payments
derived from any reinvestment of such proceeds
in whatever form the same may be, shall
irrevocably belong to that Series for all
p u rposes, subject only to the rights of
creditors, and shall be so recorded upon the
b o o k s of account of the Trust. Such
consideration, assets, income, earnings,
profits and proceeds thereof, from whatever
source derived, including without limitation,
any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or
payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are
herein referred to as assets belonging to
that Series. In the event that there are any
assets, income, earnings, profits and proceeds
thereof, funds or payments which are not
r e adily identifiable as belonging to any
p a r ticular Series (collectively General
Assets ), the Trustees shall allocate such
General Assets to, between or among any one or
more of the Series established and designated
from time to time in such manner and on such
basis as they, in their sole discretion, deem
fair and equitable, and any General Asset so
allocated to a particular Series shall belong
to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon
t h e Shareholders of all Series for all
purposes.
(b) Liabilities Belonging to Series. Subject to
the provisions of paragraph (c) of this Section
6.12:
The assets belonging to each particular
S e ries shall be charged solely with the
liabilities of the Trust in respect to that
Series, expenses, costs, charges and reserves
attributable to that Series, and any general
liabilities of the Trust which are not readily
identifiable as belonging to any particular
<PAGE>
Series but which are allocated and charged by
the Trustees to and among any one or more of
the Series established and designated from time
to time in a manner and on such basis as the
28
<PAGE>
Trustees in their sole discretion deem fair and
equitable. The liabilities, expenses, costs,
charges and reserves so charged to a Series are
herein referred to as liabilities belonging
t o that Series. Each allocation of
l i abilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive
and binding upon the holders of all Series for
all purposes.
(c) Apportionment of Assets etc. in Case of Multi-
Class Series. In the case of any Multi-Class
Series, to the extent necessary or appropriate
to give effect to the relative rights and
preferences of any Classes of Shares of such
Series, (i) any assets, income, earnings,
profits, proceeds, liabilities, expenses,
c h arges, costs and reserves belonging or
attributable to that Series may be allocated or
attributed to a particular Class of Shares of
that Series or apportioned among two or more
Classes of Shares of that Series; and (ii)
Shares of any Class of such Series may have
priority or preference over Shares of other
C l a sses of such Series with respect to
dividends or distributions upon termination of
the Trust or termination of such Series or
Class or otherwise, provided that no Share
shall have any priority or preference over any
other Shares of the same Class and that all
dividends and distributions to Shareholders of
a particular Class shall be made ratably among
all Shareholders of such Class according to the
number of Shares of such Class held of record
by such Shareholders on the record date for any
dividend or distribution or on the date of
termination, as the case may be.
(d) Dividends, Distributions, Redemptions and
Repurchases. Notwithstanding any other
p r ovisions of this Declaration, including
without limitation, Article X, no dividend or
distribution (including without limitation, any
distribution paid upon termination of the Trust
or of any Series or Class) with respect to, nor
any redemption or repurchase of, the Shares of
any Series or Class shall be effected by the
Trust other than from the assets belonging to
<PAGE>
such Series or attributable to such Class, nor
shall any Shareholder of any particular Series
or Class otherwise have any right or claim
against the assets belonging to any other
29
<PAGE>
Series or attributable to any other Class
except to the extent that such Shareholder has
s u c h a right or claim hereunder as a
Shareholder of such other Series or Class.
(e) Voting. Notwithstanding any of the other
provisions of this Declaration, including,
w i thout limitation, Article VIII, the
Shareholders of any particular Series or Class
shall not be entitled to vote on any matters as
to which such Series or Class is not affected.
O n a ny matter submitted to a vote of
Shareholders, all Shares of the Trust then
entitled to vote shall be voted by individual
Series, unless otherwise required by the 1940
Act or other applicable law.
(f) Equality. Except to the extent necessary or
appropriate to give effect to the relative
rights and preferences of any Classes of Shares
of a Multi-Class Series, all the Shares of each
particular Series shall represent an equal
proportionate interest in the assets belonging
to that Series (subject to the liabilities
belonging to that Series), and each Share of
any particular Series shall be equal to each
other Share of that Series. All the Shares of
each particular Class of Shares within a Multi-
Class Series shall represent an equal
proportionate interest in the assets belonging
to such Series that are attributable to such
Class (subject to the liabilities attributable
t o such Class), and each Share of any
particular Class within a Multi-Class Series
shall be equal to each other Share of such
Class.
(g) Fractions. Any fractional Share of a Series or
Class shall carry proportionately all the
rights and obligations of a whole share of that
Series or Class, including rights with respect
t o voting, receipt of dividends and
distributions, redemption of Shares and
termination of the Trust.
(h) Exchange Privilege. The Trustees shall have
the authority to provide that the holders of
Shares of any Series or Class shall have the
<PAGE>
right to exchange said Shares for Shares of one
or more other Series or Classes of Shares in
a c cordance with such requirements and
30
<PAGE>
p r ocedures as may be established by the
Trustees.
(i) Combination of Series. The Trustees shall have
the authority, without the approval of the
Shareholders of any Series unless otherwise
required by applicable law, to combine the
assets and liabilities belonging to any two or
m o r e Series into assets and liabilities
belonging to a single Series or Class.
(j) Certain Redemptions of Shares. The Trustees
shall have the authority, without the approval
of the Shareholders of any Series unless
o t herwise required by applicable law, to
establish and modify the minimum investment
level for each Series or Class of Shares and to
require Shareholders to maintain at least the
minimum investment level. If any Shareholder
f a i ls to maintain at least the minimum
investment level, his or her Shares may be
subject to mandatory involuntary redemption in
a c c ordance with the instructions of the
Trustees.
ARTICLE VII
RECORD AND TRANSFER OF SHARES
7.1 Share Register. One or more registers shall be kept
by or on behalf of the Trustees, under the direction of the
Trustees, which shall contain the names and addresses of the
S h a r eholders and the number of Shares held by them
respectively and a record of all transfers thereof. A
separate register shall be maintained for each Series and
Class. Each such register shall be conclusive as to who are
the holders of the Shares. Only Shareholders whose ownership
of Shares is recorded on such register shall be entitled to
vote or to receive distributions or otherwise to exercise or
enjoy the rights of Shareholders. No Shareholder shall be
entitled to receive any distribution, nor to have notice given
to him as herein provided, until he has given his address to a
transfer agent or such other officer or agent of the Trust as
shall keep the register for entry thereon.
7.2 Transfer Agent. The Trustees shall have power to
employ, within or without the Commonwealth of Massachusetts, a
transfer agent or transfer agents and, if they so determine, a
registrar or registrars. The transfer agent or transfer
<PAGE>
agents may keep the register(s) and record therein the
original issues and transfers of Shares. Any such transfer
agents and registrars shall perform the duties usually
performed by transfer agents and registrars of certificates
31
<PAGE>
and shares of stock in a corporation, except as modified by
the Trustees.
7.3 Owner of Record. Any person becoming entitled to
any Share in consequence of the death, bankruptcy or insol-
vency of any Shareholder, or otherwise, by operation of law,
shall be recorded as holder of such Shares. But until such
record is made, the Shareholder of record shall be deemed to
be the holder of such Shares for all purposes hereof and
neither the Trustees nor any transfer agent or registrar nor
any officer or agent of the Trust shall be affected by any
notice of such death, bankruptcy, insolvency or other event.
7.4 Transfers of Shares. Shares shall be transferable
on the records of the Trust (other than by operation of law)
only by the record holder thereof or by his agent thereunto
duly authorized in writing upon delivery to the Trust or a
transfer agent of the Trust of a duly executed instrument of
transfer, together with such evidence of the genuineness of
execution and authorization and of other matters as may
reasonably be required by the Trust or the transfer agent.
Upon such delivery, the transfer shall be recorded on the
register(s) of the Trust. But until such record is made, the
Shareholder of record shall be deemed to be the holder of such
Shares for all purposes hereof and neither the Trustees nor
the Trust nor any transfer agent or registrar nor any officer
or agent of the Trust shall be affected by any notice of the
proposed transfer. This Section 7.4 and Section 7.3 hereof
are subject in all respects to the provisions of Section 6.7
hereof.
7.5 L i m itation of Fiduciary Responsibility. The
Trustees shall not, nor shall the Shareholders or any officer,
transfer agent or other agent of the Trust, be bound to see to
the execution of any trust, express, implied or constructive,
or of any charge, pledge or equity to which any of the Shares
or any interest therein are subject, or to ascertain or
inquire whether any sale or transfer of any such Shares or
interest therein by any such Shareholder or his personal
representative is authorized by such trust, charge, pledge or
equity, or to recognize any Person as having any interest
therein except the Persons recorded as such Shareholders. The
receipt of the Person in whose name any Share is recorded, or,
if such Share is recorded in the names of more than one
Person, the receipt of any one such Persons or of the duly
authorized agent of any such Person shall be a sufficient
discharge for all money, Securities and other property
payable, issuable or deliverable in respect of such Share and
<PAGE>
from all liability to see the proper application thereof.
7.6 Notices. Any and all notices to which Shareholders
hereunder may be entitled, and any and all communications,
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<PAGE>
shall be deemed duly served or given if mailed, postage
prepaid, addressed to Shareholders of record at their last
known post office addresses as recorded on the Share register
provided for in Section 7.1 hereof.
ARTICLE VIII
SHAREHOLDERS
8.1 M e e t ings of Shareholders. Meetings of the
Shareholders (to mean, hereafter, only Shareholders of the
C l a ss(es) or Series as may be appropriate under the
circumstances) may be called at any time by a majority of the
Trustees and shall be called by any Trustee upon written
request of Shareholders holding in the aggregate not less than
ten (10%) percent of the outstanding Shares having voting
rights, such request specifying the purpose or purposes for
which such meeting is to be called. Any such meeting shall be
held within or without the Commonwealth of Massachusetts on
such day and at such time as the Trustees shall designate. In
the event that the number of Trustees elected by vote of the
Shareholders shall, at any time, fall below a majority a
Special Meeting shall be called at the earliest practicable
time for the election of Trustees; provided, however, that
such meeting shall, in any event be held within sixty (60)
days of the date of the number of Trustees elected by vote of
the Shareholders falls below a majority.
8.2 Quorums. The holders of a majority of outstanding
Shares, entitled to vote at such a meeting, present in person
or by proxy shall constitute a quorum at any meeting of
Shareholders.
8.3 Notice of Meetings. Notice of all meetings of the
Shareholders entitled to vote at such a meeting, stating the
time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his registered
address, mailed at least ten (10) days and not more than sixty
(60) days before the meeting. Only the business stated in the
notice of the meeting shall be considered at such meeting.
Any adjourned meeting may be held as adjourned without further
notice.
8.4 Record Date for Meetings. For the purposes of
determining the Shareholders who are entitled to vote or act
at any meeting or any adjournment thereof, or who are entitled
to participate in any dividend or distribution, or for the
purpose of any other action, the Trustees may from time to
time close the transfer books for such period, not exceeding
<PAGE>
thirty (30) days, as the Trustees may determine; or without
closing the transfer books, the Trustees may fix a date not
more than sixty (60) days prior to the date of any meeting of
Shareholders or other actions as a record date for the
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<PAGE>
determination of Shareholders entitled to vote at such meeting
or any adjournment thereof or to be treated as Shareholders of
record for purposes of such other action, except for dividend
payments which shall be governed by Section 10.1, and any
Shareholder who was a Shareholder at the time so fixed shall
be entitled to vote at such meeting or any adjournment
thereof, even though he has since that date disposed of his
Shares, and no Shareholder becoming such after that date shall
be so entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for
purposes of such other action.
8.5 Proxies, etc. At any meeting of Shareholders, any
holder of Shares entitled to vote thereat may vote by proxy,
provided that no proxy shall be voted at any meeting unless it
shall have been placed on file with the Secretary, or with
such other officer or agent of the Trust as the Secretary may
direct, for the verification prior to the time at which such
vote shall be taken. Pursuant to a resolution of a majority
of the Trustees, proxies may be solicited in the name of one
or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote and each
full Share shall be entitled to one vote and fractional Shares
shall be entitled to fractional votes. When any Share is held
jointly by several persons, any one of them may vote at any
meeting in person or by Proxy in respect of such Share, but if
more than one of them shall be present at such meeting in
person or by Proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall
not be received in respect of such Share. A proxy purporting
to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the
challenger. If the holder of any such Share is a minor or a
person of unsound mind, and subject to guardianship or to the
legal control of any other person as regards the charge or
management of such Share, he may vote by his guardian or such
other person appointed or having such control, and such vote
may be given in person or by proxy.
8.6 Reports. The Trustees shall, to the extent required
by the 1940 Act, cause to be prepared at least annually a
report of operations containing a balance sheet and statements
of income and undistributed income of the Trust prepared in
conformity with generally accepted accounting principles and
an opinion of an independent certified public accountant on
such financial statements based on an examination of the books
and records of the Trust, and made in accordance with
<PAGE>
generally accepted auditing standards. A signed copy of such
report and opinion shall be filed with the Trustees, and
copies of such reports shall be mailed or delivered to all
Shareholders within the time required by the 1940 Act. The
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<PAGE>
Trustees also shall, to the extent required by the 1940 Act,
furnish to the Shareholders, at least semi-annually, an
interim report containing an unaudited balance sheet of the
Trust as at the end of such semi-annual period and a statement
of income and surplus for the period from the beginning of the
current fiscal year to the end of such semi-annual period.
8.7 Inspection of Records. The records of the Trust
shall be open to inspections by Shareholders to the same
extent as is permitted shareholders of a Massachusetts
business corporation.
8.8 Shareholder Action By Written Consent. Any action
taken by Shareholders may be taken without a meeting if a
majority of Shareholders entitled to vote on the matter (or
such larger proportion thereof as shall be required by any
express provision of this Declaration of Trust) consent to the
action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall
be treated for all purposes as a vote taken at a meeting of
Shareholders.
8.9 Voting Rights of Shareholders. The Shareholders (or
such Class(es) or Series of Shareholders as may be appropriate
under the circumstances) shall be entitled to vote only upon
the following matters: (a) election of Trustees as provided in
Section 9.2 and Section 9.4 hereof; (b) amendment of the
Declaration of Trust or termination of this Trust as provided
in Section 4.4 and Section 13.1 hereof; (c) reorganization of
this Trust as provided in Section 13.2 hereof; and (d) all
matters for which the approval of the Shareholders of the
Trust is required by the Investment Company Act of 1940, as
amended. Except with respect to the foregoing matters
specified in this Section 8.9, no action taken by the
Shareholders at any meeting shall in any way bind the
Trustees.
ARTICLE IX
TRUSTEES
9.1 Number and Qualification. The number of Trustees
shall be fixed from time to time by resolution of a majority
of the Trustees then in office, provided, however, that the
number of Trustees shall in no event be less than three (3) or
more than fifteen (15). A vacancy on the Board of Trustees
may be filled by the appointment of an individual having the
qualifications described in this Section 9.1 made by a
resolution of a majority of the Trustees then in office, so
<PAGE>
long as two-thirds of the members of the resulting Board of
Trustees have been elected by vote of the Shareholders. The
appointment of a new Trustee shall not become effective,
however, until the individual named in the resolution of
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<PAGE>
appointment shall have accepted in writing such appointment
and agreed in writing to be bound by the terms of this
Declaration of Trust. No reduction in the number of Trustees
shall have the effect of removing any Trustee from office
prior to the expiration of his term. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is
filled as provided in Section 9.4 hereof, the Trustees or
Trustee continuing in office, regardless of their number,
shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this
Declaration of Trust. A Trustee shall be an individual at
least twenty-one (21) years of age who is not under legal
disability. The Trustees, in their capacity as Trustees,
shall not be required to devote their entire time to the
business and affairs of the Trust.
9.2 Term and Election. Each Trustee named herein, or
elected or appointed as provided in Section 9.1 and 9.4 hereof
shall (except in the event of resignations or removals or
vacancies pursuant to Sections 9.3 or 9.4 hereof) hold office
until his successor has been elected and has qualified to
serve as Trustee. Election of Trustees shall be by a
plurality of the votes cast. The election of any Trustee
(other than an individual who was serving as a Trustee
immediately prior to such election) pursuant to this Section
9.2 shall not become effective unless and until such person
shall have in writing accepted his election and agreed to be
bound by the terms of this Declaration of Trust. Trustees
may, but need not, own Shares.
9.3 Resignation and Removal. Any Trustee may resign
(without need for prior of subsequent accounting) by an
instrument in writing signed by him and delivered or mailed to
the Chairman, the President or the Secretary (referred to in
Section 9.6 hereof) and such resignation shall be effective
upon such delivery, or at a later date according to the terms
of the notice. Any of the Trustees may be removed (provided
the aggregate number of Trustees after such removal shall not
be less than the number required by Section 9.1 hereof) with
cause, by the action of two-thirds (2/3) of the remaining
Trustees. Upon the resignation or removal of a Trustee, or
his otherwise ceasing to be a Trustee, he shall execute and
deliver such documents as the remaining Trustees shall require
for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of the resigning
or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on
his behalf such documents as the remaining Trustees shall
<PAGE>
require as provided in the preceding sentence.
No natural person shall serve as Trustee after the
holders of record of not less than two-thirds of the
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<PAGE>
outstanding Shares of beneficial interest in the Trust have
declared that he be removed from that office either by
declaration in writing filed with the Custodian of the
securities of the Trust or by votes cast in person or by proxy
at a meeting called for the purpose.
T h e T rustees shall promptly call a meeting of
Shareholders for the purpose of voting upon the question of
removal of any such Trustee or Trustees if requested in
writing so to do by the record holders of not less than ten
(10) per centum of the outstanding Shares.
Whenever ten or more Shareholders of record, who have
been such for at least six months preceding the date of
application, and who hold in the aggregate either Shares
having a net asset value of at least $25,000 or at least one
(1) per centum of the outstanding Shares, whichever is less,
shall apply to the Trustees in writing, stating that they wish
to communicate with other Shareholders with a view to
obtaining signatures to a request for a meeting for the
purposes of removing Trustee(s) and accompanied by a form of
communication and request which they wish to transmit, the
Trustees shall, within five (5) business days after receipt of
such application, either
(a) afford to such applicants access to a list of
the names and addresses of all Shareholders as
recorded on the books of the Trust; or
(b) inform such applicants as to the approximate
number of Shareholders of record, and the
a p proximate cost of mailing to them the
proposed communication and form of request.
If the Trustees elect to follow the course specified in
(b) above, upon the written request of such applicants,
accompanied by a tender of the material to be mailed and of
the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all Shareholders of record
at their addresses as recorded on the books, unless within
five (5) business days after such tender the Trustees shall
mail to such applicants and file with the Securities and
Exchange Commission, together with a copy of the material to
be mailed, a written statement signed by at least a majority
of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to
state facts necessary to make the statements contained therein
not misleading, or would be in violation of applicable law,
<PAGE>
and specifying the basis of such opinion.
9.4 Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death,
37
<PAGE>
resignation, bankruptcy, adjudicated incompetence or other
incapacity to exercise the duties of the office, or removal of
a Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created
pursuant to the terms of this Declaration of Trust, and title
to any Trust Property held in the name of any Trustee alone,
jointly with one or more of the other Trustees or otherwise,
shall, in the event of the death, resignation, removal, bank-
ruptcy, adjudicated incompetence or other incapacity to
exercise the duties of the office of such Trustee, vest in the
continuing or surviving Trustees without necessity of any
further act or conveyance. In the case of an existing vacancy
(other than by reason of increase in the number of Trustees)
the holders of at least a majority of the Shares entitled to
vote, acting at any meeting of Shareholders called for the
purpose, or a majority of the Trustees continuing in office
acting by resolution, may fill such vacancy, and any Trustee
so elected by the Trustees shall hold office until his
successor has been elected and has qualified to serve as
Trustee. Upon the effectiveness of any such appointment as
provided in this Section, the Trust Property shall vest in
such new Trustee jointly with the continuing or surviving
T r ustees without the necessity of any further act or
conveyance; provided, however, that no such election or
appointment as provided in this Section 9.4 shall become
effective unless or until the new Trustee shall have accepted
in writing his appointment and agreed to be bound by the terms
of this Declaration of Trust.
9.5 Meetings. Meetings of the Trustees shall be held
from time to time upon the call of the Chairman, the
President, the Secretary or any two Trustees. Regular
meetings of the Trustees may be held without call or notice at
a time and place fixed by the By-laws or by resolution of the
Trustees. Notice of any other meeting shall be mailed or
otherwise given not less than forty-eight (48) hours before
the meeting but may be waived in writing by any Trustee either
before or after such meeting. The attendance of a Trustee at
a meeting shall constitute a waiver of such meeting except
where a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
The Trustees may act with or without a meeting. A quorum for
all meetings of the Trustees shall be a majority of the
T r ustees. Subject to Section 2.15 hereof and unless
specifically provided otherwise in this Declaration of Trust,
any action of the Trustees may be taken at a meeting by vote
of a majority of the Trustees present (a quorum being present)
<PAGE>
or, without a meeting, by written consents of a majority of
the Trustees. Any agreement, or other instrument or writing
executed by one or more of the Trustees or by any authorized
Person shall be valid and binding upon the Trustee and upon
38
<PAGE>
the Trust when authorized or ratified by action of the
Trustees as provided in this Declaration of Trust.
Any committee of the Trustees, including an Executive
Committee, if any, may act with or without a meeting. A
quorum for all meetings of any such committee shall be a
m a j o r ity of the members thereof. Unless otherwise
specifically provided in this Declaration of Trust, any action
of any such committee may be taken at a meeting by vote of a
majority of the members present (a quorum being present) or,
without a meeting, by written consent of a majority of the
members.
With respect to actions of the Trustees and any committee
thereof, Trustees who are affiliated within the meaning of
Section 2.15 hereof or otherwise interested in any action to
be taken may be counted for quorum purposes under this Section
9.5 and shall be entitled to vote to the extent permitted by
the 1940 Act.
All or any one or more Trustees may participate in a
meeting of the Trustees or any committee thereof by utilizing
conference, telephone or similar communications equipment by
means of which all persons participating in the meeting can
hear each other and, to the extent permitted under the 1940
Act, participation in a meeting pursuant to such
communications shall constitute presence in person at such
meeting. The minutes of any meeting of Trustees held by
utilizing such communications equipment shall be prepared in
the same manner as those of a meeting of Trustees held in
person.
9.6 Officers. The Trustees shall elect a Chairman from
among their number and shall appoint a President, Secretary
and Treasurer and such other officers as they deem necessary
or appropriate to carry out the business of the Trust. Such
officers shall be appointed and hold office in accordance with
By-law provisions.
9.7 By-laws. The Trustees may adopt and, from time to
time, amend or repeal By-laws for the conduct of the business
of the Trust, and in such By-laws may define the duties of the
respective officers, agents, employees and representatives.
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<PAGE>
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND
DETERMINATION OF NET ASSET VALUE AND NET INCOME
10.1 General. The Trustees may, from time to time,
declare and pay to the Shareholders, in proportion to their
respective ownership of Shares, out of the earnings, net
profits or surplus (including paid-in capital), capital or
assets in the hands of the Trustees, such dividends or other
distributions as they may determine. Except as otherwise
permitted by paragraph (c) of Section 6.12 of Article VI in
the case of Multi-Class Series, distributions of each year s
income of each Series shall be made pro rata to Shareholders
of a Series in proportion to the number of Shares of such
Series held by each of them. The declaration and payment of
such dividends or other distributions and the determination of
earnings, profits, surplus (including paid-in capital) and
capital available for dividends and other purposes shall lie
wholly in the discretion of the Trustees and no Shareholder
shall be entitled to receive or be paid any dividends or to
receive any distribution except as determined by the Trustees
in the exercise of said discretion. The Trustees may, in
addition, from time to time in their discretion, declare and
pay as dividends or other distributions such additional
amounts, whether or not out of earnings, profits and surplus
available therefor, sufficient to enable the Trust to avoid or
reduce its liability for Federal income taxes, inasmuch as the
computations of net income and gains for Federal income tax
purposes may vary from the computations thereof on the books
o f the Trust. Any of all such dividends or other
distributions may be made, in whole or in part, in cash,
property or other assets or obligations of the Trust, as the
Trustees may in their sole discretion from time to time
d e t ermine. The Trustees may also distribute to the
Shareholders, in proportion to their respective ownership of
Shares, additional Shares issuable hereunder in such manner
and on such terms as they may deem proper. Any or all such
dividends or distributions may be made among the Shareholders
of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees
shall determine.
10.2 Retained Earnings. The Trustees, except as provided
in Section 10.1 hereof , may always retain from the net
profits such amount as they may deem necessary to pay the
debts or expenses of the Trust, to meet obligations of the
Trust, to establish reserves or as they may deem desirable to
use in the conduct of its affairs or to retain for future
<PAGE>
requirements or extensions of the business of the Trust.
10.3 Source of Distributions. Shareholders shall receive
annually a statement in writing advising the Shareholders of
40
<PAGE>
the source of the funds so distributed so that distributions
of ordinary income, return of capital and capital gains income
will be clearly distinguished.
10.4 Net Asset Value. The net asset value of each
outstanding Share of the Trust shall be determined once on
each business day, as of the close of trading on the New York
Stock Exchange or at any other time as the Trustees, by
resolution, may determine and which is in compliance with the
1940 Act. The method of determination of net asset value
shall be determined by the Trustees and shall be set forth in
the Prospectus. The power and duty to make the daily
calculations may be delegated by the Trustees to the Adviser,
the Custodian, the Transfer Agent, the Distributor or such
other person as the Trustees by resolution may determine. The
Trustees may suspend the daily determination of net asset
value to the extent permitted by the 1940 Act.
10.5 P o w er to Modify Valuation Procedures.
Notwithstanding any of the foregoing provisions of this
Article X, the Trustees may prescribe, in their absolute
discretion, such other bases and times for determining the per
share net asset value of the Trust s Shares or net income, or
the declaration and payment of dividends and distributions as
they may deem necessary or desirable to enable the Trust to
comply with any provision of the 1940 Act, or any rule or
regulation thereunder, including any rule or regulation
adopted pursuant to Section 22 of the 1940 Act by the
Commission or any securities association registered under the
Securities Exchange Act of 1934, or any order of exemption
issued by said Commission, all as in effect now or as
hereafter amended or modified.
ARTICLE XI
CUSTODIAN
11.1 Appointment and Duties. The Trustees shall, at all
times, employ a bank or trust company organized under the laws
of the United States of America or one of the several states
thereof having a capital, surplus and undivided profits of at
least two million dollars ($2,000,000) as Custodian with
authority as its agent, but subject to such restrictions,
limitations and other requirements, if any, as may be
contained in the By-laws of the Trust and the 1940 Act:
(a) to hold the securities owned by the Trust and
deliver the same upon written order;
<PAGE>
(b) to receive and receipt for any monies due to
the Trust and deposit the same in its own
banking department or elsewhere as the Trustees
may direct;
41
<PAGE>
(c) to disburse such funds upon orders or vouchers;
(d) if authorized by the Trustees, to keep the
books and accounts of the Trust and furnish
clerical and accounting services; and
(e) if authorized to do so by the Trustees, to
compute the net income of the Trust;
all upon such basis of compensation as may be agreed upon
between the Trustees and Custodian. The Trust may also employ
the Custodian as its agent for other purposes.
The Trustees may also authorize the Custodian to employ
one or more Sub-Custodians from time to time to perform such
of the acts and services of the Custodian and upon such terms
and conditions, as may be agreed upon between the Custodian
and such Sub-Custodian and approved by the Trustees, provided
that, in every case, such Sub-Custodian shall be a bank or
trust company organized under the laws of the United States of
America or one of the several states thereof and having
capital, surplus and undivided profits of at least two million
dollars ($2,000,000).
11.2 Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the
Trustees may direct the Custodian to deposit all or any part
of the Securities owned by the Trust in a system for the
central handling of Securities established by a national
securities exchange or a national securities association
registered with the Commission under the Securities Exchange
Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular
Class or Series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by
b o o k k eeping entry without physical delivery of such
securities, provided that all such deposits shall be subject
to withdrawal only upon the order of the Trust.
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
12.1 Recording. This Declaration of Trust and any
amendment hereto shall be filed in the office of the Secretary
of the Commonwealth of Massachusetts and may also be filed or
recorded in such other places as the Trustees deem approp-
riate. Each amendment so filed shall be accompanied by a
<PAGE>
certificate signed and acknowledged by a Trustee stating that
such action was duly taken in a manner provided herein; and
unless such amendment or such certificate filed with the
Secretary of the Commonwealth of Massachusetts sets forth some
42
<PAGE>
earlier or later time for the effectiveness of such amendment,
such amendment shall be effective upon its filing with the
Secretary of said Commonwealth. An amended Declaration,
containing the original Declaration and all amendments there-
tofore made, may be executed any time or from time to time by
a majority of the Trustees and shall, upon filing with the
Secretary of the Commonwealth of Massachusetts, be conclusive
e v i dence of all amendments contained therein and may
thereafter be referred to in lieu of the original Declaration
and the various amendments thereto.
ARTICLE XIII
AMENDMENT OR TERMINATION OF TRUST
13.1 Amendment or Termination. The provisions of this
Declaration of Trust may be amended or altered (except as to
the limitations on personal liability of the Shareholders and
Trustees and the prohibition of assessments upon Share-
holders), or the Trust (or any Series or Class of Shares) may
be terminated, at any meeting of the Shareholders called for
the purpose, by the affirmative vote of the holders of a
m a jority of the Shares of such Series or Class then
outstanding and entitled to vote, or by an instrument or
instruments in writing, without a meeting, signed by a
majority of the Trustees and the holders of a majority of such
Shares; provided, however, that the Trustees may, from time to
time by a two-thirds (2/3) vote of the Trustees, and after
fifteen (15) days prior written notice to the Shareholders,
amend or alter the provisions of this Declaration of Trust,
without the vote or assent of the Shareholders, to the extent
deemed by the Trustees in good faith to be necessary to
conform this Declaration to the requirements of the regulated
investment company provisions of the Internal Revenue Code or
the requirements of applicable federal laws or regulations or
any interpretation thereof by a court or other governmental
agency of competent jurisdiction but the Trustees shall not be
liable for failing so to do. Notwithstanding the foregoing,
(i) no amendment may be made pursuant to this Section 13.1
which would change any rights with respect to any outstanding
Shares of the Trust (or such Series or Class, as the case may
be) by reducing the amount payable thereon upon liquidation of
the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or written consent of
the holders of two-thirds (2/3) of the outstanding Shares
entitled to vote thereon; and (ii) no amendment may be made
with respect to the investment restrictions contained in
Section 4.2 hereof without the affirmative vote of the holders
of a majority (as defined in the 1940 Act) of the Shares of
<PAGE>
the Class of stock affected by such change. Upon the
termination of the Trust or any one or more Series or Classes
of Shares, as the case may be, pursuant to this Section 13.1:
43
<PAGE>
(a) The Trust (or such Series or Class, as the case
may be) shall carry on no business except for
the purpose of winding up its affairs.
(b) The Trustees shall proceed to wind up the
affairs of the Trust (or such Series or Class,
as the case may be) and all of the powers of
the Trustees under this Declaration of Trust
shall continue until the affairs of the Trust,
Series or Class shall have been wound up,
including the power to fulfill or discharge the
contracts of the Trust, Series or Class,
collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all
or any part of the remaining Trust Property
(belonging to the Trust or to such Series or
Class, as the case may be) to one or more
p e r s ons at public or private sale for
consideration which may consist in whole or in
part of cash, securities or other property of
any kind, discharge or pay its liabilities, and
do all other acts appropriate to liquidate its
business; provided that any sale, conveyance,
assignment, exchange, transfer or other
disposition of all or substantially all of the
Trust Property (belonging to the Trust or to
such Series or Class, as the case may be) shall
require approval of the principal terms of the
transaction and the nature and amount of the
consideration by affirmative vote of not less
than a majority of all outstanding Shares (of
the Trust, Series or Class, as the case may be)
entitled to vote.
(c) After paying or adequately providing for the
payment of all liabilities, and upon receipt of
s u c h releases, indemnities and refunding
agreements, as they deem necessary for their
protection, the Trustees may distribute the
remaining Trust Property (belonging to the
Trust, Series or Class, as the case may be), in
cash or in kind or partly of each, among the
Shareholders (of the Trust, Series or Class, as
the case may be) according to their respective
rights.
Upon termination of the Trust, Series or Class, as the
case may be, and distribution to the Shareholders as herein
<PAGE>
provided, a majority of the Trustees shall execute and lodge
among the records of the Trust an instrument in writing
setting forth the fact of such termination, and the Trustees
shall thereupon be discharged from all further liabilities and
44
<PAGE>
duties hereunder (with respect to the Trust or such Series or
Class, as the case may be), and the right, title and interest
of all Shareholders (of the Trust, Series or Class, as the
case may be) shall cease and be canceled and discharged.
A certification in recordable form signed by a majority
of the Trustees setting forth an amendment and reciting that
it was duly adopted by the Shareholders or by the Trustees as
aforesaid or a copy of the Declaration, as amended, in
recordable form, and executed by a majority of the Trustees,
shall be conclusive evidence of such amendment when lodged
among the records of the Trust.
Notwithstanding any other provision hereof, until such
time as a Registration Statement under the Securities Act of
1933, as amended, covering the first public offering of Shares
shall have become effective, this Declaration of Trust may be
terminated or amended in any respect by the affirmative vote
of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
13.2 Power to Effect Reorganization. The Trustees, by
vote or written approval of a majority of the Trustees, may
s e l e ct or direct the organization of a corporation,
association, trust or other organization with which the Trust
may merge, or which shall take over the Trust Property and
carry on the affairs of the Trust, and after receiving an
a f firmative vote of not less than a majority of the
outstanding Shares entitled to vote at any meeting or
Shareholders, the notice for which included a statement of
such proposed action, the Trustees may effect such merger or
may sell, convey and transfer the Trust Property to any such
corporation, association, trust or organization in exchange
for cash or shares or securities thereof, or beneficial
interest therein upon making provision for the payment of
T r ust liabilities, by assumption by the transferee or
otherwise; and thereupon the Trustees shall terminate the
Trust and deliver such cash, shares, securities or beneficial
interest ratably among the Shareholders of this Trust in
redemption of their Shares.
13.3 Other Amendments. Amendments having the purpose of
changing the name of the Trust (or any Series of the Trust) or
supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by
Shareholder vote. 45
<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Declaration Trust is executed
by the Trustees and delivered in the Commonwealth of Massa-
chusetts and with reference to the laws thereof, and the
rights of all parties and the validity, construction and
effect of every provision hereof shall be subject to and
construed according to the laws of said Commonwealth and
r e f erence shall be specifically made to the Business
Corporation Law of the Commonwealth of Massachusetts as to the
construction of matters not specifically covered herein or as
to which an ambiguity exists.
14.2 Counterparts. This Declaration of Trust may be
simultaneously executed in several counterparts, each of which
so executed shall be deemed to be an original, and such
counterparts, together, shall constitute but one and the same
instrument, which shall be sufficiently evidenced by any such
original counterpart.
14.3 Reliance by Third Parties. Any certificate
executed by an individual who, according to the records of the
Trust, or of any recording office in which this Declaration
may be recorded, appears to be a Trustee hereunder, certifying
to: (a) the number or identity of Trustees or Shareholders,
(b) the due authorization of the execution of any instrument
or writing, (c) the form of any vote passed at a meeting of
Trustees or Shareholders, (d) the fact that the number of
Trustees or Shareholders present at any meeting or executing
any written instrument satisfies the requirements of this
Declaration of Trust, (e) the form of any By-law adopted by or
the identity of any officers elected by the Trustees, or (f)
the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as
to the matters so certified in favor of any person dealing
with the Trustees or any of them and the successors of such
person.
14.4 Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are
severable and if the Trustees shall determine,
with the advice of counsel, that any one or
more of such provisions (the "Conflicting
Provisions") are in conflict with the regulated
investment company provisions of the Internal
Revenue Code or with other applicable federal
<PAGE>
or state laws and regulations, the Conflicting
Provisions shall be deemed never to have
constituted a part of this Declaration of
Trust; provided, however, that such
46
<PAGE>
determination by the Trustees shall not affect
or impair any of the remaining provisions of
this Declaration of Trust or render invalid or
improper any action taken or omitted
(including, but not limited to, the election of
Trustees) prior to such determination.
(b) If any provisions of this Declaration of Trust
shall be held invalid or unenforceable in any
j u r i s d iction, such invalidity or
unenforceability shall attach only to such
provision in such jurisdiction and shall not in
a n y manner affect or render invalid or
unenforceable such provision in any other
jurisdiction or any other provision of this
Declaration of Trust in any jurisdiction.
14.5 Section Headings. Sections headings have been
inserted for convenience only and are not a part of this
Declaration of Trust.
14.6 Construction of 1940 Act. Whenever any action is
taken under this Declaration of Trust under any authorization
to take action which is permitted by the 1940 Act, such action
shall be deemed to have been properly taken if such action is
in accordance with the construction of the 1940 Act then in
effect as expressed in no action letters of the staff of the
Commission or any release, rule, regulation or order under the
1940 Act or any decision of a court of competent jurisdiction,
notwithstanding that any of the foregoing shall later be found
to be invalid or otherwise reversed or modified by any of the
foregoing.
14.7 Action of Prospectus or Proxy Statement. Any action
which may be taken by the Trustees under this Declaration of
Trust or its By-laws may be taken by the description thereof
in the then effective prospectus relating to the Shares under
the Securities Act of 1933 or in any proxy statement of the
Trust rather than by formal resolution of the Board.
ARTICLE XV
DURATION OF TRUST
15.1 Duration. Subject to possible termination in
accordance with the provisions of Article XIII hereof, the
Trust created hereby shall continue without limitation of
time.
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustee(s) of the Trust
have caused these presents to be executed as of the ____ day
of September, 1996.
47
<PAGE>
<TABLE>
<CAPTION>
Position
Name With Trust Address
<S> <C> <C>
/s/William P. Daves, Jr. Chairman of the 5723 Trail Meadow
William P. Daves, Jr. Board of Trustee Dallas, TX 75230
</TABLE>
49
<PAGE>
EXHIBIT 2
BY-LAWS
<PAGE>
BY-LAWS
OF
CONSECO FUND GROUP
ARTICLE I
Agreement and Declaration of Trust and Principal Office
Section 1.1 Agreement and Declaration of Trust. These By-laws
are made and adopted pursuant to the Agreement and Declaration
of Trust establishing CONSECO FUND GROUP (the Trust ), as
from time to time may be amended, restated or modified (the
Declaration ). All words and terms capitalized in these By-
laws shall have the meaning or meanings set forth for such
words or terms in the Declaration. If any term or provision
of these By-laws shall be in conflict with any term or
provision of the Declaration, the terms and provisions of the
Declaration shall be controlling.
Section 1.2 Principal Office of the Trust. The principal
office of the Trust shall be located within or without the
Commonwealth of Massachusetts as the Trustees may determine or
as they may authorize.
ARTICLE II
Shareholders' Meetings and Record Dates
Section 2.1 General. All meetings of the Shareholders shall
be held, pursuant to written notice, within or without the
Commonwealth of Massachusetts and on such day and at such time
as the Trustees shall designate. Notice shall be given by
mail not less than ten (10) nor more than sixty (60) days
prior to the day named for the meeting, and shall be deemed to
have been properly given to a Shareholder when deposited in
the United States mail with first class postage prepaid,
directed to his or her address as given to a transfer agent or
such other officer or agent of the Trust as shall keep the
register for entry thereon. A certificate or affidavit by the
Secretary or an Assistant Secretary or a transfer agent shall
be prima facie evidence of the giving of any notice required
by the Declaration.
Section 2.2 Notice of Adjournments. Upon adjournment of any
meeting of Shareholders, it shall not be necessary to give any
notice of the adjourned meeting or of the business to be
transacted thereat, other than by announcement at the meeting
<PAGE>
at which such adjournment is taken. At any adjourned meeting
at which a quorum shall be present or represented, only such
business may be transacted which might have been transacted at
the meeting originally called. If after the adjournment, the
1
<PAGE>
Trustees fix a new record date for the adjourned meeting, a
notice of the adjourned meeting shall be given to each
Shareholder of record on the new record date entitled by law
to receive such notice.
Section 2.3 Chairman. The Chairman shall act as chairman at
all meetings of the Shareholders; in his or her absence, the
President shall act as chairman; and in the absence of the
Chairman and President, the Trustee or Trustees present at
each meeting may elect a temporary chairman for the meeting,
who may be one of themselves.
Section 2.4 Voting Powers. The Shareholders shall have power
to vote only (i) for the election of Trustees as provided in
Article IX, Sections 2 and 4 of the Declaration, provided,
however, that no meeting of Shareholders is required to be
called for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees have been
elected by the shareholders, (ii) with respect to any
termination of this Trust to the extent and as provided in
Article XIII, Section 1 of the Declaration, (iii) with respect
to any amendment of the Declaration to the extent and as
provided in Article IV, Section 4 and Article XIII, Section 1
of the Declaration, (iv) with respect to any reorganization of
the Trust as provided in Article XIII, Section 2 of the
Declaration, (v) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on
behalf of the Trust or the Shareholders, and (vi) with respect
to such additional matters relating to the Trust as may be
required by law, the Declaration, these By-laws, or any
registration of the Trust with the Securities and Exchange
Commission or any State, or as the Trustees may consider
necessary or desirable. Each whole Share shall be entitled to
one vote as to any matter on which it is entitled to vote, and
each fractional Share shall be entitled to a proportionate
fractional vote. On any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote
shall be voted by individual Class or Series, as the case may
be, except (i) when required by the 1940 Act, Shares shall be
voted in the aggregate and not by individual Class or Series
and (ii) when the Trustees have determined that the matter
affects only the interests of one or more Class or Series,
then only Shareholders of such Class or Series shall be
entitled to vote thereon. There shall be no cumulative voting
in the election of Trustees. Shares held in the name of two
or more persons shall be valid if executed by any one of them
<PAGE>
unless at or prior to exercise of the proxy the Trust receives
a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or
2
<PAGE>
prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take
any action required by law, the Declaration, or these By-laws
to be taken by Shareholders.
Section 2.5 Proxies; Voting. Shareholders may vote at any
meeting, or by consent in writing without a meeting pursuant
to the Declaration, either in person or by proxy. Every proxy
shall be executed in writing by the Shareholder, or by his or
her duly authorized attorney-in fact, with each full share
represented at the meeting being entitled to one vote and
fractional shares to fractional votes. A proxy, unless
coupled with an interest, shall be revocable at will,
notwithstanding any other agreement or any provision in the
proxy to the contrary, but the revocation of a proxy shall not
be effective until notice thereof has been given to the
Secretary, or such other officer or agent of the Trust as the
Secretary may direct. No proxy shall be valid after eleven
(11) months from the date of its execution, unless a longer
time is expressly stated in such proxy, but in no event shall
a proxy, unless coupled with an interest, be voted on after
three (3) years from the date of its execution. A proxy shall
not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised,
written notice of such death or incapacity is given to the
Secretary or to such other officer or agent of the Trust as
the Secretary may direct.
Section 2.6 Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if a majority of
Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express
provision of law, the Declaration, or these By-laws) consents
to the action in writing and such written consents are filed
with the records of the meetings of Shareholders. Such
consents shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Section 2.7 Closing of Transfer Books and Fixing Record Dates.
For the purpose of determining which Series or Class(es) of
Shareholders are entitled to notice of or to vote or act at
any meeting, including any adjournment thereof, or who are
entitled to participate in any dividend or distribution, or
for any other proper purpose, the Trustees may from time to
time close the transfer books or fix a record date in the
manner provided in the Declaration. If the Trustees do not,
prior to any meeting of Shareholders, so fix a record date or
<PAGE>
close the transfer books, then the record date shall be the
close of business of the day next preceding the date of
mailing of notice of the meeting, or in the case of a dividend
or other distribution, the close of business on the day upon
3
<PAGE>
which the dividend or distribution resolution is adopted, or
on such later day as the Trustees may determine.
Section 2.8 Inspectors of Election. In advance of any meeting
of Shareholders, the Trustees may appoint Inspectors of
Election, who may but need not be Shareholders, to act at such
meeting or any adjournment thereof. If Inspectors of Election
are not so appointed, the chairman of any such meeting may,
and upon the request of any Shareholder or his or her proxy
shall, make such appointment at the meeting. The number of
Inspectors shall be either one (1) or three (3). If appointed
at the meeting on the request of one or more Shareholders or
proxies, a majority of Shares present shall determine whether
one or three Inspectors are to be appointed, but failure to
allow such determination by the Shareholders or proxies shall
not affect the validity of the appointment of Inspectors of
Election. In case any person appointed as Inspector fails to
appear or fails or refuses to act, the vacancy must be filled
by appointment made by the Trustees in advance of the
convening of the meeting, or at the meeting by the person
acting as chairman. The Inspectors of Election shall
determine the number of Shares outstanding, the Shares
represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies; shall receive
votes, ballots or consents; shall hear and determine all
challenges and questions in any way arising in connection with
the right to vote; shall count and tabulate all votes or
consents, determine the results, and do such other acts as may
be proper to conduct the election or vote with impartiality,
and fairness to all Shareholders. If there are three
Inspectors of Election, the decision, act or certificate or a
majority shall be effective in all respects as the decision,
act or certificate of all. On request of the chairman of the
meeting, or of any Shareholder or his or her proxy, the
Inspectors of Election shall make a written report on any
challenge or question or matter determined by them and execute
a certificate of any fact found by them.
ARTICLE III
Trustees
Section 3.1 Regular Meetings. Regular meetings of the
Trustees may be held at such time and place as the Trustees
may by resolution from time to time determine without call or
notice. If any day fixed for a regular meeting shall be a
legal holiday in the Commonwealth of Massachusetts or the
place designated for regular meetings, then the meeting shall
<PAGE>
be held at the same hour and place on the next succeeding
business day.
4
<PAGE>
Section 3.2 Special Meetings. Special Meetings of the
Trustees shall be held upon the call of the Chairman, the
President, or the Secretary, or any two Trustees, at such
time, on such day, and at such place, as shall be designated
in the notice or the meeting.
Section 3.3 Notice of Special Meetings. Notice of any special
meeting, specifying the place, day and hour of the meeting,
shall be given to a Trustee either personally or by sending a
copy thereof through the mail, with first class postage
prepaid, or by facsimile, to his or her address appearing on
the books of the Trust or supplied by him or her to the Trust
for the purpose of notice, at least forty-eight (48) hours,
prior to the time named for such meeting. If the notice is
sent by mail, it shall be deemed to have been given to the
person entitled thereto when deposited in the United States
mail, postage prepaid, for transmission to such person.
Notice by telephone shall constitute personal delivery for
these purposes. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Trustees need be
stated in the notice or waiver of notice of such meeting, and
no notice need be given of action proposed to be taken by
unanimous consent.
Section 3.4 Waiver of Notice. Whenever any notice is required
by the Declaration or these By-laws to be given to a Trustee,
a waiver thereof in writing, whether signed by him or her
before or after the meeting, shall be deemed equivalent to the
giving of due notice. Attendance of any Trustee at any
meeting shall constitute a waiver of notice of such meeting
except where such Trustee attends the meeting for the express
purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened.
Section 3.5 Adjournment. Adjournment or adjournments of any
meeting may be taken, and it shall not be necessary to give
any notice of the adjourned meeting or of the business to be
transacted thereat other than by announcement at the meeting
at which such adjournment is taken. At any adjourned meeting
at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting
originally called.
Section 3.6 Executive and Other Committees. Subject to the
provisions of Section 3.4 hereof, the Trustees may, by
resolution adopted by a majority thereof, designate one or
more of their number to constitute an Executive Committee and
may designate one or more of their number as alternate members
<PAGE>
of the Executive Committee, who may replace any absent or
disqualified member at any meeting of the Committee, and
similarly may create other committees as deemed necessary or
a p p ropriate, including, but not limited to, an Audit
5
<PAGE>
Committee. The President shall be notified in advance of all
E x ecutive Committee meetings, and whenever feasible or
convenient for him or her, the President shall attend meetings
of the Executive Committee and serve ex officio, as a non-
voting advisory member. Any such Executive Committee, to the
extent provided in such resolution and the Declaration, shall
have and exercise the authority of the Trustees in the
management of the business and affairs of the Trust and the
management and disposition of Trust Property. Vacancies in
the membership of any committee shall be filled by the
Trustees. In the absence or disqualification of any member of
such committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he,
she or they constitute a quorum, may unanimously appoint
another Trustee to act at the meeting in the place of any such
absent or disqualified member. The committees shall keep
regular minutes of their proceedings and report the same to
the Trustees.
Section 3.7 Chairman; Records. The Chairman shall act as
chairman at all meetings of the Trustees; in his or her
absence the Trustees present may elect one of their number to
act as temporary chairman. The results of all actions taken
at a meeting of the Trustees, or by written consents of the
T r ustees without a meeting, shall be recorded by the
Secretary.
Section 3.8 Meeting of Shareholders. Meetings of Shareholders
shall be held at such times and in such places as the Trustees
shall, by resolution, direct.
ARTICLE IV
Officers, Agents and Employees
Section 4.1 Officers of the Trust. The officers of the Trust
shall be a Chairman chosen from among the Trustees and a
President, a Secretary and a Treasurer or persons who shall
act as such regardless of the name or title by which they may
be designated, elected or appointed. One or more Vice-
Presidents, one or more Assistant Secretaries and Assistant
Treasurers, and such other officers or agents as the Trustee -
shall deem necessary or appropriate to carry out the business
of the Trust also may be elected or appointed. Any two or more
offices may be held by the same person, except those of
President and Secretary and provided that no officer shall
execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required to be executed,
<PAGE>
acknowledged or verified by two or more officers. In addition
to the powers and duties prescribed by the Declaration and
these By-laws, the officers and assistant officers shall have
such authority and shall perform such duties as from time to
6
<PAGE>
time shall be prescribed by the Trustees. The officers and
assistant officers of the Trust shall hold office until their
successors are chosen and have qualified, unless their term of
office is sooner terminated, by death, resignation or removal.
The Trustees may amend the title of any officer or assistant
officer or create a new office, by utilizing a word or words
descriptive of his or her powers or the general character of
his or her duties. If the office of any officer or assistant
officer becomes vacant for any reason, the vacancy may be
filled by the Trustees at any time.
Section 4.2 Removal of Officers, Agents or Employees. Any
officer, assistant officer, agent or employee may be removed
or have his or her authority revoked at any time, with or
without cause, by a majority of the Trustees, whenever in
their judgment the best interests of the Trust will be served
thereby, but such removal or revocation shall be without
prejudice to the right, if any, of the person so removed to
receive compensation or other benefits in accordance with the
terms of existing contracts. Any agent or employee likewise
may be removed by the President or Chairman or, subject to the
supervision or the President or Chairman, by the person having
authority with respect to the appointment of such agent or
employee. Any officer may resign at any time by written
notice signed by such officer and delivered or mailed to the
Chairman, President, or Secretary, and such resignation shall
take effect upon receipt by the Chairman, President, or
Secretary, or at a later date according to the terms of such
notice.
Section 4.3 Bonds and Surety. Any officer may be required by
the Trustees to be bonded for the faithful performance of his
or her duties in such amount and with such sureties as the
Trustees may determine.
Section 4.4 Chairman of the Board or Trustees; Powers and
Duties. The Chairman shall, if present, preside at all
meetings of the Shareholders and of the Trustees. He or she
shall perform such other powers and duties as may from time to
time be assigned to him or her by the Trustees.
Section 4.5 The President. Subject to such supervisory
powers, if any, as may be given by the Trustees, the President
shall be the chief operating officer of the Trust and, subject
t o t he control of the Trustees, shall have general
supervision, direction and control of the business of the
Trust and of its employees and shall exercise such general
powers or management as are usually vested in the office of
<PAGE>
president of a Massachusetts business corporation. In the
absence of the Chairman, the President shall preside at all
meetings of the Shareholders and of the Trustees. Subject to
direction of the Trustees, the President shall have power in
7
<PAGE>
the name and on behalf of the Trust to execute any and all
loan documents, contracts, agreements, deeds, mortgages, and
other instruments in writing, and to employ and discharge
employees and agents of the Trust. Unless otherwise directed
by the Trustees, the President shall have full authority and
power, on behalf of all of the Trustees, to attend and to act
and to vote, on behalf of the Trust at any meetings of
business organizations in which the Trust holds an interest,
or to confer such powers upon any other persons, by executing
any proxies duly authorizing such persons. The President
shall have such further authorities and duties as the Trustees
shall from time to time determine and shall be an ex officio
member of the Executive Committee and of all standing
committees (if any) appointed by the Trustees.
Section 4.6 Vice-President; Powers and Duties. The Vice-
President, if any, shall, in the absence or disability of the
President, perform all the duties of the President, and when
so acting shall have all the powers and be subject to all of
the restrictions upon the President. If there be more than
one Vice-President, their seniority in performing such duties
and exercising such powers shall be in order of their rank as
fixed by the Trustees, or, if more than one and not ranked,
then by determination of the Trustees, or, in the absence of
such determination, by the order in which they were first
elected. Subject to the direction of the Trustees, and the
President, each Vice-President shall have the power in the
name and on behalf of the Trust to execute any and all loan
documents, contracts, agreements, deeds, mortgages and other
instruments in writing, and, in addition, shall have such
other duties and powers as shall be designated from time to
time by the Trustees or the President and as by general usage
appertain to the office.
Section 4.7 Secretary; Powers and Duties. The Secretary shall
keep the minutes of all meetings of, and record all votes of,
Shareholders, Trustees and the executive or other committee,
if any. He or she shall give, or cause to be given, as
required by the Declaration or these By-laws, notice of
meetings of the Shareholders and of the Trustees, and shall
perform such other duties as may be prescribed by the
Trustees, or the President. He or she shall keep in safe
custody the seal of the Trust, and may affix the same, or, if
permitted, a facsimile thereof, to any instrument executed by
the Trust and attest the seal and the signature or signatures
of the officer or officers executing such instrument on behalf
of the Trust. The Secretary shall also perform any other
duties commonly incident to such office in a Massachusetts
<PAGE>
business corporation, and shall have such other authorities
and duties as the Trustees or the President shall from time to
time determine.
8
<PAGE>
Section 4.8 Treasurer; Powers and Duties. Except as otherwise
directed by the Trustees, the Treasurer shall have the general
supervision of the monies, funds, securities, notes receivable
and other valuable papers and documents of the Trust, and
shall have and exercise under the supervision of the Trustees
and President all powers and duties normally incident to his
or her office. He or she may endorse for deposit or
collection all notes, checks and other instruments payable to
the Trust or to its order. He or she shall deposit all funds
of the Trust in such depositories as the Trustees shall
d e signate. He or she shall be responsible for such
disbursement of the funds of the Trust as may be ordered by
the Trustees, or the Chairman or the President. He or she
shall keep accurate account of the books of the Trust s
transactions which shall be the property of the Trust, and
which, together with all other property of the Trust in his or
her possession, shall be subject at all times to the
inspection and control of the Trustees. Unless the Trustees
s h all otherwise determine, the Treasurer shall be the
principal financial and accounting officer or the Trust. He
or she shall have such other duties and authorities as the
Trustees or the President shall from time to time determine.
Notwithstanding anything to the contrary herein contained, the
Trustees may authorize the Investment Adviser, the Custodian,
or the Transfer Agent to maintain bank accounts and deposit
and disburse funds of the Trust on behalf of the Trust.
Section 4.9 Delegation of Officers Duties. The Trustees may
appoint such other officers and assistant officers as they
shall from time to time determine to be necessary or desirable
in order to conduct the business of the Trust. Assistant
officers shall act generally in the absence of the officer
whom they assist, shall assist that officer in the duties of
his or her office and shall have such other duties and
authority as may be conferred upon them by the Trustees or
delegated to them by the President. In case of the absence or
disability of any officer or assistant officer of the Trust or
for any other reason that the Trustees may deem sufficient,
the Trustees may delegate or authorize the delegation of his
or her powers or duties, for the time being, to any person.
ARTICLE V
Shares
Section 5.1 Evidence of Share Ownership. Certificates
representing the Trust s Shares shall not be physically
issued. Shares in the Trust shall be recorded on a register
<PAGE>
maintained for the Trust by the Transfer Agent appointed by
the Trustees. The holders of Shares so maintained shall have
the same rights of ownership with respect to such shares as if
certificates had been issued. The Trustees shall, from time
9
<PAGE>
to time, by appropriate resolution, establish such rules for
authentication of Shareholders for purposes of purchase and
redemption as they shall deem necessary. The Trustees may
create or discontinue, at their discretion, one or more Series
or Class(es) of Shares.
ARTICLE VI
Miscellaneous
Section 6.1 Depositories. The funds of the Trust shall be
deposited in such depositories as the Trustees shall designate
in accordance with the provisions of the Declaration, and
shall be drawn out on checks, drafts or other orders signed by
such officer, officers, agent or agents (including the
Adviser), as the Trustees may from time to time authorize.
Section 6.2 Signatures. Except as the Trustees may otherwise
authorize, all contracts and other instruments shall be
executed on behalf of the Trust by such officer, officers,
agent or agents, as provided in the Declaration or these By-
laws and need not bear the seal of the Trust.
Section 6.3 Seal. The Seal of the Trust shall have inscribed
thereon the words Conseco Fund Group, a Massachusetts
Voluntary Association, Common Seal, 1996. Such seal may be
used by causing it or a facsimile thereof, to be impressed or
affixed or in any manner reproduced and attested as if it had
been impressed and attested manually.
ARTICLE VII
Amendment of By-laws
Section 7.1 General. In accordance with the Declaration, the
Trustees have the power to alter, amend or repeal the By-laws
or adopt new By-laws at any time. Action by the Trustees with
respect to the By-laws shall be taken by an affirmative vote
of a majority of the Trustees. The Trustees shall in no event
adopt By-laws which are in conflict with the Declaration, and
any apparent inconsistency shall be construed in favor of the
related provisions in the Declaration.
As adopted at a meeting of the Board of Trustees on
_________________, ____.
10
<PAGE>
