As Filed With The Securities And Exchange Commission On December 29, 1997
File Nos. 333-13185
811-7839
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 4
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 5
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CONSECO FUND GROUP
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(Exact Name of Registrant as Specified in Charter)
11825 North Pennsylvania Street
Carmel, Indiana 46032
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(Address of Principal Executive Offices) (Zip Code)
(317) 817-6300
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(Registrant's Telephone Number, including Area Code)
WILLIAM P. LATIMER, Esq.
Conseco Capital Management, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
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(Name and Address of Agent for Service of Process)
Copies to:
DONALD W. SMITH, Esq.
ROBERT J. ZUTZ, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[ X ] On December 29, 1997 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] On __________________ pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] On _________________ pursuant to Rule 485(a)(ii)
<PAGE>
CONSECO FUND GROUP
Conseco 20 Fund
Conseco High Yield Fund
Conseco International Fund
Contents of Registration Statement
This Registration Statement consists of the following papers and documents:
o Cover Sheet
o Contents of Registration Statement
o Cross Reference Sheet
o Part A - Conseco Fund Group, Class A , B and C Prospectus
Conseco Fund Group, Class Y Prospectus
o Part B - Statement of Additional Information
o Part C - Other Information
o Signature Pages
No change is intended to be made by this Post-Effective Amendment No. 4
to the prospectuses or statements of additional information for the Conseco
Equity Fund, the Conseco Asset Allocation Fund or the Conseco Fixed Income Fund.
<PAGE>
CONSECO FUND GROUP
Conseco 20 Fund
Conseco High Yield Fund
Conseco International Fund
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Location in
Item No. Registration Statement
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Part A: Information Required In Prospectus
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<S> <C> <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 of Shares
8. Redemption or Repurchase 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 Restrictions
14. Management of the Registrant Management
15. Control Persons and Principal Holders of Securities Not applicable
16. Investment Advisory and Other Services Management
17. Brokerage Allocation Portfolio Turnover and Securities
Transactions
<PAGE>
N-1A Location in
Item No. Registration Statement
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18. Capital Stock and Other Securities General
19. Purchase, Redemption and Pricing of Purchase and Redemption of Shares
Securities Being Offered
20. Tax Status Taxes
21. Underwriters Distribution Arrangements
22. Calculation of Performance Data Investment Performance
23. Financial Statements Financial Statements
Part C: Other Information
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24. Financial Statements and Exhibits Financial Statements and Exhibits
25. Persons Controlled by or Under Common Control Persons Controlled by or Under Common
Control
26. Number of Holders of Securities Number of Holders of Securities
27. Indemnification Indemnification
28. Business and Other Connections Business and Other Connections of
of Investment Adviser 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>
CONSECO FUND GROUP
ADMINISTRATIVE OFFICE: 11815 N. PENNSYLVANIA STREET, CARMEL, INDIANA 46032
(317) 817-6300
The Conseco Fund Group (the "Trust") is an open-end diversified management
investment company registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("1940 Act"). 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 series of shares, each of
which represents a separate portfolio of investments. This Prospectus offers
shares of three series ("Funds") of the Trust, each with its own investment
objective and investment policies. Each Fund offers four classes of shares. This
Prospectus relates solely to Class A shares, Class B shares and Class C shares
of the Funds. Class Y shares are offered to certain institutional investors
through a separate prospectus. Each class may have different expenses, which may
affect performance.
The investment programs of the Funds are as follows:
CONSECO 20 FUND seeks capital appreciation by investing in a limited
number of equity securities. The Fund is "non-diversified" under the 1940 Act
and normally concentrates its investments in a core position of approximately 20
common stocks believed to have above-average growth prospects.
CONSECO HIGH YIELD FUND seeks a high level of current income, with a
secondary objective of capital appreciation, by investing primarily in
lower-rated fixed-income securities. These securities are subject to greater
fluctuations in value and greater risk of loss of income and principal due to
default by the issuer than are higher-rated securities; therefore, investors
should carefully assess the risks associated with an investment in this Fund.
CONSECO INTERNATIONAL FUND seeks long-term capital appreciation. The
Fund seeks to achieve its objective by investing all of its investable assets in
the International Equity Portfolio (the "Portfolio" or the "International
Portfolio") of the AMR Investment Services Trust (the "AMR Trust"), which
invests primarily in equity securities of issuers based outside the United
States.
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 its operations, including fees and expenses of Trustees who
are not affiliated persons of the Adviser or the Trust.
As noted above, the Conseco International Fund seeks its investment
objective by investing all of its investable assets in the International
Portfolio. The Portfolio invests in securities in accordance with an investment
objective, policies and limitations substantially similar to those of the Fund.
The investment experience of the Fund will correspond directly with the
investment experience of the Portfolio. Whenever the phrase "all of the Fund's
investable assets" is used, it means that the only investment securities that
will be held by the Conseco International Fund will be the Fund's interest in
the Portfolio. This "master-feeder" structure is different from that of many
other investment companies which directly acquire and manage their own
portfolios of securities. Accordingly, investors should carefully consider this
investment approach. See "Additional Information About the Master-Feeder
Structure." AMR Investment Services, Inc. ("AMR") provides investment management
and administrative services to the Portfolio.
* * * * *
<PAGE>
There is no assurance that any of the Funds listed above will achieve
its investment objective. The various Funds may be used independently or in
combination. You may also purchase shares of the other series of the Trust or of
a money market fund currently managed by Federated Investors, through separate
prospectuses. Those prospectuses are available upon request by calling
800-825-1530.
This Prospectus sets forth concisely the information about the Trust and
the funds that an investor should know before investing. A Statement of
Additional Information ("SAI") dated January 2, 1998, containing additional
information about the Trust and the Funds, has been filed with the SEC 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 at the address
and telephone number above.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January 2, 1998.
TABLE OF CONTENTS
Page
COVER
Page...........................................................1
FEE TABLE......................................................2
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS................5
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES...........10
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE......18
MANAGEMENT....................................................19
PURCHASE OF SHARES............................................23
ALTERNATIVE PRICING ARRANGEMENTS..............................26
REDEMPTION OF SHARES..........................................31
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES......................34
PERFORMANCE INFORMATION.......................................36
OTHER INFORMATION.............................................37
APPENDIX A SECURITIES RATINGS................................A-1
FEE TABLE
The following fee tables are provided to assist investors in
understanding the various fees and expenses which may be borne directly or
indirectly by an investment in Class A, Class B and Class C shares of the Funds.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
- -------------------------------- ------- ------- -------
ALL FUNDS
Maximum Sales Charge Imposed on Purchases 5.75% None None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested None None None
Dividends (as a percentage of offering price)
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Maximum Contingent Deferred Sales Charge (as None 5%* 1%**
a percentage of offering price or net asset
value at the time of sale, whichever is less)
Redemption Fees None None None
*The maximum 5% contingent deferred sales charge applies to sales of
Class B shares during the first year after purchase. The charge generally
declines annually, reaching zero after six years.
**The 1% contingent deferred sales charge applies only if an investor
sells Class C shares within the first year after purchase.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
CLASS A CLASS B CLASS C
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CONSECO 20 FUND
Management Fees 0.70% 0.70% 0.70%
Administrative Fees 0.20% 0.20% 0.20%
12b-1 Fees (1) 0.50% 1.00% 1.00%
Other Expenses (2) 0.35% 0.35% 0.35%
===== ===== =====
Total Operating Expenses (3) 1.75% 2.25% 2.25%
CLASS A CLASS B CLASS C
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CONSECO HIGH YIELD FUND
Management Fees (4) 0.60% 0.60% 0.60%
Administrative Fees 0.20% 0.20% 0.20%
12b-1 Fees (1) 0.50% 1.00% 1.00%
Other Expenses (2) 0.10% 0.10% 0.10%
===== ===== =====
Total Operating Expenses (3) 1.40% 1.90% 1.90%
CLASS A CLASS B CLASS C
------- ------- -------
CONSECO INTERNATIONAL FUND (5)
Management Fees 0.48% 0.48% 0.48%
Administrative Fees 0.75% 0.75% 0.75%
12b-1 Fees (1) 0.50% 1.00% 1.00%
Other Expenses (2) 0.52% 0.52% 0.52%
===== ===== =====
Total Operating Expenses (3) 2.25% 2.75% 2.75%
(1) As a result of 12b-1 fees, a long-term shareholder in a Fund may pay more
than the economic equivalent of the maximum sales charge permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD").
(2) Other Expenses in the fee table are based on estimated amounts for the
current fiscal year and exclude taxes, interest, brokerage and other transaction
expenses, and any extraordinary expenses.
3
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(3) The expense information set forth above reflects voluntary commitments of
the Adviser, Conseco Services, LLC (the "Administrator") and Conseco Equity
Sales, Inc. (the "Distributor") to waive a portion of their fees under each
Fund's Investment Advisory Agreement, Administration Agreement and Distribution
and Service Plan, respectively, and/or to reimburse a portion of the Fund's
expenses through April 30, 1999. The voluntary commitments provide that the
Total Operating Expenses for the Funds, on an annual basis, will not exceed the
amounts set forth above.
In the absence of such waivers and reimbursements (as well as the
Adviser's undertaking with respect to the Conseco High Yield Fund, as noted
below), it is estimated that, with respect to Class A shares, Other Expenses
would be .45%, .25% and 1.02%, and Total Operating Expenses would be 1.85%,
1.65% and 2.75%, of the average daily net assets of the Conseco 20 Fund, Conseco
High Yield Fund, and Conseco International Fund, respectively; and that, with
respect to Class B and Class C shares, Other Expenses would be .45%, .25% and
1.02%, and Total Operating Expenses would be 2.35%, 2.15% and 3.25%, of the
average daily net assets of the Conseco 20 Fund, Conseco High Yield Fund and
Conseco International Fund, respectively.
(4) The Adviser has voluntarily undertaken to reduce its advisory fee with
respect to the Conseco High Yield Fund to 0.60% of the Fund's average daily net
assets until April 30, 1999. Absent such undertaking the advisory fee would be
0.70% of the Fund's average daily net assets.
(5) The Adviser has voluntarily agreed to waive all of its fees under the
Conseco International Fund's Investment Advisory Agreement so long as that Fund
invests all of its investable assets in the International Portfolio.
Accordingly, Management Fees in the fee table reflect only the Conseco
International Fund's pro rata portion of the Portfolio's management fees.
Similarly, because of the master-feeder structure, Other Expenses in the fee
table combines the Conseco International Fund's expenses and that Fund's pro
rata portion of the Portfolio's expenses.
EXAMPLE
Assuming a hypothetical investment of $1,000 and a 5% annual return, an
investor in Class A, Class B and Class C shares of each of the Funds would pay
transaction and operating expenses at the end of each year as follows:
CONSECO 20 FUND
1 YEAR 3 YEARS
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Class A $ 67 $ 102
Class B (Assuming redemption at end of period) $ 74 $ 102
Class B (Assuming no redemption) $ 23 $ 69
Class C (Assuming redemption at end of period) $ 33 $ 69
Class C (Assuming no redemption) $ 23 $ 69
4
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CONSECO HIGH YIELD FUND
1 YEAR 3 YEARS
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Class A $ 63 $ 91
Class B (Assuming redemption at end of period) $ 71 $ 92
Class B (Assuming no redemption) $ 23 $ 69
Class C (Assuming redemption at end of period) $ 29 $ 59
Class C (Assuming no redemption) $ 19 $ 59
CONSECO INTERNATIONAL FUND
1 YEAR 3 YEARS
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Class A $ 71 $ 116
Class B (Assuming redemption at end of period) $ 79 $ 116
Class B (Assuming no redemption) $ 28 $ 84
Class C (Assuming redemption at end of period) $ 38 $ 84
Class C (Assuming no redemption) $ 28 $ 84
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 as described
below. There can be no assurance that any of the Funds will achieve its
investment objective. Each Fund is subject to the risk of changing economic
conditions, as well as the risk inherent in the ability of its investment
adviser to make changes in investments in anticipation of changes in economic,
business, and financial conditions. The investment objectives of the Funds are
not fundamental, as defined below; the investment objective of the International
Portfolio is fundamental.
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 and their risks are described in greater detail in "Description of
Securities and Investment Techniques" in the SAI.
The Funds and the International Portfolio are subject to investment
restrictions that are described under "Investment Restrictions" in the SAI.
Those investment restrictions that are "fundamental policies" may not be changed
without a majority vote of the outstanding shares of the affected Fund or the
outstanding interest holders of the International Portfolio. Except as otherwise
noted, all investment policies and practices described in this Prospectus and in
the SAI are not fundamental, meaning that the Trust's Board of Trustees
("Board") or the AMR Trust's Board of Trustees ("AMR Trust Board") may change
them without shareholder approval. See "Description of Securities and Investment
Techniques" and "Investment Restrictions" in the SAI for further information.
5
<PAGE>
CONSECO 20 FUND
The investment objective of the Conseco 20 Fund is to seek capital
appreciation. The Fund invests primarily in common stocks of companies that the
Adviser believes have above-average growth prospects. The Fund is
"non-diversified" (meaning that it is not limited under the 1940 Act in the
percentage of assets that it may invest in any one issuer) and normally
concentrates its investments in a core position of approximately 20 common
stocks. Because the Fund may invest a larger portion of its assets in the
securities of a single issuer than a "diversified" fund, an investment in the
Fund may be subject to greater fluctuations in value than an investment in a
"diversified" fund. However, the Fund intends to comply with the standards under
the Internal Revenue Code of 1986, as amended (the "Code"), that limit a
regulated investment company's investments in any one issuer's securities. See
"Taxes" in the SAI.
The Fund generally will invest in companies whose earnings are believed
to be in a relatively strong growth trend and, to a lesser extent, in companies
in which significant further growth is not anticipated but whose stocks are
thought to be undervalued by the market. In identifying companies with favorable
growth prospects, the Adviser ordinarily looks to certain characteristics, such
as the following:
. prospects for above-average sales and earnings growth
. high return on invested capital
. overall financial strength, including sound financial and
accounting policies and a strong balance sheet
. competitive advantages, including innovative products and service
. effective research, product development, and marketing
. stable, capable management.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in common stocks. The Fund may invest a substantial portion of its
assets in securities issued by companies with small and medium capitalizations.
While the emphasis of the Fund is on common stocks, the Fund may invest its
remaining assets in preferred stocks, convertible securities, and warrants, and
in debt obligations when the Adviser believes that they are more attractive than
stocks on a long-term basis. The debt obligations in which it invests will be
primarily investment grade debt securities (as defined below), 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"), or short-term fixed-income securities. However, the Fund may
invest up to 5% of its total assets in non-investment grade debt obligations.
When the Adviser determines that market conditions warrant a temporary defensive
position, the Fund may invest without limitation in cash and short-term
fixed-income securities.
The Fund may invest up to 25% of its total assets in equity and debt
securities of foreign issuers. The Fund presently intends to invest in foreign
securities only through depositary receipts. See "Foreign Securities" below for
more information.
To maximize potential return, the Adviser may utilize a variety of
investment techniques and strategies, including but not limited to: writing
listed "covered" call and "secured" put options, including options on stock
indices, and purchasing options; purchasing and selling, for hedging purposes,
stock index, interest rate, and other futures contracts, and purchasing options
on such futures contracts; entering into foreign currency futures contracts,
forward foreign currency contracts ("forward contracts") and options on foreign
currencies; borrowing from banks to purchase securities; purchasing securities
6
<PAGE>
of other investment companies; entering into repurchase agreements; investing in
when-issued or delayed delivery securities; and selling securities short. See
"Description of Securities and Investment Techniques" in the SAI for further
information.
CONSECO HIGH YIELD FUND
The investment objective of the Conseco High Yield Fund is to provide
investors with a high level of current income, with a secondary objective of
capital appreciation. In seeking to achieve the Fund's objectives, the Adviser,
under normal circumstances, invests at least 65% of the Fund's total assets in
high yield, fixed-income securities (commonly known as "junk bonds"), that is,
income-producing debt securities and preferred stocks of all types, including
corporate debt securities and preferred stock, convertible securities, zero
coupon securities, other deferred interest securities, mortgage-backed
securities and asset-backed securities. The Fund may invest in high yield debt
securities issued by states and their political subdivisions, agencies, and
instrumentalities ("municipal securities"). The interest on the municipal
securities in which the Fund invests typically is not exempt from federal income
tax. The Fund's remaining assets may be held in cash, money market instruments,
or U.S. Government securities, or may be invested in common stocks and other
equity securities when these types of investments are consistent with the
objectives of the Fund or are acquired as part of a unit consisting of a
combination of fixed-income securities and equity investments. Such remaining
assets may also be invested in investment grade fixed-income securities
(including municipal securities). Investment grade securities are securities
rated BBB or higher by Standard & Poor's ("S&P") or Baa or higher by Moody's
Investors Service, Inc. ("Moody's"), securities comparably rated by another
nationally recognized statistical rating organization ("NRSRO"), or unrated
securities deemed by the Adviser to be of equivalent quality. Moreover, the Fund
may hold cash or money market instruments without limit for temporary defensive
purposes or pending investment.
Higher yields are generally available from securities rated BB or lower
by S&P or Ba or lower by Moody's, securities comparably rated by another NRSRO,
or unrated securities of equivalent quality. The Fund may invest all or a
substantial portion of its assets in such securities. Debt securities rated
below investment grade (i.e., below BBB/Baa) are deemed by the rating agencies
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve major risk or exposure to adverse
conditions. The Fund may invest in securities rated as low as C by Moody's or D
by S&P, securities comparably rated by another NRSRO, or unrated securities of
equivalent quality. Such obligations are highly speculative and may be in
default or in danger of default as to principal and interest. Ratings are only
the opinions of the agencies issuing them and are not absolute standards as to
quality. See "Risks Associated With High Yield Debt Securities" below and
"Description of Securities and Investment Techniques" in the SAI. The Appendix
to this Prospectus describes Moody's and S&P's rating categories.
The Fund may 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 Fund may also invest in equity and debt securities of foreign
issuers, including issuers based in emerging markets. As a non-fundamental
policy, the Fund may invest up to 50% of its total assets (measured at the time
of investment) in foreign securities; however, the Fund presently does not
intend to invest more than 25% of its total assets in such securities. In
addition, the Fund presently intends to invest in foreign securities only
through depositary receipts. See "Foreign Securities" below for further
information.
The Fund may invest up to 25% of its total assets in private placements,
securities traded pursuant to Rule 144A under the Securities Act of 1933 ("1933
Act") (Rule 144A permits qualified institutional buyers to trade certain
7
<PAGE>
securities even though they are not registered under the 1933 Act), or
securities which, though not registered at the time of their initial sale, are
issued with registration rights. Some of these securities may be deemed by the
Adviser to be liquid under guidelines adopted by the Board. As a matter of
fundamental policy, the Fund will not (1) invest more than 5% of its total
assets in any one issuer, except for U.S. Government securities or (2) invest
25% or more of its total assets in securities of issuers having their principal
business activities in the same industry.
The Adviser does not rely solely on the ratings of rated securities in
making investment decisions but also evaluates other economic and business
factors affecting the issuer. The Adviser seeks to enhance total return
specifically through purchasing securities which it believes are undervalued and
selling, when appropriate, those securities it 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.
The 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 objectives. Such strategies and techniques include, but are not
limited to, writing listed "covered" call and "secured" put options and
purchasing options; purchasing and selling, for hedging purposes, interest rate
and other futures contracts, and purchasing options on such futures contracts;
entering into foreign currency futures contracts, forward contracts and options
on foreign currencies; borrowing from banks to purchase securities; investing in
securities of other investment companies; entering into repurchase agreements,
reverse repurchase agreements and dollar rolls; investing in when-issued or
delayed delivery securities; selling securities short, and entering into swaps
and other interest rate transactions. See "Description of Securities and
Investment Techniques" in the SAI for further information.
CONSECO INTERNATIONAL FUND
The investment objectives of the Conseco International Fund and the
International Portfolio are to realize long-term capital appreciation. The Fund
has a fundamental investment policy which allows, but does not require, it to
invest all of its investable assets in another investment company having
substantially the same investment objective and policies. All other fundamental
investment policies and the non-fundamental investment policies of the Fund and
the Portfolio are substantially similar (except with respect to borrowing, as
discussed in the SAI). The Fund invests only in the Portfolio. Therefore,
although the following discusses the investment policies of the Portfolio, it
applies equally to the Fund.
The Portfolio invests primarily in a diversified portfolio of equity
securities of issuers based outside the United States. AMR allocates the assets
of the Portfolio among one or more investment advisers designated for the
Portfolio. Hotchkis and Wiley, Morgan Stanley Asset Management Inc. and
Templeton Investment Counsel, Inc. currently serve as investment advisers to the
Portfolio. See "Management - AMR and the Investment Advisers to the
International Equity Portfolio."
Ordinarily the Portfolio will invest at least 65% of its assets in
common stocks and securities convertible into common stocks of issuers in at
least three different countries located outside the United States. However,
excluding collateral for securities loaned, the Portfolio generally invests in
excess of 80% of its assets in such securities. The remainder of the Portfolio's
assets will be invested in non-U.S. debt securities which, at the time of
purchase, are rated in one of the three highest rating categories by any NRSRO
or, if unrated, are deemed to be of comparable quality by the applicable
investment adviser and traded publicly on a world market, or in cash or cash
equivalents, including investment grade short-term obligations, or in other
investment companies. However, when its investment advisers deem that market
conditions warrant, the Portfolio may, for temporary defensive purposes, invest
up to 100% of its assets in cash, cash equivalents, other investment companies
and investment grade short-term obligations.
8
<PAGE>
The investment advisers select securities based upon a country's
economic outlook, market valuation and potential changes in currency exchange
rates. When purchasing equity securities, primary emphasis will be placed on
undervalued securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. These risks are often greater for investments in emerging or
developing countries. See "Investment Techniques and Other Investment Policies -
Foreign Securities" below.
The Portfolio will limit its investments to those in countries which
have been recommended by AMR and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
determining which countries will be approved, the AMR Trust Board will evaluate
the risks of investing in a country and will particularly focus on the ability
to repatriate funds, the size and liquidity aspects of the country's market and
the investment climate for foreign investors. The current countries in which the
Portfolio may invest are Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Mexico,
Netherlands, New Zealand, Norway, Portugal, Singapore, South Korea, Spain,
Sweden, Switzerland and the United Kingdom.
The Portfolio may trade forward foreign currency contracts, which are
derivatives, to hedge currency fluctuations of underlying stock or bond
positions or in other circumstances permitted by the Commodity Futures Trading
Commission. Forward contracts to sell foreign currency may be used when the
management of the Portfolio believes that the currency of a particular foreign
country may suffer a decline against the U.S. dollar. Forward contracts are also
entered into to set the exchange rate for a future transaction. In this manner,
the Portfolio may protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar or other currency
which is being used for the security purchase and the foreign currency in which
the security is denominated during the period between the date on which the
security is purchased or sold and the date on which payment is made or received.
Forward contracts involve certain risks which include, but are not limited to:
(1) imperfect correlation between the securities hedged and the contracts
themselves; and (2) possible decrease in the total return of the Portfolio.
Forward contracts are discussed in greater detail in the SAI.
The Portfolio also may trade currency futures for the same reasons as
for entering into forward contracts as set forth above. Currency futures are
traded on U.S. and foreign currency exchanges. The use of currency futures also
entails certain risks which include, but are not limited to: (1) less liquidity
due to daily limits on price fluctuation; (2) imperfect correlation between the
securities hedged and the contracts themselves; (3) possible decrease in the
total return of the Portfolio due to hedging; (4) possible reduction in value
for both the contracts and the securities being hedged; and (5) potential losses
in excess of the amounts invested in the currency futures contracts themselves.
The Portfolio may not enter into currency futures contracts if the purchase or
sale of such contract would cause the sum of the Portfolio's initial and any
variation margin deposits to exceed 5% of its total assets. Currency futures
contracts, which are derivatives, are discussed in greater detail in the SAI.
As a matter of fundamental policy, the Portfolio may not (1) invest more
than 5% of its total assets (taken at market value) in securities of any one
issuer, other than U.S. Government securities, or purchase more than 10% of the
voting securities of any one issuer, with respect to 75% of the Portfolio's
total assets, or (2) invest more than 25% of its total assets in the obligations
of companies primarily engaged in any one industry, provided that: (i) this
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limitation does not apply to U.S. Government securities; (ii) municipalities and
their agencies and authorities are not deemed to be industries; and (iii)
financial service companies are classified according to the end users of their
services (for example, automobile finance, bank finance, and diversified finance
will be considered separate industries). In addition, as a non-fundamental
investment restriction, the Portfolio may not invest more than 15% of its net
assets in illiquid securities, including time deposits and repurchase agreements
that mature in more than seven days.
The above percentage limits are based upon asset values at the time of
the applicable transaction; accordingly, a subsequent change in asset values
will not affect a transaction which was in compliance with the investment
restrictions at the time such transaction was effected. See the SAI for other
investment limitations.
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES
References in this section to "a Fund," "the Funds" or "the Conseco
International Fund" include the International Portfolio, unless the context
otherwise requires.
SMALL AND MEDIUM CAPITALIZATION COMPANIES
The Conseco 20 Fund may invest a substantial portion of its assets in
securities issued by companies with small and medium capitalizations ("small-
and mid-cap companies"). While these companies generally have potential for
rapid growth, investments in such companies often involve greater risks than
investments in larger, more established companies because small- and mid-cap
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of companies with larger market
capitalizations. In addition, in many instances the securities of small- and
mid-cap companies are traded only over-the-counter or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, these securities may be subject
to greater and more abrupt price fluctuations. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may have
to make a series of small sales over an extended period of time due to the
trading volume of small- and mid-cap company securities. As a result, an
investment in the Fund may be subject to greater price fluctuations than an
investment in a fund that invests primarily in larger, more established
companies. The Adviser's research efforts may also play a greater role in
selecting securities for the Fund than in a fund that invests in larger, more
established companies.
PREFERRED STOCK
The Funds may invest in preferred stock. Preferred stock pays dividends
at a specified rate and generally has preference over common stock in the
payment of dividends and the liquidation of the issuer's assets but is junior to
the debt securities of the issuer in those same respects. Unlike interest
payments on debt securities, dividends on preferred stock are generally payable
at the discretion of the issuer's board of directors, and shareholders may
suffer a loss of value if dividends are not paid. Preferred shareholders
generally have no legal recourse against the issuer if dividends are not paid.
The market prices of preferred stocks are subject to changes in interest rates
and are more sensitive to changes in the issuer's creditworthiness than are the
prices of debt securities. Under ordinary circumstances, preferred stock does
not carry voting rights.
DEBT SECURITIES
The Conseco 20 and Conseco High Yield Funds may invest in U.S.
dollar-denominated corporate debt securities of domestic issuers, and all of the
Funds may invest in debt securities of foreign issuers that may or may not be
U.S. dollar-denominated.
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The investment return on a corporate debt security reflects interest
earnings and changes in the market value of the security. The market value of
corporate debt obligations may be expected to rise and fall inversely with
interest rates generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on interest or principal
payments at the time called for by an instrument. Debt securities rated BBB or
Baa, which are considered medium-grade debt securities, do not 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 when
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.
Corporate debt securities may pay fixed or variable rates of interest,
or interest at a rate contingent upon some other factor, such as the price of
some commodity. These securities may be convertible into preferred or common
stock (see "Convertible Securities" below), or may be bought as part of a unit
containing common stock. A debt security may be subject to redemption at the
option of the issuer at a price set in the security's governing instrument.
In selecting corporate debt securities for the Conseco 20 or Conseco
High Yield Fund, the Adviser reviews and monitors the creditworthiness of each
issuer and issue. The Adviser also analyzes interest rate trends and specific
developments which it believes may affect individual issuers.
RISKS ASSOCIATED WITH HIGH YIELD DEBT SECURITIES. The Conseco 20 and
Conseco High Yield Funds may invest in high yield, high risk, lower-rated debt
securities. High yield debt securities are subject to all risks inherent in any
investment in debt securities. As discussed below, these risks are significantly
greater in the case of high yield debt securities.
Lower-rated debt securities generally offer a higher yield to maturity
than that available from higher-rated issues, as compensation for holding a
security that is subject to greater risk. 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)
adverse changes in the financial condition of the issuers, (3) price fluctuation
in response to changes in interest rates and (4) limited liquidity and secondary
market support. Accordingly, the yield on lower-rated debt securities will
fluctuate over time.
The prices of lower-rated bonds may be more sensitive to adverse
economic changes and developments regarding the individual issuer than are
higher-rated bonds. An economic downturn affecting the issuer may result in an
increased incidence of default. Although the market for lower-rated debt
securities is not new, and the market has previously weathered economic
downturns, there has been in recent years a substantial increase in the use of
such securities to fund corporate acquisitions and restructurings. Accordingly,
the past performance of the market for such securities may not be an accurate
indication of its performance during future economic downturns or periods of
rising interest rates. This market may be thinner and less active than the
market for higher quality securities, which may limit the ability to sell such
securities at their fair value in response to changes in the economy or the
financial markets. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the values and liquidity of
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
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investment grade (i.e., Ba or lower by Moody's or BB or lower by S&P). 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.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the same
or a different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers, but lower than the yield on non-convertible debt. Convertible
securities are usually subordinated to comparable-tier non-convertible
securities but rank senior to common stock in a corporation's capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
value, if converted into the underlying common stock. Convertible securities are
typically issued by smaller capitalized companies, whose stock prices may be
volatile. The price of a convertible security often reflects such variations in
the price of the underlying common stock in a way that non-convertible debt does
not. A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument, which could have an adverse effect on a Fund's ability to achieve
its investment objective.
ZERO COUPON BONDS
The Conseco 20 and Conseco High Yield Funds may invest in zero coupon
securities. Zero coupon bonds are debt obligations which make no fixed interest
payments but instead are issued at a significant discount from face value. Like
other debt securities, the market price can reflect a premium or discount, in
addition to the original issue discount, reflecting the market's judgment as to
the issuer's creditworthiness, the interest rate or other similar factors. The
original issue discount approximates the total amount of interest the bonds will
accrue and compound over the period until maturity (or the first interest
payment date) at a rate of interest reflecting the market rate at the time of
issuance. Because zero coupon bonds do not make periodic interest payments,
their prices can be very volatile when market interest rates change.
The original issue discount on zero coupon bonds must be included in a
Fund's income ratably as it accrues. Accordingly, to qualify for tax treatment
as a regulated investment company and to avoid a certain excise tax, a Fund may
be required to distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. These distributions must be made from the
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. Such sales could occur at a time which would be disadvantageous to a
Fund and when the Fund would not otherwise choose to dispose of the assets.
PAY-IN-KIND BONDS
The Conseco High Yield Fund may invest in pay-in-kind bonds. These bonds
pay "interest" through the issuance of additional bonds, thereby adding debt to
the issuer's balance sheet. The market prices of these securities are likely to
respond to changes in interest rates to a greater degree than the prices of
securities paying interest currently. Pay-in-kind bonds carry additional risk in
that, unlike bonds that pay interest throughout the period to maturity, the Fund
will realize no cash until the cash payment date and the Fund may obtain no
return at all on its investment if the issuer defaults.
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The holder of a pay-in-kind bond must accrue income with respect to
these securities prior to the receipt of cash payments thereon. To avoid
liability for federal income and excise taxes, the Fund most likely will be
required to distribute income accrued with respect to these securities, even
though the Fund has not received that income in cash, and may be required to
dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
MORTGAGE-BACKED SECURITIES
The Conseco 20 and Conseco High Yield Funds may invest in
mortgage-backed securities. Mortgage-backed securities are interests in "pools"
of mortgage loans made to residential home buyers, including mortgage loans made
by savings and loan institutions, mortgage bankers, commercial banks and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations (see
"Mortgage Pass-Through Securities," below). These Funds may also invest in debt
securities which are secured with collateral consisting of mortgage-backed
securities (see "Collateralized Mortgage Obligations," below), and in other
types of mortgage-related securities. The Conseco 20 Fund presently does not
intend to invest more than 5% of its assets in mortgage-backed 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 Fannie Mae ("FNMA") or
Freddie Mac ("FHLMC")). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
secondary market issuers) may be uninsured or may be supported by various forms
of insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers, or the mortgage poolers.
GNMA CERTIFICATES. GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
Government. As a result, GNMA certificates are considered to have a low risk of
default, although they are subject to the same market risk as comparable debt
securities. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Although the mortgage loans in the pool will have maturities of up to
30 years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages may be purchased at any time prior to
maturity, will be subject to normal principal amortization, and may be prepaid
prior to maturity. Reinvestment of prepayments may occur at higher or lower
rates than the original yield on the certificates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS. FNMA, a federally chartered
and privately owned corporation, issues pass-through securities representing
interests in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not backed by the full
faith and credit of the U.S. Government. FNMA also issues REMIC certificates,
which represent interests in a trust funded with FNMA certificates. REMIC
certificates are guaranteed by FNMA and not by the full faith and credit of the
U.S. Government.
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FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent interests in pools of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but these securities are not backed by the full faith and
credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and
realized yield on particular FNMA and FHLMC pass-through securities will vary
based on the prepayment experience of the underlying pool of mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MORTGAGE-BACKED BONDS.
Mortgage-backed securities may be 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,
although not necessarily on a pro rata basis. 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 Fund could
sustain a loss. If new types of mortgage-related securities are developed and
offered to investors, investments in such securities will be considered.
STRIPPED MORTGAGE-BACKED SECURITIES. The Conseco High Yield Fund may
invest in stripped mortgage-backed securities, which are derivative securities
usually structured with two classes that receive different proportions of the
interest and principal distributions from an underlying pool of mortgage assets.
The Fund may purchase securities representing only the interest payment portion
of the underlying mortgage pools (commonly referred to as "IOs") or only the
principal portion of the underlying mortgage pools (commonly referred to as
"POs"). Stripped mortgage-backed securities are more sensitive to changes in
prepayment and interest rates and the market for such securities is less liquid
than is the case for traditional debt securities and mortgage-backed securities.
The yield on IOs is extremely sensitive to the rate of principal payments
(including prepayments) on the underlying mortgage assets, and a rapid rate of
repayment may have a material adverse effect on such securities' yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund will fail to recoup fully its initial
investment in these securities, even if they are rated high quality. Most IOs
and POs are regarded as illiquid and will be included in the Fund's limit on
illiquid securities.
RISKS OF MORTGAGE-BACKED SECURITIES. 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 and IOs and POs, are subject to 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). 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,
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when interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the mortgage-backed security.
Accordingly, it is not possible to accurately predict the average life of a
particular pool. Reinvestment of prepayments may occur at higher or lower rates
than the original yield on the securities. Therefore, the actual maturity and
realized yield on pass-through or modified pass-through mortgage-backed
securities will vary based upon the prepayment experience of the underlying pool
of mortgages.
TRUST ORIGINATED PREFERRED SECURITIES
The Conseco High Yield Fund may also invest in trust originated
preferred securities, a new type of security issued by financial institutions
such as banks and insurance companies. Trust originated preferred securities
represent interests in a trust formed by a financial institution. The trust
sells preferred shares and invests the proceeds in notes issued by the financial
institution. These notes may be subordinated and unsecured. Distributions on the
trust originated preferred securities match the interest payments on the notes;
if no interest is paid on the notes, the trust will not make current payments on
its preferred securities. Issuers of the notes currently enjoy favorable tax
treatment. If the tax characterization of these securities were to change
adversely, they could be redeemed by the issuers, which could result in a loss
to the Fund. In addition, some trust originated preferred securities are
available only to qualified institutional buyers under Rule 144A.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Conseco High Yield Fund may also invest in loan participations or
assignments. In purchasing a loan participation or assignment, the Fund acquires
some or all of the interest of a bank or other lending institution in a loan to
a corporate borrower. Many such loans are secured and most impose restrictive
covenants which must be met by the borrower and which are generally more
stringent than the covenants available in publicly traded debt securities.
However, interests in some loans may not be secured, and the Fund will be
exposed to a risk of loss if the borrower defaults. Loan participations may also
be purchased by the Fund when the borrowing company is already in default.
In purchasing a loan participation, the Fund may have less protection
under the federal securities laws than it has in purchasing traditional types of
securities. The Fund's ability to assert its rights against the borrower will
also depend on the particular terms of the loan agreement among the parties.
Many of the interests in loans purchased by the Fund will be illiquid and
therefore subject to the Fund's limit on illiquid investments.
COLLATERALIZED BOND OBLIGATIONS
A collateralized bond obligation ("CBO") is a type of asset-backed
security. Specifically, a CBO is an investment grade bond which is backed by a
diversified pool of high risk, high yield fixed-income securities. The pool of
high yield securities is separated into "tiers" representing different degrees
of credit quality. The top tier of CBOs is backed by the pooled securities with
the highest degree of credit quality and pays the lowest interest rate.
Lower-tier CBOs represent lower degrees of credit quality and pay higher
interest rates to compensate for the attendant risk. The bottom tier typically
receives the residual interest payments (i.e. money that is left over after the
higher tiers have been paid) rather than a fixed interest rate. The return on
the bottom tier of CBOs is especially sensitive to the rate of defaults in the
collateral pool.
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FOREIGN SECURITIES
The Funds may invest in equity securities of foreign issuers, including
depositary receipts, and in debt securities of foreign issuers. These securities
may be U.S. dollar denominated or non-U.S. dollar denominated. Foreign
securities include securities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities thereof.
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
securities 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, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions on foreign investments or repatriation of capital. In addition,
with respect to certain countries, there is the possibility of nationalization
or expropriation of assets; confiscatory taxation; political, social or
financial instability; and war or other diplomatic developments that could
adversely affect investments in those countries. Since a 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
held by the Fund and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. A Fund generally will incur costs in
connection with conversion between various currencies.
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. Transaction costs, custodial fees and management
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.
All of the foregoing risks may be intensified in emerging markets.
Dividend and interest income from foreign securities may 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.
American Depositary Receipts ("ADRs") are certificates issued by a U.S.
bank or trust company representing an interest in securities of a foreign issuer
deposited in a foreign subsidiary or branch or a correspondent of that bank.
Generally, ADRs are designed for use in U.S. securities markets and may offer
U.S. investors more liquidity than the underlying securities. The Funds may
invest in unsponsored ADRs. The issuers of unsponsored ADRs are not obligated to
disclose material information in the United States and, therefore, there may not
be a correlation between such information and the market value of such ADRs.
European Depositary Receipts ("EDRs") are certificates issued by a European bank
or trust company evidencing its ownership of the underlying foreign securities.
EDRs are designed for use in European securities markets.
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RESTRICTED SECURITIES, RULE 144A SECURITIES AND ILLIQUID SECURITIES (CONSECO 20
AND CONSECO HIGH YIELD FUNDS)
These Funds may invest in restricted securities, such as private
placements, and in Rule 144A 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
1933 Act. 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 it 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. Restricted
securities are generally considered illiquid.
Rule 144A securities, although not registered, may be resold to
qualified institutional buyers in accordance with Rule 144A under the 1933 Act.
The Adviser, acting pursuant to guidelines established by the Board, may
determine that some Rule 144A securities are liquid.
A Fund may not invest in any security if, as a result, more than 15% of
the Fund's net assets would be invested in illiquid securities, which are
securities that cannot be expected to be sold within seven days at approximately
the price at which they are valued.
PRIVATE PLACEMENT OFFERINGS (CONSECO INTERNATIONAL FUND AND INTERNATIONAL
PORTFOLIO)
Investments in private placement offerings are made in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
1933 Act, and resold to qualified institutional buyers under Rule 144A under the
1933 Act ("Section 4(2) securities"). Section 4(2) securities are restricted as
to disposition under the federal securities laws, and generally are sold to
institutional investors such as the Portfolio that agree they are purchasing the
securities for investment and not with an intention to distribute to the public.
Any resale by the purchaser must be pursuant to an exempt transaction and may be
accomplished in accordance with Rule 144A. Section 4(2) securities normally are
resold to other institutional investors such as the Portfolio through or with
the assistance of the issuer or dealers that make a market in the Section 4(2)
securities, thus providing liquidity. The Portfolio will not invest more than
15% of its net assets in Section 4(2) securities and illiquid securities unless
the applicable investment adviser determines, by continuous reference to the
appropriate trading markets and pursuant to guidelines approved by the AMR Trust
Board, that any Section 4(2) securities held by the Portfolio in excess of this
level are at all times liquid.
The AMR Trust Board and the applicable investment adviser, pursuant to
the guidelines approved by the AMR Trust Board, will carefully monitor the
Portfolio's investments in Section 4(2) securities offered and sold under Rule
144A, focusing on such important factors, among others, as: valuation,
liquidity, and availability of information. Investments in Section 4(2)
securities could have the effect of reducing the Portfolio's liquidity to the
extent that qualified institutional buyers no longer wish to purchase these
restricted securities.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements. A repurchase agreement
is an agreement under which securities are acquired from a securities dealer or
bank subject to resale at an agreed upon price on a later date. The acquiring
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, to
minimize the risk, the Funds will enter into repurchase agreements only with
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financial institutions which are deemed to be of good financial standing and
which have been approved by the Board or the AMR Trust Board.
SECURITIES LENDING
The Funds may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, U.S. Government securities, and approved
bank letters of credit that at all times equal at least 100% of the market value
of the loaned securities. Such loans will not be made if, as a result, the
aggregate amount of all outstanding securities loans would exceed 33 1/3% of a
Fund's total assets. A Fund continues to receive interest on the securities
loaned and simultaneously earns either interest on the investment of the cash
collateral or fee income if the loan is otherwise collateralized. Should the
borrower of the securities fail financially, there is a risk of delay in
recovery of the securities loaned or loss of rights in the collateral. However,
the Funds seek to minimize this risk by making loans only to borrowers which are
deemed by the Adviser or AMR to be of good financial standing and which have
been approved by the Board or the AMR Trust Board.
AMR will receive compensation for administrative and oversight functions
with respect to securities lending by the International Portfolio. The amount of
such compensation will depend on the income generated by the loan of the
Portfolio's securities. The SEC has granted exemptive relief that permits the
Portfolio to invest cash collateral received from securities lending
transactions in shares of one or more private investment companies managed by
AMR.
Subject to receipt of exemptive relief from the SEC, the Portfolio also
may invest cash collateral received from securities lending transactions in
shares of one or more registered investment companies managed by AMR.
BORROWING
The Conseco 20 and Conseco High Yield Funds may borrow money to purchase
securities, which is a form of leverage. This leverage may exaggerate the gains
and losses on a Fund's investments and changes in the net asset value of that
Fund's shares. Leverage also creates interest expenses; if those expenses exceed
the return on the transactions that the borrowings facilitate, the Fund will be
in a worse position than if it had not borrowed. The use of derivatives in
connection with leverage may create the potential for significant losses. The
Funds may pledge assets in connection with permitted borrowings.
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE
The Conseco International Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in the
International Portfolio of the AMR Trust, which is a separate investment company
managed by AMR. The AMR Trust is registered under the 1940 Act as an open-end
diversified management investment company and was organized as a New York common
law trust on June 27, 1995. The predecessor of the International Portfolio
commenced operations on August 7, 1991 and transferred all of its investable
assets to the Portfolio on November 1, 1995. The AMR Trust currently issues
eight separate series of shares. The assets of the Portfolio belong only to, and
the liabilities of the Portfolio are borne solely by, that Portfolio and no
other series of the AMR Trust.
The Board believes that the Conseco International Fund will achieve
economies of scale by investing in the Portfolio, which could reduce the Fund's
expenses. In addition to selling its interests to the Conseco International
Fund, the Portfolio currently sells its interests to other investment companies
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and/or other institutional investors. All institutional investors in the
Portfolio pay a proportionate share of the Portfolio's expenses and invest in
the Portfolio on the same terms and conditions. However, other investment
companies investing all of their assets in the Portfolio are not required to
sell their shares at the same public offering price as the Conseco International
Fund and are allowed to charge different sales commissions and to have different
fees and expenses. Therefore, investors in the Conseco International Fund may
experience different returns than investors in another investment company that
invests exclusively in the Portfolio. Information regarding other investment
companies that invest in the Portfolio is available by calling (800) 967-9009.
The Conseco International Fund's investment in the Portfolio may be
materially affected by the actions of large investors in the Portfolio. For
example, as with all open-end investment companies, if a large investor were to
redeem its interest in the Portfolio, the Portfolio's remaining investors could
experience higher pro rata operating expenses, thereby producing lower returns.
As a result, the Portfolio's security holdings also could become less diverse,
resulting in increased risk. Investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio could have effective voting control
over its operation.
The Conseco International Fund may withdraw its entire investment from
the Portfolio at any time if the Board determines that it is in the best
interests of the Conseco International Fund and its shareholders to do so. The
Conseco International Fund might withdraw, for example, if there were other
investors in the Portfolio with power to, and who did by a vote of the
shareholders of all investors (including the Conseco International Fund), change
the investment objective or policies of the Portfolio in a manner not acceptable
to the Board. A withdrawal could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) by the Portfolio. That
distribution could result in a less diversified portfolio of investments for the
Conseco International Fund and could affect adversely the liquidity of the
Conseco International Fund's portfolio. If the Conseco International Fund
decided to convert those securities to cash, it usually would incur brokerage
fees or other transaction costs. If the Conseco International Fund withdrew its
investment from the Portfolio, the Board would consider what action might be
taken, including the management of the Conseco International Fund's assets by
the Adviser in accordance with the Fund's investment objective and policies or
the investment of all of the Conseco International Fund's investable assets in
another pooled investment entity having substantially the same investment
objective as the Fund. In the event the Board determines not to have the Adviser
manage the Conseco International Fund's assets, the inability of the Fund to
find a suitable replacement investment could have a significant impact on
shareholders of the Conseco International Fund.
Each investor in the Portfolio, including the Conseco International
Fund, will be liable for all obligations of the Portfolio, but not any other
series of the AMR Trust. The risk to an investor in the Portfolio of incurring
financial loss beyond the amount of its investment on account of such liability,
however, would be limited to the unlikely circumstance in which the Portfolio
was unable to meet its obligations. Upon liquidation of the Portfolio, investors
would be entitled to share pro rata in the net assets of the Portfolio available
for distribution to investors. For additional information regarding liability of
shareholders of the Conseco International Fund, see "General" in the SAI.
MANAGEMENT
The Trustees of the Trust decide upon matters of general policy for the
Trust. In addition, the Trustees review the actions of the Adviser, as set forth
below. The Trust's officers supervise the daily business operations of the
Trust. For information about the Trust's Board of Trustees and the Trust's
officers, see "Management" in the SAI. The AMR Trust Board has general
supervisory responsibility over the AMR Trust's affairs.
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THE ADVISER
Conseco Capital Management, Inc., 11825 N. Pennsylvania Street, Carmel,
Indiana 46032, has been retained under an Investment Advisory Agreement 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 also
manages another registered investment company and 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.
The Adviser generally manages the affairs of the Trust, subject to the
supervision of the Board. While the Conseco International Fund operates in a
"master-feeder" structure, the Adviser is responsible for selecting the
investment company in which that Fund invests. If the Adviser is not satisfied
with the performance of that investment company, the Adviser will recommend to
the Board other investment companies in which the Conseco International Fund may
invest, or recommend that the Adviser manage the Conseco International Fund
itself.
Under the Investment Advisory Agreement, the Adviser has contracted to
receive an investment advisory fee equal to an annual rate of .70% of the
average daily net asset value of the Conseco High Yield Fund, .70% of the
average daily net asset value of the Conseco 20 Fund and 1.00% of the average
daily net asset value of the Conseco International Fund. The Adviser has
voluntarily agreed to waive all of its fees under the Conseco International
Fund's Investment Advisory Agreement so long as that Fund invests all of its
investable assets in the International Portfolio or another investment company
with substantially the same investment objective and policies as the Fund. For
more information about the Portfolio's management, see "AMR and the Investment
Advisers to the International Equity Portfolio" below. The Adviser, together
with the Administrator and the Distributor, have voluntarily agreed to waive
their fees and/or reimburse expenses to the extent that the ratio of expenses to
net assets on an annual basis for Class A shares of the Conseco High Yield Fund
exceeds 1.40%, the Conseco 20 Fund exceeds 1.75% and the Conseco International
Fund exceeds 2.25%; and to the extent that the ratio of expenses to net assets
on an annual basis for Class B shares and Class C shares of the Conseco High
Yield Fund exceeds 1.90%, the Conseco 20 Fund exceeds 2.25% and the Conseco
International Fund exceeds 2.75%. These voluntary limits may be discontinued at
any time after April 30, 1999.
The investment professionals primarily responsible for the management of
the Conseco 20 and Conseco High Yield Funds, with the respective
responsibilities and business experience for the past five years are as follows:
CONSECO 20 FUND: Thomas J. Pence, Vice President for the Adviser, and
Erik J. Voss, Senior Securities Analyst for the Adviser. Mr. Pence is
responsible for the management of the Adviser's equity portfolios and oversight
of the equity investment process. Mr. Pence joined the Adviser in 1992.
Mr. Voss assists in research and portfolio management for all of the
Adviser's equity portfolios. Mr. Voss joined the Adviser in 1996. Previously, he
worked as an equity analyst for another investment adviser.
CONSECO HIGH YIELD FUND: Michael C. Buchanan, Second Vice President of
the Adviser, and William F. Ficca, Vice President and Director of Research of
the Adviser. Mr. Buchanan is responsible for the Adviser's high yield, emerging
markets and distressed debt trading, as well as overseeing its investment grade
bond trading and Canadian research. Previously, he worked at the Adviser in
convertible securities trading and industrial fixed-income research. Mr.
Buchanan joined the Adviser in 1990.
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Mr. Ficca oversees the Adviser's research efforts. In addition, he is
the portfolio manager of certain other investment products managed by the
Adviser. Mr. Ficca joined the Adviser in 1991. Previously, Mr. Ficca worked in
investment banking and traded corporate and government bonds.
The Adviser has taken steps that it believes are reasonably designed to
address the potential failure of computer programs used by the Adviser and the
Funds' service providers to address the Year 2000 issue. There can be no
assurance that these steps will be sufficient to avoid any adverse impact.
AMR AND THE INVESTMENT ADVISERS TO THE INTERNATIONAL EQUITY PORTFOLIO
AMR has entered into a Management Agreement with the AMR Trust that
obligates AMR to provide or oversee all administrative, investment advisory and
portfolio management services for the AMR Trust, including the International
Portfolio. AMR, located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth,
Texas 76155, is a wholly owned subsidiary of AMR Corporation, the parent company
of American Airlines, Inc., and was organized in 1986 to provide investment
management, advisory, administrative and asset management consulting services.
As of October 31, 1997, AMR had assets under management totaling approximately
$18.4 billion including approximately $6.6 billion under active management and
$11.8 billion as named fiduciary or fiduciary adviser. Of the total,
approximately $14.3 billion of assets are related to AMR Corporation.
AMR develops the investment program for the International Portfolio,
selects and changes investment advisers (subject to approval by the AMR Trust
Board), allocates assets among investment advisers, monitors their investment
programs and results, and coordinates the investment activities of the
investment advisers to ensure compliance with regulatory restrictions. For more
information about these matters, see the SAI. AMR also provides the Portfolio
with office space, office equipment and personnel necessary to manage and
administer its operations.
AMR oversees the Portfolio's participation in securities lending
activities and any action taken by securities lending agents in connection with
those activities to ensure compliance with all applicable regulatory and
investment guidelines.
AMR bears the expense of providing the above services and pays the fees
of the Portfolio's investment advisers. As compensation for doing so, AMR
receives from the Portfolio an annualized advisory fee that is calculated and
accrued daily, equal to the sum of (1) 0.10% of the net assets of the Portfolio,
plus (2) all fees payable by AMR to the Portfolio's investment advisers as
described below. The advisory fee is payable quarterly in arrears. AMR also
receives compensation in connection with securities lending activities. If the
Portfolio lends its portfolio securities and receives cash collateral from the
borrower, AMR may receive up to 25% of the net annual interest income (the gross
interest earned by the investment less the amount paid to the borrower as well
as related expenses) received from the investment of such cash. If a borrower
posts collateral other than cash, the borrower will pay to the Portfolio a loan
fee. AMR may receive up to 25% of the loan fees posted by borrowers. Currently,
AMR receives 10% of the net annual interest income from the investment of cash
collateral or 10% of the loan fees posted by borrowers.
William F. Quinn has served as President of AMR since it was founded in
1986 and Nancy A. Eckl serves as Vice President - Trust Investments of AMR. Ms.
Eckl previously served as Vice President Finance and Compliance of AMR from
December 1990 to May 1995. In these capacities, Mr. Quinn and Ms. Eckl have
primary responsibility for the day-to-day operations of the Portfolio. These
responsibilities include oversight of the investment advisers to the Portfolio,
regular review of each investment adviser's performance and asset allocations
among them.
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The Portfolio's investment advisers are listed below. Each investment
adviser has entered into a separate investment advisory agreement with AMR to
provide investment advisory services to the Portfolio. AMR is permitted to enter
into new or modified advisory agreements with existing or new investment
advisers without approval of Conseco International Fund shareholders or
International Portfolio interest holders, but subject to approval of the AMR
Trust Board. The SEC issued an exemptive order which eliminates the need for
shareholder/interest holder approval, subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the Fund send a notice to shareholders containing information
about the change that would be included in a proxy statement. AMR recommends
investment advisers to the AMR Trust Board based upon its continuing
quantitative and qualitative evaluation of the investment advisers' skill in
managing assets using specific investment styles and strategies. The allocation
of assets among investment advisers may be changed at any time by AMR.
Allocations among investment advisers will vary based upon a variety of factors,
including the overall investment performance of each investment adviser, the
Portfolio's cash flow needs and market conditions. AMR need not allocate assets
to each investment adviser designated for the Portfolio. The investment advisers
can be terminated without penalty to the AMR Trust by AMR, the AMR Trust Board
or the interest holders of the Portfolio. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an investment
adviser, and AMR does not expect to recommend frequent changes of investment
advisers. The Prospectus will be supplemented if additional investment advisers
are retained or the contract with any existing investment adviser is terminated.
The investment advisers provide the Portfolio with portfolio investment
management and related recordkeeping services. Each investment adviser has
discretion to purchase and sell securities for its segment of the Portfolio's
assets in accordance with the Portfolio's objective, policies and restrictions
and the more specific strategies provided by AMR. As compensation for its
services, each investment adviser is paid a fee by AMR out of the proceeds of
the management fee received by AMR from the Portfolio.
Hotchkis and Wiley, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley. Hotchkis and Wiley became a
division of the Capital Management Group of Merrill Lynch Asset Management,
L.P., a wholly owned indirect subsidiary of Merrill Lynch & Co., Inc., on
November 12, 1996. Assets under management as of October 31, 1997 were
approximately $11.8 billion, which included approximately $1.6 billion of assets
of AMR Corporation and its subsidiaries and affiliated entities. The advisory
contract provides for AMR to pay Hotchkis and Wiley an annualized fee equal to
.60% of the first $10 million of assets under its discretionary management, .50%
of the next $140 million of assets, .30% of the next $50 million of assets, .20%
of the next $800 million of assets and .15% of all excess assets.
Morgan Stanley Asset Management Inc. ("MSAM"), 25 Cabot Square, London,
United Kingdom E14 4QA, is a wholly owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co. MSAM provides portfolio management and named fiduciary
services to taxable and nontaxable institutions, international organizations and
individuals investing in United States and international equity and debt
securities. As of September 30, 1997, MSAM had assets under management totaling
approximately $142.5 billion, including approximately $122.3 billion under
active management and $20.2 billion as named fiduciary or fiduciary adviser. As
of September 30, 1997, MSAM had investment authority over approximately $57.9
million of assets of AMR Corporation and its subsidiaries and affiliated
entities. AMR pays MSAM an annual fee equal to .80% of the first $25 million in
assets under its discretionary management, .60% of the next $25 million in
assets, .50% of the next $25 million in assets and .40% of all excess assets.
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Templeton Investment Counsel, Inc. ("Templeton"), 500 East Broward
Blvd., Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional
investment counseling firm which has been providing investment services since
1979. Templeton is indirectly owned by Franklin Resources, Inc. As of September
30, 1997, Templeton had discretionary investment management authority with
respect to approximately $25.3 billion of assets, including approximately $522.4
million of assets of AMR Corporation and its subsidiaries and affiliated
entities. AMR pays Templeton an annualized fee equal to .50% of the first $100
million in assets under its discretionary management, .35% of the next $50
million in assets, .30% of the next $250 million in assets and .25% on assets
over $400 million.
Solely for the purpose of determining the applicable percentage rates
when calculating the fees for each investment adviser other than MSAM, there
shall be included all other assets or trust assets of American Airlines, Inc.
also under management by each respective investment adviser. For the purpose of
determining the applicable percentage rates when calculating MSAM's fees, all
equity account assets managed by MSAM on behalf of American Airlines, Inc. shall
be included. The inclusion of any such assets will result in lower overall fee
rates being applied to the Portfolio.
ADMINISTRATIVE FEES
Pursuant to an administration agreement ("Administration Agreement"),
the Administrator 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. In addition, while the Conseco
International Fund operates in a "master-feeder" structure, the Administrator
will monitor the performance of the investment company in which the Conseco
International Fund invests, coordinate the Conseco International Fund's
relationship with that investment company and communicate with the Board and
shareholders regarding the performance of that investment company and the Fund's
master-feeder structure.
For providing these services, the Administrator receives a fee from each
of the Conseco 20 and Conseco High Yield Funds of .20% per annum of its average
daily net assets and a fee from the Conseco International Fund of .75% per annum
of its average daily net assets. Pursuant to the Administration Agreement, the
Administrator reserves the right to employ one or more sub-administrators to
perform administrative services for the Funds. The Bank of New York performs
certain administrative services for each of the Funds, and AMR and State Street
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Bank and Trust Company ("State Street") perform services for the Conseco
International Fund, pursuant to agreements with the Administrator.
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a Distribution and Service Plan for Class A,
Class B and Class C shares to compensate the Distributor for distributing the
shares and servicing the accounts of shareholders of each such class. With
respect to Class A shares, the Plan authorizes payments to the Distributor of up
to 0.50% annually of each Fund's average daily net assets attributable to its
Class A shares. With respect to Class B and Class C shares, the Plan authorizes
payments to the Distributor of up to 1.00% annually of each Fund's average daily
net assets attributable to Class B and Class C shares, respectively. The Plan
further provides for periodic payments by the Distributor to brokers, dealers,
and other financial intermediaries for providing shareholder services and for
promotional and other sales related costs. The portion of payments by Class A,
Class B or Class C of a Fund for shareholder servicing may not exceed an annual
rate of .25% of the average daily net asset value of the Fund's shares of that
class owned by clients of such broker, dealer or financial intermediary.
PURCHASE OF SHARES
HOW TO BUY SHARES
You may purchase Class A, Class B or Class C shares from any broker,
dealer, or other financial intermediary that has a selling agreement with the
Distributor. These firms may charge for their services in connection with your
purchase order. 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, P.O. Box
8017, Boston, Massachusetts 02266-8017, a completed account application and a
check payable to the appropriate Fund. Or you may telephone (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. When placing purchase orders,
investors should specify whether the order is for Class A, Class B or Class C
shares.
Purchase orders for all Funds are accepted only on a business day as
defined below. Orders for shares received by the Funds' Transfer Agent on any
business day prior to the close of regular trading on the New York Stock
Exchange (the "NYSE") (normally 4:00 p.m. Eastern Time) will receive that day's
offering price. The offering price is net asset value plus, for shares of Class
A, a varying sales charge depending on the amount invested. For a discussion of
how the price of shares of each class is computed, see "Alternate Pricing
Arrangements." Orders received by the Transfer Agent after such time but prior
to the close of business on the next business day will receive the next business
day's offering price. 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, Martin Luther King Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Certain brokers, dealers, and other financial intermediaries may be
authorized to accept purchase orders on behalf of the Funds. A Fund will be
deemed to have received a purchase order when an authorized broker, dealer, or
other financial intermediary accepts the order. Orders placed through an
authorized broker, dealer, or other financial intermediary will receive the
offering price next calculated after the order has been accepted by such an
authorized firm. In all other cases, it is the responsibility of the broker,
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dealer, or other financial intermediary to forward customer orders received
prior to the close of the NYSE to the Transfer Agent prior to its close of
business that same day (normally 4:00 p.m. Eastern Time).
Brokers, dealers and other financial intermediaries are required to
provide payment within three business days after placing an order. WHEN MAKING
PAYMENT FOR CONFIRMED PURCHASES VIA FEDERAL FUNDS WIRE, SUCH FIRMS MUST
REFERENCE THE CONFIRMATION NUMBER TO ENSURE TIMELY CREDIT.
The minimum initial investment by a shareholder in Class A, Class B or
Class C shares of a Fund is $500 ($10 in the case of a salary reduction
contribution under a retirement plan), and the minimum subsequent investment is
$50 ($10 in the case of a salary reduction contribution under a retirement
plan). These requirements may be changed or waived at any time 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 third business day following placement of the order.
The Distributor may provide promotional incentives including cash
compensation to certain brokers, dealers, or financial intermediaries 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 brokers, dealers, or financial
intermediaries based on a combination of aggregate shares sold and increases of
assets under management. All of the above payments will be made by the
Distributor or its affiliates out of their own assets. These programs will not
change the price an investor will pay for shares or the amount that a Fund will
receive from such sale.
You will receive a confirmation of each new transaction in your account,
which will also show you the number of Fund shares you own and the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Funds will not be issued.
PURCHASES BY WIRE
Purchases by wire transfer should be directed to the Transfer Agent. To
receive an account number call (800) 986-3384 between the hours of 8:00 a.m. and
4:00 p.m. (Eastern Time) on a 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 # 011000028, State Street Bank, Boston, MA,
Account # 9905-244-1. If you arrange for receipt by the Transfer Agent of
Federal funds prior to the close of regular trading (normally 4:00 p.m. Eastern
Time) of the NYSE on a business day as defined above, you will receive that
day's offering price. Your bank may charge for these services.
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PURCHASES BY CHECK
An initial investment made by check must be accompanied by an
application, completed in its entirety. Additional shares of the Funds may also
be purchased by sending a check payable to the applicable Fund, along with
information regarding your account, including the account number, to the
Transfer Agent. All checks should be drawn only on U.S. banks in U.S. funds, in
order to avoid fees and delays. A charge may be imposed if any check submitted
for investment does not clear. Third party checks will not be accepted. When
purchases are made by check, 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 may be
established where your personal bank account is automatically debited and your
Fund account is automatically credited with additional full and fractional
shares ($50 minimum monthly 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 Funds for
purchases made pursuant to certain programs such as payroll deduction plans and
retirement plans.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program enables a shareholder to
transfer assets from the money market fund currently managed by Federated
Investors to another investment option on a predetermined and systematic basis.
The DCA program is generally suitable for shareholders making a substantial
investment in the Funds and who desire to control the risk of investing at the
top of a market cycle. The DCA program allows such investments to be made in
equal installments over time in an effort to reduce such risk.
If you have at least $5,000 invested in the money market fund currently
managed by Federated Investors, you may choose to have a specified dollar amount
transferred from this fund to other 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 share is low and
fewer shares are purchased if the value per share is high. Therefore, a lower
average cost per share 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 currently 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 the
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Trust's Administrative Office, which must be received at least seven days before
the next transfer date.
ALTERNATIVE PRICING ARRANGEMENTS
Investors in the Funds may select Class A, Class B or Class C shares.
The primary difference between the classes lies in their initial sales charge
and contingent deferred sales charge structures and in their ongoing annual
expenses, including 12b-1 distribution and service fees. The decision as to
which class of shares is better suited to your needs depends on a number of
factors that you should discuss with your broker, dealer or other financial
intermediary. Generally, you should consider the amount you plan to invest and
the length of time you plan to hold your investment, the ongoing expenses plus
contingent deferred sales charges for Class B and Class C shares, the initial
sales charge plus ongoing expenses for Class A shares, the possibility that a
sales charge will be reduced or waived, the possibility that the return on Class
A shares - which is anticipated to be higher due to lower ongoing expenses --
will offset the initial sales charge paid on such shares, and the automatic
conversion of Class B shares to Class A shares.
PURCHASE OF CLASS A SHARES
The offering price of Class A shares is net asset value plus a varying
sales charge depending on the amount invested. Although investors pay an initial
sales charge when they buy Class A shares, the ongoing expenses of this class
are lower than the ongoing expenses of Class B or Class C shares. The sales
charge applicable to shares of Class A is determined as follows:
SALES CHARGE
As % of Dealer
As % of Public Net Amount Reallowance As %
Offering Price Invested of Offering Price
-------------- -------- -----------------
On purchases of:
$500 - 50,000 5.75% 6.10% 5.00%
$50,000 - 100,000 4.50% 4.71% 3.75%
$100,000 - 250,000 3.50% 3.63% 2.75%
$250,000 - 500,000 2.50% 2.56% 2.00%
Over $500,000 None None 1.00%
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 broker, dealer or financial
intermediary to retain 100% of the sales charge. This may result in the selling
firm being considered an underwriter under the 1933 Act.
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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 your purchases of shares of the Funds and other series
of the Trust 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 a 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 Funds
and other series of the Trust and shares of the money market fund currently
managed by Federated Investors 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 or financial intermediary 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
Individual Retirement Account ("IRA," including a Roth IRA or Education IRA), or
by a company solely controlled (as defined in the 1940 Act) by such individuals.
Reduced sales charges also apply to purchases by a trustee or other fiduciary if
the investment is for a single trust, estate or 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.
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 shares of the Funds and
other series of the Trust and shares of the money market fund currently managed
by Federated Investors 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:
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. current or retired officers, directors and employees (and their parents,
grandparents, spouses, and minor children) of the Trust, Conseco and its
affiliates and the Transfer Agent;
. any participant in a tax qualified retirement plan provided that the
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;
. brokers, dealers, and other financial intermediaries that have a selling
agreement with the Distributor, if they purchase shares for their own
accounts or for retirement plans for their employees;
. employees and registered representatives (and their parents, grandparents,
spouses and minor children) of brokers, dealers, and other financial
intermediaries described above; 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);
. 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 investment company;
. 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 children of
such persons, pursuant to a marketing program between the Distributor and
such group;
. (i) through an investment adviser who makes such purchases through a
broker, dealer, or other financial intermediary (each of which may impose
transaction fees on the purchase), or (ii) by an investment adviser for its
own account or for a bona fide advisory account over which the investment
adviser has investment discretion;
. through a broker, dealer or other financial intermediary which maintains a
net asset value purchase program that enables the Funds to realize certain
economies of scale;
. through bank trust departments or trust companies 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;
. by purchasers in connection with investments related to a bona fide medical
savings account; or
. by an account established under a wrap fee or asset allocation program where
the accountholder pays the sponsor an asset-based fee.
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 participants in retirement plans, (c) purchased by the
reinvestment of dividends or other distributions 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 that
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is subject to the exchange privilege described below); the purchaser must
certify to the Distributor at the time of purchase that the purchaser is a prior
load investor.
PURCHASE OF CLASS B SHARES
The offering price of Class B shares is net asset value without any
initial sales charge. As a result, the entire purchase amount is immediately
invested. However, the ongoing expenses of Class B shares are higher than those
of Class A shares. A contingent deferred sales charge is imposed upon
redemptions of Class B shares within six years of their purchase. The contingent
deferred sales charge is a percentage of (1) the net asset value of the shares
at the time of purchase or (2) the net asset value of the shares at the time of
redemption, whichever is less. The contingent deferred sales charge is
determined as follows:
REDEMPTION DURING CONTINGENT DEFERRED SALES CHARGE
1st year since purchase 5%
2nd year since purchase 4%
3rd year since purchase 3%
4th year since purchase 3%
5th year since purchase 2%
6th year since purchase 1%
7th year since purchase 0%
8th year since purchase 0%
The contingent deferred sales charge will not apply to shares acquired by the
reinvestment of dividends or capital gains distributions.
In determining the applicability and rate of any contingent deferred
sales charge, Class B shares acquired through reinvestment of dividends and
capital gains distributions will be redeemed first, followed by the Class B
shares held by the shareholder for the longest period of time. The contingent
deferred sales charge, if any, upon redemption of Class B shares acquired
through an exchange will be calculated based on the original purchase date of
the Class B shares exchanged.
The Distributor compensates brokers, dealers, and other financial
intermediaries who sell Class B shares. At the time a shareholder purchases
Class B shares, the Distributor pays the broker, dealer, or other financial
intermediary 4% of the purchase amount from the Distributor's own assets. The
proceeds of the contingent deferred sales charge and the 12b-1 fee, in part, are
used to defray these expenses.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares will automatically convert to a number of Class A shares
of equal dollar value eight years after purchase. This conversion feature
benefits shareholders because Class A shares have lower ongoing expenses than
Class B shares. No initial sales charge or other charge is imposed at
conversion. When Class B shares convert, a pro rata amount of Class B shares
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that were acquired by the reinvestment of dividends and capital gains
distributions will also convert to Class A shares.
PURCHASE OF CLASS C SHARES
The offering price of Class C shares is net asset value without any
initial sales charge. As a result, the entire purchase amount is immediately
invested. However, the ongoing expenses of Class C shares are higher than those
of Class A shares. Class C shares never convert to any other class of shares.
Class C shares held for less than one year are subject to a contingent
deferred sales charge on redemptions in an amount equal to 1% of the lower of
(1) the net asset value of the shares at the time of purchase or (2) the net
asset value of the shares at the time of redemption. Class C shares held one
year or longer are not subject to this contingent deferred sales charge. The
contingent deferred sales charge also will not apply to shares acquired by the
reinvestment of dividends or capital gains distributions. The order in which
Class C shares are redeemed will be determined as described for Class B shares
(see "Purchase of Class B Shares").
The contingent deferred sales charge, if any, upon redemption of Class C
shares acquired through an exchange and held less than one year will be
calculated based on the original purchase date of the Class C shares exchanged.
The Distributor compensates brokers, dealers, and other financial
intermediaries who sell Class C shares. At the time a shareholder purchases
Class C shares, the Distributor pays the broker, dealer, or other financial
intermediary 1% of the purchase amount from the Distributor's own assets. The
proceeds of the contingent deferred sales charge and the 12b-1 fee, in part, are
used to defray these expenses.
WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE FOR CLASS B AND CLASS C
To obtain a waiver of the contingent deferred sales charge, you must
notify the Transfer Agent, who may require evidence of your qualification. The
contingent deferred sales charge will not apply to:
. any partial or complete redemption in connection with a distribution without
federal tax income penalty under a tax-qualified retirement plan, upon
separation from service and attaining age 55;
. any partial or complete redemption in connection with a qualifying loan or
hardship withdrawal from a tax-qualified retirement plan, eligible 457 plan,
or 403(b)(7) plan;
. any complete redemption in connection with a distribution from a
tax-qualified retirement plan, eligible 457 plan, or 403(b)(7) plan in
connection with termination of employment or termination of the employer's
plan;
. any redemption resulting from a tax-free return of an excess contribution
from a tax-qualified retirement plan, IRA, savings incentive match plan for
an employee ("SIMPLE" plan), eligible 457 plan, or 403(b)(7) plan;
. mandated minimum distributions from a tax-qualified retirement plan, IRA,
SIMPLE plan, eligible 457 plan, or 403(b) plan;
. substantially equal periodic payments as defined in Section 72(t) of the
Code;
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. any partial or complete redemption following death or disability of a
shareholder (including one who owns the shares as joint tenant with his
spouse), provided the redemption is requested within one year of the death
or initial determination of disability (as defined in Section 72(m) of the
Code);
. redemptions under a Fund's Systematic Withdrawal Plan (investors may not
withdraw annually more than 12% of the value of their account under the
Systematic Withdrawal Plan);
. redemptions in connection with distributions from a Roth IRA or Roth
Conversion IRA that are qualified distributions under the Code;
. redemptions in connection with distributions from an Education IRA that are
used for qualified higher education expenses under the Code or which are
required by the Code to be distributed;
. redemptions in connection with investments related to a bona fide medical
savings account; and
. redemptions from an account established under a wrap fee or asset allocation
program where the accountholder pays the sponsor an asset-based fee.
REDEMPTION OF SHARES
HOW TO REDEEM SHARES OF THE FUNDS
Shares are redeemed at net asset value next determined after receipt of
a redemption request in good form on any business day, reduced, for shares of
Class B and Class C, by any applicable contingent deferred sales charge.
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 accompanying this Prospectus. A
signature guarantee is required for redemptions of $50,000 or more. A signature
guarantee may be obtained from most banks, brokers and dealers, credit unions,
savings associations and financial institutions, but not from a notary public.
REDEMPTIONS BY WIRE OR TELEPHONE
Brokers, dealers, or other financial intermediaries 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 imposes any such charges.
The Funds and the Transfer Agent will not be responsible for the
authenticity of telephone 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
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<PAGE>
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.
REDEMPTIONS THROUGH BROKERS, DEALERS AND OTHER FINANCIAL INTERMEDIARIES
Certain brokers, dealers, and other financial intermediaries may be
authorized to accept redemption orders on behalf of the Funds. A Fund will be
deemed to have received a redemption order when an authorized broker, dealer, or
other financial intermediary accepts the order. Orders placed through an
authorized broker, dealer, or other financial intermediary will receive the net
asset value next calculated after the order has been accepted by such an
authorized firm, minus any applicable contingent deferred sales charge. In all
other cases, it is the responsibility of the broker, dealer, or other financial
intermediary to forward customer redemption orders received prior to the close
of the NYSE to the Transfer Agent prior to its close of business that same day
(normally 4:00 p.m. Eastern Time).
EXPEDITED REDEMPTIONS
You may have the payment of redemption requests (of $250 or more) wired
or mailed directly to a domestic commercial bank account that you have
previously designated. Normally, such payments will be transmitted on the second
business day following receipt of the request (provided redemptions may be
made). You may request a wire redemption by telephone or written request sent to
the Transfer Agent. For telephone redemptions, call the Transfer Agent at (800)
986-3384. You must complete the "Expedited Redemptions" section of the
application for this privilege to be applicable.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to have regular monthly or quarterly payments in any fixed
amount in excess of $50 made to you, or to anyone else properly designated, as
long as the account has a value of at least $5,000 at the time of election. You
must determine the fixed payment amount for the systematic withdrawal plan.
There are no separate charges under this plan. A number of full and
fractional shares equal in value to the amount of the requested payment will be
redeemed. Such redemptions are normally processed on or about the 25th day of
each month or quarter. Checks are then mailed on or about the first of the
following month. If you elect to have a Systematic Withdrawal Plan, you must
have all dividends and capital gains reinvested. To establish systematic cash
withdrawals, please complete the systematic cash withdrawal section on the
application.
You may change the amount, frequency, and payee, or terminate this plan,
by giving written notice to the 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
payment of redemption proceeds 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.
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EXCHANGE PRIVILEGE
Class A, Class B or Class C shares of a Fund may be exchanged for shares
of the same class of another Fund, for shares of the same class of another
series of the Trust, or for shares of the money market fund currently managed by
Federated Investors, at the relative net asset values per share at the time of
the exchange. Shares of the money market fund currently managed by Federated
Investors 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 money market fund
shares are attributable to Class A shares on which an initial sales charge was
previously payable and dividend reinvestments on such Class A shares. An initial
sales charge will be imposed on other exchanges of shares of the money market
fund currently managed by Federated Investors for Class A shares of the Funds.
No contingent deferred sales charge applies at the time Class B or Class
C shares of a Fund are exchanged for shares of the same class of another Fund or
series of the Trust, or for shares of the money market fund currently managed by
Federated Investors. However, upon redemption of shares acquired through the
exchange, the original purchase date of the Class B or Class C shares exchanged
will be used for purposes of calculating the contingent deferred sales charge,
if any.
The total value of shares of a fund purchased by exchange must at least
equal the fund's minimum investment requirement. Before exchanging shares, you
should consider the differences in investment objectives and expenses of the
fund into which the exchange would be made. Shares are normally redeemed from
one fund and purchased from the other fund in the exchange transaction on the
same business day on which the Transfer Agent receives an exchange request that
is in proper form by the close of the NYSE that day.
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REINSTATEMENT PRIVILEGE
If you redeem any or all of your Class A shares of a Fund, you may
reinvest all or any portion of the redemption proceeds in Class A shares of any
Fund (or another series of the Trust) at net asset value without any initial
sales charge, provided that you make such reinvestment within 60 calendar days
after the redemption date. If you redeem any or all of your Class B or Class C
shares of a Fund, and pay a contingent deferred sales charge on those shares,
you may reinvest all or any portion of the redemption proceeds in Class B or
Class C shares, respectively, of any Fund (or another series of the Trust) and
be reimbursed for the amount of the contingent deferred sales charge, provided
that you make such reinvestment within 60 calendar days of the redemption date.
The original purchase date of the Class B or Class C shares redeemed will be
used for purposes of calculating the contingent deferred sales charge, if any,
upon redemption of the shares acquired with this privilege.
The reinstatement privilege may be utilized by a shareholder only once
with respect to a Fund and may be subject to other restrictions.
ELECTRONIC TRANSFERS THROUGH AUTOMATED CLEARING HOUSE
Electronic transfers through Automated Clearing House ("ACH") allow you
to initiate a purchase or redemption for as little as $50 or as much as $50,000
between your bank account and Fund account using the ACH network. 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 regular trading on the NYSE (normally 4:00 p.m.
Eastern Time) on each business day (as previously defined) by dividing the value
of the Fund's net assets attributable to a class (the class' pro rata share of
the value of the Fund's assets minus the class' pro rata share of the value of
the Fund's liabilities) by the number of shares of that class outstanding.
For the Conseco 20 and Conseco High Yield Funds, the assets of the Fund
are valued primarily on the basis of market quotations. If quotations are not
readily available, assets are valued by a method that the Board believes
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 each of these Funds, short-term investments that will mature in 60
days or less are valued at amortized cost, which approximates market value.
For the Conseco International Fund and the International Portfolio,
equity securities listed on securities exchanges, including all but United
Kingdom securities, are valued at the last quoted sales price on a designated
exchange prior to the close of trading on the NYSE or, lacking any sales, on the
basis of the last current bid price prior to the close of trading on the NYSE.
Securities of the United Kingdom held in the Portfolio are priced at the last
jobber price (mid of the bid and offer prices quoted by the leading stock jobber
in the security) prior to close of trading on the NYSE. Trading in foreign
markets is usually completed each day prior to the close of the NYSE. However,
events may occur which affect the values of such securities and the exchange
rates between the time of valuation and the close of the NYSE. Should events
materially affect the value of such securities during this period, the
securities are priced at fair value, as determined in good faith and pursuant to
procedures approved by the AMR Trust Board. Over-the-counter equity securities
are valued on the basis of the last bid price on that date prior to the close of
trading. Debt securities (other than short-term securities) will normally be
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valued on the basis of prices provided by a pricing service and may take into
account appropriate factors such as institution-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. In some cases, the prices of debt
securities may be determined using quotes obtained from brokers. Securities for
which market quotations are not readily available are valued at fair value, as
determined in good faith and pursuant to procedures approved by the AMR Trust
Board. Assets and liabilities denominated in foreign currencies and forward
contracts are translated into U.S. dollar equivalents based on prevailing market
rates. Investment grade short-term obligations with 60 days or less to maturity
are valued using the amortized cost method.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are declared and distributed
quarterly by the Conseco 20 Fund, monthly by the Conseco High Yield Fund, and
annually by the Conseco International Fund; however, the Trustees may decide to
declare dividends at other intervals. For dividend purposes, (1) net investment
income of each of the Conseco 20 and Conseco High Yield Funds consists of all
dividends and interest it receives, any net short-term gains and losses from the
sale of its investments, and any net gains it realizes from foreign currency
transactions, less its expenses (including fees payable to the Adviser and its
affiliates), and (2) the Conseco International Fund's net investment income
consists of its proportionate share of the Portfolio's dividends and interest,
net short-term gains or losses, and net realized gains from foreign currency
transactions, if any, less that Fund's expenses and its proportionate share of
the Portfolio's expenses. Distributions of each Fund's net capital gain (the
excess of net long-term capital gain over net short-term capital loss) -- in the
case of the Conseco International Fund, its proportionate share of the
Portfolio's net capital gain -- are declared and distributed to its shareholders
annually after the close of the Fund's fiscal year.
Dividends and other distributions paid on each class of shares of a Fund
are calculated at the same time and in the same manner. Dividends on Class A,
Class B, and Class C shares of a Fund are expected to be lower than those on its
Class Y shares because Class A, Class B, and Class C shares have higher expenses
resulting from their distribution and service fees. Dividends on each class also
might be affected differently by the allocation of other class-specific
expenses.
DISTRIBUTION OPTIONS. When you open your account, specify on your
application how you want to receive your distributions. For retirement accounts,
all Fund distributions are reinvested. For other accounts, you have the
following options:
REINVEST ALL DISTRIBUTIONS. You can elect to reinvest all dividends and
capital gain distributions from a Fund in additional Fund shares of the same
class.
REINVEST INCOME DIVIDENDS ONLY. You can elect to reinvest dividends from
a Fund in additional Fund shares of the same class while receiving capital gain
distributions by check or sent to your bank account.
REINVEST CAPITAL GAIN DISTRIBUTIONS ONLY. You can elect to reinvest
capital gain distributions from a Fund in additional Fund shares of the same
class 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 capital gain distributions from a Fund or have them sent to
your bank account.
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TAXES
Each Fund is treated as a separate corporation, and intends to qualify
as a "regulated investment company" ("RIC"), under the Code. As such, and by
complying with the applicable Code provisions regarding the amount and timing of
its distributions, each Fund will be allowed a deduction for amounts distributed
to its shareholders from its investment company taxable income (generally, its
net investment income as described under "Dividends and Other Distributions")
and net capital gain and will not be subject to federal income tax on those
amounts. To qualify for treatment as a RIC, each Fund must, among other things,
satisfy certain source of income and diversification requirements described in
the SAI.
Each Fund intends to distribute all its investment company taxable
income and net capital gain so as to avoid federal income and excise taxes.
Dividends from each Fund's investment company taxable income (whether paid in
cash or reinvested in additional shares) generally will be taxable to you as
ordinary income. The portion of those dividends that does not exceed the
aggregate dividends received by the Fund from U.S. corporations will be eligible
for the dividends-received deduction allowed to corporations; however, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the federal alternative
minimum tax.
Distributions of each Fund's net capital gain (whether paid in cash or
reinvested additional shares), when designated as such, will be taxable to you
as long-term capital gain, regardless of how long you have held your Fund
shares. Under the Taxpayer Relief Act of 1997, different maximum tax rates apply
to a non-corporate taxpayer's net capital gain depending on the taxpayer's
holding period and marginal rate of federal income tax -- generally, 28% for
gain recognized on capital assets held for more than one year but not more than
18 months and 20% (10% for taxpayers in the 15% marginal tax bracket) for gain
recognized on capital assets held for more than 18 months. Pursuant to an
Internal Revenue Service notice, each Fund may divide each net capital gain
distribution into a 28% rate gain distribution and a 20% rate gain distribution
(in accordance with the Fund's holding periods for the securities it sold that
generated the distributed gain) and its shareholders must treat those portions
accordingly.
Shareholders who are not subject to tax on their income generally will
not be required to pay tax on distributions.
Dividends and other distributions declared by a Fund in October,
November, or December, but received by you in January, generally are taxable to
you in the year in which declared. Each Fund will inform you after the end of
each calendar year as to the amount and nature of dividends and other
distributions paid (or deemed paid) to you for that year. The information
regarding capital gain distributions designates the portions thereof subject to
the different maximum rates of tax applicable to non-corporate taxpayers' net
capital gain indicated above.
When you redeem (sell) shares, it may result in a taxable gain or loss
to you, depending on whether you receive more or less than your adjusted basis
for the shares. An exchange of any Fund's shares, as described under "Purchase
and Redemption of Shares -- Exchange Privilege," generally will have similar tax
consequences. Special rules apply when you dispose of Class A shares of a Fund
through a redemption or exchange within 90 days after your purchase thereof and
subsequently reacquire Class A shares of the same Fund or acquire Class A shares
of another Fund or another series of the Trust without paying a sales charge. In
these cases, any gain on the disposition of the original Class A shares will be
increased, or any loss decreased, by the amount of the sales charge paid when
you acquired those shares, and that amount will increase the basis of the shares
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subsequently acquired. If you purchase shares of a Fund (whether pursuant to the
reinstatement privilege or otherwise) within thirty days before or after
redeeming other shares of that Fund (regardless of class) at a loss, all or part
of that loss will not be deductible and will increase the basis of the newly
purchased shares.
No gain or loss will be recognized by a shareholder as a result of a
conversion of Class B shares into Class A shares.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions, and redemption proceeds payable to any individuals and certain
other non-corporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to those shareholders who
otherwise are subject to backup withholding.
Some foreign countries may impose income or withholding taxes on certain
dividends and interest payable to the International Portfolio. The Conseco
International Fund's share of any such withheld taxes may either be treated by
that Fund as a deduction or, if it satisfies certain requirements, it may elect
to flow the tax through to its shareholders, who in turn may either treat it as
a deduction or use it in calculating a credit against their federal income tax.
The foregoing is only a summary of certain federal income tax
considerations affecting your investment in a Fund. More information is
contained in the SAI. You should consult with your tax adviser about the effect
of an investment in a Fund on your particular tax situation.
PERFORMANCE INFORMATION
The Funds have no past performance as of the date of this Prospectus.
However, the Conseco International Fund invests all of its investable assets in
the International Portfolio and, in accordance with SEC staff positions, has
adopted the Portfolio's performance as its own. The following table shows the
Fund's average annual total returns for the one- and five-year periods ended
October 31, 1997 and for the period from the inception of the International
Portfolio's predecessor (August 7, 1991) until October 31, 1997. This total
return information is presented on a class-by-class basis and reflects the
deduction of the maximum sales charge applicable to a class. For periods
following the conversion of the International Portfolio's predecessor into a
master/feeder structure on November 1, 1995, the total returns shown below
represent the actual investment performance of the Portfolio (the master fund)
only and would have been lower if the fees and expenses typically imposed by a
38
<PAGE>
feeder fund (such as the Conseco International Fund) also had been reflected.
Past results do not guarantee future performance.
Average Annual Total Returns for Periods Ended October 31, 1997
With Deduction of the Maximum Applicable Sales Charge
Since Inception
1 Year 5 Years (August 7, 1991)
-------- ------- ----------------
Class A Shares __.__% __.__% __.__%
Class B Shares __.__% __.__% __.__%
Class C Shares __.__% __.__% __.__%
39
<PAGE>
40
PAGE>
GENERAL
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 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 one-, five- and ten-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 in the Funds' semi-annual and 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.
OTHER INFORMATION
BROKERAGE COMMISSIONS
Subject to the Conduct Rules of the NASD and to obtaining best prices
and executions, the Adviser may select brokers who sell shares of the Funds to
effect portfolio transactions. The Adviser may also select an affiliated broker
to execute transactions for the Funds, 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.
41
<PAGE>
Each of the International Portfolio's investment advisers will place its
own orders to execute securities transactions. In placing such orders, each
investment adviser will seek the best available price and most favorable
execution. The full range and quality of services offered by the executing
broker or dealer is considered when making these determinations. Pursuant to
written guidelines approved by the AMR Trust Board, an investment adviser of the
Portfolio, or its affiliated broker-dealer, may execute portfolio transactions
and receive usual and customary brokerage commissions (within the meaning of
Rule 17e-1 under the 1940 Act) for doing so.
SHARES OF BENEFICIAL INTEREST
All shares of beneficial interest of the Trust are entitled to one vote,
and votes are generally on an aggregate basis. However, on matters where the
interests of the Funds (or classes of a Fund) differ (such as approval of an
investment advisory agreement or a change in fundamental investment policies),
the voting is on a Fund-by-Fund (or class-by-class) basis. The Trust does not
hold routine annual shareholders' meetings. The shares of each Fund issued are
fully paid and non-assessable, have no preference or similar rights, and are
freely transferable. In addition, each issued and outstanding share in a class
of a Fund is entitled to participate equally in dividends and distributions
declared by that class.
On most issues subjected to a vote of the Portfolio's interest holders,
as required by the 1940 Act, the CONSECO International Fund will solicit proxies
from its shareholders and will vote its interest in the Portfolio in proportion
to the votes cast by the Fund's shareholders. The Fund will vote shares for
which it receives no voting instructions in the same proportion as the shares
for which it does receive voting instructions. Because each interest holder in
the Portfolio would vote in proportion to its relative beneficial interest in
the Portfolio, one or more other Portfolio investors could, in certain
instances, approve an action although a majority of the outstanding voting
securities of the CONSECO International Fund had voted against it. This could
result in the CONSECO International Fund's redeeming its investment in the
Portfolio, which could result in increased expenses for the Fund.
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.
RETIREMENT PLANS AND MEDICAL SAVINGS ACCOUNTS
Class A, Class B and Class C shares are available for purchase by
qualified retirement plans of both corporations and self-employed individuals.
The Trust has available prototype IRA plans (for both individuals and
employers), Simplified Employee Pension ("SEP") plans, and savings incentive
match plans for employees ("SIMPLE" 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, call or write the Distributor.
CLASS Y SHARES
In order to buy Class Y shares you must be an institutional investor or
a qualifying individual investor. Institutional investors may include, but are
not limited to, the following: (i) tax qualified retirement plans which have (a)
at least $10 million in plan assets, or (b) 250 or more employees eligible to
participate at the time of purchase, (ii) banks and insurance companies
purchasing shares for their own account, (iii) investment companies not
affiliated with the Adviser, (iv) tax-qualified retirement plans of the Adviser
or brokers, dealers, and other financial intermediaries that have a selling
agreement with the Distributor and their affiliates, (v) endowments, foundations
42
<PAGE>
and other charitable organizations or (vi) accounts established under wrap fee
or asset allocation programs where the accountholder pays the sponsor an
asset-based fee. A qualifying individual investor is an investor who is a client
of the Adviser and is making a purchase of over $500,000 or whose purchase
together with his current holdings of Class Y shares exceeds $500,000 or any
other individual who meets the minimum investment requirement.
Class Y shares are available to eligible institutional investors and
qualifying individual investors at net asset value without the imposition of an
initial or deferred sales charge and are not subject to ongoing distribution or
service 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 the Trust's officers.
The Systematic Withdrawal Plan and Pre-Authorized 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 Distributor at (800) 825-1530 to obtain information about eligibility
and a prospectus.
DISTRIBUTOR
Conseco Equity Sales, Inc., 11815 N. Pennsylvania Street, Carmel,
Indiana 46032, serves as distributor of shares of the Trust.
TRANSFER AGENT
State Street, 225 Franklin Street, Boston, Massachusetts 02110, serves
as the Trust's transfer agent.
CUSTODIAN
The Bank of New York, 90 Washington Street, 22nd Floor, New York, New
York 10826, serves as custodian of the assets of each Fund (except the Conseco
International Fund). State Street serves as custodian of the assets of the
Conseco International Fund and of the International Portfolio.
INDEPENDENT PUBLIC ACCOUNTANTS/AUDITORS
The Trust's independent public accountants are Coopers & Lybrand,
L.L.P., 2900 One American Square, Box 82002, Indianapolis, Indiana 46282-0002.
The independent auditors of the International Portfolio are Ernst & Young LLP,
Dallas, Texas.
LEGAL COUNSEL
Certain legal matters for the Funds are passed upon by Kirkpatrick &
Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036.
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.
44
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Page
General Information.............................................2
Investment Restrictions.........................................2
Description of Securities and Investment Techniques.............6
Investment Performance ........................................21
Portfolio Turnover and Securities Transactions.................23
Management.....................................................26
Fund Expenses .................................................36
Distribution Arrangements .....................................36
Purchase and Redemption of Shares..............................38
General .......................................................40
Taxes..........................................................41
Other Information..............................................47
Financial Statements...........................................48
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: Administrative Offices
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)
44
<PAGE>
APPENDIX A SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa - Bonds which are rated Aaa by Moody's Investors 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 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.
C - Bonds which are rated C are the lowest rated class of bonds. Such issues can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
STANDARD & POOR'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-1
<PAGE>
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 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.
A-2
<PAGE>
CONSECO FUND GROUP
Administrative Office: 11815 N. Pennsylvania Street, Carmel, Indiana 46032 (317)
817-6300
The Conseco Fund Group (the "Trust") is an open-end diversified management
investment company registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("1940 Act"). 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 series of shares, each of
which represents a separate portfolio of investments. This Prospectus offers
shares of three series ("Funds") of the Trust, each with its own investment
objective and investment policies. Each Fund offers four classes of shares. This
Prospectus relates solely to Class Y shares of the Funds. Class A, Class B and
Class C shares are offered to individual investors through a separate
prospectus. Each class may have different expenses, which may affect
performance.
The investment programs of the Funds are as follows:
Conseco 20 Fund seeks capital appreciation by investing in a limited
number of equity securities. The Fund is "non-diversified" under the 1940 Act
and normally concentrates its investments in a core position of approximately 20
common stocks believed to have above-average growth prospects.
Conseco High Yield Fund seeks a high level of current income, with a
secondary objective of capital appreciation, by investing primarily in
lower-rated fixed-income securities. These securities are subject to greater
fluctuations in value and greater risk of loss of income and principal due to
default by the issuer than are higher-rated securities; therefore, investors
should carefully assess the risks associated with an investment in this Fund.
Conseco International Fund seeks long-term capital appreciation. The
Fund seeks to achieve its objective by investing all of its investable assets in
the International Equity Portfolio (the "Portfolio" or the "International
Portfolio") of the AMR Investment Services Trust (the "AMR Trust"), which
invests primarily in equity securities of issuers based outside the United
States.
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 its operations, including fees and expenses of Trustees who
are not affiliated persons of the Adviser or the Trust.
As noted above, the Conseco International Fund seeks its investment
objective by investing all of its investable assets in the International
Portfolio. The Portfolio invests in securities in accordance with an investment
objective, policies and limitations substantially similar to those of the Fund.
The investment experience of the Fund will correspond directly with the
investment experience of the Portfolio. Whenever the phrase "all of the Fund's
investable assets" is used, it means that the only investment securities that
will be held by the Conseco International Fund will be the Fund's interest in
the Portfolio. This "master-feeder" structure is different from that of many
other investment companies which directly acquire and manage their own
portfolios of securities. Accordingly, investors should carefully consider this
investment approach. See "Additional Information About the Master-Feeder
Structure." AMR Investment Services, Inc. ("AMR") provides investment management
and administrative services to the Portfolio.
* * * * *
There is no assurance that any of the Funds listed above will achieve
its investment objective. The various Funds may be used independently or in
<PAGE>
combination. You may also purchase shares of the other series of the Trust
through a separate prospectus. That prospectus is available upon request by
calling 800-825-1530.
This Prospectus sets forth concisely the information about the Trust
and the Funds that an investor should know before investing. A Statement of
Additional Information ("SAI") dated January 2, 1998, containing additional
information about the Trust and the Funds, has been filed with the SEC 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 at the address
and telephone number above.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January 2, 1998.
TABLE OF CONTENTS
Page
COVER PAGE...............................................................1
FEE TABLE................................................................2
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS..........................4
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES......................8
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE................17
MANAGEMENT..............................................................18
PURCHASE AND REDEMPTION OF SHARES.......................................22
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES................................26
PERFORMANCE INFORMATION.................................................28
OTHER INFORMATION.......................................................28
APPENDIX A SECURITIES RATINGS..........................................A-1
FEE TABLE
The following fee table is provided to assist investors in
understanding the various fees and expenses which may be borne directly or
indirectly by an investment in Class Y shares of the Funds.
<TABLE>
<CAPTION>
Conseco High Conseco
Shareholder Transaction Expenses Conseco 20 Yield International
- -------------------------------- ---------- ----- -------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases None None None
2
<PAGE>
Maximum Sales Charge Imposed on None None None
Reinvested Dividends
Maximum Contingent Deferred Sales Charge None None None
Redemption Fees None None None
Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average daily net assets)
(4) (3)
Management Fees .70% .60 % .48%
Administrative Fees .20% .20% .75%
12b-1 Distribution and Service Fees None None None
(3)
Other Expenses (less voluntary fee waivers .35% .10% .52%
and/or reimbursements) (1)
(3)
Total Operating Expenses (less voluntary fee 1.25% .90% 1.75%
waivers and/or reimbursements) (2)
</TABLE>
(1) Other Expenses in the fee table are based on estimated amounts for the
current fiscal year and exclude taxes, interest, brokerage and other transaction
expenses, and any extraordinary expenses.
(2) The expense information set forth above reflects voluntary commitments of
the Adviser and Conseco Services, LLC (the "Administrator") to waive a portion
of their fees under each Fund's Investment Advisory Agreement and Administration
Agreement, respectively, and/or to reimburse a portion of the Fund's expenses
through April 30, 1999. The voluntary commitments provide that the Total
Operating Expenses for the Funds, on an annual basis, will not exceed the
amounts set forth above. In the absence of such waivers and reimbursements (as
well as the Adviser's undertaking with respect to the Conseco High Yield Fund as
noted below), it is estimated that Other Expenses would be .45%, .25%, and
1.02%, and Total Operating Expenses would be 1.35%, 1.15% and 2.25% of the
average daily net assets of the Conseco 20, Conseco High Yield and Conseco
International Funds, respectively.
(3) The Adviser has voluntarily agreed to waive all of its fees under the
Conseco International Fund's Investment Advisory Agreement so long as that Fund
invests all of its investable assets in the International Portfolio.
Accordingly, Management Fees in the fee table reflect only the Conseco
International Fund's pro rata portion of the Portfolio's management fees.
Similarly, because of the master-feeder structure, Other Expenses in the fee
table combines the Conseco International Fund's expenses and that Fund's pro
rata portion of the Portfolio's expenses.
(4) The Adviser has voluntarily undertaken to reduce its advisory fee with
respect to the Conseco High Yield Fund to 0.60% of the Fund's average daily net
assets until April 30, 1999. Absent such undertaking the advisory fee would be
0.70% of the Fund's average daily net assets.
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 pay transaction and operating expenses at the end of each year as
follows:
3
<PAGE>
1 Year 3 Years
------ -------
Conseco 20 $13 $39
Conseco High Yield $ 9 $28
Conseco International $18 $54
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 as described
below. There can be no assurance that any of the Funds will achieve its
investment objective. Each Fund is subject to the risk of changing economic
conditions, as well as the risk inherent in the ability of its investment
adviser to make changes in investments in anticipation of changes in economic,
business, and financial conditions. The investment objectives of the Funds are
not fundamental, as defined below; the investment objective of the International
Portfolio is fundamental.
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 and their risks are described in greater detail in "Description of
Securities and Investment Techniques" in the SAI.
The Funds and the International Portfolio are subject to investment
restrictions that are described under "Investment Restrictions" in the SAI.
Those investment restrictions that are "fundamental policies" may not be changed
without a majority vote of the outstanding shares of the affected Fund or the
outstanding interest holders of the International Portfolio. Except as otherwise
noted, all investment policies and practices described in this Prospectus and in
the SAI are not fundamental, meaning that the Trust's Board of Trustees
("Board") or the AMR Trust's Board of Trustees ("AMR Trust Board") may change
them without shareholder approval. See "Description of Securities and Investment
Techniques" and "Investment Restrictions" in the SAI for further information.
Conseco 20 Fund
The investment objective of the Conseco 20 Fund is to seek capital
appreciation. The Fund invests primarily in common stocks of companies that the
Adviser believes have above-average growth prospects. The Fund is
"non-diversified" (meaning that it is not limited under the 1940 Act in the
percentage of assets that it may invest in any one issuer) and normally
concentrates its investments in a core position of approximately 20 common
stocks. Because the Fund may invest a larger portion of its assets in the
securities of a single issuer than a "diversified" fund, an investment in the
Fund may be subject to greater fluctuations in value than an investment in a
"diversified" fund. However, the Fund intends to comply with the standards under
the Internal Revenue Code of 1986, as amended (the "Code"), that limit a
regulated investment company's investments in any one issuer's securities. See
"Taxes" in the SAI.
4
<PAGE>
The Fund generally will invest in companies whose earnings are believed
to be in a relatively strong growth trend and, to a lesser extent, in companies
in which significant further growth is not anticipated but whose stocks are
thought to be undervalued by the market. In identifying companies with favorable
growth prospects, the Adviser ordinarily looks to certain characteristics, such
as the following:
o prospects for above-average sales and earnings growth
o high return on invested capital
o overall financial strength, including sound financial and
accounting policies and a strong balance sheet
o competitive advantages, including innovative products and service
o effective research, product development, and marketing
o stable, capable management.
Under normal market conditions, the Fund will invest at least 65% of
its total assets in common stocks. The Fund may invest a substantial portion of
its assets in securities issued by companies with small and medium
capitalizations. While the emphasis of the Fund is clearly on common stocks, the
Fund may invest its remaining assets in preferred stocks, convertible
securities, and warrants, and in debt obligations when the Adviser believes that
they are more attractive than stocks on a long-term basis. The debt obligations
in which it invests will be primarily investment grade debt securities (as
defined below), 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"), or short-term fixed-income
securities. However, the Fund may invest up to 5% of its total assets in
non-investment grade debt obligations. When the Adviser determines that market
conditions warrant a temporary defensive position, the Fund may invest without
limitation in cash and short-term fixed-income securities.
The Fund may invest up to 25% of its total assets in equity and debt
securities of foreign issuers. The Fund presently intends to invest in foreign
securities only through depositary receipts. See "Foreign Securities" below for
more information.
To maximize potential return, the Adviser may utilize a variety of
investment techniques and strategies, including but not limited to: writing
listed "covered" call and "secured" put options, including options on stock
indices, and purchasing options; purchasing and selling, for hedging purposes,
stock index, interest rate, and other futures contracts, and purchasing options
on such futures contracts; entering into foreign currency futures contracts,
forward foreign currency contracts ("forward contracts") and options on foreign
currencies; borrowing from banks to purchase securities; purchasing securities
of other investment companies; entering into repurchase agreements; investing in
when-issued or delayed delivery securities; and selling securities short. See
"Description of Securities and Investment Techniques" in the SAI for further
information.
Conseco High Yield Fund
The investment objective of the Conseco High Yield Fund is to provide
investors with a high level of current income, with a secondary objective of
capital appreciation. In seeking to achieve the Fund's objectives, the Adviser,
under normal circumstances, invests at least 65% of the Fund's total assets in
high yield, fixed-income securities (commonly known as "junk bonds"), that is,
income-producing debt securities and preferred stocks of all types, including
corporate debt securities and preferred stock, convertible securities, zero
coupon securities, other deferred interest securities, mortgage-backed
5
<PAGE>
securities and asset-backed securities. The Fund may invest in high yield debt
securities issued by states and their political subdivisions, agencies, and
instrumentalities ("municipal securities"). The interest on the municipal
securities in which the Fund invests typically is not exempt from federal income
tax. The Fund's remaining assets may be held in cash, money market instruments,
or U.S. Government securities, or may be invested in common stocks and other
equity securities when these types of investments are consistent with the
objectives of the Fund or are acquired as part of a unit consisting of a
combination of fixed-income securities and equity investments. Such remaining
assets may also be invested in investment grade fixed-income securities
(including municipal securities). Investment grade securities are securities
rated BBB or higher by Standard & Poor's ("S&P") or Baa or higher by Moody's
Investors Service, Inc. ("Moody's"), securities comparably rated by another
nationally recognized statistical rating organization ("NRSRO"), or unrated
securities deemed by the Adviser to be of equivalent quality. Moreover, the Fund
may hold cash or money market instruments without limit for temporary defensive
purposes or pending investment.
Higher yields are generally available from securities rated BB or lower
by S&P or Ba or lower by Moody's, securities comparably rated by another NRSRO,
or unrated securities of equivalent quality. The Fund may invest all or a
substantial portion of its assets in such securities. Debt securities rated
below investment grade (i.e., below BBB/Baa) are deemed by the rating agencies
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve major risk or exposure to adverse
conditions. The Fund may invest in securities rated as low as C by Moody's or D
by S&P, securities comparably rated by another NRSRO, or unrated securities of
equivalent quality. Such obligations are highly speculative and may be in
default or in danger of default as to principal and interest. Ratings are only
the opinions of the agencies issuing them and are not absolute standards as to
quality. See "Risks Associated With High Yield Debt Securities" below and
"Description of Securities and Investment Techniques" in the SAI. The Appendix
to this Prospectus describes Moody's and S&P's rating categories.
The Fund may 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 Fund may also invest in equity and debt securities of foreign
issuers, including issuers based in emerging markets. As a non-fundamental
policy, the Fund may invest up to 50% of its total assets (measured at the time
of investment) in foreign securities; however, the Fund presently does not
intend to invest more than 25% of its total assets in such securities. In
addition, the Fund presently intends to invest in foreign securities only
through depositary receipts. See "Foreign Securities" below for further
information.
The Fund may invest up to 25% of its total assets in private
placements, securities traded pursuant to Rule 144A under the Securities Act of
1933 ("1933 Act") (Rule 144A permits qualified institutional buyers to trade
certain securities even though they are not registered under the 1933 Act), or
securities which, though not registered at the time of their initial sale, are
issued with registration rights. Some of these securities may be deemed by the
Adviser to be liquid under guidelines adopted by the Board. As a matter of
fundamental policy, the Fund will not (1) invest more than 5% of its total
assets in any one issuer, except for U.S. Government securities or (2) invest
25% or more of its total assets in securities of issuers having their principal
business activities in the same industry.
The Adviser does not rely solely on the ratings of rated securities in
making investment decisions but also evaluates other economic and business
factors affecting the issuer. The Adviser seeks to enhance total return
specifically through purchasing securities which it believes are undervalued and
selling, when appropriate, those securities it 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.
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The 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 objectives. Such strategies and techniques include, but are not
limited to, writing listed "covered" call and "secured" put options and
purchasing options; purchasing and selling, for hedging purposes, interest rate
and other futures contracts, and purchasing options on such futures contracts;
entering into foreign currency futures contracts, forward contracts and options
on foreign currencies; borrowing from banks to purchase securities; investing in
securities of other investment companies; entering into repurchase agreements,
reverse repurchase agreements and dollar rolls; investing in when-issued or
delayed delivery securities; selling securities short, and entering into swaps
and other interest rate transactions. See "Description of Securities and
Investment Techniques" in the SAI for further information.
Conseco International Fund
The investment objectives of the Conseco International Fund and the
International Portfolio are to realize long-term capital appreciation. The Fund
has a fundamental investment policy which allows, but does not require, it to
invest all of its investable assets in another investment company having
substantially the same investment objective and policies. All other fundamental
investment policies and the non-fundamental investment policies of the Fund and
the Portfolio are substantially similar (except with respect to borrowing, as
discussed in the SAI). The Fund invests only in the Portfolio. Therefore,
although the following discusses the investment policies of the Portfolio, it
applies equally to the Fund.
The Portfolio invests primarily in a diversified portfolio of equity
securities of issuers based outside the United States. AMR allocates the assets
of the Portfolio among one or more investment advisers designated for the
Portfolio. Hotchkis and Wiley, Morgan Stanley Asset Management Inc. and
Templeton Investment Counsel, Inc. currently serve as investment advisers to the
Portfolio. See "Management -- AMR and the Investment Advisers to the
International Equity Portfolio."
Ordinarily the Portfolio will invest at least 65% of its assets in
common stocks and securities convertible into common stocks of issuers in at
least three different countries located outside the United States. However,
excluding collateral for securities loaned, the Portfolio generally invests in
excess of 80% of its assets in such securities. The remainder of the Portfolio's
assets will be invested in non-U.S. debt securities which, at the time of
purchase, are rated in one of the three highest rating categories by any NRSRO
or, if unrated, are deemed to be of comparable quality by the applicable
investment adviser and traded publicly on a world market, or in cash or cash
equivalents, including investment grade short-term obligations, or in other
investment companies. However, when its investment advisers deem that market
conditions warrant, the Portfolio may, for temporary defensive purposes, invest
up to 100% of its assets in cash, cash equivalents, other investment companies
and investment grade short-term obligations.
The investment advisers select securities based upon a country's
economic outlook, market valuation and potential changes in currency exchange
rates. When purchasing equity securities, primary emphasis will be placed on
undervalued securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. These risks are often greater for investments in emerging or
developing countries. See "Investment Techniques and Other Investment Policies
- -- Foreign Securities" below.
The Portfolio will limit its investments to those in countries which
have been recommended by AMR and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
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determining which countries will be approved, the AMR Trust Board will evaluate
the risks of investing in a country and will particularly focus on the ability
to repatriate funds, the size and liquidity aspects of the country's market and
the investment climate for foreign investors. The current countries in which the
Portfolio may invest are Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Mexico,
Netherlands, New Zealand, Norway, Portugal (as of January 1, 1998), Singapore,
South Korea, Spain, Sweden, Switzerland and the United Kingdom.
The Portfolio may trade forward foreign currency contracts, which are
derivatives, to hedge currency fluctuations of underlying stock or bond
positions or in other circumstances permitted by the Commodity Futures Trading
Commission. Forward contracts to sell foreign currency may be used when the
management of the Portfolio believes that the currency of a particular foreign
country may suffer a decline against the U.S. dollar. Forward contracts are also
entered into to set the exchange rate for a future transaction. In this manner,
the Portfolio may protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar or other currency
which is being used for the security purchase and the foreign currency in which
the security is denominated during the period between the date on which the
security is purchased or sold and the date on which payment is made or received.
Forward contracts involve certain risks which include, but are not limited to:
(1) imperfect correlation between the securities hedged and the contracts
themselves; and (2) possible decrease in the total return of the Portfolio.
Forward contracts are discussed in greater detail in the SAI.
The Portfolio also may trade currency futures for the same reasons as
for entering into forward contracts as set forth above. Currency futures are
traded on U.S. and foreign currency exchanges. The use of currency futures also
entails certain risks which include, but are not limited to: (1) less liquidity
due to daily limits on price fluctuation; (2) imperfect correlation between the
securities hedged and the contracts themselves; (3) possible decrease in the
total return of the Portfolio due to hedging; (4) possible reduction in value
for both the contracts and the securities being hedged; and (5) potential losses
in excess of the amounts invested in the currency futures contracts themselves.
The Portfolio may not enter into currency futures contracts if the purchase or
sale of such contract would cause the sum of the Portfolio's initial and any
variation margin deposits to exceed 5% of its total assets. Currency futures
contracts, which are derivatives, are discussed in greater detail in the SAI.
As a matter of fundamental policy, the Portfolio may not (1) invest
more than 5% of its total assets (taken at market value) in securities of any
one issuer, other than U.S. Government securities, or purchase more than 10% of
the voting securities of any one issuer, with respect to 75% of the Portfolio's
total assets, or (2) invest more than 25% of its total assets in the obligations
of companies primarily engaged in any one industry provided that: (i) this
limitation does not apply to U.S. Government securities; (ii) municipalities and
their agencies and authorities are not deemed to be industries; and (iii)
financial service companies are classified according to the end users of their
services (for example, automobile finance, bank finance, and diversified finance
will be considered separate industries). In addition, as a non-fundamental
investment restriction, the Portfolio may not invest more than 15% of its net
assets in illiquid securities, including time deposits and repurchase agreements
that mature in more than seven days.
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES
References in this section to "a Fund," "the Funds" or "the Conseco
International Fund" include the International Portfolio, unless the context
otherwise requires.
Small and Medium Capitalization Companies
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The Conseco 20 Fund may invest a substantial portion of its assets in
securities issued by companies with small and medium capitalizations ("small-
and mid-cap companies"). While these companies generally have potential for
rapid growth, investments in such companies often involve greater risks than
investments in larger, more established companies because small- and mid-cap
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of companies with larger market
capitalizations. In addition, in many instances the securities of small- and
mid-cap companies are traded only over-the-counter or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, these securities may be subject
to greater and more abrupt price fluctuations. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may have
to make a series of small sales over an extended period of time due to the
trading volume of small- and mid-cap company securities. As a result, an
investment in the Fund may be subject to greater price fluctuations than an
investment in a fund that invests primarily in larger, more established
companies. The Adviser's research efforts may also play a greater role in
selecting securities for the Fund than in a fund that invests in larger, more
established companies.
Preferred Stock
The Funds may invest in preferred stock. Preferred stock pays dividends
at a specified rate and generally has preference over common stock in the
payment of dividends and the liquidation of the issuer's assets but is junior to
the debt securities of the issuer in those same respects. Unlike interest
payments on debt securities, dividends on preferred stock are generally payable
at the discretion of the issuer's board of directors, and shareholders may
suffer a loss of value if dividends are not paid. Preferred shareholders
generally have no legal recourse against the issuer if dividends are not paid.
The market prices of preferred stocks are subject to changes in interest rates
and are more sensitive to changes in the issuer's creditworthiness than are the
prices of debt securities. Under ordinary circumstances, preferred stock does
not carry voting rights.
Debt Securities
The Conseco 20 and Conseco High Yield Funds may invest in U.S.
dollar-denominated corporate debt securities of domestic issuers, and all of the
Funds may invest in debt securities of foreign issuers that may or may not be
U.S. dollar-denominated.
The investment return on a corporate debt security reflects interest
earnings and changes in the market value of the security. The market value of
corporate debt obligations may be expected to rise and fall inversely with
interest rates generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on interest or principal
payments at the time called for by an instrument. Debt securities rated BBB or
Baa, which are considered medium-grade debt securities, do not 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 when
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.
Corporate debt securities may pay fixed or variable rates of interest,
or interest at a rate contingent upon some other factor, such as the price of
some commodity. These securities may be convertible into preferred or common
stock (see "Convertible Securities" below), or may be bought as part of a unit
containing common stock. A debt security may be subject to redemption at the
option of the issuer at a price set in the security's governing instrument.
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In selecting corporate debt securities for the Conseco 20 or Conseco
High Yield Fund, the Adviser reviews and monitors the creditworthiness of each
issuer and issue. The Adviser also analyzes interest rate trends and specific
developments which it believes may affect individual issuers.
Risks Associated With High Yield Debt Securities. The Conseco 20 and
Conseco High Yield Funds may invest in high yield, high risk, lower-rated debt
securities. High yield debt securities are subject to all risks inherent in any
investment in debt securities. As discussed below, these risks are significantly
greater in the case of high yield debt securities.
Lower-rated debt securities generally offer a higher yield to maturity
than that available from higher-rated issues, as compensation for holding a
security that is subject to greater risk. 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)
adverse changes in the financial condition of the issuers, (3) price fluctuation
in response to changes in interest rates and (4) limited liquidity and secondary
market support. Accordingly, the yield on lower-rated debt securities will
fluctuate over time.
The prices of lower-rated bonds may be more sensitive to adverse
economic changes and developments regarding the individual issuer than are
higher-rated bonds. An economic downturn affecting the issuer may result in an
increased incidence of default. Although the market for lower-rated debt
securities is not new, and the market has previously weathered economic
downturns, there has been in recent years a substantial increase in the use of
such securities to fund corporate acquisitions and restructurings. Accordingly,
the past performance of the market for such securities may not be an accurate
indication of its performance during future economic downturns or periods of
rising interest rates. This market may be thinner and less active than the
market for higher quality securities, which may limit the ability to sell such
securities at their fair value in response to changes in the economy or the
financial markets. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the values and liquidity of
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 (i.e., Ba or lower by Moody's or BB or lower by S&P). 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.
Convertible Securities
The Funds may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the same
or a different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers, but lower than the yield on non-convertible debt. Convertible
securities are usually subordinated to comparable-tier non-convertible
securities but rank senior to common stock in a corporation's capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
value, if converted into the underlying common stock. Convertible securities are
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typically issued by smaller capitalized companies, whose stock prices may be
volatile. The price of a convertible security often reflects such variations in
the price of the underlying common stock in a way that non-convertible debt does
not. A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument, which could have an adverse effect on a Fund's ability to achieve
its investment objective.
Zero Coupon Bonds
The Conseco 20 and Conseco High Yield Funds may invest in zero coupon
securities. Zero coupon bonds are debt obligations which make no fixed interest
payments but instead are issued at a significant discount from face value. Like
other debt securities, the market price can reflect a premium or discount, in
addition to the original issue discount, reflecting the market's judgment as to
the issuer's creditworthiness, the interest rate or other similar factors. The
original issue discount approximates the total amount of interest the bonds will
accrue and compound over the period until maturity (or the first interest
payment date) at a rate of interest reflecting the market rate at the time of
issuance. Because zero coupon bonds do not make periodic interest payments,
their prices can be very volatile when market interest rates change.
The original issue discount on zero coupon bonds must be included in a
Fund's income ratably as it accrues. Accordingly, to qualify for tax treatment
as a regulated investment company and to avoid a certain excise tax, a Fund may
be required to distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. These distributions must be made from the
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. Such sales could occur at a time which would be disadvantageous to a
Fund and when the Fund would not otherwise choose to dispose of the assets.
Pay-In-Kind Bonds
The Conseco High Yield Fund may invest in pay-in-kind bonds. These
bonds pay "interest" through the issuance of additional bonds, thereby adding
debt to the issuer's balance sheet. The market prices of these securities are
likely to respond to changes in interest rates to a greater degree than the
prices of securities paying interest currently. Pay-in-kind bonds carry
additional risk in that, unlike bonds that pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date and the Fund
may obtain no return at all on its investment if the issuer defaults.
The holder of a pay-in-kind bond must accrue income with respect to
these securities prior to the receipt of cash payments thereon. To avoid
liability for federal income and excise taxes, the Fund most likely will be
required to distribute income accrued with respect to these securities, even
though the Fund has not received that income in cash, and may be required to
dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
Mortgage-Backed Securities
The Conseco 20 and Conseco High Yield Funds may invest in
mortgage-backed securities. Mortgage-backed securities are interests in "pools"
of mortgage loans made to residential home buyers, including mortgage loans made
by savings and loan institutions, mortgage bankers, commercial banks and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations (see
"Mortgage Pass-Through Securities," below). These Funds may also invest in debt
securities which are secured with collateral consisting of mortgage-backed
securities (see "Collateralized Mortgage Obligations," below), and in other
types of mortgage-related securities. The Conseco 20 Fund presently does not
intend to invest more than 5% of its assets in mortgage-backed 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 Fannie Mae ("FNMA") or
Freddie Mac ("FHLMC")). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
secondary market issuers) may be uninsured or may be supported by various forms
of insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers, or the mortgage poolers.
GNMA Certificates. GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
Government. As a result, GNMA certificates are considered to have a low risk of
default, although they are subject to the same market risk as comparable debt
securities. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Although the mortgage loans in the pool will have maturities of up to
30 years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages may be purchased at any time prior to
maturity, will be subject to normal principal amortization, and may be prepaid
prior to maturity. Reinvestment of prepayments may occur at higher or lower
rates than the original yield on the certificates.
FNMA and FHLMC Mortgage-Backed Obligations. FNMA, a federally chartered
and privately owned corporation, issues pass-through securities representing
interests in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not backed by the full
faith and credit of the U.S. Government. FNMA also issues REMIC certificates,
which represent interests in a trust funded with FNMA certificates. REMIC
certificates are guaranteed by FNMA and not by the full faith and credit of the
U.S. Government.
FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent interests in pools of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but these securities are not backed by the full faith and
credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and
realized yield on particular FNMA and FHLMC pass-through securities will vary
based on the prepayment experience of the underlying pool of mortgages.
Collateralized Mortgage Obligations and Mortgage-Backed Bonds.
Mortgage-backed securities may be 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
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passed through to the holders on the same schedule as they are received,
although not necessarily on a pro rata basis. 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 Fund could
sustain a loss. If new types of mortgage-related securities are developed and
offered to investors, investments in such securities will be considered.
Stripped Mortgage-Backed Securities. The Conseco High Yield Fund may
invest in stripped mortgage-backed securities, which are derivative securities
usually structured with two classes that receive different proportions of the
interest and principal distributions from an underlying pool of mortgage assets.
The Fund may purchase securities representing only the interest payment portion
of the underlying mortgage pools (commonly referred to as "IOs") or only the
principal portion of the underlying mortgage pools (commonly referred to as
"POs"). Stripped mortgage-backed securities are more sensitive to changes in
prepayment and interest rates and the market for such securities is less liquid
than is the case for traditional debt securities and mortgage-backed securities.
The yield on IOs is extremely sensitive to the rate of principal payments
(including prepayments) on the underlying mortgage assets, and a rapid rate of
repayment may have a material adverse effect on such securities' yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund will fail to recoup fully its initial
investment in these securities, even if they are rated high quality. Most IOs
and POs are regarded as illiquid and will be included in the Fund's limit on
illiquid securities.
Risks of Mortgage-Backed Securities. 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 and IOs and POs, are subject to 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). Prepayment rates vary widely and may be affected by changes in
market interest rates and other economic trends and factors. In periods of
falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the mortgage-backed security. Conversely,
when interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the mortgage-backed security.
Accordingly, it is not possible to accurately predict the average life of a
particular pool. Reinvestment of prepayments may occur at higher or lower rates
than the original yield on the securities. Therefore, the actual maturity and
realized yield on pass-through or modified pass-through mortgage-backed
securities will vary based upon the prepayment experience of the underlying pool
of mortgages.
Trust Originated Preferred Securities
The Conseco High Yield Fund may also invest in trust originated
preferred securities, a new type of security issued by financial institutions
such as banks and insurance companies. Trust originated preferred securities
represent interests in a trust formed by a financial institution. The trust
sells preferred shares and invests the proceeds in notes issued by the financial
institution. These notes may be subordinated and unsecured. Distributions on the
trust originated preferred securities match the interest payments on the notes;
if no interest is paid on the notes, the trust will not make current payments on
its preferred securities. Issuers of the notes currently enjoy favorable tax
treatment. If the tax characterization of these securities were to change
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adversely, they could be redeemed by the issuers, which could result in a loss
to the Fund. In addition, some trust originated preferred securities are
available only to qualified institutional buyers under Rule 144A.
Loan Participations and Assignments
The Conseco High Yield Fund may also invest in loan participations or
assignments. In purchasing a loan participation or assignment, the Fund acquires
some or all of the interest of a bank or other lending institution in a loan to
a corporate borrower. Many such loans are secured and most impose restrictive
covenants which must be met by the borrower and which are generally more
stringent than the covenants available in publicly traded debt securities.
However, interests in some loans may not be secured, and the Fund will be
exposed to a risk of loss if the borrower defaults. Loan participations may also
be purchased by the Fund when the borrowing company is already in default.
In purchasing a loan participation, the Fund may have less protection
under the federal securities laws than it has in purchasing traditional types of
securities. The Fund's ability to assert its rights against the borrower will
also depend on the particular terms of the loan agreement among the parties.
Many of the interests in loans purchased by the Fund will be illiquid and
therefore subject to the Fund's limit on illiquid investments.
Collateralized Bond Obligations
A collateralized bond obligation ("CBO") is a type of asset-backed
security. Specifically, a CBO is an investment grade bond which is backed by a
diversified pool of high risk, high yield fixed-income securities. The pool of
high yield securities is separated into "tiers" representing different degrees
of credit quality. The top tier of CBOs is backed by the pooled securities with
the highest degree of credit quality and pays the lowest interest rate.
Lower-tier CBOs represent lower degrees of credit quality and pay higher
interest rates to compensate for the attendant risk. The bottom tier typically
receives the residual interest payments (i.e., money that is left over after the
higher tiers have been paid) rather than a fixed interest rate. The return on
the bottom tier of CBOs is especially sensitive to the rate of defaults in the
collateral pool.
Foreign Securities
The Funds may invest in equity securities of foreign issuers, including
depositary receipts, and in debt securities of foreign issuers. These securities
may be U.S. dollar denominated or non-U.S. dollar denominated. Foreign
securities include securities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities thereof.
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
securities 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, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions on foreign investments or repatriation of capital. In addition,
with respect to certain countries, there is the possibility of nationalization
or expropriation of assets; confiscatory taxation; political, social or
financial instability; and war or other diplomatic developments that could
adversely affect investments in those countries. Since a Fund may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
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changes in foreign currency exchange rates will affect the value of securities
held by the Fund and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. A Fund generally will incur costs in
connection with conversion between various currencies.
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. Transaction costs, custodial fees and management
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.
All of the foregoing risks may be intensified in emerging markets.
Dividend and interest income from foreign securities may 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.
American Depositary Receipts ("ADRs") are certificates issued by a U.S.
bank or trust company representing an interest in securities of a foreign issuer
deposited in a foreign subsidiary or branch or a correspondent of that bank.
Generally, ADRs are designed for use in U.S. securities markets and may offer
U.S. investors more liquidity than the underlying securities. The Funds may
invest in unsponsored ADRs. The issuers of unsponsored ADRs are not obligated to
disclose material information in the United States and, therefore, there may not
be a correlation between such information and the market value of such ADRs.
European Depositary Receipts ("EDRs") are certificates issued by a European bank
or trust company evidencing its ownership of the underlying foreign securities.
EDRs are designed for use in European securities markets.
Restricted Securities, Rule 144A Securities, and Illiquid Securities (Conseco 20
and Conseco High Yield Funds)
These Funds may invest in restricted securities, such as private
placements, and in Rule 144A 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
1933 Act. 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 it 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. Restricted
securities are generally considered illiquid.
Rule 144A securities, although not registered, may be resold to
qualified institutional buyers in accordance with Rule 144A under the 1933 Act.
The Adviser, acting pursuant to guidelines established by the Board, may
determine that some Rule 144A securities are liquid.
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A Fund may not invest in any security if, as a result, more than 15% of
the Fund's net assets would be invested in illiquid securities, which are
securities that cannot be expected to be sold within seven days at approximately
the price at which they are valued.
Private Placement Offerings (Conseco International Fund and International
Portfolio)
Investments in private placement offerings are made in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
1933 Act, and resold to qualified institutional buyers under Rule 144A under the
1933 Act ("Section 4(2) securities"). Section 4(2) securities are restricted as
to disposition under the federal securities laws, and generally are sold to
institutional investors such as the Portfolio that agree they are purchasing the
securities for investment and not with an intention to distribute to the public.
Any resale by the purchaser must be pursuant to an exempt transaction and may be
accomplished in accordance with Rule 144A. Section 4(2) securities normally are
resold to other institutional investors such as the Portfolio through or with
the assistance of the issuer or dealers that make a market in the Section 4(2)
securities, thus providing liquidity. The Portfolio will not invest more than
15% of its net assets in Section 4(2) securities and illiquid securities unless
the applicable investment adviser determines, by continuous reference to the
appropriate trading markets and pursuant to guidelines approved by the AMR Trust
Board, that any Section 4(2) securities held by the Portfolio in excess of this
level are at all times liquid.
The AMR Trust Board and the applicable investment adviser, pursuant to
the guidelines approved by the AMR Trust Board, will carefully monitor the
Portfolio's investments in Section 4(2) securities offered and sold under Rule
144A, focusing on such important factors, among others, as: valuation,
liquidity, and availability of information. Investments in Section 4(2)
securities could have the effect of reducing the Portfolio's liquidity to the
extent that qualified institutional buyers no longer wish to purchase these
restricted securities.
Repurchase Agreements
The Funds may enter into repurchase agreements. A repurchase agreement
is an agreement under which securities are acquired from a securities dealer or
bank subject to resale at an agreed upon price on a later date. The acquiring
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, to
minimize the risk, the Funds will enter into repurchase agreements only with
financial institutions which are deemed to be of good financial standing and
which have been approved by the Board or the AMR Trust Board.
Securities Lending
The Funds may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, U.S. Government securities, and approved
bank letters of credit that at all times equal at least 100% of the market value
of the loaned securities. Such loans will not be made if, as a result, the
aggregate amount of all outstanding securities loans would exceed 33 1/3% of a
Fund's total assets. A Fund continues to receive interest on the securities
loaned and simultaneously earns either interest on the investment of the cash
collateral or fee income if the loan is otherwise collateralized. Should the
borrower of the securities fail financially, there is a risk of delay in
recovery of the securities loaned or loss of rights in the collateral. However,
the Funds seek to minimize this risk by making loans only to borrowers which are
deemed by the Adviser or AMR to be of good financial standing and which have
been approved by the Board or the AMR Trust Board.
AMR will receive compensation for administrative and oversight
functions with respect to securities lending by the International Portfolio. The
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amount of such compensation will depend on the income generated by the loan of
the Portfolio's securities. The SEC has granted exemptive relief that permits
the Portfolio to invest cash collateral received from securities lending
transactions in shares of one or more private investment companies managed by
AMR.
Subject to the receipt of exemptive relief from the SEC, the Portfolio
also may invest cash collateral received from securities lending transactions in
shares of one or more registered investment companies managed by AMR.
Borrowing
The Conseco 20 and Conseco High Yield Funds may borrow money to
purchase securities, which is a form of leverage. This leverage may exaggerate
the gains and losses on a Fund's investments and changes in the net asset value
of that Fund's shares. Leverage also creates interest expenses; if those
expenses exceed the return on the transactions that the borrowings facilitate,
the Fund will be in a worse position than if it had not borrowed. The use of
derivatives in connection with leverage may create the potential for significant
losses. The Funds may pledge assets in connection with permitted borrowings.
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE
The Conseco International Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in the
International Portfolio of the AMR Trust, which is a separate investment company
managed by AMR. The AMR Trust is registered under the 1940 Act as an open-end
diversified management investment company and was organized as a New York common
law trust on June 27, 1995. The predecessor of the International Portfolio
commenced operations on August 7, 1991 and transferred all of its investable
assets to the Portfolio on November 1, 1995. The AMR Trust currently issues
eight separate series of shares. The assets of the Portfolio belong only to, and
the liabilities of the Portfolio are borne solely by, that Portfolio and no
other series of the AMR Trust.
The Board believes that the Conseco International Fund will achieve
economies of scale by investing in the Portfolio, which could reduce the Fund's
expenses. In addition to selling its interests to the Conseco International
Fund, the Portfolio currently sells its interests to other investment companies
and/or other institutional investors. All institutional investors in the
Portfolio pay a proportionate share of the Portfolio's expenses and invest in
the Portfolio on the same terms and conditions. However, other investment
companies investing all of their assets in the Portfolio are not required to
sell their shares at the same public offering price as the Conseco International
Fund and are allowed to charge different sales commissions and to have different
fees and expenses. Therefore, investors in the Conseco International Fund may
experience different returns than investors in another investment company that
invests exclusively in the Portfolio. Information regarding other investment
companies that invest in the Portfolio is available by calling (800) 967-9009.
The Conseco International Fund's investment in the Portfolio may be
materially affected by the actions of large investors in the Portfolio. For
example, as with all open-end investment companies, if a large investor were to
redeem its interest in the Portfolio, the Portfolio's remaining investors could
experience higher pro rata operating expenses, thereby producing lower returns.
As a result, the Portfolio's security holdings also could become less diverse,
resulting in increased risk. Investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio could have effective voting control
over its operation.
The Conseco International Fund may withdraw its entire investment from
the Portfolio at any time if the Board determines that it is in the best
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interests of the Conseco International Fund and its shareholders to do so. The
Conseco International Fund might withdraw, for example, if there were other
investors in the Portfolio with power to, and who did by a vote of the
shareholders of all investors (including the Conseco International Fund), change
the investment objective or policies of the Portfolio in a manner not acceptable
to the Board. A withdrawal could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) by the Portfolio. That
distribution could result in a less diversified portfolio of investments for the
Conseco International Fund and could affect adversely the liquidity of the
Conseco International Fund's portfolio. If the Conseco International Fund
decided to convert those securities to cash, it usually would incur brokerage
fees or other transaction costs. If the Conseco International Fund withdrew its
investment from the Portfolio, the Board would consider what action might be
taken, including the management of the Conseco International Fund's assets by
the Adviser in accordance with the Fund's investment objective and policies or
the investment of all of the Conseco International Fund's investable assets in
another pooled investment entity having substantially the same investment
objective as the Fund. In the event the Board determines not to have the Adviser
manage the Conseco International Fund's assets, the inability of the Fund to
find a suitable replacement investment could have a significant impact on
shareholders of the Conseco International Fund.
Each investor in the Portfolio, including the Conseco International
Fund, will be liable for all obligations of the Portfolio, but not any other
series of the AMR Trust. The risk to an investor in the Portfolio of incurring
financial loss beyond the amount of its investment on account of such liability,
however, would be limited to the unlikely circumstance in which the Portfolio
was unable to meet its obligations. Upon liquidation of the Portfolio, investors
would be entitled to share pro rata in the net assets of the Portfolio available
for distribution to investors. For additional information regarding liability of
shareholders of the Conseco International Fund, see "General" in the SAI.
MANAGEMENT
The Trustees of the Trust decide upon matters of general policy for the
Trust. In addition, the Trustees review the actions of the Adviser, as set forth
below. The Trust's officers supervise the daily business operations of the
Trust. For information about the Trust's Board of Trustees and the Trust's
officers, see "Management" in the SAI. The AMR Trust Board has general
supervisory responsibility over the AMR Trust's affairs.
The Adviser
Conseco Capital Management, Inc., 11825 N. Pennsylvania Street, Carmel,
Indiana 46032, has been retained under an Investment Advisory Agreement 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 also
manages another registered investment company and 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.
The Adviser generally manages the affairs of the Trust, subject to the
supervision of the Board. While the Conseco International Fund operates in a
"master-feeder" structure, the Adviser is responsible for selecting the
investment company in which that Fund invests. If the Adviser is not satisfied
with the performance of that investment company, the Adviser will recommend to
the Board other investment companies in which the Conseco International Fund may
invest, or recommend that the Adviser manage the Conseco International Fund
itself.
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Under the Investment Advisory Agreement, the Adviser has contracted to
receive an investment advisory fee equal to an annual rate of .70% of the
average daily net asset value of the Conseco High Yield Fund, .70% of the
average daily net asset value of the Conseco 20 Fund and 1.00% of the average
daily net asset value of the Conseco International Fund. The Adviser has
voluntarily agreed to waive all of its fees under the Conseco International
Fund's Investment Advisory Agreement so long as that Fund invests all of its
investable assets in the International Portfolio or another investment company
with substantially the same investment objective and policies as the Fund. For
more information about the Portfolio's management, see "AMR and the Investment
Advisers to the International Equity Portfolio" below. The Adviser, together
with the Administrator and the Distributor, have voluntarily agreed to waive
their fees and/or reimburse expenses to the extent that the ratio of expenses to
net assets on an annual basis for Class Y shares of the Conseco High Yield Fund
exceeds 0.90%, the Conseco 20 Fund exceeds 1.25%, and the International Fund
exceeds 1.75%. These voluntary limits may be discontinued at any time after
April 30, 1999.
The investment professionals primarily responsible for the management
of the Conseco 20 and Conseco High Yield Funds, with the respective
responsibilities and business experience for the past five years are as follows:
CONSECO 20 FUND: Thomas J. Pence, Vice President for the Adviser, and
Erik J. Voss, Senior Securities Analyst for the Adviser. Mr. Pence is
responsible for the management of the Adviser's equity portfolios and oversight
of the equity investment process. Mr. Pence joined the Adviser in 1992.
Mr. Voss assists in research and portfolio management for all of the
Adviser's equity portfolios. Mr. Voss joined the Adviser in 1996. Previously, he
worked as an equity analyst for another investment adviser.
CONSECO HIGH YIELD FUND: Michael C. Buchanan, Second Vice President of
the Adviser, and William F. Ficca, Vice President and Director of Research of
the Adviser. Mr. Buchanan is responsible for the Adviser's high yield, emerging
markets and distressed debt trading, as well as overseeing its investment grade
bond trading and Canadian research. Previously, he worked at the Adviser in
convertible securities trading and industrial fixed-income research. Mr.
Buchanan joined the Adviser in 1990.
Mr. Ficca oversees the Adviser's research efforts. In addition, he is
the portfolio manager of certain other investment products managed by the
Adviser. Mr. Ficca joined the Adviser in 1991. Previously, Mr. Ficca worked in
investment banking and traded corporate and government bonds.
The Adviser has taken steps that it believes are reasonably designed to
address the potential failure of computer programs used by the Adviser and the
Funds' service providers to address the Year 2000 issue. There can be no
assurance that these steps will be sufficient to avoid any adverse impact.
AMR and the Investment Advisers to the International Equity Portfolio
AMR has entered into a Management Agreement with the AMR Trust that
obligates AMR to provide or oversee all administrative, investment advisory and
portfolio management services for the AMR Trust, including the Conseco
International Portfolio. AMR, located at 4333 Amon Carter Boulevard, MD 5645,
Fort Worth, Texas 76155, is a wholly owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc., and was organized in 1986 to provide
investment management, advisory, administrative and asset management consulting
services. As of October 31, 1997, AMR had assets under management totaling
approximately $18.4 billion including approximately $6.6 billion under active
management and $11.8 billion as named fiduciary or fiduciary adviser. Of the
total, approximately $14.3 billion of assets are related to AMR Corporation.
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AMR develops the investment program for the International Portfolio,
selects and changes investment advisers (subject to approval by the AMR Trust
Board), allocates assets among investment advisers, monitors their investment
programs and results, and coordinates the investment activities of the
investment advisers to ensure compliance with regulatory restrictions. For more
information about these matters, see the SAI. AMR also provides the Portfolio
with office space, office equipment and personnel necessary to manage and
administer its operations.
AMR oversees the Portfolio's participation in securities lending
activities and any action taken by securities lending agents in connection with
those activities to ensure compliance with all applicable regulatory and
investment guidelines.
AMR bears the expense of providing the above services and pays the fees
of the Portfolio's investment advisers. As compensation for doing so, AMR
receives from the Portfolio an annualized advisory fee that is calculated and
accrued daily, equal to the sum of (1) 0.10% of the net assets of the Portfolio,
plus (2) all fees payable by AMR to the Portfolio's investment advisers as
described below. The advisory fee is payable quarterly in arrears. AMR also
receives compensation in connection with securities lending activities. If the
Portfolio lends its portfolio securities and receives cash collateral from the
borrower, AMR will receive up to 25% of the net annual interest income (the
gross interest earned by the investment less the amount paid to the borrower as
well as related expenses) received from the investment of such cash. If a
borrower posts collateral other than cash, the borrower will pay to the
Portfolio a loan fee. AMR may receive up to 25% of the loan fees posted by
borrowers. Currently, AMR receives 10% of the net annual interest income from
the investment of cash collateral or 10% of the loan fees posted by borrowers.
William F. Quinn has served as President of AMR since it was founded in
1986 and Nancy A. Eckl serves as Vice President Trust Investments of AMR. Ms.
Eckl previously served as Vice President - Finance and Compliance of AMR from
December 1990 to May 1995. In these capacities, Mr. Quinn and Ms. Eckl have
primary responsibility for the day-to-day operations of the Portfolio. These
responsibilities include oversight of the investment advisers to the Portfolio,
regular review of each investment adviser's performance and asset allocations
among them.
The Portfolio's investment advisers are listed below. Each investment
adviser has entered into a separate investment advisory agreement with AMR to
provide investment advisory services to the Portfolio. AMR is permitted to enter
into new or modified advisory agreements with existing or new investment
advisers without approval of Conseco International Fund shareholders or
International Portfolio interest holders, but subject to approval of the AMR
Trust Board. The SEC issued an exemptive order which eliminates the need for
shareholder/interest holder approval, subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the Fund send a notice to shareholders containing information
about the change that would be included in a proxy statement. AMR recommends
investment advisers to the AMR Trust Board based upon its continuing
quantitative and qualitative evaluation of the investment advisers' skill in
managing assets using specific investment styles and strategies. The allocation
of assets among investment advisers may be changed at any time by AMR.
Allocations among investment advisers will vary based upon a variety of factors,
including the overall investment performance of each investment adviser, the
Portfolio's cash flow needs and market conditions. AMR need not allocate assets
to each investment adviser designated for the Portfolio. The investment advisers
can be terminated without penalty to the AMR Trust by AMR, the AMR Trust Board
or the interest holders of the Portfolio. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an investment
adviser, and AMR does not expect to recommend frequent changes of investment
advisers. The Prospectus will be supplemented if additional investment advisers
are retained or the contract with any existing investment adviser is terminated.
The investment advisers provide the Portfolio with portfolio investment
management and related recordkeeping services. Each investment adviser has
discretion to purchase and sell securities for its segment of the Portfolio's
assets in accordance with the Portfolio's objective, policies and restrictions
and the more specific strategies provided by AMR. As compensation for its
services, each investment adviser is paid a fee by AMR out of the proceeds of
the management fee received by AMR from the Portfolio.
Hotchkis and Wiley, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley. Hotchkis and Wiley became a
division of the Capital Management Group of Merrill Lynch Asset Management,
L.P., a wholly-owned indirect subsidiary of Merrill Lynch & Co., Inc., on
November 12, 1996. Assets under management as of October 31, 1997 were
approximately $11.8 billion, which included approximately $1.6 billion of assets
of AMR Corporation and its subsidiaries and affiliated entities. The advisory
contract provides for AMR to pay Hotchkis and Wiley an annualized fee equal to
.60% of the first $10 million of assets under its discretionary management, .50%
of the next $140 million of assets, .30% of the next $50 million of assets, .20%
of the next $800 million of assets and .15% of all excess assets.
Morgan Stanley Asset Management Inc. ("MSAM"), 25 Cabot Square, London,
United Kingdom E14 4QA, is a wholly owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co. MSAM provides portfolio management and named fiduciary
services to taxable and nontaxable institutions, international organizations and
individuals investing in United States and international equity and debt
securities. As of September 30, 1997, MSAM had assets under management totaling
approximately $142.5 billion, including approximately $122.3 billion under
active management and $20.2 billion as named fiduciary or fiduciary adviser. As
of September 30, 1997, MSAM had investment authority over approximately $57.9
million of assets of AMR Corporation and its subsidiaries and affiliated
entities. AMR pays MSAM an annual fee equal to .80% of the first $25 million in
assets under its discretionary management, .60% of the next $25 million in
assets, .50% of the next $25 million in assets and .40% of all excess assets.
Templeton Investment Counsel, Inc. ("Templeton"), 500 East Broward
Blvd., Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional
investment counseling firm which has been providing investment services since
1979. Templeton is indirectly owned by Franklin Resources, Inc. As of September
30, 1997, Templeton had discretionary investment management authority with
respect to approximately $25.3 billion of assets, including approximately $522.4
million of assets of AMR Corporation and its subsidiaries and affiliated
entities. AMR pays Templeton an annualized fee equal to .50% of the first $100
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million in assets under its discretionary management, .35% of the next $50
million in assets, .30% of the next $250 million in assets and .25% on assets
over $400 million.
Solely for the purpose of determining the applicable percentage rates
when calculating the fees for each investment adviser other than MSAM, there
shall be included all other assets or trust assets of American Airlines, Inc.
also under management by each respective investment adviser. For the purpose of
determining the applicable percentage rates when calculating MSAM's fees, all
equity account assets managed by MSAM on behalf of American Airlines, Inc. shall
be included. The inclusion of any such assets will result in lower overall fee
rates being applied to the Portfolio.
Administrative Fees
Pursuant to an administration agreement ("Administration Agreement"),
the Administrator 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. In addition, while the Conseco
International Fund operates in a "master-feeder" structure, the Administrator
will monitor the performance of the investment company in which the Conseco
International Fund invests, coordinate the Conseco International Fund's
relationship with that investment company and communicate with the Board and
shareholders regarding the performance of that investment company and the Fund's
master-feeder structure.
For providing these services, the Administrator receives a fee from
each of the Conseco 20 and Conseco High Yield Funds of .20% per annum of its
average daily net assets and a fee from the Conseco International Fund of .75%
per annum of its average daily net assets. Pursuant to the Administration
Agreement, the Administrator reserves the right to employ one or more
sub-administrators to perform administrative services for the Funds. The Bank of
New York performs certain administrative services for each of the Funds, and AMR
and State Street Bank and Trust Company ("State Street") perform services for
the Conseco International Fund, pursuant to agreements with the Administrator.
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
You may purchase shares from any broker, dealer, or other financial
intermediary that has a selling agreement with the Distributor. These firms may
charge for their services in connection with your purchase order. 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, P.O. Box 8017, Boston, Massachusetts
02266-8017, a completed account application and a check payable to the
appropriate Fund. Or you may telephone (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 be an institutional investor or
a qualifying individual investor. Institutional investors may include, but are
not limited to, the following: (i) tax qualified retirement plans which have (a)
at least $10 million in plan assets, or (b) 250 or more employees eligible to
participate at the time of purchase, (ii) banks and insurance companies
purchasing shares for their own account, (iii) investment companies not
affiliated with the Adviser, (iv) tax-qualified retirement plans of the Adviser
or brokers, dealers, and other financial intermediaries that have a selling
agreement with the Distributor and their affiliates, (v) endowments, foundations
and other charitable organizations or (vi) accounts established under wrap fee
or asset allocation programs where the accountholder pays the sponsor an
asset-based fee. A qualifying individual investor is an investor who is a client
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of the Adviser and is making a purchase of over $500,000 or whose purchase
together with his current holdings of Class Y shares exceeds $500,000 or any
other individual who meets the minimum investment requirement.
Purchase orders for all Funds are accepted only on a business day as
defined below. Orders for shares received by the Funds' Transfer Agent on any
business day prior to the close of regular trading on the New York Stock
Exchange (the "NYSE") (normally 4:00 p.m. Eastern Time) will receive that day's
offering price, which is net asset value. Orders received by the Transfer Agent
after such time but prior to the close of business on the next business day will
receive the next business day's offering price. If you purchase shares through a
broker, dealer, or other financial intermediary, that firm 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, Martin Luther King Jr. 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 third business
day following placement of the order.
The Distributor may provide promotional incentives including cash
compensation to certain brokers, dealers, or financial intermediaries 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 brokers, dealers, or financial
intermediaries based on a combination of aggregate shares sold and increases of
assets under management. All of the above payments will be made by the
Distributor or its affiliates out of their own assets. These programs will not
change the price an investor will pay for shares or the amount that a Fund will
receive from such sale.
You will receive a confirmation of each new transaction in your
account, which will also show you the number of Fund shares you own and the
number of shares being held in safekeeping by the Transfer Agent for your
account. You may rely on these confirmations in lieu of certificates as evidence
of your ownership. Certificates representing shares of the Funds will not be
issued.
Purchases By Wire
Purchases by wire transfer should be directed to the Transfer Agent. To
receive an account number call (800) 986-3384 between the hours of 8:00 a.m. and
4:00 p.m. (Eastern Time) on a 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 # 011000028, State Street Bank, Boston, MA,
Account # 9905-244-1. If you arrange for receipt by the Transfer Agent of
Federal funds prior to the close of regular trading (normally 4:00 p.m. Eastern
Time) of the NYSE on a business day as defined above, you will receive that
day's offering price. Your bank may charge for these services.
Purchases Through Brokers, Dealers and Other Financial Intermediaries
Certain brokers, dealers, and other financial intermediaries may be
authorized to accept purchase orders on behalf of the Funds. A Fund will be
deemed to have received a purchase order when an authorized broker, dealer, or
23
<PAGE>
other financial intermediary accepts the order. Orders placed through an
authorized broker, dealer, or other financial intermediary will receive the
offering price next calculated after the order has been accepted by such an
authorized firm. In all other cases, it is the responsibility of the broker,
dealer, or other financial intermediary to forward customer orders received
prior to the close of the NYSE to the Transfer Agent prior to its close of
business that same day (normally 4:00 p.m. Eastern Time).
Brokers, dealers and other financial intermediaries are required to
provide payment within three business days after placing an order. WHEN MAKING
PAYMENT FOR CONFIRMED PURCHASES VIA FEDERAL FUNDS WIRE, SUCH FIRMS MUST
REFERENCE THE CONFIRMATION NUMBER TO ENSURE TIMELY CREDIT.
Purchases By Check
An initial investment made by check must be accompanied by an
application, completed in its entirety. Additional shares of the Funds may also
be purchased by sending a check payable to the applicable Fund, along with
information regarding your account, including the account number, to the
Transfer Agent. All checks should be drawn only on U.S. banks in U.S. funds, in
order to avoid fees and delays. A charge may be imposed if any check submitted
for investment does not clear. Third party checks will not be accepted. When
purchases are made by check, redemptions will not be allowed until the
investment being redeemed has been in the account for 15 business days.
How to Redeem Shares of the Funds
Shares of Class Y are redeemed at net asset value next determined after
receipt of a redemption request in good form on any business day.
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 accompanying this Prospectus. A
signature guarantee is required for redemptions of $50,000 or more. A signature
guarantee may be obtained from most banks, brokers and dealers, credit unions,
savings associations and financial institutions, but not from a notary public.
Redemptions by Wire or Telephone
Brokers, dealers, or other financial intermediaries 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 imposes any such charges.
The Funds and the Transfer Agent will not be responsible for the
authenticity of telephone 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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<PAGE>
Redemptions Through Brokers, Dealers and Other Financial Intermediaries
Certain brokers, dealers, and other financial intermediaries may be
authorized to accept redemption orders on behalf of the Funds. A Fund will be
deemed to have received a redemption order when an authorized broker, dealer, or
other financial intermediary accepts the order. Orders placed through an
authorized broker, dealer, or other financial intermediary will receive the net
asset value next calculated after the order has been accepted by such an
authorized firm. In all other cases, it is the responsibility of the broker,
dealer, or other financial intermediary to forward customer redemption orders
received prior to the close of the NYSE to the Transfer Agent prior to its close
of business that same day (normally 4:00 p.m. Eastern Time).
Expedited Redemptions
You may have the payment of redemption requests (of $250 or more) wired
or mailed directly to a domestic commercial bank account that you have
previously designated. Normally, such payments will be transmitted on the second
business day following receipt of the request (provided redemptions may be
made). You may request a wire redemption by telephone or written request sent to
the Transfer Agent. For telephone redemptions, call the Transfer Agent at (800)
986-3384. You must complete the "Expedited Redemptions" section of the
application for this privilege to be applicable.
General
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
payment of redemption proceeds 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 a Fund may be exchanged for Class Y shares of another
Fund or for Class Y shares of another series of the Trust, at the relative net
asset values per share at the time of the exchange. The total value of shares of
a fund purchased by exchange must at least equal the fund's minimum investment
requirement. Before exchanging shares, you should consider the differences in
investment objectives and expenses of the fund into which the exchange would be
made. Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same business day on which the Transfer
Agent receives an exchange request that is in proper form by the close of the
NYSE that day.
Electronic Transfers Through Automated Clearing House
Electronic transfers through Automated Clearing House ("ACH") allow you
to initiate a purchase or redemption for as little as $50 or as much as $50,000
between your bank account and Fund account using the ACH network. Initial
purchase minimums apply. You must complete the "ACH" section of the application
for this privilege to be applicable.
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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 regular trading on the NYSE (normally 4:00 p.m.
Eastern Time) on each business day (as previously defined) by dividing the value
of the Fund's net assets attributable to a class (the class' pro rata share of
the value of the Fund's assets minus the class' pro rata share of the value of
the Fund's liabilities) by the number of shares of that class outstanding.
For the Conseco 20 and Conseco High Yield Funds, the assets of the Fund
are valued primarily on the basis of market quotations. If quotations are not
readily available, assets are valued by a method that the Board believes
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 each of these Funds, short-term investments that will mature in 60
days or less are valued at amortized cost, which approximates market value.
For the Conseco International Fund and the International Portfolio,
equity securities listed on securities exchanges, including all but United
Kingdom securities, are valued at the last quoted sales price on a designated
exchange prior to the close of trading on the NYSE or, lacking any sales, on the
basis of the last current bid price prior to the close of trading on the NYSE.
Securities of the United Kingdom held in the Portfolio are priced at the last
jobber price (mid of the bid and offer prices quoted by the leading stock jobber
in the security) prior to close of trading on the NYSE. Trading in foreign
markets is usually completed each day prior to the close of the NYSE. However,
events may occur which affect the values of such securities and the exchange
rates between the time of valuation and the close of the NYSE. Should events
materially affect the value of such securities during this period, the
securities are priced at fair value, as determined in good faith and pursuant to
procedures approved by the AMR Trust Board. Over-the-counter equity securities
are valued on the basis of the last bid price on that date prior to the close of
trading. Debt securities (other than short-term securities) will normally be
valued on the basis of prices provided by a pricing service and may take into
account appropriate factors such as institution-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. In some cases, the prices of debt
securities may be determined using quotes obtained from brokers. Securities for
which market quotations are not readily available are valued at fair value, as
determined in good faith and pursuant to procedures approved by the AMR Trust
Board. Assets and liabilities denominated in foreign currencies and forward
contracts are translated into U.S. dollar equivalents based on prevailing market
rates. Investment grade short-term obligations with 60 days or less to maturity
are valued using the amortized cost method.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
Dividends and Other Distributions
Dividends from net investment income are declared and distributed
quarterly by the Conseco 20 Fund, monthly by the Conseco High Yield Fund, and
annually by the Conseco International Fund; however, the Trustees may decide to
declare dividends at other intervals. For dividend purposes, (1) net investment
income of each of the Conseco 20 and Conseco High Yield Funds consists of all
dividends and interest it receives, any net short-term gains and losses from the
sale of its investments, and any net gains it realizes from foreign currency
transactions, less its expenses (including fees payable to the Adviser and its
affiliates), and (2) the Conseco International Fund's net investment income
consists of its proportionate share of the Portfolio's dividends and interest,
net short-term gains or losses, and net realized gains from foreign currency
transactions, if any, less that Fund's expenses and its proportionate share of
the Portfolio's expenses. Distributions of each Fund's net capital gain (the
excess of net long-term capital gain over net short-term capital loss) -- in the
case of the Conseco International Fund, its proportionate share of the
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Portfolio's net capital gain -- are declared and distributed to its shareholders
annually after the close of the Fund's fiscal year.
Dividends and other distributions paid on each class of shares of a
Fund are calculated at the same time and in the same manner. Dividends on Class
A, Class B, and Class C shares of a Fund are expected to be lower than those on
its Class Y shares because Class A, Class B, and Class C shares have higher
expenses resulting from their distribution and service fees. Dividends on each
class also might be affected differently by the allocation of other
class-specific expenses.
DISTRIBUTION OPTIONS. When you open your account, specify on your
application how you want to receive your distributions. For retirement accounts,
all Fund distributions are reinvested. For other accounts, you have the
following options:
REINVEST ALL DISTRIBUTIONS. You can elect to reinvest all dividends and
capital gain distributions from a Fund in additional Class Y shares of the Fund.
REINVEST INCOME DIVIDENDS ONLY. You can elect to reinvest dividends
from a Fund in Class Y shares of the Fund while receiving capital gain
distributions by check or sent to your bank account.
REINVEST CAPITAL GAIN DISTRIBUTIONS ONLY. You can elect to reinvest
capital gain distributions from a Fund in Class Y shares of 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 capital gain distributions from a Fund or have them sent to
your bank account.
Taxes
Each Fund is treated as a separate corporation, and intends to qualify
as a "regulated investment company" ("RIC"), under the Code. As such, and by
complying with the applicable Code provisions regarding the amount and timing of
its distributions, each Fund will be allowed a deduction for amounts distributed
to its shareholders from its investment company taxable income (generally, its
net investment income as described under "Dividends and Other Distributions")
and net capital gain and will not be subject to federal income tax on those
amounts. To qualify for treatment as an RIC, each Fund must, among other things,
satisfy certain source of income and diversification requirements described in
the SAI.
Each Fund intends to distribute all its investment company taxable
income and net capital gain so as to avoid federal income and excise taxes.
Dividends from each Fund's investment company taxable income (whether paid in
cash or reinvested in additional shares) generally will be taxable to you as
ordinary income. The portion of those dividends that does not exceed the
aggregate dividends received by the Fund from U.S. corporations will be eligible
for the dividends-received deduction allowed to corporations; however, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the federal alternative
minimum tax.
Distributions of each Fund's net capital gain (whether paid in cash or
reinvested additional shares), when designated as such, will be taxable to you
as long-term capital gain, regardless of how long you have held your Fund
shares. Under the Taxpayer Relief Act of 1997, different maximum tax rates apply
to a non-corporate taxpayer's net capital gain depending on the taxpayer's
holding period and marginal rate of federal income tax -- generally, 28% for
gain recognized on capital assets held for more than one year but not more than
18 months and 20% (10% for taxpayers in the 15% marginal tax bracket) for gain
recognized on capital assets held for more than 18 months. Pursuant to an
27
<PAGE>
Internal Revenue Service notice, each Fund may divide each net capital gain
distribution into a 28% rate gain distribution and a 20% rate gain distribution
(in accordance with the Fund's holding periods for the securities it sold that
generated the distributed gain) and its shareholders must treat those portions
accordingly.
Shareholders who are not subject to tax on their income generally will
not be required to pay tax on distributions.
Dividends and other distributions declared by a Fund in October,
November, or December, but received by you in January, generally are taxable to
you in the year in which declared. Each Fund will inform you after the end of
each calendar year as to the amount and nature of dividends and other
distributions paid (or deemed paid) to you for that year. The information
regarding capital gain distributions designates the portions thereof subject to
the different maximum rates of tax applicable to non-corporate taxpayers' net
capital gain indicated above.
When you redeem (sell) shares, it may result in a taxable gain or loss
to you, depending on whether you receive more or less than your adjusted basis
for the shares. An exchange of any Fund's shares, as described under "Purchase
and Redemption of Shares -- Exchange Privilege," generally will have similar tax
consequences. If you purchase shares of a Fund within thirty days before or
after redeeming other shares of that Fund (regardless of class) at a loss, all
or part of that loss will not be deductible and will increase the basis of the
newly purchased shares.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions, and redemption proceeds payable to any individuals and certain
other non-corporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to those shareholders who
otherwise are subject to backup withholding.
Some foreign countries may impose income or withholding taxes on
certain dividends and interest payable to the International Portfolio. The
Conseco International Fund's share of any such withheld taxes may either be
treated by that Fund as a deduction or, if it satisfies certain requirements, it
may elect to flow the tax through to its shareholders, who in turn may either
treat it as a deduction or use it in calculating a credit against their federal
income tax.
The foregoing is only a summary of certain federal income tax
considerations affecting your investment in a Fund. More information is
contained in the SAI. You should consult with your tax adviser about the effect
of an investment in a Fund on your particular tax situation.
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PERFORMANCE INFORMATION
The Funds have no past performance as of the date of this Prospectus. However,
the Conseco International Fund invests all of its investable assets in the
International Portfolio and, in accordance with SEC staff positions, has adopted
the Portfolio's performance as its own. The following table shows the Fund's
average annual total returns for the one- and five-year periods ended October
31, 1997 and for the period from the inception of the International Portfolio's
predecessor (August 7, 1991) until October 31, 1997. For periods following the
conversion of the International Portfolio's predecessor into a master/feeder
structure on November 1, 1995, the total returns shown below represent the
actual investment performance of the Portfolio (the master fund) only and would
have been lower if the fees and expenses typically imposed by a feeder fund
(such as the Conseco International Fund) also had been reflected. Past results
do not guarantee future performance.
Average Annual Total Returns for Periods Ended October 31, 1997
With Deduction of the Maximum Applicable Sales Charge
Since Inception
1 Year 5 Years (August 7, 1991)
------ ------- ----------------
19.40% 18.27% 12.33%
General
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 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 one-, five- and ten-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 in the Funds' semi-annual and 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.
OTHER INFORMATION
Brokerage Commissions
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Subject to the Conduct Rules of the National Association of Securities
Dealers, Inc. and to obtaining best prices and executions, the Adviser may
select brokers who sell shares of the Funds to effect portfolio transactions.
The Adviser may also select an affiliated broker to execute transactions for the
Funds, 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.
Each of the International Portfolio's investment advisers will place
its own orders to execute securities transactions. In placing such orders, each
investment adviser will seek the best available price and most favorable
execution. The full range and quality of services offered by the executing
broker or dealer is considered when making these determinations. Pursuant to
written guidelines approved by the AMR Trust Board, an investment adviser of the
Portfolio, or its affiliated broker-dealer, may execute portfolio transactions
and receive usual and customary brokerage commissions (within the meaning of
Rule 17e-1 under the 1940 Act) for doing so.
Shares of Beneficial Interest
All shares of beneficial interest of the Trust are entitled to one
vote, and votes are generally on an aggregate basis. However, on matters where
the interests of the Funds (or classes of a Fund) differ (such as approval of an
investment advisory agreement or a change in fundamental investment policies),
the voting is on a Fund-by-Fund (or class-by-class) basis. The Trust does not
hold routine annual shareholders' meetings. The shares of each Fund issued are
fully paid and non-assessable, have no preference, conversion or similar rights,
and are freely transferable. In addition, each issued and outstanding share in a
class of a Fund is entitled to participate equally in dividends and
distributions declared by that class.
On most issues subjected to a vote of the Portfolio's interest holders,
as required by the 1940 Act, the Conseco International Fund will solicit proxies
from its shareholders and will vote its interest in the Portfolio in proportion
to the votes cast by the Fund's shareholders. The Fund will vote shares for
which it receives no voting instructions in the same proportion as the shares
for which it does receive voting instructions. Because each interest holder in
the Portfolio would vote in proportion to its relative beneficial interest in
the Portfolio, one or more other Portfolio investors could, in certain
instances, approve an action although a majority of the outstanding voting
securities of the Conseco International Fund had voted against it. This could
result in the Conseco International Fund's redeeming its investment in the
Portfolio, which could result in increased expenses for the Fund.
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.
Retirement Plans and Medical Savings Accounts
Class Y shares are available for purchase by qualified retirement plans
of both corporations and self-employed individuals. The Trust has available
prototype Individual Retirement Account ("IRA") plans (for both individuals and
employers), Simplified Employee Pension ("SEP") plans, and savings incentive
match plans for employees ("SIMPLE" 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, call or write the Distributor.
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<PAGE>
Class A, Class B and Class C Shares
In addition to Class Y Shares, the Trust also offers Class A, Class B
and Class C shares. These shares are available to individual investors. Class A,
Class B and Class C shares generally have higher operating expenses resulting
from their distribution and service fees and are subject to certain sales
charges. Please call the Distributor at (800) 825-1530 for additional
information on the purchase of Class A, Class B and Class C shares.
Distributor
Conseco Equity Sales, Inc., 11815 N. Pennsylvania Street, Carmel,
Indiana 46032, serves as distributor of shares of the Trust.
Transfer Agent
State Street, 225 Franklin Street, Boston, Massachusetts 02110, serves
as the Trust's transfer agent.
Custodian
The Bank of New York, 90 Washington Street, 22nd Floor, New York, New
York 10826, serves as custodian of the assets of each Fund (except the Conseco
International Fund). State Street serves as custodian of the assets of the
Conseco International Fund and of the International Portfolio.
Independent Public Accountants/Auditors
The Trust's independent public accountants are Coopers & Lybrand,
L.L.P., 2900 One American Square, Box 82002, Indianapolis, Indiana 46282-0002.
The independent auditors of the International Portfolio are Ernst & Young LLP,
Dallas, Texas.
Legal Counsel
Certain legal matters for the Funds are passed upon by Kirkpatrick &
Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036.
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.
32
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TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Page
General Information......................................................2
Investment Restrictions..................................................2
Description of Securities and Investment Techniques......................6
Investment Performance .................................................21
Portfolio Turnover and Securities Transactions..........................23
Management..............................................................26
Fund Expenses ..........................................................36
Distribution Arrangements ..............................................36
Purchase and Redemption of Shares.......................................38
General ................................................................40
Taxes...................................................................41
Other Information.......................................................47
Financial Statements....................................................48
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: Administrative Offices
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)
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APPENDIX A SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Service, Inc.'s Corporate Bond Ratings:
Aaa - Bonds which are rated Aaa by Moody's Investors 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 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.
C - Bonds which are rated C are the lowest rated class of bonds. Such issues can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard & Poor'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-1
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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 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.
A-2
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Statement of Additional Information
Conseco Fund Group
Conseco 20 Fund
Conseco High Yield Fund
Conseco International Fund
Class A, B, C and Y Shares
January 2, 1998
This Statement of Additional Information ("SAI") is not a prospectus. It
contains additional information about the Conseco Fund Group (the "Trust") and
three series of the Trust: Conseco 20 Fund, Conseco High Yield Fund, and Conseco
International Fund (collectively, the "Funds"). It should be read in conjunction
with the Funds' Class A, B, and C prospectus or Class Y prospectus, as
appropriate (the "Prospectus"), dated January 2, 1998. You may obtain a copy by
contacting the Trust's Administrative Office, 11815 N. Pennsylvania Street,
Carmel, Indiana 46032.
TABLE OF CONTENTS
Page
General Information........................................................2
Investment Restrictions....................................................2
Description of Securities and Investment Techniques........................6
Investment Performance....................................................20
Portfolio Turnover and Securities Transactions............................23
Management................................................................26
Fund Expenses ............................................................36
Distribution Arrangements.................................................36
Purchase and Redemption of Shares.........................................38
General...................................................................40
Taxes.....................................................................41
Other Information.........................................................47
Financial Statements......................................................47
<PAGE>
GENERAL INFORMATION
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 ("SEC") under the Investment Company Act of
1940 (the "1940 Act"). The Trust is a "series" type of mutual fund which issues
separate series of shares, each of which represents a separate portfolio of
investments. The Funds are divided into Class A, B, C and Y shares. Each class
may have different expenses, which may affect performance. Conseco Capital
Management, Inc. (the "Adviser") serves as the Trust's investment adviser. The
Conseco International Fund invests all of its investable assets in the
International Equity Portfolio (the "Portfolio" or the "International
Portfolio") of the AMR Investment Services Trust ("AMR Trust"). The Portfolio is
a separate investment company managed by AMR Investment Services, Inc. ("AMR").
INVESTMENT RESTRICTIONS
The Trust and the AMR Trust have adopted the following policies relating to the
investment of assets of the Funds and the Portfolio, respectively, 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 the
affected Fund or the outstanding interest holders of the Portfolio. 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 or interests represented at a meeting at
which more than 50 percent of the outstanding shares or interests are
represented or (ii) more than 50 percent of the outstanding shares or interests.
A change in policy affecting only one Fund or the Portfolio may be effected with
the approval of the holders of a majority of the outstanding shares of the Fund
or the Portfolio. Except for the limitation on borrowing, any investment policy
or limitation that involves a maximum percentage of securities or assets will
not be considered to be violated unless the percentage limitation is exceeded
immediately after, and because of, a transaction by a Fund or the Portfolio.
Conseco 20 and Conseco High Yield Funds
The Conseco 20 and Conseco High Yield Funds may not (except as noted):
1. Purchase or sell commodities or commodity contracts except that a Fund
may purchase or sell options, futures contracts, and options on futures
contracts and may engage in interest rate and foreign currency
transactions;
2. Borrow money, except that a Fund may: (a) borrow from banks, and (b)
enter into reverse repurchase agreements, provided that (a) and (b) in
combination do not exceed 33-1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than
borrowings); and except that a Fund may borrow from any person up to 5%
of its total assets (not including the amount borrowed) for temporary
purposes (but not for leverage or the purchase of investments);
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3. Underwrite securities of other issuers except to the extent that a Fund
may be deemed an underwriter under the Securities Act of 1933 (the
"1933 Act") in connection with the purchase or sale of portfolio
securities;
4. With respect to 75% of the Conseco High Yield Fund's total assets,
purchase the securities of any issuer if (a) more than 5% of Fund's
total assets would be invested in the securities of that issuer or (b)
the Fund would own more than 10% of the outstanding voting securities
of that issuer; this restriction does not apply to U.S. Government
securities (as defined in the Prospectus);
5. Purchase any security if thereafter 25% or more of the total assets of
the Fund would be invested in securities of issuers having their
principal business activities in the same industry; this restriction
does not apply to U.S. Government securities (as defined in the
Prospectus);
6. Purchase or sell real estate, except that a Fund may purchase
securities which are issued by companies which invest in real estate or
which are secured by real estate or interests therein;
7. Make loans of its assets if, as a result, more than 33-1/3% of the
Fund's total assets would be lent to other parties except through (a)
entering into repurchase agreements and (b) purchasing debt
instruments; or
8. Issue any senior security, except as permitted under the 1940 Act.
Conseco International Fund
The Conseco International Fund has the following fundamental investment policy
that enables it to invest in the Portfolio:
Notwithstanding any other limitation, the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives, policies and limitations
as the Fund. For this purpose, "all of the Fund's investable assets"
means that the only investment securities that will be held by the Fund
will be the Fund's interest in the investment company.
All other fundamental investment policies and the non-fundamental investment
policies of the Conseco International Fund and the Portfolio are identical
(except, as noted below, their policies on borrowing).
In addition to the investment limitations noted in the Prospectus, the following
seven restrictions have been adopted by the Conseco International Fund and the
Portfolio and may be changed only by the majority vote of the outstanding shares
of the Fund or the outstanding interests of the Portfolio. Whenever the Conseco
International Fund is requested to vote on a change in the investment
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restrictions of the Portfolio, the Fund will hold a meeting of its shareholders
and will cast its votes as instructed by its shareholders. The percentage of the
Fund's votes representing the Fund's shareholders not voting will be voted by
the Fund in the same proportion as those Fund shareholders who do, in fact,
vote.
The Conseco International Fund may not: (although the following discusses the
investment policies of the Fund, except as noted, it applies equally to the
Portfolio)
1. Purchase or sell real estate or real estate limited partnership
interests, provided, however, that the Fund may invest in securities
secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein when consistent with
the other policies and limitations described in its Prospectus;
2. Purchase or sell commodities (including direct interests and/or leases
in oil, gas or minerals) or commodities contracts, except with respect
to forward foreign currency exchange contracts, foreign currency
futures contracts and "when-issued" securities when consistent with the
other policies and limitations described in its Prospectus;
3. Engage in the business of underwriting securities issued by others,
except to the extent that, in connection with the disposition of
securities, the Fund may be deemed an underwriter under federal
securities law;
4. Make loans to any person or firm, provided, however, that the making of
a loan shall not be construed to include (i) the acquisition for
investment of bonds, debentures, notes or other evidences of
indebtedness of any corporation or government which are publicly
distributed or (ii) the entry into repurchase agreements and further
provided, however, that the Fund may lend its securities to
broker-dealers or other institutional investors;
5. Purchase from or sell securities to its officers, Trustees or other
"interested persons" of the Trust, as defined in the 1940 Act,
including its investment adviser(s) and their affiliates, except as
permitted by the 1940 Act and exemptive rules or orders thereunder;
6. Issue senior securities except that the Fund may engage in when-issued
securities and forward commitment transactions and may engage in
currency futures and forward currency contracts; or
7. Borrow money, except that the Fund may: (a) borrow from banks, and (b)
enter into reverse repurchase agreements, provided that (a) and (b) in
combination do not exceed 33-1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than
borrowings); and except that the Fund may borrow up to 5% of its total
assets (not including the amount borrowed) for temporary purposes (but
not for leverage or the purchase of investments). (This policy does not
apply to the Portfolio.)
As a matter of fundamental policy, the International Portfolio may borrow from
banks or through reverse repurchase agreements for temporary purposes in an
aggregate amount not to exceed 10% of the value of its total assets at the time
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of borrowing. Because this policy may only be changed by the majority vote of
the outstanding interests in the Portfolio, before any change could be adopted,
the Fund would seek voting instructions from its shareholders. So long as the
Conseco International Fund invests all of its investable assets in the
Portfolio, the Fund intends to follow the 10% limitation set forth in the
Portfolio's fundamental policy. In addition, although not a fundamental
policy, the Portfolio intends to repay any money borrowed before any additional
portfolio securities are purchased.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental with respect to the
Conseco 20 and Conseco High Yield Funds and may be changed by the Trust's Board
of Trustees ("Board") without shareholder approval.
The Conseco 20 and Conseco High Yield Funds may not (except as noted):
1. Sell securities short in an amount exceeding 15% of its assets, except
that a Fund may, without limit, make short sales against the box.
Transactions in options, futures, options on futures and other
derivative instruments shall not constitute selling securities short;
2. Purchase securities on margin, except that a Fund may obtain such
short-term credits as are necessary for the clearance of securities
transactions and except that margin deposits in connection with
transactions in options, futures, options on futures and other
derivative instruments shall not constitute a purchase of securities on
margin; or
3 . Make loans of its assets, except that a Fund may enter into repurchase
agreements and purchase debt instruments as set forth in its
fundamental policy on lending and may lend portfolio securities in an
amount not to exceed 15% of the value of the Fund's total assets.
The following restrictions are designated as nonfundamental with respect to the
Conseco International Fund and the Portfolio and may be changed by the Board or
the AMR Trust's Board of Trustees ("AMR Trust Board") without shareholder
approval. The Conseco International Fund may not: (although the following
discusses the investment policies of the Fund, it applies equally to the
Portfolio)
1. Purchase securities on margin;
2. Effect short sales (except that the Fund may obtain such short term
credits as necessary for the clearance of purchases or sales of
securities);
3. Purchase or sell call options or engage in the writing of such options;
or
4. Invest more than 10% of its total assets in the securities of other
investment companies.
In order to limit the risks associated with entry into repurchase agreements,
the Board has adopted certain criteria (which are not fundamental policies) to
be followed by the Funds. These criteria provide for entering into repurchase
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agreement transactions (a) only with banks or broker-dealers meeting certain
guidelines for creditworthiness, (b) that are fully collateralized, (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.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes in greater detail different types of
securities and investment techniques used by the Funds, as well as the risks
associated with such securities and techniques. References in this section to "a
Fund," "the Funds," or "the Conseco International Fund" include the
International Portfolio unless the context otherwise requires.
U.S. Government Securities
U.S. Government securities are issued or guaranteed by the U.S. Government or
its agencies or instrumentalities.
The Inter-American Development Bank, the Asian-American Development Bank and the
International Bank for Reconstruction and Development (the "World Bank"), while
not U.S. Government agencies or instrumentalities, have the right to borrow from
the participating countries, including the United States.
Asset-Backed Securities
Asset-backed securities represent fractional interests in pools of leases,
retail installment loans and revolving credit receivables, both secured and
unsecured. These assets are generally held by a trust. Payments of principal and
interest or interest only are passed through to certificate holders and may be
guaranteed up to certain amounts by letters of credit issued by a financial
institution affiliated or unaffiliated with the trustee or originator of the
trust.
Underlying automobile sales contracts or credit card receivables are subject to
prepayment, which may reduce the overall return to certificate holders.
Nevertheless, principal repayment rates tend not to vary much with interest
rates and the short-term nature of the underlying car loans or other receivables
tends to dampen the impact of any change in the prepayment level. Certificate
holders may experience delays in payment on the certificates if the full amounts
due on underlying sales contracts or receivables are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. Other asset-backed
securities may be developed in the future.
High-Yield (High-Risk) Securities (Conseco 20 Fund and Conseco High Yield Fund
only)
IN GENERAL. Higher yields are generally available from securities rated
BB or lower by Standard & Poor's ("S&P") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), securities comparably rated by another nationally
recognized statistical rating organization ("NRSRO"), or unrated securities of
<PAGE>
equivalent quality. Debt securities rated below investment grade (i.e., below
BBB/Baa) are deemed by the rating agencies to be predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal. High yield
securities, while generally offering higher yields than investment grade
securities with similar maturities, involve greater risks, including the
possibility of default or bankruptcy. The special risk considerations in
connection with investments in these securities are discussed below.
The Conseco 20 Fund's holdings of high yield securities may not exceed 5% of its
net assets. Subsequent to purchase by the Conseco 20 Fund, an issue of debt
securities may cease to be rated or its rating may be reduced, so that the
securities would no longer be eligible for purchase by that Fund. In such a
case, the Fund will engage in an orderly disposition of the downgraded
securities to the extent necessary to ensure that its holdings do not exceed the
permissible amount.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. All interest-bearing
securities typically experience appreciation when interest rates decline and
depreciation when interest rates rise. The market values of high yield
securities tend to reflect individual corporate developments to a greater extent
than do higher rated securities, which react primarily to fluctuations in the
general level of interest rates. High yield securities also tend to be more
sensitive to economic conditions than are higher-rated securities. As a result,
they generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of high yield securities may experience
financial stress which may adversely affect their ability to service their debt
obligations, meet projected business goals, and obtain additional financing.
Periods of economic uncertainty and changes would also generally result in
increased volatility in the market prices of these securities and thus in a
Fund's net asset value.
PAYMENT EXPECTATIONS. High yield securities may contain redemption,
call or prepayment provisions which permit the issuer of such securities
containing such provisions to, at its discretion, redeem the securities. During
periods of falling interest rates, issuers of these securities are likely to
redeem or prepay the securities and refinance them with debt securities with a
lower interest rate. To the extent an issuer is able to refinance the
securities, or otherwise redeem them, a Fund may have to replace the securities
with a lower yielding security, which would result in a lower return.
CREDIT RATINGS. Credit ratings issued by credit-rating agencies are
designed to evaluate the safety of principal and interest payments of rated
securities. They do not, however, evaluate the market value risk of
lower-quality securities and, therefore, may not fully reflect the risks of an
investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of the
issuer that affect the market value of the security. With regard to its
investment in high yield securities, the achievement of a Fund's investment
objective may be more dependent on its own credit analysis than is the case for
higher rated securities. Although the Adviser considers security ratings when
making investment decisions, it does not rely solely on the ratings assigned by
the rating services. Rather, the Adviser performs research and independently
assesses the value of particular securities relative to the market. The
Adviser's analysis may include consideration of the issuer's experience and
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managerial strength, changing financial condition, borrowing requirements or
debt maturity schedules, and the issuer's responsiveness to changes in business
conditions and interest rates. It also considers relative values based on
anticipated cash flow, interest or dividend coverage, asset coverage and
earnings prospects.
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.
LIQUIDITY AND VALUATION. High yield securities may lack an established
retail secondary market, and to the extent a secondary trading market does
exist, it may be less liquid than the secondary market for higher rated
securities. The lack of a liquid secondary market may negatively impact a Fund's
ability to dispose of particular securities. The lack of a liquid secondary
market for certain securities may also make it more difficult for a Fund to
obtain accurate market quotations for purposes of valuing the Fund's portfolio.
In addition, adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of high yield
securities, especially in a thinly traded market.
When-Issued and Delayed Delivery Securities
New issues of certain debt securities are often offered on a when-issued or
delayed delivery basis; that is, the payment obligation and the interest rate
are fixed at the time the buyer enters into the commitment, but delivery and
payment for the securities normally take place after the customary settlement
time. The settlement dates of these transactions may be a month or more after
entering into the transaction. A Fund bears the risk that, on the settlement
date, the market value of the securities may be lower than 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 of
such securities each day in determining the Fund's net asset value. However, a
Fund will not accrue any income on these securities prior to delivery. 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 its investment objective and policies and not for
the purpose of investment leverage or to speculate on interest rate changes.
When effecting when-issued and delayed delivery transactions, cash or liquid
securities 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. A Fund may dispose of these securities before the
issuance thereof. However, absent extraordinary circumstances not presently
foreseen, it is each Fund's policy not to divest itself of its right to acquire
these securities prior to the settlement date thereof.
Variable and Floating Rate Securities
Variable rate securities provide for automatic establishment of a new interest
rate at fixed intervals (i.e., daily, monthly, semi-annually, etc.). Floating
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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 and Savings Industry Obligations
Such obligations include certificates of deposit, time deposits, bankers'
acceptances, and other short-term debt obligations issued by commercial banks
and 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 Funds may each invest in obligations
of foreign branches of domestic commercial banks and foreign banks. See "Foreign
Securities" in the Prospectus for information regarding risks associated with
investments in foreign securities.
The Conseco 20 and Conseco High Yield 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 S&P, or, if the institution has no outstanding
securities rated by Moody's or S&P, 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
Repurchase agreements permit a Fund to maintain liquidity and earn income over
periods of time as short as overnight. In these transactions, a Fund purchases
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
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fixed price calculated to produce a previously agreed upon return. 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 or
the AMR Trust Board, as appropriate. These guidelines require monitoring the
creditworthiness of counterparties to repurchase transactions, obtaining
collateral at least equal in value to the repurchase obligation, and marking the
collateral to market on a daily basis. Repurchase agreements maturing in more
than seven days may be considered illiquid.
Reverse Repurchase Agreements and Mortgage Dollar Rolls
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 at a
higher price. Such agreements are short-term in nature. During the period before
repurchase, the Fund continues to receive principal and interest payments on the
securities.
In a mortgage dollar roll, a Fund sells a fixed income security for delivery in
the current month and simultaneously contracts to repurchase a substantially
similar security (same type, coupon and maturity) on a specified future date.
During the roll period, the Fund would forego principal and interest paid on
such securities. The Fund would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well as by
any interest earned on the proceeds of the initial sale.
In accordance with regulatory requirements, a Fund will segregate cash or liquid
securities whenever it enters into reverse repurchase agreements or mortgage
dollar rolls. Such transactions may be considered to be borrowings for purposes
of the Funds' fundamental policies concerning borrowings.
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 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
warrants are considered speculative investments. They pay no dividends and
confer no rights other than a purchase option. If a warrant is not exercised by
the date of its expiration, a Fund would lose its entire investment in such
warrant.
Interest Rate Transactions (Conseco 20 and Conseco High Yield Funds only)
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, floors and collars. 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
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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 investments.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments. The purchase of an interest rate 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. An interest
rate collar combines elements of buying a cap and selling a floor.
A Fund may enter into interest rate swaps, caps, floors, and collars 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 transactions 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 amount
of the excess, if any, of a Fund's obligations over its entitlements with
respect to each interest rate swap, cap, floor, or collar 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 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, floors and collars are more recent innovations which
tend to be less liquid than swaps.
Step Down Preferred Securities
Step down perpetual preferred securities are issued by a real estate investment
trust ("REIT") making a mortgage loan to a single borrower. The dividend rate
paid by these securities is initially relatively high, but declines yearly. The
securities are subject to call if the REIT suffers an unfavorable tax event, and
to tender by the issuer's equity holder in the 10th year; both events could be
on terms unfavorable to the holder of the preferred securities. The value of
these securities will be affected by changes in the value of the underlying
mortgage loan. The REIT is not diversified, and the value of the mortgaged
property may not cover its obligations. Step down perpetual preferred securities
are considered restricted securities under the 1933 Act.
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Loan Participations and Assignments
Loan participations and assignments are interests in loans originated by banks
and other financial institutions. Both the lending bank and the borrower may be
deemed to be "issuers" of a loan participation.
Although some of the loans may be secured, there is no assurance that the
collateral can be liquidated in particular cases, or that its liquidation value
will be equal to the value of the debt. Borrowers that are in bankruptcy may pay
only a small portion of the amount owed, if they are able to pay at all. Where a
Fund purchases a loan through an assignment, there is a possibility that the
Fund will, in the event the borrower is unable to pay the loan, become the owner
of the collateral. This involves certain risks to the Fund as a property owner.
Loans are often administered by a lead bank, which acts as agent for the lenders
in dealing with the borrower. In asserting rights against the borrower, a Fund
may be dependent on the willingness of the lead bank to assert these rights, or
upon a vote of all the lenders to authorize the action. Assets held by the lead
bank for the benefit of the Fund may be subject to claims of the lead bank's
creditors.
Futures Contracts (Conseco 20 and Conseco High Yield Funds only)
The Funds may purchase and sell futures contracts 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 by a Fund or which a Fund intends to purchase, and not for
purposes of speculation. For information about foreign currency futures
contracts, see "Foreign Currency Transactions" below.
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 enters into a futures contract, an amount of cash or liquid
securities, equal to the fair market value less initial margin of the futures
contract, will be deposited in a segregated account with the Trust's custodian
to collateralize the position and thereby ensure that such futures contract is
covered. A Fund may be required to deposit additional assets in the segregated
account in order to continue covering the contract as market conditions change.
A Fund may also be required to post additional "variation" margin. In addition,
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each Fund will comply with certain regulations of the Commodity Futures Trading
Commission to qualify for an exclusion from being a "commodity pool operator."
INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is
an obligation traded on an exchange or board of trade that requires the
purchaser to accept delivery, and the seller to make delivery, of a specified
quantity of the underlying financial instrument, such as U.S. Treasury bills and
bonds, in a stated delivery month at a price fixed in the contract.
The Funds may purchase and sell interest rate futures as a hedge against changes
in interest rates that would adversely impact the value of debt instruments and
other interest rate sensitive securities being held or to be purchased 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.
STOCK INDEX FUTURES CONTRACTS. A stock index (for example, the Standard
& Poor's 500 Composite Stock Price Index or the New York Stock Exchange
Composite Index) assigns relative values to the common stocks included in the
index and 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 was originally purchased or sold.
To the extent that changes in the value of a 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 positions, which
may be difficult to accomplish in a rapid and orderly fashion. Stock index
futures contracts might also be sold:
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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 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.
OPTIONS ON FUTURES CONTRACTS. The Funds may purchase options on
interest rate futures contracts, although they 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 may enter into options on futures contracts only in connection with
hedging strategies. Generally, these strategies would be employed under the same
market conditions in which a Fund would use put and call options on debt
securities, as described in "Options on Securities" below.
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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 securities. 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's return might have been better if hedging had not been attempted.
The degree of imperfection of correlation depends on circumstances such as
variations in speculative market demand for futures and futures options,
including technical influences in futures and futures options trading, 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
unexpected market behavior or 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. 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. In addition, certain of these instruments are relatively new
and without a significant trading history. Lack of a liquid market for any
reason may prevent a 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 aggregate initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures options
positions, excluding futures contracts and futures options entered into for bona
fide hedging purposes and net of the amount by which any futures options
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.
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Options on Securities and Securities Indices (Conseco 20 and Conseco High Yield
Funds only)
The Funds may purchase put and call options on securities, and put and call
options on stock indices, at such times as the Adviser deems appropriate and
consistent with a Fund's investment objective. The Funds may also write listed
"covered" call and "secured" put options. Each Fund 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 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, each Fund may write "covered" 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 a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both.
In order to earn additional income or to protect partially against increases in
the value of securities to be purchased, 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.
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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 an equal or lower exercise price, for
the same exercise period, and on the same securities as the written call. Under
a secured put option, a Fund must maintain, in a segregated account with the
Trust's custodian, cash or liquid securities with a value sufficient to meet its
obligation as writer of the option. A put may also be secured if the 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 by the same Fund.
OPTIONS ON SECURITIES INDICES. Call and put options on securities
indices would 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 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 its securities. Moreover, the ability to
hedge effectively depends upon the ability to predict movements in the stock
market, which cannot be done accurately in all cases.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, and, as
long as its obligation as a writer continues, has retained the risk of loss if
the price of the underlying security declines. 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 or purchase 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. If a Fund cannot effect a closing transaction, it
will not be able to sell the underlying security or securities in a segregated
account while the previously written option remains outstanding, even though it
might otherwise be advantageous to do so. Possible reasons for the absence of a
liquid secondary market on a national securities exchange could include:
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insufficient trading interest, restrictions imposed by national securities
exchanges, trading halts or suspensions with respect to options or their
underlying securities, inadequacy of the facilities of national securities
exchanges or The Options Clearing Corporation due to a high trading volume or
other events, and a decision by one or more national securities exchanges to
discontinue the trading of options or to impose restrictions on certain types of
orders.
There also can be no assurance that a Fund would be able to liquidate an
over-the-counter ("OTC") option at any time prior to expiration. In contrast to
exchange-traded options where the clearing organization affiliated with the
particular exchange on which the option is listed in effect guarantees
completion of every exchange-traded option, OTC options are contracts between a
Fund and a counter-party, with no clearing organization guarantee. Thus, when a
Fund purchases an OTC option, it generally will be able to close out the option
prior to its expiration only by entering into a closing transaction with the
dealer from whom the Fund originally purchased the option.
Since option premiums paid or received by a Fund are small in relation to the
market value of underlying investments, buying and selling put and call options
offer large amounts of leverage. Thus, trading in options could result in a
Fund's net asset value being more sensitive to changes in the value of the
underlying securities.
Foreign Currency Transactions
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. A 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. A Fund will purchase and sell such contracts for hedging purposes and
not as an investment. A 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 International Portfolio may
seek to hedge against changes in the value of a particular currency by using
forward contracts on another foreign currency or a basket of currencies with a
value that bears a positive correlation to the value of the currency being
hedged. Except for the International Portfolio, a Fund will not (1) commit more
than 15 percent of its total assets computed at market value at the time of
commitment to foreign currency futures or forward currency contracts, or (2)
enter into a foreign currency contract with a term of greater than one year.
Forward currency contracts are not traded on regulated commodities exchanges.
When a Fund enters into a forward currency contract, it incurs the risk of
default by the counter-party to the transaction.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out a foreign currency futures or forward currency position, in which case
the Fund might not be able to effect a closing purchase transaction at any
particular time. While these contracts tend to minimize the risk of loss due to
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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 each Fund values its assets daily in U.S. dollars, it does not intend
physically to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. A 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 if the Fund desires to resell
that currency to the dealer.
Options on Foreign Currencies (Conseco 20 and Conseco High Yield Funds only)
A Fund may invest in call and put options on domestic and foreign securities and
foreign currencies. A 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. A Fund may enter into closing sale transactions with respect to such
options, exercise them, or permit them to expire.
A 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 a foreign security, or between the day a 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 increases relative to the U.S. dollar. The Funds will
purchase options on foreign currencies only for hedging purposes and will not
speculate in options on foreign currencies. The Funds 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
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 purchase or sale of the underlying assets.
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Borrowing
Except for the Conseco International Fund and the Portfolio (as discussed above
under "Investment Restrictions--Conseco International Fund"), a Fund may borrow
money from a bank, but only if immediately after each such borrowing and
continuing thereafter the Fund would have asset coverage of 300 percent.
Leveraging by means of borrowing will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Fund's net asset value; money
borrowed will be subject to interest and other costs which may 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
Securities of other investment companies 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 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 own 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) its investment in all
investment companies does not exceed 10 percent of assets.
Some of the countries in which a Fund may invest may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government approved or authorized investment vehicles,
which may include other investment companies. In addition, it may be less
expensive and more expedient for the Fund to invest in a foreign investment
company in a country which permits direct foreign investment.
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 invests 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.
Short Sales (Conseco 20 and Conseco High Yield Funds only)
A short sale is a transaction in which a Fund sells a security in anticipation
that the market price of the security will decline. A Fund may effect short
sales (i) as a form of hedging to offset potential declines in long positions in
securities it owns, anticipates acquiring, or in similar securities, and (ii) to
maintain flexibility in its holdings. In a short sale "against the box", at the
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time of sale the Fund owns the security it has sold short or has the immediate
and unconditional right to acquire at no additional cost the identical security.
Under applicable guidelines of the SEC staff, if a Fund engages in a short sale
(other than a short sale against-the-box), it must put an appropriate amount of
cash or liquid securities in a segregated account (not with the broker).
The effect of short selling on a Fund is similar to the effect of leverage.
Short selling may exaggerate changes in a Fund's NAV. Short selling may also
produce higher than normal portfolio turnover, which may result in increased
transaction costs to a Fund.
INVESTMENT PERFORMANCE
STANDARDIZED YIELD QUOTATIONS. Each class of the Conseco High Yield Fund,
Conseco 20 Fund, and Conseco International Fund may advertise investment
performance figures, including yield. Each class' yield will be based upon a
stated 30-day period and will be computed by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
6
YIELD = 2 [(A-B/CD)+1) -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 price (which is the net asset value plus, for Class A
shares only, the maximum initial sales charge) 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:
n
P (1+T) =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 total return for Class B and Class C shares of each Fund will assume the
maximum applicable contingent deferred sales charge is deducted at the times, in
the amounts, and under the terms disclosed in the Fund's Prospectus. The
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cumulative total return will be based upon a stated period and will be computed
by dividing the ending redeemable value (i.e., after deduction of any applicable
sales charges) 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 required to be
quoted; it may consist of an aggregate or average annual percentage rate of
return, actual year-by-year rates or any combination thereof. Non-Standardized
Return for Class A, B and C shares may or may not take sales charges into
account; performance data calculated without taking the effect of sales charges,
if any, into account may 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 or types of investments 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 listed on the Nasdaq Stock Market.
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 and foreign
targeted issues are not included in the Lehman Government Bond 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 "BBB/Baa" or higher ("investment grade") by an NRSRO.
The Lehman Brothers Aggregate Bond Index is an index consisting of the
securities listed in Lehman Brothers Government/Corporate Bond Index, the Lehman
Brothers Mortgage-Backed Securities Index, and the Lehman Brothers Asset-Backed
Securities Index. The Government/Corporate Bond Index is described above. The
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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.
The Morgan Stanley Capital International Europe, Australasia, Far East Index,
also known as the EAFE Index, is an unmanaged index of common stock prices of
more than 900 1000 companies from Europe, Australia and the Far East translated
into U.S. dollars.
Each index includes income and distributions but does not reflect fees,
brokerage commissions or other expenses of investing.
In addition, from time to time in reports and promotions (1) a Fund's
performance may be compared to other groups of mutual funds tracked by: (a)
Lipper Analytical Services and Morningstar, Inc., widely used independent
research firms which rank mutual funds by overall performance, investment
objectives, and assets; or (b) 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 statistics
derived by other independent parties, e.g., the Investment Company Institute,
may be used to illustrate investment attributes of 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 a 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
Conseco 20 and Conseco High Yield Funds
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. It
is anticipated that the annual turnover rate of each Fund normally will not
exceed 400%. High turnover and short-term trading involve correspondingly
greater commission expenses and transaction costs.
The Adviser is responsible for decisions to buy and sell securities for the
Conseco 20 and Conseco High Yield Funds, broker-dealer selection, and
negotiation of brokerage commission rates. The Adviser's primary consideration
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in effecting a securities transaction will be execution at the most favorable
price. A substantial majority of the Conseco 20 or Conseco High Yield Fund's
portfolio transactions in fixed income securities will be transacted with
primary market makers acting as principal on a net basis, with no brokerage
commissions being paid by a Fund. In certain instances, the Adviser may make
purchases of underwritten issues at prices which include underwriting fees.
In selecting a broker-dealer to execute each particular transaction, the Adviser
will take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the size of
the order and the difficulty of execution; and the size of contribution of the
broker-dealer to the investment performance of the Conseco 20 or Conseco High
Yield Fund on a continuing basis. Broker-dealers may be selected who provide
brokerage and/or research services to the Conseco 20 or Conseco High Yield 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 Adviser shall not be deemed to have acted unlawfully, or to have breached
any duty created by the Conseco 20 or Conseco High Yield Fund's Investment
Advisory Agreement or otherwise, solely by reason of its having caused the Fund
to pay a broker-dealer that provides brokerage and research services an amount
of commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker-dealer would have charged for effecting that
transaction, if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect to
the Fund. The Adviser allocates orders placed by it on behalf of the Conseco 20
or Conseco High Yield Fund in such amounts and proportions as the Adviser shall
determine and the Adviser will report on said allocations regularly to the
Conseco 20 or Conseco High Yield Fund indicating the broker-dealers to whom such
allocations have been made and the basis therefor.
The receipt of research from broker-dealers may be useful to the Adviser in
rendering investment management services to the Conseco 20 and Conseco High
Yield Funds and/or the Adviser's other clients; conversely, information provided
by broker-dealers who have executed transaction orders on behalf of other
clients may be useful to the Adviser in carrying out its obligations to the
Conseco 20 and Conseco High Yield 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.
24
<PAGE>
Orders on behalf of the Conseco 20 and Conseco High Yield Funds may be bunched
with orders on behalf of other clients of the Adviser. It is the Adviser's
policy that, to the extent practicable, all clients with similar investment
objectives and guidelines be treated fairly and equitably in the allocation of
securities trades.
The Board periodically reviews the Adviser's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of the
Trust.
Conseco International Fund
The assets of the International Portfolio are allocated by AMR among investment
advisers designated for the Portfolio. Each investment adviser has discretion to
purchase and sell portfolio securities in accordance with the investment
objective, policies and restrictions described in the Prospectus and this SAI
and with specific investment strategies developed by AMR. Each investment
adviser will place its own orders to execute securities transactions.
In placing such orders and in selecting brokers or dealers, the principal
objective of each investment adviser is to seek the best net price and execution
available. It is expected that securities ordinarily will be purchased in the
primary markets, and that in assessing the best net price and execution
available, each investment adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis.
In selecting brokers or dealers to execute particular transactions, the
Portfolio's investment advisers are authorized to consider "brokerage and
research services" (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934), provision of statistical quotations (including
the quotations necessary to determine the Portfolio's net asset value), the sale
of Fund shares by such broker-dealer or the servicing of Fund shareholders by
such broker-dealer, and other information provided to the Portfolio, to AMR
and/or to the investment advisers (or their affiliates), provided, however, that
the investment adviser determines that it has received the best net price and
execution available. The investment advisers are also authorized to cause the
Portfolio to pay a commission to a broker or dealer who provides such brokerage
and research services for executing a portfolio transaction which is in excess
of the amount of the commission another broker or dealer would have charged for
effecting that transaction. The AMR Trust Board, AMR or the investment advisers,
as appropriate, must determine in good faith, however, that such commission was
reasonable in relation to the value of the brokerage and research services
provided viewed in terms of that particular transaction or in terms of all the
accounts over which AMR or the investment adviser exercises investment
discretion.
For the fiscal years ended October 31, 1995, 1996 and 1997, the Portfolio (or
its predecessor) paid $422,670, $544,844 and $956,160, respectively, in
brokerage commissions.
25
<PAGE>
The portfolio turnover rate for the Portfolio (or its predecessor) for the
fiscal years ended October 31, 1995, 1996 and 1997 was 21%, 19% and 15%,
respectively. High portfolio turnover can increase transaction costs and
generate additional capital gains or losses.
The fees of the investment advisers are not reduced by reason of receipt of such
brokerage and research services. However, with disclosure to and pursuant to
written guidelines approved by the AMR Trust Board, an investment adviser of the
Portfolio or its affiliated broker-dealer may execute portfolio transactions and
receive usual and customary brokerage commissions (within the meaning of Rule
17e-1 under the 1940 Act) for doing so. During the fiscal year ended October 31,
1995, the Portfolio paid $18,937 in brokerage commissions to Morgan Stanley,
Inc., an affiliate of Morgan Stanley Asset Management, an investment adviser to
the predecessor. During the fiscal year ended October 31, 1997, the Portfolio
paid $2,142, $3,260, $13,141 and $81,109, to Fleming Martin, Jardine Fleming,
Ord Minnett and Robert Fleming & Co., respectively, affiliates of Rowe
Price-Fleming International, Inc., then an adviser to the Portfolio; $5,413 to
Morgan Stanley International, an affiliate of Morgan Stanley Asset Management,
and $50,428 to Merrill Lynch & Co., Inc., an affiliate of Hotchkis and Wiley.
MANAGEMENT
The Adviser
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 Fund, including fees and expenses of unaffiliated Trustees of
the Trust. While the Conseco International Fund operates in a "master-feeder"
structure, the Adviser is responsible for selecting the investment company, in
which that Fund invests. If the Adviser is not satisfied with the performance of
that investment company, the Adviser will recommend to the Board other
investment companies in which the Conseco International Fund may invest, or
recommend that the Adviser manage the Conseco International Fund itself.
The Adviser is a wholly-owned subsidiary of Conseco, Inc. ("Conseco"), a
publicly-owned financial services company, the principal operations of which are
in development, marketing and administration of specialized annuity, life and
health insurance products. Conseco's offices are located at 11825 N.
Pennsylvania Street, Carmel, Indiana 46032.
The Investment Advisory Agreement, dated December 31, 1997, provides 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 Agreement provides 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 Agreement
or the violation of any applicable law.
26
<PAGE>
Under the terms of the Investment Advisory Agreement, the Adviser has contracted
to receive an investment advisory fee equal to an annual rate of 0.70% of the
average daily net asset value of the Conseco High Yield Fund, 0.70% of the
average daily net asset value of the Conseco 20 Fund and 1.00% of the average
daily net asset value of the Conseco International Fund. The Adviser has
voluntarily agreed to waive all of its fees under the Conseco International
Fund's Investment Advisory Agreement so long as that Fund invests all of its
investable assets in the Portfolio or another investment company with
substantially the same investment objective and policies as the Fund. For more
information about the Portfolio's management, see "AMR and the Investment
Advisers to the International Equity Portfolio" below.
The Adviser, together with Conseco Services, LLC (the "Administrator") and
Conseco Equity Sales Inc. (the "Distributor"), have voluntarily agreed to waive
their fees and/or reimburse the Funds' expenses to the extent that the ratios of
expenses to net assets exceed the amounts set forth in the fee table in the
Prospectus. These voluntary limits may be discontinued at any time after April
30, 1999.
Each Fund may receive credits from the Trust's custodian based on cash held by
the Fund at the custodian. These credits may be used to reduce the custody fees
payable by the Fund. In that case, the Adviser's (and, as discussed below, other
affiliates') voluntary agreement to waive fees or reimburse expenses will be
applied only after the Fund's custody fees have been reduced or eliminated by
the use of such credits.
The Administrator
Conseco Services, LLC (the "Administrator") is a wholly-owned subsidiary of
Conseco, and receives compensation from the Trust pursuant to an Administration
Agreement dated January 2, 1997 and amended December 31, 1997. Under that
agreement, the Administrator 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. In addition, while the Conseco
International Fund operates in a "master-feeder" structure, the Administrator
will monitor the performance of the investment company in which the Conseco
International Fund invests, coordinate the Conseco International Fund's
relationship with that investment company and communicate with the Board and
shareholders regarding the performance of that investment company and the Fund's
master-feeder structure.
27
<PAGE>
For providing these services, the Administrator receives a fee from each of the
Conseco 20 and Conseco High Yield Funds of .20% per annum of its average daily
net assets and a fee from the Conseco International Fund of .75% per annum of
its average daily net assets. Pursuant to the Administration Agreement, the
Administrator reserves the right to employ one or more sub-administrators to
perform administrative services for the Funds. The Bank of New York performs
certain administrative services for each of the Funds, and AMR and State Street
Bank and Trust Company perform services for the Conseco International Fund,
pursuant to agreements with the Administrator. See "The Adviser" above regarding
the Administrator's voluntary agreement to waive its fees and/or reimburse Fund
expenses.
AMR and the Investment Advisers to the International Equity Portfolio
Pursuant to a Management Agreement dated October 1, 1995, as amended July 25,
1997, AMR provides or oversees all administrative, investment advisory, and
portfolio management services for the Portfolio. AMR, located at 4333 Amon
Carter Boulevard, MD 5645, Fort Worth, Texas 76155, is a wholly owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. AMR bears the
expense of providing the above services and pays the fees of the investment
advisers of the Portfolio. As compensation, AMR receives an annualized advisory
fee that is calculated and accrued daily, equal to the sum of 0.10% of the net
assets of the Portfolio plus all fees payable by AMR to the Portfolio's
investment advisers. The advisory fee is payable quarterly in arrears.
The Management Agreement will continue in effect provided that annually such
continuance is specifically approved by a vote of the AMR Trust Board, including
the affirmative votes of a majority of the Trustees who are not parties to the
Management Agreement or "interested persons" as defined in the 1940 Act of any
such party ("Independent Trustees"), cast in person at a meeting called for the
purpose of considering such approval, or by the vote of the Portfolio's interest
holders. The Management Agreement may be terminated without penalty, by a
majority vote of Portfolio interests on sixty (60) days' written notice to AMR,
or by AMR, on sixty (60) days' written notice to the AMR Trust. A Management
Agreement will automatically terminate in the event of its "assignment" as
defined in the 1940 Act.
The assets of the Portfolio are allocated by AMR among investment advisers
designated for the Portfolio, as listed in the Prospectus. Although the
investment advisers are subject to general supervision by the AMR Trust Board
and AMR, the AMR Trust Board and AMR do not evaluate the investment merits of
specific securities transactions. As compensation for its services, each
investment adviser is paid a fee by AMR out of the proceeds of the management
fee received by AMR.
Each investment adviser has entered into a separate investment advisory
agreement with AMR to provide investment advisory services to the Portfolio.
Each Advisory Agreement was approved and became effective as of October 1, 1995.
28
<PAGE>
Following the acquisition of Hotchkis and Wiley ("Hotchkis") by Merrill Lynch,
Pierce, Fenner & Smith, Inc., a new Advisory Agreement with Hotchkis was
approved, effective November 12, 1996.
AMR is permitted to enter into new or modified advisory agreements with existing
or new investment advisers without approval of Conseco International Fund
shareholders or Portfolio interest holders, but subject to approval of the AMR
Trust Board. The SEC issued an exemptive order which eliminates the need for
shareholder/interest holder approval subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the Fund send a notice to shareholders containing information
about the change that would be included in a proxy statement. AMR recommends
investment advisers based upon its continuing quantitative and qualitative
evaluation of the investment advisers' skill in managing assets using specific
investment styles and strategies. The allocation of assets among investment
advisers may be changed at any time by AMR. Allocations among investment
advisers will vary based upon a variety of factors, including the overall
investment performance of each investment adviser, the Portfolio's cash flow
needs and market conditions. AMR need not allocate assets to each investment
adviser designated for the Portfolio. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an investment
adviser, and AMR does not expect to recommend frequent changes of investment
advisers. The Prospectus will be supplemented if additional investment advisers
are retained or the contract with any existing investment adviser is terminated.
Each investment advisory agreement will automatically terminate if assigned, and
may be terminated without penalty at any time by AMR, by a vote of a majority of
the AMR Trust Board or by a vote of a majority of the outstanding Portfolio
interests on no less than thirty (30) days' nor more than sixty (60) days'
written notice to the investment adviser, or by the investment adviser upon
sixty (60) days' written notice to the Portfolio. Each investment advisory
agreement will continue in effect provided that annually such continuance is
specifically approved by a vote of the AMR Trust Board, including the
affirmative votes of a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of considering such approval, or by the vote of
shareholders.
Trustees and Officers of the Trust
The Trustees and officers of the Trust, their affiliations, if any, with the
Adviser and their principal occupations are set forth below.
29
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position Held Principal Occupation(s)
and Age With Trust During Past 5 Years
--------------- ------------ -------------------
<S> <C> <C>
William P. Daves, Jr. (71) Chairman of the Consultant to insurance and healthcare
5723 Trail Meadow Board, Trustee industries. Director, President and Chief
Dallas, TX 75230 Executive Officer, FFG Insurance Co. Chairman of
the Board and Trustee of one other mutual fund
managed by the Adviser.
Maxwell E. Bublitz* (42) President and Chartered Financial Analyst. President and
11825 N. Pennsylvania St. Trustee Director, Adviser. Previously,
Carmel, IN 46032 Senior Vice President, Adviser. President and
Trustee of one other mutual fund managed by the
Adviser.
Gregory J. Hahn* (36) Vice President for Chartered Financial Analyst. Senior Vice
11825 N. Pennsylvania St. Investments and President, Adviser. Portfolio Manager of the
Carmel, IN 46032 Trustee fixed income portion of Asset Allocation and
Fixed Income Funds.
Harold W. Hartley (74) Trustee Retired. Chartered Financial Analyst. Previously,
317 Peppard Drive, S.W. Executive Vice President, Tenneco Financial
Ft. Myers Beach, Fl 33913 Services, Inc. Trustee of one other mutual fund
managed by the Adviser.
Dr. R. Jan LeCroy (66) Trustee President, Dallas Citizens Council. Trustee of
Dallas Citizens Council one other mutual fund managed by the Adviser.
1201 Main Street,
Suite 2444
Dallas, TX 75202
Dr. Jesse H. Parrish (70) Trustee Former President, Midland College. Higher
2805 Sentinel Education Consultant. Trustee of one other
Midland, TX 79701 mutual fund managed by the Adviser.
30
<PAGE>
Name, Address Position Held Principal Occupation(s)
and Age With Trust During Past 5 Years
--------------- ------------ -------------------
William P. Latimer (62) Vice President and Vice President, Senior Counsel, Secretary, Chief
11825 N. Pennsylvania St. Secretary Compliance Officer and Director of Adviser. Vice
Carmel, IN 46032 President, Senior Counsel, Secretary and
Director, Conseco Equity Sales, Inc. Vice
President and Secretary of one other mutual fund
managed by the Adviser. Previously, Consultant
to securities industry. Previously, Senior Vice
President--Compliance, USF&G Investment Services,
Inc. and Vice President, Axe-Houghton Management
Inc.
James S. Adams (38) Treasurer Senior Vice President, Bankers National, Great
11815 N. Pennsylvania St. American Reserve. Senior Vice President,
Carmel, IN 46032 Treasurer, and Director, Conseco Equity Sales,
Inc. Senior Vice President and Treasurer, Conseco
Services, LLC. Treasurer of one other mutual
fund managed by the Adviser.
William T. Devanney, Jr. (42) Vice President, Senior Vice President, Corporate Taxes, Bankers
11815 N. Pennsylvania St. Corporate Taxes National and Great American Reserve. Senior Vice
Carmel, IN 46032 President, Corporate Taxes, Conseco Equity Sales,
Inc. and Conseco Services LLC. Vice President of
one other mutual fund managed by the Adviser.
</TABLE>
- ------------------
* The Trustee so indicated is an "interested person," as defined in the 1940
Act, of the Trust due to the positions indicated with the Adviser and its
affiliates.
The following table shows the estimated compensation of each disinterested
Trustee for the fiscal year ending December 31, 1997.
31
<PAGE>
COMPENSATION TABLE
Total Compensation from
Aggregate Investment Companies in the Trust
Name of Person, Position Compensation Complex Paid to Trustees
- ------------------------ ------------ ------------------------
William P. Daves, Jr. $9,000 $18,000
(1 other investment company)
Harold W. Hartley $9,000 $18,000
(1 other investment company)
Dr. R. Jan LeCroy $9,000 $18,000
(1 other investment company)
Dr. Jesse H. Parrish $9,000 $18,000
(1 other investment company)
Trustees and Officers of the AMR Trust
The AMR Trust Board provides broad supervision over the AMR Trust's affairs. The
Trustees and officers of the AMR Trust are listed below, together with their
principal occupations during the past five years. Unless otherwise indicated,
the address of each person listed below is 4333 Amon Carter Boulevard, MD 5645,
Forth Worth, Texas 76155.
<TABLE>
<CAPTION>
Position with
Name, Age and Address the AMR Trust Principal Occupation during Past 5 Years
- --------------------- ------------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (49) Trustee and President, AMR Investment Services, Inc.
President (1986-Present); Chairman, American Airlines Employees
Federal Credit Union (1989-Present); Trustee, American
Performance Funds (1990-1994); Director, Crescent Real
Estate Equities, Inc. (1994-Present); Trustee,
American AAdvantage Funds (1987-Present); Trustee,
American AAdvantage Mileage Funds (1995-Present).
32
<PAGE>
Position with
Name, Age and Address the AMR Trust Principal Occupation during Past 5 Years
- --------------------- ------------- ----------------------------------------
Alan D. Feld (60) Trustee Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
1700 Pacific Avenue (1960-Present)#; Director, Clear Channel
Suite 4100 Communications (1984-Present); Director, CenterPoint
Dallas, Texas 75201 Properties, Inc. (1994-Present); Trustee, American
AAdvantage Mileage Funds and American AAdvantage
Funds (1996-Present).
Ben J. Fortson (65) Trustee President and CEO, Fortson Oil Company (1958-Present);
301 Commerce Street Director, Kimbell Art Foundation (1964-Present);
Suite 3301 Director, Burnett Foundation (1987-Present); Honorary
Forth Worth, Texas 76102 Trustee, Texas Christian University (1986-Present);
Trustee, American AAdvantage Mileage Funds and
American AAdvantage Funds (1996-Present).
John S. Justin (80) Trustee Chairman and Chief Executive Officer, Justin
2821 West Seventh Street Industries, Inc. (a diversified holding company)
Fort Worth, Texas 76107 (1969-Present); Executive Board Member, Blue
Cross/Blue Shield of Texas (1985-Present); Board Member,
Zale Lipshy Hospital (1993-Present); Trustee, Texas
Christian University (1980-Present); Director and
Executive Board Member, Texas New Mexico enterprises
(1984-1993); Director, Texas New Mexico Power Company
(1979-1993); Trustee, American AAdvantage Funds
(1989-Present); Trustee, American AAdvantage Mileage
Funds (1995-Present).
Stephen D. O'Sullivan*(62) Trustee Consultant (1994-Present); Vice President and
Controller (1985-1994), American Airlines, Inc.;
Trustee, American AAdvantage Funds, (1987-Present);
Trustee, American AAdvantage Mileage Funds
(1995-Present).
33
<PAGE>
Position with
Name, Age and Address the AMR Trust Principal Occupation during Past 5 Years
- --------------------- ------------- ----------------------------------------
Roger T. Staubach (55) Trustee Chairman of the Board and Chief Executive Officer of
6750 LBJ Freeway the Staubach Company (a commercial real estate
Dallas, Texas 75240 company) (1982-Present); Director, Halliburton Company
(1991-Present); Director, First USA, Inc. (1993-Present);
Director, Columbus Realty Trust (1994-Present); Member of
the Advisory Board, The Salvation Army; Trustee, Institute
for Aerobics Research; Member of Executive Council,
Daytop/Dallas; former quarterback of the Dallas Cowboys
professional football team; Trustee, American AAdvantage
Mileage Funds and American AAdvantage Funds
(1995-Present). Kneeland Youngblood, M.D. (41) Trustee
Physician (1982-Present); President Youngblood 2305 Cedar
Springs Road Enterprises, Inc. (a health care investment
and Suite 401 management firm) (1983-Present); Trustee,
Teachers Dallas, Texas 75201 Retirement System of Texas
(1993-Present); Director, United States Enrichment
Corporation (1993-Present), Director, Just For the Kids
(1995-Present); Member, Council on Foreign Relations
(1995-Present); Trustee, American AAdvantage Mileage Funds
and American AAdvantage Funds (1995-Present).
Kneeland Youngblood, M.D. (41) Trustee Physician (1982-Present); President
Youngblood Enterprises, Inc. (a health care
investment and management firm) (1983-
Present); Trustee, Teachers Retirement
System of Texas (1983-Present); Director,
United States Enrichment Corporation (1993-
Present), Director, Just For the Kids (1995-
Present); Member, Council on Foreign Relations
(1995-Present); Trustee, American AAdvantage
Mileage Funds and American AAdvantage Funds
(1995-Present).
Nancy A. Eckl (35) Vice President Vice President, AMR Investment Services, Inc.
(1990-Present).
Michael W. Fields (43) Vice President Vice President, AMR Investment Services, Inc.
(1988-Present).
Barry Y. Greenberg (34) Vice President Director, Legal and Compliance, AMR Investment
and Assistant Services, Inc. (1995-Present); Branch Chief
Secretary (1992-1995) and Staff Attorney (1988-1992), Securities
and Exchange Commission.
34
<PAGE>
Position with
Name, Age and Address the AMR Trust Principal Occupation during Past 5 Years
- --------------------- ------------- ----------------------------------------
Rebecca L. Harris (30) Treasurer Director of Finance (1995-Present), Controller
(1991-1995), AMR Investment Services, Inc.
John B. Roberson (39) Vice President Vice President, AMR Investment Services, Inc.
(1991-Present).
Thomas E. Jenkins, Jr. (30) Assistant Senior Compliance Analyst, AMR Investment Services,
Secretary Inc. (1996-Present); Staff Accountant (1994-1996) and
Compliance Examiner (1991-1994), Securities and
Exchange Commission.
Adriana R. Posada (43) Assistant Senior Compliance Analyst (1996-Present) and
Secretary Compliance Analyst (1993-Present), AMR Investment
Services, Inc.; Special Sales Representative, American
Airlines, Inc. (1991-1993).
Clifford J. Alexander (53) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
Robert J. Zutz (44) Assistant Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
- ------------------
</TABLE>
# The law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump") provides
legal services to American Airlines, Inc., an affiliate of AMR. Mr. Feld has
advised the AMR Trust that he has had no material involvement in the services
provided by Akin, Gump to American Airlines, Inc. and that he has received no
material benefit in connection with these services. Akin, Gump does not provide
legal services to AMR or AMR Corporation.
* Messrs. Quinn and O'Sullivan, by virtue of their current or former positions,
are deemed to be "interested persons" of the AMR Trust as defined by the 1940
Act.
As compensation for their service to the AMR Trust, the Independent
Trustees and their spouses receive free air travel from American Airlines, Inc.,
an affiliate of AMR. The AMR Trust does not pay for these travel arrangements.
However, the AMR Trust compensates each Trustee with payments in an amount equal
to the Trustees' income tax on the value of this free airline travel. Mr.
O'Sullivan, who as a retiree of American Airlines, Inc. already receives free
airline travel, receives compensation annually of up to three round trip airline
35
<PAGE>
tickets for each of his three children. Trustees are also reimbursed for any
expenses incurred in attending Board meetings. These amounts are reflected in
the following table for the fiscal year ended October 31, 1997.
36
<PAGE>
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Benefits Estimated Compensation
Compensation Accrued as part of Annual From American
From the the AMR Benefits Upon AAdvantage
Name of Trustee AMR Trust's Trust's Expenses Retirement Funds Complex
--------------- ----------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
William F. Quinn $ 0 $0 $0 $ 0
Alan D. Feld $ 15,962 $0 $0 $ 63,850
Ben J. Fortson $ 6,802 $0 $0 $ 27,209
John S. Justin $ 225 $0 $0 $ 901
Stephen D. O'Sullivan $ 493 $0 $0 $1,973
Roger T. Staubach $8,269 $0 $0 $33,076
Kneeland Youngblood $9,525 $0 $0 $38,099
</TABLE>
FUND EXPENSES
Each Fund pays its own expenses including, without limitation: (i)
organizational and offering expenses of the Fund and expenses incurred in
connection with the issuance of shares of the Fund; (ii) fees of the Trust's
custodian and transfer agent; (iii) expenditures in connection with meetings of
shareholders and Trustees; (iv) compensation and expenses of Trustees who are
not interested persons of the Trust; (v) the costs of any liability,
uncollectible items of deposit and other insurance or fidelity bond; (vi) the
cost of preparing, printing, and distributing prospectuses and statements of
additional information, any supplements thereto, proxy statements, and reports
for existing shareholders; (vii) legal, auditing, and accounting fees; (viii)
trade association dues; (ix) filing fees and expenses of registering and
maintaining registration of shares of the Fund under applicable federal and
state securities laws; (x) brokerage commissions; (xi) taxes and governmental
fees; and (xii) extraordinary and non-recurring expenses.
37
<PAGE>
DISTRIBUTION ARRANGEMENTS
Conseco Equity Sales, Inc. (the "Distributor") serves as the principal
underwriter for each Fund pursuant to an Underwriting Agreement, dated January
2, 1997 as amended December 31, 1997. 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
brokers, dealers or other financial intermediaries who have executed selling
agreements with the Distributor. Subject to the compensation arrangement
discussed below, 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 and 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 or by the vote of a majority
of the outstanding voting securities of a Fund and (ii) by a majority of the
Trustees who are not "interested persons" of the Trust (as that term is defined
in the 1940 Act). The Distributor is not obligated to sell any specific amount
of shares of any Fund.
The Distributor's principal address is 11815 N. Pennsylvania Street, Carmel,
Indiana 46032.
Distribution and Service Plan
The Trust has adopted a distribution and service plan dated December 31, 1997
for Class A shares, Class B shares and Class C shares, of each Fund (the
"Plan"), 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 Plan, each Fund may compensate the Distributor for its
expenditures in financing any activity primarily intended to result in the sale
of each such class of Fund shares and for maintenance and personal service
provided to existing shareholders of that class. The Plan authorizes payments to
the Distributor up to 0.50% annually of each Fund's average daily net assets
attributable to its Class A shares. The Plan authorizes payments to the
Distributor up to 1.00% annually of the each Fund's average daily net assets
attributable to its Class B shares. The Plan authorizes payments to the
Distributor up to 1.00% annually of each Fund's average daily net assets
attributable to its Class C shares. See "Management - The Adviser" above
regarding the Distributor's voluntary agreement to waive its fees and/or
reimburse Fund expenses.
The Plan further provides for periodic payments by the Distributor to brokers,
dealers and other financial intermediaries for providing shareholder services
and for promotional and other sales related costs. The portion of payments by
Class A, Class B or Class C of a Fund for shareholder servicing may not exceed
an annual rate of .25% of the average daily net asset value of Fund shares of
that class owned by clients of such broker, dealer or financial intermediary.
38
<PAGE>
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 the Trust 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. The Trustees believe that
there is a reasonable likelihood that the Plan will benefit each Fund and its
current and future shareholders. Among the anticipated benefits are higher
levels of sales and lower levels of redemptions of Class A, Class B and Class C
shares of each Fund, economies of scale, reduced expense ratios and greater
portfolio diversification.
Under its 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
under the Plan without approval of the shareholders of the affected Fund, and
material amendments to the Plan must also be approved by the Trustees in a
manner described above. The Plan may be terminated at any time, without payment
of any penalty, by vote of the majority of the Trustees who are not interested
persons of the Trust and have no direct or indirect financial interest in the
operations of the Plan, or by a vote of a majority of the outstanding voting
securities of the Fund affected thereby. The Plan will automatically terminate
in the event of their assignment.
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase or redemption of Fund shares, see the
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 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 the Funds, shares of other series of the
Trust or shares of the money market fund currently managed by Federated
Investors (derived from the exchange of Fund shares on which an initial sales
charge was paid) 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,
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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 net asset value on 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 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 LOI are
available from your broker, dealer or other financial intermediary 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
from Class A, Class B and Class C 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. Redemptions of Class B or Class C shares under the SWP will not be
subject to any contingent deferred sales charge so long as a shareholder does
not withdraw annually more than 12% of the SWP account.
Any income dividends or capital gain 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 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.
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Redemptions in Kind
Each Fund is obligated to redeem shares for any shareholder for cash during any
90-day period up to $250,000 or 1% of the net assets of the Fund, whichever is
less. Any redemptions beyond this amount also will be in cash unless the Board
determines that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Fund will pay all or a portion of
the remainder of the redemptions in portfolio instruments, valued in the same
way as the Fund determines net asset value. The portfolio instruments will be
selected in a manner that the Board deems fair and equitable. A redemption in
kind is not as liquid as a cash redemption. If a redemption is made in kind, a
shareholder receiving portfolio instruments could incur certain transaction
costs.
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 NYSE is closed for other
than customary weekends or holidays, trading on the NYSE is restricted, or for
any period during which an emergency exists as a result of which (1) disposition
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 SEC 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% of the Trust's shares. In
addition, 10 or more shareholders meeting certain conditions and holding the
lesser of $25,000 worth or 1% 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 class of a Fund is entitled to
participate equally in dividends and other distributions of the respective class
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of the Fund and, upon liquidation or dissolution, in the net assets of that
class remaining after satisfaction of outstanding liabilities. The shares of
each Fund have no preference, preemptive or similar rights, and are freely
transferable. The exchange privilege for each class and the conversion rights of
Class B shares are described in the Prospectus.
Under Rule 18f-2 under the 1940 Act, as to any investment company which has two
or more series (such as the Funds) outstanding and as to any matter required to
be submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in that rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series. Under
Rule 18f-3 under the 1940 Act, each class of a Fund shall have exclusive voting
rights on any matters submitted to shareholders that relate solely to a
particular class' arrangement, and shall have separate voting rights on any
matters submitted to shareholders in which the interests of one class differ
from the interests of any other class.
Under Massachusetts law, shareholders of 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 the Trust to be held personally liable as a partner under certain
circumstances, the risk of a shareholder's 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.
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TAXES
General
To qualify for treatment as a regulated investment company ("RIC") under the
Internal Revenue Code of 1986, as amended ("Code"), each Fund -- which is
treated as a separate corporation for these purposes -- must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements. For
each Fund, these requirements include the following: (1) the Fund must derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures or forward contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
and (2) at the close of each quarter of the Fund's taxable year, (i) at least
50% of the value of its total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs and other securities, with
those other securities limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's outstanding voting securities, and (ii)
not more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer. The Conseco International Fund, as an investor in the Portfolio, is
deemed to own a proportionate share of the Portfolio's assets, and to earn a
proportionate share of the Portfolio's income, for purposes of determining
whether the Fund satisfies the requirements described above to qualify as a RIC.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
Distributions, if any, in excess of a Fund's current or accumulated earnings and
profits, as computed for federal income tax purposes, will constitute a return
of capital, which first will reduce a shareholder's tax basis in the Fund's
shares and then (after such basis is reduced to zero) generally will give rise
to capital gains. Under the Taxpayer Relief Act of 1997 ("Tax Act"), different
maximum tax rates apply to a non-corporate taxpayer's net capital gain (the
excess of net long-term capital gain over net short-term capital loss) depending
on the taxpayer's holding period and marginal rate of federal income tax --
generally, 28% for gain recognized on capital assets held for more than one year
but not more than 18 months and 20% (10% for taxpayers in the 15% marginal tax
bracket) for gain recognized on capital assets held for more than 18 months.
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 received.
At the time of an investor's purchase of shares of a Fund, a portion of the
purchase price is often attributable to unrealized appreciation in the Fund's
portfolio or undistributed taxable income. Consequently, subsequent
distributions from that appreciation (when realized) or income may be taxable to
the 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 the shares
and the distributions in reality represent a return of a portion of the purchase
price.
Each Fund will be subject to a nondeductible 4% federal excise tax ("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 those distribution requirements.
The Relationship of the Conseco International Fund and the Portfolio
The Portfolio has received a ruling from the Internal Revenue Service
("Service") to the effect that, among other things, the Portfolio is treated as
a separate partnership for federal income tax purposes and will is not be a
"publicly traded partnership." As a result, the Portfolio is not subject to
federal income tax; instead, each investor in the Portfolio, such as the
Conseco International Fund, is required to take into account in
determining its federal income tax liability its share of the Portfolio's
income, gains, losses, deductions and credits, without regard to whether it has
received any cash distributions from the Portfolio. Because each investor in the
Portfolio that intends to qualify as a RIC (such as the Conseco International
Fund) is deemed to own a proportionate share of the Portfolio's assets, and to
earn a proportionate share of the Portfolio's income, for purposes of
determining whether the investor satisfies the requirements described above to
qualify as a RIC, the Portfolio intends to conduct its operations so that those
investors will be able to satisfy all those requirements.
Distributions to the Conseco International Fund from the Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
the Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds the Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, and
(3) loss will be recognized if a liquidation distribution consists solely of
cash and/or unrealized receivables. The Fund's basis for its interest in the
Portfolio generally will equal the amount of cash the Fund invests in the
Portfolio, increased by the Fund's share of the Portfolio's net income and gains
and decreased by (a) the amount of cash and the basis of any property the
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Portfolio distributes to the Fund and (b) the Fund's share of the Portfolio's
losses.
Income from Foreign Securities
Dividends and interest received by a Fund or the Portfolio, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield
and/or total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate these foreign taxes, however, and
many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of the Conseco
International Fund's total assets (taking into account its proportionate share
of the Portfolio's assets) at the close of any taxable year consists of
securities of foreign corporations, the Fund will be eligible to, and may, file
an election with the Service that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to its proportionate
share of any foreign taxes paid by the Portfolio ("Fund's foreign taxes").
Pursuant to that election, the Fund would treat its foreign taxes as dividends
paid to its shareholders, and each shareholder would be required to (1) include
in gross income, and treat as paid by him, his proportionate share of the Fund's
foreign taxes, (2) treat his share of those taxes and of any dividend paid by
the Fund that represents its proportionate share of the Portfolio's income from
foreign or U.S. possessions sources as his own income from those sources, and
(3) either deduct the taxes deemed paid by him in computing his taxable income
or, alternatively, use the foregoing information in calculating the foreign tax
credit against his federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's foreign
taxes and income (taking into account its proportionate share of the Portfolio's
income) from sources within foreign countries and U.S. possessions if it makes
this election. Pursuant to the Tax Act, individuals who have no more than $300
($600 for married persons filing jointly) of creditable foreign taxes included
on Forms 1099 and all of whose foreign source income is "qualified passive
income" may elect each year to be exempt from the extremely complicated foreign
tax credit limitation and will be able to claim a foreign tax credit without
having to file the detailed Form 1116 that otherwise is required.
Each Fund and the Portfolio may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (i.e., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which a Fund or the Portfolio is a U.S. shareholder
(not effective in the case of the Conseco International Fund and the Portfolio
until after October 31, 1998) -- that, in general, meets either of the following
tests: (1) at least 75% of its gross income is passive or (2) an average of at
least 50% of its assets produce, or are held for the production of, passive
income. Under certain circumstances, a Fund will be subject to federal income
tax on a part (or, in the case of the Conseco International Fund, its
proportionate share of a part) of any "excess distribution" received by it (or
in the case of the Conseco International Fund, by the Portfolio) on the stock of
a PFIC or
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of any gain on the Fund's (or in the case of the Conseco International Fund, the
Portfolio's) disposition of the stock (collectively "PFIC income"), plus
interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. The
Portfolio currently does not intend to acquire stock in companies that are
considered PFICs.
If a Fund or the Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund, or in the Portfolio's case the Conseco
International Fund, would be required to include in income each year its pro
rata share (taking into account, in the case of the Conseco International Fund,
its proportionate share of the Portfolio's pro rata share) of the QEF's annual
ordinary earnings and net capital gain which likely would have to be distributed
by the Fund, or in the Portfolio's case the Conseco International Fund, to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax --
even if those earnings and gain were not distributed thereto by the QEF. In most
instances it will be very difficult, if not impossible, to make this election
because of certain requirements thereof.
Each Fund and the Portfolio (in the case of the latter and the Conseco
International Fund, after the taxable year ending October 31, 1998) may elect to
"mark to market" its stock in any PFIC. "Marking-to-market," in this context,
means including in ordinary income each taxable year the excess, if any, of the
fair market value of the PFIC's stock over the adjusted basis therein as of the
end of that year. Pursuant to the election, a Fund or the Portfolio also will be
allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of its
adjusted basis in PFIC stock over the fair market value thereof as of the
taxable year-end, but only to the extent of any net mark-to-market gains with
respect to that stock included in income for prior taxable years. The adjusted
basis in each PFIC's stock with respect to which this election is made will be
adjusted to reflect the amounts of income included and deductions taken under
the election.
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Foreign exchange gains and losses realized by a Fund or the Portfolio in
connection with certain transactions involving foreign currency-denominated debt
securities, certain foreign currency futures and options, foreign currency
positions and payables or receivables (e.g., dividends or interest receivable)
denominated in a foreign currency are subject to section 988 of the Code, which
generally causes those gains and losses to be treated as ordinary income and
losses and may affect the amount, timing and character of distributions to
shareholders. Any gains from the disposition of foreign currencies could, under
future Treasury regulations, produce income that is not "qualifying income"
under the Income Requirement.
Investments in Debt Securities
If a Fund or the Portfolio invests in zero coupon securities, payment-in-kind
securities and/or certain deferred interest securities (and, in general, any
other securities with original issue discount or with market discount if an
election is made to include market discount in income currently), it must accrue
income on those investments prior to the receipt of cash payments or interest
thereon. However, each Fund must distribute to its shareholders, at least
annually, all or substantially all of its investment company taxable income,
including such accrued discount and other non-cash income, (including, in the
case of the Conseco International Fund, its proportionate share of such income
of the Portfolio), to satisfy the Distribution Requirement and avoid imposition
of the Excise Tax. Therefore, a Fund or the Portfolio 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 make the necessary
distributions.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Fund or the Portfolio that holds such obligations.
Tax rules are not entirely clear about issues such as when a Fund or the
Portfolio 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 exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by any Fund that holds such obligations (including the Conseco
International Fund if the Portfolio holds such obligations) in order to seek to
reduce the risk of distributing insufficient income to qualify for treatment as
a RIC and of becoming subject to federal income tax or the Excise Tax.
Hedging Strategies
The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the amount, character and
timing of recognition of the gains and losses a Fund realizes in connection
therewith. Gains from options, futures and forward contracts derived by a Fund
(or, in the case of the Conseco International Fund, by the Portfolio) with
respect to its business of investing in securities or foreign currencies --- and
as noted above, gains from the disposition of foreign currencies (except certain
gains that may be excluded by future regulations) -- will qualify as permissible
income under the Income Requirement.
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Certain options and futures in which the Funds or the Portfolio may invest will
be "section 1256 contracts." Section 1256 contracts held by a Fund or the
Portfolio at the end of each taxable year, other than section 1256 contracts
that are part of a "mixed straddle" with respect to which a Fund or the
Portfolio has made an election not to have the following rules apply, must be
marked-to-market (that is, treated as sold for their fair market value) for
federal income tax purposes, with the result that unrealized gains or losses
will be treated as though they were realized. Sixty percent of any net gain or
loss recognized on these deemed sales, and 60% of any net realized gain or loss
from any actual sales of section 1256 contracts, will be treated as long-term
capital gain or loss, and the balance will be treated as short-term capital gain
or loss. As of the date of this SAI, it is not entirely clear whether that 60%
portion will qualify for the reduced maximum tax rates on net capital gain
enacted by the Tax Act noted above -- 20% (10% for taxpayers in the 15% marginal
tax bracket) for gain recognized on capital assets held for more than 18 months
- -- instead of the 28% rate in effect before that legislation, which now applies
to gain recognized on capital assets held for more than one year but not more
than 18 months, although technical corrections legislation passed by the House
of Representatives late in 1997 would treat it as qualifying therefor. Section
1256 contracts also may be marked-to-market for purposes of the Excise Tax.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Funds and the Portfolio may invest.
Section 1092 defines a e"straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent the
loss exceeds the unrealized gain on the offsetting position(s) of the straddle.
Section 1092 also provides certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If a Fund or the Portfolio makes certain elections, the amount,
character and timing of the recognition of gains and losses from the affected
straddle positions would be determined under rules that vary according to the
elections made. Because only a few of the regulations implementing the straddle
rules have been promulgated, the tax consequences to the Funds of straddle
transactions are not entirely clear.
If a Fund or the Portfolio has an "appreciated financial position" -- generally,
an interest (including an interest through an option, futures or forward
contract, or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund or the Portfolio will be treated as
having made an actual sale thereof, with the result that gain will be recognized
at that time. A constructive sale generally consists of a short sale, an
offsetting notional principal contract or futures or forward contract entered
into by a Fund or the Portfolio or a related person with respect to the same or
substantially similar property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.
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The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates) subject to tax under that 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.
OTHER INFORMATION
Custodian
The Bank of New York, 90 Washington Street, 22nd Floor, New York, New York 10826
serves as custodian of the assets of each Fund (except the Conseco International
Fund). State Street Bank and Trust Company ("State Street") serves as custodian
of the assets of the Conseco International Fund and of the International
Portfolio.
Transfer Agency Services
State Street is the transfer agent for each Fund.
Independent Public Accountants/Auditors
Coopers & Lybrand L.L.P., 2900 One American Square, Box 82002, Indianapolis,
Indiana 46282-0002 serves as the Trust's independent public accountant. The
independent auditors of the International Portfolio are Ernst & Young LLP,
Dallas, Texas.
FINANCIAL STATEMENTS
Audited financial Statements for the International Equity Portfolio, a series of
AMR Investment Services Trust, for the fiscal year ended October 31, 1997 appear
on the following pages.
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AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
Statements of Assets and Liabilities
October 31, 1997
- --------------------------------------------------------------------------------
ASSETS: (000)
-----
Investments in securities at value (cost - $664,005) $ 774,331
Cash, including foreign currency....................................31,919
Unrealized appreciation on foreign currency contracts..................542
Dividends and interest receivable....................................2,190
Reclaims receivable....................................................794
Receivable for investments sold......................................1,521
Deferred organization costs, net........................................18
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Total assets...............................................811,315
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LIABILITIES:
Payable for investments purchased....................................1,144
Payable upon return of securities loaned............................47,053
Management and investment advisory fees payable (Note 2).............1,109
Accrued organization costs..............................................35
Other liabilities......................................................301
---------------
Total liabilities............................... ...........49,642
---------------
Net assets applicable to investors' beneficial interests.............$.761,673
===============
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
================================================================================
INVESTMENT INCOME: (000)
Interest income......................................................2,891
Dividend income (net of foreign taxes of $1,542)....................15,631
Income derived from securities lending, net............................322
----------
TOTAL INVESTMENT INCOME...........................................18,844
----------
EXPENSES:
Management and investment advisory
fee (Note 2)................................................. 2,828
Custodian fees................................................. 515
Professional fees.............................................. 25
Amortization of organization expenses.......................... 15
Other expenses................................................. 50
----------
TOTAL EXPENSES................................................. 3,433
----------
NET INVESTMENT INCOME................................................ 15,411
----------
REALIZED AND UNREALIZED GAIN (LOSS)ON INVESTMENTS:
Net realized gain on investments............................ 24,290
Net realized loss on foreign currency
transactions.................................................. (2,959)
Change in net unrealized appreciation of
investments................................................... 77,517
Change in net unrealized depreciation of foreign currency
contracts and translations.................................... (20,412)
----------
NET GAIN ON INVESTMENTS........................................ 78,436
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................................... $ 93,847
==========
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
==============================================================================
YEAR ENDED OCTOBER 31,
--------------------
1997 1996
--------- --------
INCREASE IN NET ASSETS: (000)
-----
OPERATIONS:
Net investment income............................. $ 15,411 $ 8,135
Net realized gain on investments and
foreign currency transactions.................. 21,331 11,172
Change in net unrealized appreciation
(depreciation) of investments and
foreign currency translations.................. 57,105 30,752
--------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................. 93,847 50,059
--------- --------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions................................... 397,499 397,164
Withdrawals..................................... (134,169) (42,727)
--------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS.................... 263,330 354,437
--------- --------
NET INCREASE IN NET ASSETS........................ 357,177 404,496
--------- --------
NET ASSETS:
Beginning of period.............................. 404,496 -
--------- --------
End of period.................................... $761,673 $404,496
========== ========
- ----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS:
- ----------------------------------------------------------------------------
RATIOS:
Expenses to average net assets
(annualized)..................................... 0.57% 0.56%
Net investment income to average net
assets (annualized)............................ 2.55% 2.50%
Portfolio turnover rate............................. 15% 19%
Average commission rate paid*....................... $ 0.0164 $ 0.0192
*Foreign commissions usually are lower than U.S. commissions when expressed
as cents per share due to the lower per share price of many non-U.S. securities.
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 (CONTINUED)
========================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The AMR Investment Services Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a no load, open-end management
investment company which was organized as a trust under the laws of the State of
New York pursuant to a Declaration of Trust dated as of June 27, 1995 and
amended on August 11, 1995. The AMR Investment Services International Equity
Portfolio (the "Portfolio") is one of the portfolios of the Trust. The Portfolio
commenced active operations on November 1, 1995. The Declaration of Trust
permits the Board of Trustees (the "Trustees") to issue beneficial interests in
the Portfolio.
AMR Investment Services, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services.
The following is a summary of the significant accounting policies followed
by the Portfolio.
SECURITY VALUATION
Equity securities that are primarily traded on domestic securities
exchanges are valued at the last quoted sales price on a designated exchange
prior to the close of trading on the New York Stock Exchange (the "Exchange")
or, lacking any current sales, on the basis of the last current bid price prior
to the close of trading on the Exchange. Portfolio securities that are primarily
traded on foreign securities exchanges are generally valued at the preceding
closing values of such securities on their respective exchanges where primarily
traded. Over-the-counter equity securities are valued on the basis of the last
bid price on that date prior to the close of trading. Debt securities (other
than short-term securities) normally will be valued on the basis of prices
provided by a pricing service and may take into account appropriate factors such
as institution-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. In some cases, the prices of debt securities may be determined using
quotes obtained from brokers. Securities for which market quotations are not
readily available are valued at fair value, as determined in good faith and
pursuant to procedures approved by the Trust's Board of Trustees (the "Board").
Investment grade short-term obligations with 60 days or less to maturity are
valued using the amortized cost method.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date of the security
purchase or sale. Dividend income is recorded on the ex-dividend date except
certain dividends from foreign securities which are recorded as soon as the
information is available to the Portfolio. Interest income is earned from
settlement date, recorded on the accrual basis, and adjusted, if necessary, for
amortization of premiums or accretion of discounts on investment grade
short-term securities and zero coupon instruments. For financial and tax
reporting purposes, realized gains and losses are determined on the basis of
specific lot identification.
CURRENCY TRANSLATION
All assets and liabilities initially expressed in foreign currency values
are converted into U.S. dollar values at the bid price of such currencies
against U.S. dollars as last quoted by a recognized dealer. Income, expenses and
purchases and sales of investments are translated into U.S. dollars at the rate
of exchange prevailing on the respective dates of such transactions. The
Portfolio includes that portion of the results of operations resulting from
changes in foreign exchange rates with net realized and unrealized gain on
investments, as appropriate.
FORWARD FOREIGN CURRENCY CONTRACTS
The Portfolio may enter into forward foreign currency contracts to hedge
the exchange rate risk on investment transactions or to hedge the value of
portfolio securities denominated in foreign currencies. Forward foreign currency
contracts are valued at the forward exchange rate prevailing on the day of
valuation.
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 (CONTINUED)
========================================================================
FEDERAL INCOME AND EXCISE TAXES
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of sub-chapter M of the
Internal Revenue Code.
DEFERRED ORGANIZATION EXPENSES
Expenses incurred by the Portfolio in connection with its organization are
being amortized on a straight-line basis over a five-year period.
2. TRANSACTIONS WITH AFFILIATES
MANAGEMENT AGREEMENT
The Trust and the Manager are parties to a Management Agreement which
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory and portfolio management services. Investment assets of the
Portfolio are managed by multiple investment advisers which have entered into
separate investment advisory agreements with the Manager. As compensation for
performing the duties required under the Management Agreement, the Manager
receives from the Portfolio an annualized fee equal to .10% of the average daily
net assets of the Portfolio plus amounts paid by the Manager to the investment
advisors hired by the Manager to direct investment activities of the Portfolio.
Management fees are paid as follows (dollars in thousands):
Amount paid to Net Amount paid to
MANAGEMENT FEE RATE MANAGEMENT FEE INVESTMENT ADVISORS MANAGER
------------------- -------------- ------------------- ------------------
.25% - .90% $2,828 $2,224 $604
OTHER
Certain officers or trustees of the Portfolio are also officers of the
Manager or American. The Portfolio makes no direct payments to its officers.
Unaffiliated trustees and their spouses are provided free unlimited air
transportation on American. However, the Portfolio compensates each Trustee with
payments in an amount equal to the Trustee's income tax on the value of this
free airline travel. For the period ended October 31, 1997, the cost of air
transportation was not material to the Portfolio.
3. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, for the period ended October 31, 1997 were
$315,060,000 and $84,780,000, respectively.
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 (CONTINUED)
========================================================================
4. COMMITMENTS
In order to protect itself against a decline in the value of particular
foreign currencies against the U.S. dollar, the Portfolio has entered into
forward contracts to deliver or receive foreign currency in exchange for U.S.
dollars as described below. The Portfolio bears the market risk that arises from
changes in foreign exchange rates, and accordingly, the unrealized gain (loss)
on these contracts is reflected in the accompanying financial statements. The
Portfolio also bears the credit risk if the counterparty fails to perform under
the contract. At October 31, 1997, the Portfolio had outstanding forward foreign
currency contracts as follows:
CONTRACTS TO DELIVER
(AMOUNTS IN THOUSANDS) SETTLEMENT UNREALIZED
DATE VALUE GAIN/(LOSS)
----------- ------------ -------------
3,500 AUD 1/12/98 $ 2,458 $ 1
56 CHF 11/3/97 40 -
102 DEM 11/3/97 59 -
300,000 ESP 12/2/97 2,058 251
79,000 FRF 6/19/98 13,830 12
------------ -------------
Total contracts to deliver
(Receivable amount $18,985) $ 18,445 $ 540
============ =============
CONTRACTS TO RECEIVE
(AMOUNTS IN THOUSANDS)
187 AUD 11/6/97 $ 132 $ -
83 CHF 11/3/97 59 -
300,000 JPY 11/5/97 2,494 (6)
52 SGD 11/7/97 33 -
4,318 DEM 11/4/97 2,508 8
69 DEM 11/3/97 40 -
22 AUD 11/7/97 16 -
25 AUD 11/10/97 17 -
------------ -------------
Total contracts to receive
(Payable amount $5,297) $ 5,299 $ 2
============ =============
5. SECURITIES LENDING
The Portfolio participates in a securities lending program under which
securities are loaned to selected institutional investors. All such loans
require collateralization with cash, securities of the U.S. Government and its
agencies or letters of credit that at all times equal at least 100% of the
market value of the loaned securities plus accrued interest. The portfolio may
bear the risk of delay in recovery of, or even loss of rights in, the securities
loaned should the borrower of securities fail financially. The Portfolio
receives fee income or the interest on the collateral less any fees and rebates
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 (CONTINUED)
========================================================================
paid to agents and transferees of securities. The Portfolio also continues to
receive interest on the securities loaned, and any gain or loss in the market
price of securities loaned that may occur during the term of the loan will be
for the account of the Portfolio. At October 31, 1997, securities with a market
value of approximately $51,436,000 were loaned by the Portfolio. The custodian
for the Portfolio held an investment in the AMR Investments Strategic Cash
Business Trust (the "Business Trust") totaling$47,053,000. In addition, the
custodian held non-cash collateral totaling $7,446,000. The Manager serves as
Trustee and as investment adviser to the Business Trust. The Manager receives
from the Business Trust an annualized fee equal to 0.10% of the average daily
net assets of the Business Trust.
<PAGE>
<TABLE>
<CAPTION>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1997
- -------------------------------------------------------------------------------------------------
Shares Value
------------ ------------
(dollars in thousands)
<S> <C> <C>
AUSTRALIA COMMON STOCKS - 3.29%
Australia & New Zealand Banking Group 843,442 $ 5,899
Brambles Industries, Limited 180,312 3,475
CSR, Limited 680,000 2,368
Foster's Brewing Group, Limited 1,027,800 1,956
GIO Australia Holdings, Limited 486,509 1,248
Goodman Fielder, Limited 1,150,000 1,767
News Corporation, Limited 210,000 1,008
News Corporation Preferred Rights 345,000 1,534
Pioneer International, Limited 1,024,615 2,716
QBE Insurance Group, Limited 536,496 2,515
RGC, Limited 275,000 562
------------
Total Australia Common Stocks 25,048
------------
AUSTRIA - 1.17%
PREFERRED STOCKS - 0.27%
Bank Austria AG 44,000 2,013
------------
Total Austria Preferred Stocks 2,013
------------
COMMON STOCKS - 0.90%
Boehler-Uddeholm 50,185 3,605
Evn Energie-Versorgung Niederoesterreich AG 3,960 461
Mayr-Melnhof Karton AG 16,000 853
VA Technologie AG 11,000 1,956
------------
Total Austria Common Stocks 6,875
------------
Total Austria 8,888
------------
BELGIUM COMMON STOCKS - 0.47%
Electrabel SA 4,400 988
GIB Holdings, Limited NPV 22,000 1,115
Solvay Et Cie, NPV 25,000 1,507
------------
Total Belgium Common Stocks 3,610
------------
CANADA COMMON STOCKS - 2.43%
Anderson Exploration, Limited 115,000 1,265
Bank of Nova Scotia 67,839 2,992
Canadian Imperial Bank of Commerce 120,000 3,509
IMASCO, Limited 119,000 3,784
Noranda, Incorporated 133,620 2,352
Oshawa Group, Limited 66,000 1,138
Potash Corporation of Saskatchewan 6,520 532
Telus Corporation 146,850 2,944
------------
Total Canada Common Stocks 18,516
------------
DENMARK COMMON STOCKS - 0.96%
BG Bank 20,750 1,335
Den Danske Bank 13,400 1,514
Novo Nordisk AS, "B" 6,850 742
Teledanmark AS, "B" 16,700 981
Unidanmark AS, "A" 40,800 2,759
------------
Total Denmark Common Stocks 7,331
------------
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1997
- -------------------------------------------------------------------------------------------------
Shares Value
------------ ------------
(dollars in thousands)
FINLAND COMMON STOCKS - 2.73%
Enso-Gutzeit OY, "R" 212,000 1,990
Huhtamaki Group I Free 27,500 1,134
Merita Bank, Limited 785,000 3,844
Metra OY, "B" 121,565 3,247
Metsa-Serla OY, "B" 100,000 881
Nokia OY,"A" 43,500 3,805
Rauma OY 50,878 955
UPM-Kymmene OY 221,030 4,923
------------
Total Finland Common Stocks 20,779
------------
FRANCE COMMON STOCKS - 8.60%
Adecco SA 2,820 917
Alcatel Alsthom CG 53,000 6,409
Axa SA 35,542 2,439
Banque Nationale de Paris 68,190 3,021
Bertrande Faure 39,500 2,388
Bongrain SA 2,370 873
Elf Aquitaine SA 78,300 9,713
France Telecom SA 29,449 1,117
Groupe Danone 19,200 2,942
La Farge-Coppee SA 97,218 6,087
Pechiney SA 41,800 1,723
Pernod-Ricard 78,934 3,666
Peugot SA 12,800 1,452
Rhone-Poulenc, "A" 50,000 2,185
SA Des Galeries Lafayette 162 76
Saint Gobain 13,148 1,891
Schneider SA 37,500 2,007
Scor SA 31,500 1,466
Seita 109,712 3,507
Societe Generale 23,339 3,203
Total Petroleum Company, "B" 48,200 5,359
Usinor Sacilor 186,702 3,098
Valeo SA 13 1
------------
Total France Common Stocks 65,540
------------
GERMANY - 4.64%
PREFERRED STOCKS - 0.81%
Dyckerhoff AG 7,614 2,345
Herlitz AG 11,947 768
Volkswagen AG 6,700 3,087
------------
Total Germany Preferred Stocks 6,200
------------
COMMON STOCKS - 3.83%
BASF AG 72,600 2,468
BAYER AG 188,525 6,791
Commerzbank AG 160,550 5,504
Deutsche Bank AG 36,000 2,382
Hoechst AG 44,000 1,694
Karstadt AG 3,100 1,077
Muenchener Rueckversicherung AG 3,000 627
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1997
- -------------------------------------------------------------------------------------------------
Shares Value
------------ ------------
(dollars in thousands)
Varta AG 1,520 236
Veba AG 87,300 4,920
Viag AG 5,940 2,778
Volkswagen AG 1,150 684
------------
Total Germany Common Stocks 29,161
------------
Total Germany 35,361
------------
HONG KONG COMMON STOCKS - 3.13%
Amoy Properties 20,500 18
Asia Satellite Telecommunications Holdings, Limited 275,000 662
Cheung Kong Holdings, Limited 235,000 1,634
China Light and Power Company 818,000 4,307
Dickson Concepts (International), Limited 643,000 1,385
Hang Lung Development Company, Limited 1,268,000 1,747
Hong Kong Aircraft Engineering Company, Limited 7,200 19
Hong Kong Electric Holdings 368,400 1,249
Hong Kong Telecommunications, Limited 1,024,400 1,961
HSBC Holdings, Limited 114,500 2,592
Hutchinson Whampoa, Limited 200,000 1,384
Hysan Development Company, Limited 32,000 67
National Mutual of Asia, Limited 1,700,000 1,540
New Asia Realty and Trust Company, Limited 135,000 321
New World Development Company, Limited 656,000 2,308
Peregrine Investments Holdings, Limited 605,000 595
Peregrine Investmens Holdings, Limited Warrants 55,000 2
Swire Pacific, Limited, "A" 383,500 2,049
------------
Total Hong Kong Common Stocks 23,840
------------
IRELAND COMMON STOCKS - 0.47%
Jefferson Smurfit 1,199,242 3,554
------------
Total Ireland Common Stocks 3,554
------------
ITALY - 3.31%
PREFERRED STOCKS - 0.15%
Concessioni E Contruzioni Autostrade 525,000 1,165
------------
Total Italy Preferred Stocks 1,165
------------
COMMON STOCKS - 3.16%
Burgo (Cartiere) SPA 229,020 1,371
Danieli Group Risp 473,960 1,852
Eni SPA 778,000 4,382
Fiat SPA 880,000 2,804
Instituto Nazionale Delle Assicurazioni 1,300,000 2,096
Mediaset 336,900 1,531
Merloni Elettrodomestici SPA 185,500 697
STET Telecom Italia 550,000 3,453
STET Telecom Italia Risp 1,452,209 5,877
------------
Total Italy Common Stocks 24,063
------------
Total Italy 25,228
------------
JAPAN COMMON STOCKS - 10.98%
Aisin Seiki Company, Limited 151,000 1,720
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1997
- -------------------------------------------------------------------------------------------------
Shares Value
------------ ------------
(dollars in thousands)
Aoyama Trading Company 42,300 1,136
Canon, Incorporated 90,000 2,185
Chudenko Corporation 33,000 804
Daibiru Corporation 168,000 1,802
Daicel Chemical 271,000 744
Fuji Photo Film Company 222,000 8,048
Hitachi Koki Company, Limited 53,000 257
Hitachi, Limited 324,000 2,492
Japan Tobacco 388 3,184
KAO Corporation 296,000 4,135
Kioto Manufacturing Company, Limited 375,000 2,245
Matsushita Electric Industrial Company 264,000 4,434
MOS Food Services 97,000 1,298
NKK Corporation 711,000 987
NEC Corporation 79,000 867
Nichicon Corporation 234,000 2,899
Nichido Fire & Marine Insurance 393,000 2,539
Nintendo Company, Limited 35,200 3,044
Nissan Motor Company 336,000 1,791
Promise Company, Limited 77,300 4,525
Ryosan Company 12,000 232
Sekisiu Chemical Company, Limited 538,000 4,236
Shionogi & Company 168,000 1,021
Sony Corporation 97,800 8,124
Sumitomo Marine & Fire Insurance 442,000 2,947
Sumitomo Rubber Industries 86,000 488
Suzuki Motor Corporation, Limited 193,000 2,054
TDK Corporation 30,000 2,489
Toyo Seikan Kaisha 198,000 3,111
Yamanouchi Pharmaceutical 110,000 2,707
Yamato Kogyo Company, Limited 110,000 869
Yodogawa Steel Works 499,000 2,660
Yoshinoya D & C Company, Limited 39 412
Yoshitomi Pharmaceutical 185,000 1,181
------------
Total Japan Common Stocks 83,667
------------
MALAYSIA COMMON STOCKS - 0.72%
Arab Malaysian Finance 780,000 407
Bolton Properties 909,000 377
Genting BHD 623,700 1,750
Golden Hope Plantations BHD 968,000 1,260
Hicom Holdings BHD 506,300 428
Kedah Cement Holdings BHD 729,000 459
Malaysian International Shipping Corporation BHD 459,666 768
------------
Total Malaysia Common Stocks 5,449
------------
MEXICO COMMON STOCKS - 0.19%
Alfa, SA 121,000 884
Grupo Mexico SA 145,000 560
------------
Total Mexico Common Stocks 1,444
------------
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1997
- -------------------------------------------------------------------------------------------------
Shares Value
------------ ------------
(dollars in thousands)
NETHERLANDS COMMON STOCKS - 6.34%
ABN AMRO Holdings NV 162,700 3,278
Aegon NV 34,000 2,680
Akzo Nobel NV 63,150 11,132
Fortis Amev NV 51,654 2,031
Hollandsche Beton Groep NV 158,040 3,168
Internationale Nederlanden Groep NV 202,045 8,485
Koninklijke Bijenkorf Beheer NV 17,400 1,098
Koninklijke KNP BT 54,100 1,232
Phillips Electronics 110,600 8,662
Royal PTT Nederland NV 115,410 4,412
Unilever NV 40,000 2,127
------------
Total Netherlands Common Stocks 48,305
------------
NEW ZEALAND - 0.93%
FOREIGN BONDS - 0.01%
Brierley Investments, Limited,
Subordinated Convertible, 9.00%, Due 6/30/1998 63 43
------------
Total New Zealand Foreign Bonds 43
------------
COMMON STOCKS - 0.92%
Brierley Investments, Limited 1,600,000 1,238
Carter Holt Harvey, Limited 220,000 384
Fisher & Paykel, Limited 230,000 732
Fletcher Challenge Building 775,250 2,345
Fletcher Challenge Forest 8,284 8
Fletcher Challenge Paper 365,000 601
Lion Nathan, Limited 693,000 1,677
------------
Total New Zealand Common Stocks 6,985
------------
Total New Zealand 7,028
------------
NORWAY COMMON STOCKS - 2.21%
Den Norsk Bank, Series A 387,600 1,755
Kvaerner Industries AS 49,789 2,564
Norsk Hydro AS 40,000 2,203
Nycomed AS, Series B 293,225 7,288
Saga Petroleum, Series B Free 100,000 1,771
Unitor AS 80,000 1,268
------------
Total Norway Common Stock 16,849
------------
SINGAPORE COMMON STOCKS - 0.71%
Fraser & Neave, Limited 230,000 1,155
Hong Kong Land 673,847 1,536
Inchcape Berhad 325,000 1,025
Sembawang Corporation 295,000 908
Singapore Finance, Limited 387,000 362
Van Der Horst 440,000 386
------------
Total Singapore Common Stock 5,372
------------
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1997
- -------------------------------------------------------------------------------------------------
Shares Value
------------ ------------
(dollars in thousands)
SPAIN COMMON STOCKS - 2.97%
Banco Popular Espanol 28,000 1,655
Banco Santander SA 112,730 3,160
Iberdrola SA 410,357 4,912
Repsol SA (BR) 127,420 5,347
Telefonica de Espana 277,400 7,576
------------
Total Spain Common Stocks 22,650
------------
SOUTH KOREA COMMON STOCKS - 0.07%
Korea Electric Power Corporation 37,500 532
------------
Total South Korea Common Stocks 532
------------
SWEDEN COMMON STOCKS - 3.86%
Assidoman AB 56,000 1,571
Astra AB, "B" Free 55,200 856
Electrolux AB, "B" 92,085 7,628
Esselte AB, Class "A" 2,000 42
Esselte AB, Class "B" 17,000 370
Granges AB 22,050 361
Marieberg Tidnings 77,267 2,065
Nordbanken AS 35,900 1,127
Pharmacia & Upjohn, Incorporated 59,100 1,883
Skandia Forsakrings AB 16,600 776
SKF AB, "B" Free 112,100 2,606
Sparbanken Sverige AB, "A" 144,900 3,291
Stora Kopparsbergs Bergslags, "A" 82,100 1,135
Stora Kopparsbergs Bergslags, "B" 25,800 355
Svedala Industries, "A" Free 90,000 1,768
Svenska Cellulosa, "B" Free 52,600 1,181
Volvo AB 90,000 2,357
------------
Total Sweden Common Stock 29,372
------------
SWITZERLAND COMMON STOCKS - 5.29%
ABB AG 1,690 2,209
Forbo Holding AG 3,280 1,292
Holderbank Financial Glarus-B 2,810 2,268
Nestle SA 8,021 11,333
Novartis AG 2,879 4,521
Schindler Holding AG (Reg) 140 170
Schindler Holding AG (BR) 1,400 1,549
Sig Schweitz Industries AG 2,200 5,940
Societe Generale de Surveillance 240 464
Sulzer AG 4,279 3,138
Swiss Reinsurance Company 3,876 5,854
Zurich Versicherungs 3,800 1,573
------------
Total Switzerland Common Stock 40,311
------------
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1997
- -------------------------------------------------------------------------------------------------
Shares Value
------------ ------------
(dollars in thousands)
UNITED KINGDOM COMMON STOCKS - 20.39%
Aggreko, PLC 502,977 1,316
Albert Fisher Group, PLC 262,500 164
Allied Domecq, PLC 510,710 4,132
Associated British Foods Group, PLC 46,600 371
Bank of Scotland 255,380 2,123
Barclays, PLC 27,900 705
BAT Industries, PLC 827,564 7,265
BG, PLC 1,615,700 7,065
British Energy, PLC 300,000 1,954
British Telecommunications 640,900 4,855
BTR, PLC 1,978,800 6,744
Bunzl, PLC 121,100 504
Burmah Castro, PLC 221,050 3,766
Burton Group, PLC 335,000 712
Coats Viyella, PLC 1,649,500 3,015
Commercial Union, PLC 487,600 6,342
Cookson Group, PLC 613,900 2,460
Cortaulds, PLC 362,000 1,678
Cortaulds Textiles, PLC 150,000 864
Danka Business Systems, PLC 64,700 610
De La Rue, PLC 197,800 1,413
Energy Group, PLC 124,000 1,261
English China Claylord Group 348,410 1,519
Grand Metropolitan, PLC 417,350 3,755
Great Universal Stores 239,500 2,849
Hanson, PLC 724,600 3,724
Harrisons & Crosfield, PLC 1,391,800 2,952
Hillsdown Holdings, PLC 1,140,100 3,231
Hyder, PLC 289,000 4,359
Imperial Chemical Industries, PLC 37,000 552
Imperial Tobacco Group 195,100 1,199
Inchcape, PLC 150,000 546
Kwik Save Group, PLC 264,000 1,370
Lex Service 350,000 2,465
London Pacific Group, Limited 74,000 259
Lucasvarity, PLC 410,000 1,403
Medeva, PLC 255,000 879
National Grid Group, PLC 300,000 1,394
National Power, PLC 50,000 415
National Westminster Bank, PLC 485,419 7,017
Northern Foods, PLC 500,000 1,937
Peninsular & Orient Steam Company 269,158 3,117
Pilkington, PLC 363 1
PowerGen, PLC 310,400 3,443
Premier Farnell, PLC 225,800 1,757
Racal Electronics, PLC 320,404 1,187
Reckitt & Colman, PLC 394,754 6,034
Redland, PLC 1,228,854 7,006
Rolls Royce, PLC 305,273 1,074
Royal & Sun Alliance Insurance Group 342,325 3,298
Safeway, PLC 309,677 2,023
Salvesen (Christian), PLC 502,977 843
Shell Transportation & Trading Company, PLC 135,000 956
Southern Electric, PLC 175,900 1,348
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1997
- -------------------------------------------------------------------------------------------------
Shares Value
------------ ------------
(dollars in thousands)
Storehouse 762,900 2,814
Tate & Lyle, PLC 549,000 4,184
Tesco, PLC 343,819 2,720
Thames Water Group, PLC 189,800 2,877
Unilever, PLC 522,900 3,884
WPP Group, PLC 1,005,500 4,603
Wace Group, PLC 666,200 346
Williams, PLC 111,466 659
------------
Total United Kingdom 155,318
------------
UNITED STATES - 15.80%
FOREIGN SECURITIES DENOMINATED IN U.S. DOLLARS - 2.48%
Cho Hung Bank GDR 170,000 629
Dairy Farm International 908,000 717
G P Batteries International, Limited 137,000 401
Kookmin Bank GDR 50,000 310
Jardine Matheson Holding, Limited 871,000 5,574
Jardine Strategic 1,606,000 5,139
New Holland NV 79,700 2,266
Nova Corporation 150,000 1,350
Stolt-Nielsen SA, "B" 38,000 1,007
Telmex ADR 35,000 1,514
------------
Total Foreign Securities Denominated in U.S. Dollars 18,907
------------
UNITED STATES GOVERNMENT AND AGENCY OBLIGATIONS (Note A) - 5.83%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.09%
Discount Note, 5.189%, Due 11/7/1997 2,895 2,892
Discount Note, 5.192%, Due 11/13/1997 1,505 1,502
Discount Note, 5.198%, Due 11/21/1997 1,710 1,705
Discount Note, 5.198%, Due 11/28/1997 1,400 1,394
Discount Note, 5.205%, Due 12/1/1997 6,600 6,569
Discount Note, 5.206%, Due 12/3/1997 4,225 4,204
Discount Note, 5.208%, Due 12/5/1997 5,290 5,262
------------
Total Federal Home Loan Mortgage Corporation 23,528
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.99%
5.196%, Due 11/17/1997 855 853
5.19%, Due 1/8/1998 2,000 1,998
5.234%, Due 1/15/1998 3,769 3,725
5.25%, Due 3/25/1998 1,000 999
------------
Total Federal National Mortgage Association 7,575
------------
U.S. TREASURY BILLS - 1.75%
4.805%, Due 12/26/1997 255 253
4.88%, Due 1/2/1998 6,290 6,236
4.925%, Due 1/8/1998 2,468 2,445
4.96%, Due 1/15/1998 116 115
4.98%, Due 1/22/1998 2,175 2,150
5.05%, Due 1/29/1998 2,115 2,088
------------
Total U.S. Treasury Bills 13,287
------------
Total United States Government and Agency Obligations 44,390
------------
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1997
- -------------------------------------------------------------------------------------------------
Shares Value
------------ ------------
(dollars in thousands)
SHORT TERM INVESTMENTS - 7.49%
AMR Investments Strategic Cash Business Trust 47,053 47,053
E I DuPont de Nemours, CP, Due 11/7/1997 10,000 9,989
------------
Total Short Term Investments 57,042
------------
Total United States 120,339
------------
TOTAL INVESTMENTS - 101.66% (Cost $664,005) 774,331
------------
LIABILITIES, NET OF OTHER ASSETS - (1.66%) (12,658)
------------
TOTAL NET ASSETS - 100% $ 761,673
============
Based on the cost of investments of $664,338 for federal income tax purposes at
October 31, 1997, the aggregate gross unrealized appreciation was $142,497, the
aggregate gross unrealized depreciation was $32,504, and the net unrealized
appreciation of investments was $109,993.
(A) Rates associated with United States Government Bonds represent yield to
maturity from time of purchase.
(B) Rates associated with short-term investments represent yield to maturity or
yield to next reset date.
ABBREVIATIONS:
AB - Company (Sweden)
ADR - American Depository Receipt (United States)
AG - Company (Austria, Germany, Switzerland)
AS - Company (Denmark, Norway, Sweden)
BHD - Berhard (Malaysia)
BR - Bearer (Spain, Switzerland)
CG - Company General (France)
CP - Commercial Paper (United States)
GDR - Global Depository Receipt (United States)
NPV - No Par Value (Belgium)
NV - Company (Netherlands, United States)
OY - Company (Finland)
PLC - Public Limited Corporation (United Kingdom)
SA - Company (Belgium, France, Mexico, Spain, Switzerland, United States )
SPA - Company (Italy)
</TABLE>
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
Industry Diversification
October 31, 1997
- --------------------------------------------------------------------------------
Percent of
Net Assets
----------
Basic Industry.........................................................29.56%...
Capital Goods..........................................................10.53%...
Consumer Goods & Services..............................................21.79%
Energy..................................................................5.65%...
Financing, Insurance & Real Estate.....................................16.22%.
Transportation..........................................................0.51%...
Utilities...............................................................4.00%...
Short-Term Investments.................................................13.32%...
Other Assets/(Liabilities).............................................(1.58%)..
--------
Net Assets.....................................100.00%...
========
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
AMR Investment Services International Equity Portfolio
We have audited the accompanying statement of assets and liabilities of the AMR
Investment Services International Equity Portfolio (the "Portfolio") (a separate
fund of the AMR Investment Services Trust) including the schedule of investments
as of October 31, 1997, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
for each of the two years in the period then ended. These financial statements
and financial highlights are the responsibility of the Portfolio's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
AMR Investment Services International Equity Portfolio at October 31, 1997, the
results of its operations for the year then ended, the changes in its net assets
and the financial highlights for each of the two years in the period then ended,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
December 19, 1997
<PAGE>
CONSECO FUND GROUP:
Conseco 20 Fund
Conseco High Yield Fund
Conseco International Fund
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements included in Part B of this Registration
Statement:
(1) The audited financial statements for the fiscal year ended
October 31, 1997 for the International Equity Portfolio, a
series of AMR Investment Services Trust and the report of the
independent auditors are filed herewith.
(b) Exhibits:
(1) Agreement and Declaration of Trust1/
(2) By-laws1/
(3) Voting trust agreement - None
(4)(a) Agreement and Declaration of Trust of Conseco Fund
Group, Articles V, VI, VII, VIII, and X1/
(b) By-laws of Conseco Fund Group, Articles II, V, and
VII 1/
(5)(a) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Equity Fund2/
(b) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Asset Allocation Fund2/
(c) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Fixed Income Fund2/
- --------
1 Incorporated by reference from the Registrant's registration statement, SEC
File No. 333-13185, filed on October 1, 1996.
2 Incorporated by reference from Post-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-13185, filed July 30, 1997.
<PAGE>
(d) Form of Investment Advisory Agreement between
Conseco Fund Group, on behalf of the Conseco 20
Fund, the Conseco High Yield Fund and the Conseco
International Fund, and Conseco Capital
Management, Inc. (filed herewith)
(6) Form of Amended and Restated Principal
Underwriting Agreement between Conseco Fund Group
and Conseco Equity Sales, Inc. (filed herewith)
(7) Bonus, profit sharing or pension plans - None
(8)(a) Custody Agreement between Conseco Fund Group and
The Bank of New York3/
(b) Custody Agreement between Conseco Fund Group and
State Street Bank and Trust Company with respect
to the Conseco International Fund (to be filed by
amendment)
(9)(a) Form of Amended and Restated Administration
Agreement between Conseco Fund Group and Conseco
Services, LLC (filed herewith)
(b) Sub-Administration Agreement between Conseco
Services, LLC and The Bank of New York3/
(c) Sub-Administration Agreement between Conseco
Services, LLC and AMR Investment Services, Inc.
(to be filed by amendment)
(d) Fund Accounting Agreement between Conseco
Services, LLC and The Bank of New York3/
(e) Transfer Agency Agreement between Conseco Fund
Group and State Street Bank and Trust Company3/
(f) Form of Agreement Among AMR Investment Services
Trust, AMR Investment Services, Inc., and Conseco
Fund Group and Conseco Capital Management, Inc.
(filed herewith)
(10) Opinion and Consent of Counsel as to the Legality
of the Securities being Registered (filed
herewith)
(11) Consent of Independent Auditors with respect to
International Equity Portfolio (filed herewith)
(12) Financial statements omitted from prospectus -
None
2
<PAGE>
(13) Letter of investment intent - None
(14) Prototype retirement plan - None
(15)(a) Class A Plan of Distribution and Service pursuant
to Rule 12b-1 with Respect to the Equity Fund2/
(b) Class A Plan of Distribution and Service pursuant
to Rule 12b-1 with Respect to the Asset Allocation
Fund2/
(c) Class A Plan of Distribution and Service pursuant
to Rule 12b-1 with Respect to the Fixed Income
Fund2/
(d) Form of Plan of Distribution and Service pursuant
to Rule 12b-1 (filed herewith)
(e) Selling Group Agreement (to be filed by amendment)
(16) Performance Computation Schedule - None
(17) Financial Data Schedule (filed herewith)
(18) Amended and Restated Multiple Class Plan Pursuant
to Rule 18f-3 (filed herewith)
Item 25. Persons Controlled By or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Number of Record Holders as of
Title of Class October 10, 1997
Conseco 20 Fund
Class A shares 0
Class B shares 0
Class C shares 0
Class Y shares 0
Conseco High Yield Fund
Class A shares 0
Class B shares 0
Class C shares 0
Class Y shares 0
Conseco International Fund
Class A shares 0
Class B shares 0
Class C shares 0
Class Y shares 0
3
<PAGE>
Item 27. Indemnification.
Reference is made to Articles II and V of the Agreement and Declaration
of Trust incorporated by reference from the Registrant's registration statement,
SEC File No. 333-13185, filed previously on October 1, 1996.
Item 28. Business and Other Connections of Investment Adviser.
Conseco Capital Management, Inc. (the "Adviser") is an Indiana
corporation which offers investment advisory services. The Adviser is a
wholly-owned subsidiary of Conseco, Inc., also an Indiana corporation, a
publicly owned financial services company. Both the Adviser's and Conseco,
Inc.'s offices are located at 11825 N. Pennsylvania Street, Carmel, Indiana
46032.
Information as to the officers and directors of the Adviser is included
in its current Form ADV filed with the SEC and is incorporated by reference
herein.
Item 29. Principal Underwriters.
Conseco Equity Sales, Inc. serves as the Registrant's principal
underwriter. Conseco Equity Sales, Inc. also serves as distributor of one other
investment company, Conseco Series Trust.
The following information is furnished with respect to the officers and
directors of Conseco Equity Sales, Inc. The principal business address of each
person listed is 11815 N. Pennsylvania Street, Carmel, Indiana 46032.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Principal Underwriter with Registrant
---------------- -------------------------- ---------------
<S> <C> <C>
L. Gregory Gloeckner President None
William P. Latimer Vice President, Senior Vice President and Secretary
Counsel, Secretary, and
Director
James S. Adams Senior Vice President, Treasurer, Principal Financial
Treasurer, and Director and Accounting Officer
William T. Devanney, Jr. Senior Vice President, Vice President,
Corporate Taxes Corporate Taxes
</TABLE>
4
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
registrant's custodian, The Bank of New York, 90 Washington Street, 22nd Floor,
New York, New York 10826.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
1. 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.
2. Registrant hereby undertakes to hold a meeting of shareholders for
the purpose of voting upon the question of removal of a Trustee or Trustees when
requested to do so by the holders of at least 10 percent of the outstanding
shares, and in connection with such meeting to assist in communications with
other shareholders as required by section 16(c) of the 1940 Act.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant , Conseco
Fund Group, certifies that it meets all of the requirements for effectiveness of
the Post-Effective Amendment No. 4 to its Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Carmel and
State of Indiana on the 19th day of December, 1997.
CONSECO FUND GROUP
By: /s/ Maxwell E. Bublitz
------------------------------
Maxwell E. Bublitz
President (Principal Executive Officer)
and Trustee
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 4 to the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- -----
/s/ Maxwell E. Bublitz President (Principal Executive December 19, 1997
- -------------------------- Officer) and Trustee
Maxwell E. Bublitz
/s/ James S. Adams Treasurer (Principal Financial December 19, 1997
- -------------------------- and Accounting Officer)
James S. Adams
/s/ William P. Daves, Jr. Chairman of the Board and December 19, 1997
- -------------------------- Trustee
William P. Daves, Jr.*
/s/ Gregory J. Hahn Trustee December 19, 1997
- --------------------------
Gregory J. Hahn*
/s/ Harold W. Hartley Trustee December 19, 1997
- --------------------------
Harold W. Hartley*
/s/ R. Jan LeCroy Trustee December 19, 1997
- --------------------------
Dr. R. Jan LeCroy*
/s/ Jesse H. Parrish Trustee December 19, 1997
- --------------------------
Dr. Jesse H. Parrish*
/s/ William P. Latimer December 19, 1997
- --------------------------
*By: William P. Latimer
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
(1) Agreement and Declaration of Trust1/
(2) By-laws1/
(3) Voting trust agreement - None
(4)(a) Agreement and Declaration of Trust of Conseco Fund
Group, Articles V, VI, VII, VIII, and X1/
(b) By-laws of Conseco Fund Group, Articles II, V, and VII1/
(5)(a) Investment Advisory Agreement between Conseco Fund Group and
Conseco Capital Management, Inc. with respect to the Equity
Fund2/
(b) Investment Advisory Agreement between Conseco Fund Group and
Conseco Capital Management, Inc. with respect to the Asset
Allocation Fund2/
(c) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Fixed Income Fund2/
(d) Investment Advisory Agreement between Conseco Fund
Group, on behalf of the Conseco 20 Fund, the
Conseco High Yield Fund and the International
Fund, and Conseco Capital Management, Inc. (filed
herewith)
(6) Amended and Restated Principal Underwriting Agreement between
Conseco Fund Group and Conseco Equity Sales, Inc. (filed
herewith)
(7) Bonus, profit sharing or pension plans - None
(8)(a) Custody Agreement between Conseco Fund Group and The Bank of
New York3/
- ----------------
1/ Incorporated by reference from the Registrant's registration statement, SEC
File No. 333-13185, filed on October 1, 1996.
2/ Incorporated by reference from Post-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-13185, filed July 30, 1997.
<PAGE>
(b) Custody Agreement between Conseco Fund Group and State
Street Bank and Trust Company with respect to the Conseco
International Fund (to be filed by amendment)
(9)(a) Amended and Restated Administration Agreement between Conseco
Fund Group and Conseco Services, LLC (filed herewith)
(b) Sub-Administration Agreement between Conseco Services, LLC and
The Bank of New York3/
(c) Sub-Administration Agreement between Conseco Services, LLC and
AMR Investment Services, Inc. (to be filed by amendment)
(d) Fund Accounting Agreement between Conseco Services, LLC and
The Bank of New York3/
(e) Transfer Agency Agreement between Conseco Fund Group and State
Street Bank and Trust Company3/
(f) Agreement Among AMR Investment Services Trust, AMR Investment
Services, Inc., and Conseco Fund Group and Conseco Capital
Management, Inc. (filed herewith)
(10) Opinion and Consent of Counsel as to the Legality of the
Securities being Registered (filed herewith)
(11) Consent of Independent Auditors with respect to
International Equity Portfolio (filed herewith)
(12) Financial statements omitted from prospectus - None
(13) Letter of investment intent - None
(14) Prototype retirement plan - None
(15)(a) Class A Plan of Distribution and Service pursuant
to Rule 12b-1 with Respect to the Equity Fund2/
(b) Class A Plan of Distribution and Service pursuant to Rule
12b-1 with Respect to the Asset Allocation Fund2/
(c) Class A Plan of Distribution and Service pursuant to Rule
12b-1 with Respect to the Fixed Income Fund2/
(d) Plan of Distribution and Service pursuant to Rule 12b-1
(filed herewith)
(e) Selling Group Agreement (to be filed by amendment)
(16) Performance Computation Schedule - None
<PAGE>
(17) Financial Data Schedule (filed herewith)
(18) Amended and Restated Multiple Class Plan Pursuant to Rule
18f-3 (filed herewith)
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 250
<NAME> AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 664005
<INVESTMENTS-AT-VALUE> 774331
<RECEIVABLES> 4505
<ASSETS-OTHER> 32479
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 811315
<PAYABLE-FOR-SECURITIES> 1144
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48498
<TOTAL-LIABILITIES> 49642
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 761673
<DIVIDEND-INCOME> 15631
<INTEREST-INCOME> 2891
<OTHER-INCOME> 322
<EXPENSES-NET> 3433
<NET-INVESTMENT-INCOME> 15411
<REALIZED-GAINS-CURRENT> 21331
<APPREC-INCREASE-CURRENT> 57105
<NET-CHANGE-FROM-OPS> 93847
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 263330
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2828
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3433
<AVERAGE-NET-ASSETS> 604399
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
INVESTMENT ADVISORY AGREEMENT
Between CONSECO FUND GROUP
and
CONSECO CAPITAL MANAGEMENT, INC.
THIS INVESTMENT ADVISORY AGREEMENT is entered into as of this 31st day
of December, 1997, by and between Conseco Fund Group (the "Trust"), a
Massachusetts business trust, and Conseco Capital Management, Inc. (the
"Adviser"), a Delaware corporation.
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end diversified management
investment company;
WHEREAS, the Trust has established several separate series of shares,
each of which represents a separate diversified portfolio of investments, and
may establish additional series of shares (each series now or hereafter listed
on Schedule A hereto, as such schedule may be amended from time to time, shall
be referred to herein as a "Fund");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940;
WHEREAS, the Trust desires to retain the Adviser to render investment
advice and furnish portfolio management services to each Fund; and
WHEREAS, the Adviser is willing to render such advice and furnish such
services pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties mutually agree as follows:
1. Employment; Duties of the Adviser. (a) The Trust hereby employs the
Adviser as investment adviser of each Fund. The Adviser hereby accepts such
employment and agrees to provide the services set forth herein in return for the
compensation under Paragraph 8.
(b) Subject to the supervision and direction of the Board of
Trustees of the Trust (the "Trustees"), the Adviser shall provide a continuous
investment program for each Fund and shall, as part of its duties hereunder, (i)
furnish investment research and management with respect to the investment of the
assets of each Fund, (ii) determine from time to time securities or other
<PAGE>
investments to be purchased, sold, retained or lent by each Fund, (iii) furnish,
without cost to each Fund, such office space, equipment, facilities and
personnel as needed for servicing the investments of the Fund to the extent not
provided by the Trust's administrator under a separate agreement with the Trust,
(iv) maintain all books and records with respect to portfolio transactions of
each Fund, and (v) permit its directors, officers and employees to serve,
without compensation from the Trust or each Fund, as Trustees or officers of the
Trust. The Adviser shall carry out its duties under this Agreement in accordance
with each Fund's stated investment objective, policies, and restrictions, the
1940 Act and other applicable laws and regulations, and such other guidelines as
the Trustees may reasonably establish from time to time.
(c) The Adviser will place orders for each Fund either
directly with the issuer or with any broker or dealer. In placing orders with
brokers and dealers, the Adviser will attempt to obtain the best net results in
terms of price and execution. Consistent with this obligation, the Adviser may,
in its discretion, purchase and sell portfolio securities to and from brokers
and dealers that provide brokerage and research services. The Adviser may pay
such brokers and dealers a higher commission than may be charged by other
brokers and dealers if the Adviser determines in good faith that such commission
is reasonable in relation to the value of the brokerage and research services
provided. This determination may be viewed in terms either of the particular
transaction or of the overall responsibility of the Adviser to the Funds and its
other clients.
2. Retention of a Sub-Adviser. Subject to such approval as may be
required under the 1940 Act, the Adviser may retain a sub-adviser, at the
Adviser's own cost and expense, for the purpose of making investment
recommendations and research available to the Adviser. Retention of a
sub-adviser with respect to any or all Funds shall in no way reduce the
responsibilities or obligations of the Adviser under this Agreement, and the
Adviser shall be responsible to the Trust and each such Fund for all acts or
omissions of the sub-adviser in connection with the performance of the Adviser's
duties hereunder.
3. Independent Contractor Status; Services Not Exclusive. The Adviser
shall, for all purposes herein, be deemed to be an independent contractor. The
services to be rendered by the Adviser pursuant to the provisions of this
Agreement are not to be deemed exclusive and the Adviser shall therefore be free
to render similar or different services to others, provided that, its ability to
render the services described herein shall not be impaired thereby.
4. Furnishing of Information. (a) Each Fund shall from time to time
furnish or make available to the Adviser detailed statements of the investments
and assets of the Fund, information pertaining to the investment objectives and
needs of the Fund, financial reports, proxy statements, and such legal or other
information as the Adviser may reasonably request in connection with the
performance of its obligations hereunder.
(b) The Adviser will furnish the Trustees with such periodic
and special reports (including data on securities, economic conditions and other
pertinent subjects) as the Trustees may reasonably request.
5. Fund Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser agrees that all records which it maintains for
2
<PAGE>
the Trust shall be the property of the Trust and shall be surrendered promptly
to the Trust upon request. The Adviser further agrees to preserve all such
records for the periods prescribed by Rule 31a-2 under the 1940 Act. The Adviser
agrees that it will maintain all records and accounts regarding the investment
activities of each Fund in a confidential manner. All such accounts or records
shall be made available within five (5) business days of request to the
accountants or auditors of each Fund during regular business hours at the
Adviser's offices. In addition, the Adviser will provide any materials
reasonably related to the investment advisory services provided hereunder as may
be reasonably requested in writing by the designated officers of the Trust or as
may be required by any duly constituted authority.
6. Allocation of Costs and Expenses. (a) The Adviser shall pay the
costs of rendering its services pursuant to the terms of this Agreement, other
than the costs of securities (including brokerage commissions, if any) purchased
by the Funds.
(b) Each Fund shall bear all expenses of its operation
(including its proportionate share of the general expenses of the Trust) not
specifically assumed by the Adviser. Expenses borne by each Fund shall include,
but are not limited to, (i) organizational and offering expenses of the Fund and
expenses incurred in connection with the issuance of shares of the Fund; (ii)
fees of the Trust's custodian and transfer agent; (iii) costs and expenses of
pricing and calculating the net asset value per share for each class of the Fund
and of maintaining the books and records required by the 1940 Act; (iv)
expenditures in connection with meetings of shareholders and Trustees, other
than those called solely to accommodate the Adviser; (v) compensation and
expenses of Trustees who are not interested persons of the Trust or the Adviser
("Disinterested Trustees"); (vi) the costs of any liability, uncollectible items
of deposit and other insurance or fidelity bond; (vii) the cost of preparing,
printing, and distributing prospectuses and statements of additional
information, any supplements thereto, proxy statements, and reports for existing
shareholders; (viii) legal, auditing, and accounting fees; (ix) trade
association dues; (x) filing fees and expenses of registering and maintaining
registration of shares of the Fund under applicable federal and state securities
laws; (xi) brokerage commissions; (xii) taxes and governmental fees; and (xiii)
extraordinary and non-recurring expenses.
(c) To the extent the Adviser incurs any costs which are an
obligation of a Fund as set forth herein and to the extent such costs have been
reasonably rendered, the Fund shall promptly reimburse the Adviser for such
costs.
8. Investment Advisory Fees. (a) As compensation for the advice and
services rendered and the expenses assumed by the Adviser pursuant hereto, each
Fund shall pay to the Adviser a fee computed at the annual rate set forth on
Schedule A hereto, as such schedule may be amended from time to time.
(b) The investment advisory fee shall be accrued daily by each
Fund and paid to the Adviser at the end of each calendar month.
(c) In the case this Agreement becomes effective or terminates
with respect to any Fund before the end of any month, the investment advisory
fee for that month shall be calculated on the basis of the number of business
days during which it is in effect for that month.
3
<PAGE>
9. Additional Funds. In the event that the Trust establishes one or
more series of shares with respect to which it desires to have the Adviser
render services under this Agreement, it shall so notify the Adviser in writing.
If the Adviser agrees in writing to provide said services, such series of shares
shall become a Fund hereunder upon execution of a new Schedule A and the
approval of the Trustees and the shareholders of the series as required by the
1940 Act.
10. Compliance with Applicable Law. Nothing contained herein shall be
deemed to require the Funds to take any action contrary to (a) the Agreement and
Declaration of Trust of the Trust, (b) the By-laws of the Trust, or (c) any
applicable statute or regulation. Nothing contained herein shall be deemed to
relieve or deprive the Trustees of their responsibility for and control of the
conduct of the affairs of the Trust or the Funds.
11. Liability. (a) In the absence of willful misfeasance, bad faith or
gross negligence on the part of the Adviser, or reckless disregard by the
Adviser of its obligations or duties hereunder, the Adviser shall not be subject
to liability to the Trust or any Fund or its shareholders for any act or
omission in the course of or in connection with rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
(b) No provision of this Agreement shall be construed to
protect any Trustee or officer of the Trust, or any director or officer of the
Adviser, from liability to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence on the part of
such person, or reckless disregard by such person of obligations or duties
hereunder.
(c) A copy of the Trust's Agreement and Declaration of Trust
is on file with the Secretary of the Commonwealth of Massachusetts, and notice
is hereby given that this Agreement is executed on behalf of the Trustees as
Trustees and not individually. The Adviser acknowledges and agrees that the
obligations of a Fund hereunder are not personally binding upon any of the
Trustees or shareholders of the Fund but are binding only upon property of that
Fund and no other.
12. Term of Agreement. This Agreement shall become effective on the
date above written with respect to each Fund listed on Schedule A hereto on such
date and shall continue in effect for two years from such date unless sooner
terminated as hereinafter provided. With respect to each series added by
execution of a new Schedule A, this Agreement shall become effective on the date
of such execution and shall remain in effect for two years after such execution
unless sooner terminated as hereinafter provided. Thereafter, this Agreement
shall continue in effect with respect to each Fund from year to year so long as
such continuation is approved at least annually for each Fund by (i) the
Trustees or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) the vote of a majority of the Disinterested Trustees, with
such vote being cast in person at a meeting called for the purpose of voting on
such approval.
13. Termination. This Agreement may be terminated with respect to any
Fund at any time without payment of any penalty (a) by the Trustees or by vote
of a majority of the outstanding voting securities of the Fund, upon delivery of
<PAGE>
sixty (60) days' written notice to the Adviser, or (b) by the Adviser upon sixty
(60) days' written notice to the Fund. Termination of this Agreement with
respect to one Fund shall not affect the continued effectiveness of this
Agreement with respect to any other Fund. This Agreement shall terminate
automatically in the event of its assignment.
14. Amendment of Agreement. This Agreement may only be modified or
amended by mutual written agreement of the parties hereto.
15. No Waiver. The waiver by any party of any breach of or default
under any provision or portion of this Agreement shall not operate as or be
construed to be a waiver of any subsequent breach or default.
16. Use of Name. In consideration of the execution of this Agreement,
the Adviser hereby grants to the Trust the right to use the name "Conseco" as
part of its name and the names of the Funds. The Trust agrees that in the event
this Agreement is terminated, it shall immediately take such steps as are
necessary to amend its name to remove the reference to "Conseco."
17. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana, except insofar as the 1940
Act may be controlling.
18. Definitions. For purposes of application and operation of the
provisions of this Agreement, the terms "majority of the outstanding voting
securities, "interested persons," and "assignment" shall have the meaning as set
forth in the 1940 Act. In addition, when the effect of a requirement of the 1940
Act reflected in any provision of this Agreement is modified, interpreted or
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
19. Severability. The provisions of this Agreement shall be considered
severable and if any provision of this Agreement is deemed to be invalid or
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect any other provision of this Agreement which is valid.
20. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
ATTEST: CONSECO FUND GROUP,
By:
- ------------------------------ --------------------------------
William P. Latimer, Esq. Maxwell E. Bublitz
President
ATTEST: CONSECO CAPITAL MANAGEMENT, INC.
By:
- ------------------------------ --------------------------------
William P. Latimer, Esq. Maxwell E. Bublitz
President
6
<PAGE>
CONSECO FUND GROUP
INVESTMENT ADVISORY AGREEMENT
SCHEDULE A
Series Annual Fee
------ ----------
Conseco 20 Fund .70%
High Yield Fund .70%
International Fund 1.00%
AMENDED AND RESTATED
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN CONSECO FUND GROUP
AND
CONSECO EQUITY SALES, INC.
THIS PRINCIPAL UNDERWRITING AGREEMENT is entered into as of this 2nd day
of January, 1997, by and between Conseco Fund Group (the "Trust"), a
Massachusetts business trust, and Conseco (formerly GARCO) Equity Sales, Inc., a
Texas corporation (the "Underwriter"), and is amended as of December 31, 1997.
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end diversified management investment
company, and its shares are registered pursuant to the Securities Act of 1933
(the "1933 Act");
WHEREAS, the Trust has established several separate series of shares, each
of which represents a separate diversified portfolio of investments, and may
establish additional series of shares (each series now or hereafter listed on
Schedule A hereto, as such schedule may be amended from time to time, shall be
referred to herein as a "Fund");
WHEREAS, the Trust has issued shares of each Fund in one or more classes
(each a "Class"), and has adopted Plans of Distribution and Service (the
"Plans") pursuant to Rule 12b-1 under the 1940 Act with respect to certain of
those Classes (each a "12b-1 Class");
WHEREAS, the Underwriter is registered as a broker-dealer under the
Securities Exchange Act of 1934 (the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, the Trust desires to retain the Underwriter to act as the Trust's
principal underwriter in connection with the offering and sale of shares of each
Fund and to furnish certain other services; and
WHEREAS, the Underwriter is willing to act as principal underwriter and to
furnish such services pursuant to the terms and conditions set forth herein;
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties mutually agree as follows:
1. Employment; Duties Of The Underwriter.
-------------------------------------
(a) The Trust hereby employs the Underwriter, and the Underwriter
hereby accepts employment, as the principal underwriter and exclusive sales
agent in connection with the offering and sale of the shares of each Fund. It is
understood, however, that such employment does not preclude sales made directly
by the Trust or through its transfer agent as set forth in the Trust's
Registration Statement. As used herein, the term "Registration Statement" shall
mean the registration statement most recently filed by the Trust under the 1933
Act and the 1940 Act, including any amendments or supplements thereto. The
Underwriter agrees to use its best efforts to promote the sale of the Funds'
shares. The Underwriter is not obligated to sell any specific number of shares.
(b) The Underwriter shall hold itself available to receive
purchase and redemption orders for shares of each Fund and to accept such orders
on behalf of the Trust. The Underwriter shall promptly notify the Trust or its
transfer agent of all orders received. Orders shall be deemed effective at the
time and in the manner set forth in the Registration Statement.
(c) The Trust reserves the right at all times to suspend or limit
the public offering of the shares of any or all Funds (or of any or all Classes
thereof) upon written notice to the Underwriter. The Trust and the Underwriter
each has the right to reject any order in whole or in part.
(d) The Underwriter shall provide or obtain certain shareholder
services, including, but not limited to, maintaining account records for
shareholders; answering inquiries relating to shareholders' accounts, the
policies of the Funds and the performance of their investments; providing
assistance and handling transmission of funds in connection with purchase,
redemption and exchange orders for shares; providing assistance in connection
with changing account setups and enrolling in various optional services; and
producing and disseminating shareholder communications or servicing materials.
The Underwriter may pay compensation and expenses, including overhead, salaries,
and telephone and other communications expenses, to Authorized Dealers (as
defined below) and employees who provide such services.
(e) The Underwriter in its discretion may enter into agreements
with such brokers, dealers or other financial intermediaries ("Authorized
Dealers") as it may select regarding the distribution of Fund shares and/or the
servicing of shareholder accounts. To the extent required by applicable law,
each Authorized Dealer shall be appropriately registered and qualified to carry
out its duties under its agreement with the Underwriter.
2. INDEPENDENT CONTRACTOR STATUS; SERVICES NOT EXCLUSIVE. The Underwriter
shall, for all purposes herein, be deemed to be an independent contractor. The
services to be rendered by the Underwriter pursuant to the provisions of this
Agreement are not to be deemed exclusive, and the Underwriter shall therefore be
free to render similar or different services to others; PROVIDED THAT, its
ability to render the services described herein shall not be impaired thereby.
2
<PAGE>
3. FURNISHING OF INFORMATION. Each Fund shall keep the Underwriter fully
informed with regard to its affairs. Each Fund shall furnish the Underwriter at
least annually with audited financial statements of its books and accounts
certified by its independent public accountants. In addition, from time to time,
each Fund shall furnish such additional financial or other information as the
Underwriter may reasonably request.
4. OFFERING PRICE. Each Class of Fund shares shall be offered at a price
equivalent to its net asset value per share (determined in the manner and at the
time or times set forth in the Registration Statement) plus any applicable sales
charge. On each day on which the New York Stock Exchange ("NYSE") is open for
business, the Trust shall furnish (or arrange for another person to furnish) the
Underwriter with each Class' net asset value per share.
5. COMPENSATION.
(a) As compensation for its activities under this Agreement with
respect to any Class of Fund shares with an initial sales charge, the
Underwriter shall receive the sales charge, if any, imposed on purchases of
shares of that Class. The amount of the sales charge shall be calculated in
accordance with the Registration Statement. The Distributor is authorized to
collect the gross proceeds derived from the sale of such shares, remit the net
asset value thereof to the Trust and retain the initial sales charge.
(b) As compensation for its activities under this Agreement with
respect to any Class of Fund shares with a contingent deferred sales charge, the
Underwriter shall receive the sales charge, if any, imposed on redemptions of
shares of that Class. The amount of the sales charge shall be determined in
accordance with the Registration Statement.
(c) As additional compensation, the Underwriter shall receive a
distribution and service fee with respect to each 12b-1 Class at the rate set
forth in the applicable Plan, as such Plan may be amended from time to time.
(d) The Underwriter may reallow to Authorized Dealers any or all
of the initial sales charges, contingent deferred sales charges, or distribution
and service fees which it is paid under this Agreement; provided, however, that
the Distributor may not make payments to any Authorized Dealer for shareholder
servicing in an amount in excess of .25% of the average annual net asset value
of the shares owned by clients of such Authorized Dealer.
6. PURCHASES FOR UNDERWRITER'S OWN ACCOUNT. The Underwriter shall not
purchase shares for its own account for the purpose of resale to the public, but
the Underwriter may purchase shares for its own account only upon written
assurance that the purchase is for investment purposes and that the shares shall
not be resold except through redemption by the Trust.
7. ALLOCATION OF EXPENSES. (a) Each Fund will pay all fees and expenses
in connection with (i) preparing audited and certified financial statements;
(ii) registering and maintaining the registration of its shares under applicable
federal and state securities laws; and (iii) preparing, printing and
3
<PAGE>
distributing prospectuses and statements of additional information, any
supplements thereto, reports, and other communications that are sent to existing
shareholders.
(b) The Underwriter shall pay (or reimburse) all fees and expenses of each
Fund in connection with (i) printing and distributing additional copies of
prospectuses, statements of additional information, any supplements thereto,
reports, and other communications for other than existing shareholders used to
offer shares to the public; and (ii) preparing, printing and distributing all
advertising and sales literature relating to the Fund.
(c) The Underwriter shall pay all of its own expenses in connection with
its services under this Agreement and may pay the salaries and expenses of
Authorized Dealers or employees who engage in or support the distribution of
Fund shares or who service shareholder accounts.
8. REPORTS OF UNDERWRITER. The Underwriter shall prepare, at least
quarterly, reports for the Trustees showing expenditures under this Agreement
and the purposes for which such expenditures were made.
9. CONDUCT OF BUSINESS. The Trust authorizes the Underwriter to provide
only such information and to make only such statements and representations as
permitted in accordance with federal and state securities laws and applicable
rules of self-regulatory organizations.
10. ADDITIONAL FUNDS. In the event that the Trust establishes one or more
series of shares with respect to which it desires to have the Underwriter render
services under this Agreement, it shall so notify the Underwriter in writing. If
the Underwriter agrees in writing to provide said services, such series of
shares shall become a Fund hereunder upon execution of a new Schedule A and
approval by the Trustees.
11. LIABILITY. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Underwriter or reckless disregard by the
Underwriter of its obligations or duties hereunder, the Underwriter shall not be
subject to liability to the Trust or any Fund or its shareholders for any act or
omission in the course of or in connection with rendering services hereunder.
12. TERM OF AGREEMENT. This Agreement shall become effective on the date
above written and shall continue in effect for two years from such date unless
sooner terminated as hereinafter provided. Thereafter this Agreement shall
continue in effect with respect to each Fund from year to year so long as such
continuation is approved at least annually for each Fund by (i) the Trustees or
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) the vote of a majority of the Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party ("Disinterested
Trustees") and by a majority of those Disinterested Trustees who have no direct
or indirect financial interest in any Plan or this Agreement. ("Rule 12b-1
Trustees"), with such vote being cast in person at a meeting called for the
purpose of voting on such approval.
13. TERMINATION. This Agreement may be terminated with respect to any
Fund at any time without payment of any penalty (a) by the Trustees, by vote of
4
<PAGE>
a majority of the outstanding voting securities of the Fund, or by the vote of a
majority of the Rule 12b-1 Trustees, upon delivery of sixty (60) days' written
notice to the Underwriter, or (b) by the Underwriter upon sixty (60) days'
written notice to the Fund. Termination of this Agreement with respect to one
Fund shall not affect the continued effectiveness of this Agreement with respect
to any other Fund. This Agreement shall terminate automatically in the event of
its assignment.
14. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents the entire
agreement between the parties hereto and supersedes any prior agreement between
the parties pertaining to the subject matter hereof, whether oral or written.
This Agreement may only be modified or amended by mutual written agreement of
the parties hereto.
15. NO WAIVER. The waiver by any party of any breach of or default under
any provision or portion of this Agreement shall not operate as or be construed
to be a waiver of any subsequent breach or default.
16. DEFINITIONS. For purposes of application and operation of the
provisions of this Agreement, the terms "assignment," "interested persons" and
"majority of the outstanding voting securities" shall have the meanings set
forth in the 1940 Act. In addition, when the effect of a requirement of the 1940
Act reflected in any provision of this Agreement is modified, interpreted or
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
17. SEVERABILITY. The provisions of this Agreement shall be considered
severable and if any provision of this Agreement is deemed to be invalid or
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect any other provision of this Agreement which is valid.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
19. NOTICES. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed postage prepaid to the other party at the
address such other party may designate from time to time for the receipt of such
notices.
20. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana, except insofar as the 1940 Act
may be controlling.
21. LIMITATIONS OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. A copy of
the Agreement and Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts and notice is hereby given that
this Agreement is executed on behalf of the Trustees as Trustees, and not
individually. The Underwriter acknowledges and agrees that the obligations of a
Fund hereunder are not binding upon any of the Trustees or shareholders of the
Fund personally but are binding only upon the assets and property of that Fund
and no other.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
CONSECO FUND GROUP
ATTEST: By:
-----------------------------
Gregory J. Hahn
Vice President
__________________________________
CONSECO EQUITY SALES, INC.
ATTEST:
By:
-----------------------------
L. Gregory Gloeckner
__________________________________ President
6
<PAGE>
CONSECO FUND GROUP
AMENDED AND RESTATED PRINCIPAL UNDERWRITING AGREEMENT
SCHEDULE A
SERIES
Conseco Equity Fund
Conseco Asset Allocation Fund
Conseco Fixed Income Fund
Conseco 20 Fund
Conseco High Yield Fund
Conseco International Fund
7
AMENDED AND RESTATED ADMINISTRATION AGREEMENT
BETWEEN CONSECO FUND GROUP
AND
CONSECO SERVICES LLC
THIS ADMINISTRATION AGREEMENT is entered into as of this 2nd day of
January, 1997, by and between Conseco Fund Group (the "Trust"), a Massachusetts
business trust having its principal office and place of business at 11825 N.
Pennsylvania St., Carmel, Indiana, and Conseco Services LLC (the
"Administrator"), an Indiana limited liability company having its principal
office and place of business at 11815 N. Pennsylvania St., Carmel, Indiana, and
is amended as of December 31, 1997.
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end diversified management investment
company;
WHEREAS, the Trust has established several separate series of shares, each
of which represents a separate portfolio of investments, and may establish
additional series of shares (each series now or hereafter listed on Schedule A
hereto, as such schedule may be amended from time to time, shall be referred to
herein as a "Fund"); and
WHEREAS, the Trust desires to retain the administrator to provide
administrative services to each Fund, and the Administrator is willing to
provide said services directly or through other entities;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties mutually agree as follows:
1. Employment; Duties Of The Administrator
---------------------------------------
1.1 The Trust hereby employs the Administrator as administrator of each Fund,
and the Administrator agrees to provide the services set forth herein in
return for the compensation under Paragraph 2.
1.2 Subject to the supervision and direction of the Board of Trustees of the
Trust (the "Trustees"), the Administrator shall supervise each Fund's
business and affairs and shall provide the services required for the
effective administration of each Fund to the extent not otherwise provided
by employees, agents or contractors of the Trust. These services shall
include: (i) furnishing, without cost to each Fund, such office space,
<PAGE>
equipment, facilities and personnel as needed in connection with the
Fund's operations, (ii) supervising the preparation and filing of all
documents required for compliance by each Fund with the federal and state
securities laws, (iii) monitoring and reporting on compliance by each Fund
with its investment policies and restrictions, (iv) furnishing clerical
and bookkeeping services as needed by each Fund in connection with its
operation (including establishing appropriate expense accruals,
maintaining expense files and coordinating payment of invoices), (v)
maintaining the books and records required by the 1940 Act, (vi) fund
accounting, (vii) assisting in the preparation and distribution of annual
and other reports to shareholders of each Fund, (viii) monitoring and
reporting on compliance with NASD rules, (ix) monitoring and reporting on
compliance with applicable Internal Revenue Code provisions and
regulations, (x) supervising the preparation and filing of any federal,
state and local income tax returns, (xi) preparing for meetings of the
Trustees and shareholders, (xii) permitting its directors, officers and
employees to serve, without compensation from the Trust or each Fund, as
Trustees or officers of the Trust, (xiii) overseeing the determination and
publication of each Fund's net asset value per share in accordance with
the Fund's policies, and (xiv) overseeing relations with, and the
performance of, agents engaged by the Trust, such as its transfer agent,
custodian, independent accountants and legal counsel. Nothing contained
herein shall be deemed to relieve or deprive the Trustees of their
responsibility for and control of the conduct of the affairs of the Trust
or the Funds.
1.3 The administrative services provided hereunder will exclude (i) portfolio
custodial services provided by the Trust's custodian, (ii) transfer agency
services provided by the Trust's transfer agent, (iii) distribution
services provided by the distributor of the Trust's shares, Conseco Equity
Sales, Inc., and (iv) any administrative services provided by the Trust's
investment adviser pursuant to its investment advisory agreements with the
Trust.
2. Administration Fees
-------------------
2.1 As compensation for the services rendered and the expenses assumed by the
Administrator pursuant to this Agreement, each Fund shall pay the
Administrator a fee computed at the annual rate set forth on Schedule A,
as such schedule may be amended from time to time.
2.2 The administration fee shall be accrued daily by each Fund and paid to the
Administrator at the end of each calendar month. In the case this
Agreement becomes effective or terminates with respect to any Fund before
the end of any month, the administration fee for that month shall be
calculated on the basis of the number of business days during which it is
in effect for that month.
3. Expenses
--------
Each Fund shall bear all expenses of its operation (including its
proportionate share of the general expenses of the Trust) not specifically
assumed by the Administrator. Expenses borne by each Fund shall include,
but are not limited to, (i) organizational and offering expenses of the
Fund and expenses incurred in connection with the issuance of shares of
the Fund; (ii) fees of the Trust's custodian and transfer agent; (iii)
expenditures in connection with meetings of shareholders and Trustees,
2
<PAGE>
other than those called solely to accommodate the Administrator; (iv)
compensation and expenses of Trustees who are not interested persons of
the Trust or the Administrator ("Disinterested Trustees"); (v) the costs
of any liability, uncollectible items of deposit and other insurance or
fidelity bond; (vi) the cost of preparing, printing, and distributing
prospectuses and statements of additional information, any supplements
thereto, proxy statements, and reports for existing shareholders; (vii)
legal, auditing, and accounting fees; (viii) trade association dues; (ix)
filing fees and expenses of registering and maintaining registration of
shares of the Fund under applicable federal and state securities laws; (x)
brokerage commissions; (xi) taxes and governmental fees; and (xii)
extraordinary and non-recurring expenses.
4. Representations And Warranties Of The Administrator And The Trust
-----------------------------------------------------------------
4.1 The Administrator represents and warrants to the Trust that:
(a) It is a limited liability company duly organized and existing, in
good standing, under the laws of the State of Indiana.
(b) It is duly qualified to carry on its business in the State of
Indiana.
(c) It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
(d) All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
(e) It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4.2 The Trust represents and warrants to the Administrator that:
(a) It is a business trust duly organized and existing, in good standing,
under the laws of the Commonwealth of Massachusetts.
(b) It is empowered under applicable laws and by its Agreement and
Declaration of Trust and By-Laws to enter into and perform this
Agreement.
(c) All corporate proceedings required by said Agreement and Declaration
of Trust and By-Laws have been taken to authorize it to enter into
and perform this Agreement.
(d) A registration statement under the Securities Act of 1933, as
amended, and the 1940 Act is currently effective and will remain
effective, and appropriate securities filings have been made and
will continue to be made, with respect to all shares of the Funds
being offered for sale.
3
2
<PAGE>
5. Confidentiality
---------------
Subject to the duty of the Trust or the Administrator to comply with
applicable law, each party agrees, on its own behalf and on behalf of its
employees, agents and contractors, to treat as confidential all
information with respect to the other party received pursuant to this
Agreement.
6. Delegation Of Duties
--------------------
The Administrator may delegate to a sub-administrator the performance of
any or all of its duties hereunder with respect to one or more Funds. The
Administrator shall be responsible to the Trust and the Funds for the acts
and omissions of any sub-administrator to the same extent as it is for its
own acts and omissions. The Administrator shall compensate any
sub-administrator retained pursuant to this Agreement out of the fees it
receives pursuant to Paragraph 2 above.
7. Liability
---------
7.1 The Administrator and its officers, directors or employees shall not be
liable for, and each Fund shall indemnify and hold the Administrator
harmless from, any and all losses, damages, or expenses resulting from any
action taken or omitted to be taken by the Administrator hereunder, except
a loss, damage or expense resulting from willful misfeasance, bad faith or
negligence of the Administrator or that of its officers, directors or
employees or the reckless disregard by the Administrator or its officers,
directors or employees of obligations and duties hereunder. Nothing herein
shall in any way constitute a waiver or limitation of any rights which may
exist under any federal securities laws.
7.2 A copy of the Trust's Agreement and Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this Agreement is executed on behalf of the Trustees as
Trustees and not individually. The Administrator acknowledges and agrees
that the obligations of a Fund hereunder are not binding upon any of the
Trustees or shareholders of the Fund personally but are binding only upon
the assets and property of that Fund and no other.
8. Fund Records
------------
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Administrator agrees that all records which it maintains on behalf of the
Trust are the property of the Trust, will be preserved for the periods
prescribed by Rule 31a-2 under the 1940 Act, and will be surrendered
promptly to the Trust upon request.
9. Additional Funds
----------------
In the event that the Trust establishes one or more series of shares with
respect to which it desires to have the Administrator render services
under this Agreement, it shall so notify the Administrator in writing. If
the Administrator agrees in writing to provide said services, such series
4
3
<PAGE>
of shares shall become a Fund hereunder upon execution of a new Schedule A
and approved by the Trustees.
10. Term Of Agreement
-----------------
This Agreement, as amended, shall become effective on the date above
written and shall continue in effect for two years from such date unless
sooner terminated as hereinafter provided. Thereafter, this Agreement
shall continue in effect with respect to each Fund from year to year so
long as such continuation is approved at least annually for each Fund by
(i) the Trustees or by the vote of a majority of the outstanding voting
securities of the Fund and (ii) the vote of a majority of the
Disinterested Trustees, with such vote being cast in person at a meeting
called for the purpose of voting on such approval.
11. Termination
-----------
This Agreement may be terminated by either party upon sixty (60) days'
prior written notice to the other. Termination of this Agreement with
respect to one Fund shall not affect the continued effectiveness of this
Agreement with respect to any other Fund.
12. Amendment
---------
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by the Trustees.
13. Assignment
----------
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
14. Applicable Law
--------------
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Indiana, except
insofar as the 1940 Act may be controlling.
15. DEFINITIONS
------------
As used in this Agreement, the terms "majority of the outstanding voting
securities," "interested persons," and "assignment" shall have the meaning
as set forth in the 1940 Act. In addition, when the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement
is modified, interpreted or relaxed by a rule, regulation or order of the
Securities and Exchange Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
5
4
<PAGE>
16. Severability
------------
The provisions of this Agreement shall be considered severable and if any
provision of this Agreement is deemed to be invalid or contrary to any
existing or future law, such invalidity shall not impair the operation of
or affect any other provision of this Agreement which is valid.
17. Merger Of Agreement
-------------------
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
18. Counterparts
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
CONSECO FUND GROUP
ATTEST: By:
------------------------------
Gregory J. Hahn
______________________________ Vice President
William P. Latimer
CONSECO SERVICES LLC
ATTEST: By:
--------------------------------
_______________________________
Karl W. Kindig
<PAGE>
CONSECO FUND GROUP
AMENDED AND RESTATED ADMINISTRATION AGREEMENT
SCHEDULE A
SERIES ANNUAL FEE
------ ----------
Conseco Equity Fund .20%
Conseco Asset Allocation Fund .20%
Conseco Fixed Income Fund .20%
Conseco 20 Fund .20%
Conseco High Yield Fund .20%
Conseco International Fund .75%
AGREEMENT AMONG
AMR INVESTMENT SERVICES TRUST
AMR INVESTMENT SERVICES, INC.
and
CONSECO FUND GROUP
CONSECO CAPITAL MANAGEMENT, INC.
THIS AGREEMENT is made and entered into as of the 10th day of December,
1997, by and among AMR Investment Services Trust ("AMR Trust"), AMR Investment
Services, Inc. ("AMR"), Conseco Fund Group ("Conseco Trust") and Conseco Capital
Management, Inc. ("Adviser").
WHEREAS, the International Equity Portfolio ("Portfolio") is a series
of AMR Trust and the International Fund ("Fund") is a series of Conseco Trust;
WHEREAS, the Portfolio and the Fund are each a series of separate
open-end management investment companies and each have the same investment
objectives and substantially the same investment policies;
WHEREAS, AMR serves as the manager of the Portfolio and Adviser and its
affiliates serve as the investment adviser, administrator, sponsor and
distributor of the Fund;
WHEREAS, the Fund desires to invest all of its investable assets in the
Portfolio in exchange for a beneficial interest in the Portfolio (the
"Investment") on the terms and conditions set forth in this Agreement; and
WHEREAS, the Portfolio believes that accepting the Investment is in the
best interests of the Portfolio and that the interests of existing investors in
the Portfolio will not be diluted as a result of its accepting the Investment;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein made and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows.
<PAGE>
ARTICLE I
THE INVESTMENT
1.1 Agreement to Effect the Investment. The Fund agrees to assign,
transfer and deliver all of the Fund's investable assets ("Assets") to the
Portfolio at each Closing (as hereinafter defined). The Portfolio agrees in
exchange therefor to issue to the Fund a beneficial interest ("Interest") in the
Portfolio equal in value to the net value of the Assets of the Fund conveyed to
the Portfolio on that date of Closing, which Interest shall be fully redeemable
in accordance with the Investment Company Act of 1940, as amended ("1940 Act")
and the AMR Trust's registration thereunder.
ARTICLE II
CLOSING AND CLOSING DATE
2.1 Time of Closing. The conveyance of the Assets in exchange for the
Interest, as described in Article I, together with related acts necessary to
consummate such transactions, shall occur initially on the date the Fund
commences an offering of its shares to the public and at each subsequent date as
the Fund desires to make a further Investment in the Portfolio (each, a
"Closing"). All acts occurring at any Closing shall be deemed to occur
simultaneously as of the last daily determination of the Portfolio's net asset
value on the date of Closing.
2.2 Related Closing Matters. On each date of Closing, the Conseco
Trust, on behalf of the Fund, shall authorize the Fund's custodian to deliver
all of the Assets held by such custodian to the Portfolio's custodian. The
Fund's and the Portfolio's custodians shall acknowledge, in a form acceptable to
the other party, their respective delivery and acceptance of the Assets. The
Portfolio shall deliver to the Conseco Trust evidence acceptable to the Conseco
Trust of the Fund's ownership of the Interest. In addition, each party shall
deliver to each other party such bills of sale, checks, assignments, securities
instruments, receipts or other documents as such other party or its counsel may
reasonably request. Each of the representations and warranties set forth in
Article III shall be deemed to have been made anew on each date of Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
<PAGE>
3.1 The Conseco Trust and Adviser. The Conseco Trust and Adviser each
represents and warrants to AMR Trust and AMR that:
(a) Organization. The Conseco Trust is a trust duly organized,
validly existing and in good standing under the laws of Massachusetts, the Fund
is a duly and validly designated series of the Conseco Trust, and the Conseco
Trust and the Fund have the requisite power and authority to own their property
and conduct their business as now being conducted and as proposed to be
conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by the Conseco Trust and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Conseco Trust and the Fund and no other action or proceeding is
necessary for the execution and delivery of this Agreement by the Conseco Trust,
the performance by the Conseco Trust of its obligations hereunder and the
consummation by the Conseco Trust of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Conseco Trust and
constitutes a legal, valid and binding obligation of the Conseco Trust in
respect of the Fund, and is enforceable against them in accordance with its
terms.
(c) Authorization of Investment. The Investment has been duly
authorized by all necessary action on the part of the Board of Trustees of the
Conseco Trust.
(d) No Bankruptcy Proceedings. Neither the Conseco Trust nor
the Fund is under the jurisdiction of a court in a proceeding under Title 11 of
the United States Code (the "Bankruptcy Code") or similar case within the
meaning of Section 368(a)(3)(A) of the Bankruptcy Code.
(e) Fund Assets. The Fund's Assets will, at the initial
Closing, consist solely of cash.
(f) Fiscal Year. The fiscal year end for the Fund is October
31.
(g) Auditors. The Conseco Trust has appointed Coopers &
Lybrand as the Fund's independent public accountants to certify the Fund's
financial statements in accordance with Section 32 of the 1940 Act.
(h) Registration Statements. The Conseco Trust and Adviser (1)
have reviewed the Portfolio's registration statement on Form N-1A, as filed with
the Securities and Exchange Commission ("SEC"), and the Conseco Trust
<PAGE>
understands and agrees to the Portfolio's policies and methods of operation as
described therein, and (2) have provided to AMR Trust and AMR the Trust's most
recent registration statement on Form N-1A, as filed with the SEC, and all
exhibits contained or incorporated therein.
(i) Errors and Omissions Insurance Policy. The Conseco Trust
has in force an errors and omissions liability insurance policy insuring the
Fund against loss up to at least $2,000,000 for negligence or wrongful acts.
(j) SEC Filings. The Conseco Trust has duly filed all forms
and other documents (collectively, "SEC Filings") required to be filed under the
Securities Act of 1933, as amended ("1933 Act"), the Securities Exchange Act of
1934 ("1934 Act") and the 1940 Act (collectively, the "Securities Laws") in
connection with the registration of the Fund shares, any meetings of the Fund
shareholders and its registration as an investment company. The SEC Filings
regarding the Fund were prepared in accordance with the requirements of the
Securities Laws, as applicable, and the rules and regulations of the SEC
thereunder, and do not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(k) 1940 Act Registration. The Conseco Trust is duly
registered as an open-end management investment company under the 1940 Act and
the Fund and its shares are registered or qualified in any states where such
registration or qualification is necessary and such registrations or
qualifications are in full force and effect.
3.2 The Portfolio and AMR. The Portfolio and AMR each represents and
warrants to the Conseco Trust and Adviser that:
(a) Organization. AMR Trust is a trust duly organized, validly
existing and in good standing under the common law of the State of New York, the
Portfolio is a duly and validly designated series of AMR Trust, and AMR Trust
and the Portfolio have the requisite power and authority to own their property
and conduct their business as now being conducted and as proposed to be
conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by AMR Trust on behalf of the Portfolio and the consummation of
<PAGE>
the transactions contemplated hereby have been duly authorized by all necessary
action on the part of AMR Trust by its Board of Trustees and no other action or
proceeding is necessary for the execution and delivery of this Agreement by AMR
Trust, the performance by AMR Trust of its obligations hereunder and the
consummation by AMR Trust of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by AMR Trust and constitutes a
legal, valid and binding obligation of AMR Trust enforceable against it in
accordance with its terms.
(c) Authorization of Issuance of Interest. The issuance by the
Portfolio of the Interest in exchange for the Investment by the Fund of its
Assets has been duly authorized by all necessary action on the part of the Board
of Trustees of AMR Trust. When issued in accordance with the terms of this
Agreement, the Interest will be validly issued, fully paid and non-assessable by
the Portfolio.
(d) No Bankruptcy Proceedings. Neither AMR Trust nor the
Portfolio is under the jurisdiction of a court in a proceeding under Title 11 of
the Bankruptcy Code or similar case within the meaning of Section 368(a)(3)(A)
of the Bankruptcy Code.
(e) Fiscal Year. The fiscal year end of the Portfolio is
October 31.
(f) Auditors. The Portfolio has appointed Ernst & Young LLP as
the Portfolio's independent public accountants to certify the Portfolio's
financial statements in accordance with Section 32 of the 1940 Act.
(g) Registration Statement. AMR Trust and AMR have reviewed
the Conseco Trust's registration statement on Form N-1A which were provided to
the AMR Trust and AMR pursuant Section 3.1(h) of this Agreement to the extent
that such registration statement and exhibits relate to the Fund.
(h) Errors and Omissions Insurance Policy. AMR Trust and AMR
have in force an errors and omissions liability insurance policy insuring the
Portfolio against loss up to at least $10,000,000 for negligence or wrongful
acts.
(i) SEC Filings. AMR Trust has duly filed all SEC Filings
required to be filed with the SEC pursuant to the 1934 Act and the 1940 Act in
connection with any meetings of its investors and its registration as an
investment company. Beneficial interests in the Portfolio are not required to be
registered under the 1933 Act because such interests are offered solely in
private placement transactions that do not involve any "public offering" within
<PAGE>
the meaning of Section 4(2) of the 1933 Act. The SEC Filings regarding the
Portfolio were prepared in accordance with the requirements of the Securities
Laws, as applicable, and the rules and regulations of the SEC thereunder, and do
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(j) 1940 Act Registration. AMR Trust is duly registered as an
open-end management investment company under the 1940 Act and such registration
is in full force and effect.
(k) Tax Status. The Portfolio is taxable as a partnership
under the Internal Revenue Code of 1986, as amended (the "Code").
3.3 AMR. AMR represents and warrants to the Conseco Trust and Adviser
that:
(a) Organization. AMR is a Delaware corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority to conduct its business as
now being conducted.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by AMR have been duly authorized by all necessary action on the
part of AMR and no other action or proceeding is necessary for the execution and
delivery of this Agreement by AMR. This Agreement has been duly executed and
delivered by AMR and constitutes a legal, valid and binding obligation of AMR.
(c) Advisers Act. AMR is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act").
3.4 Adviser. Adviser represents and warrants to the AMR Trust and AMR
that:
(a) Organization. Adviser is a corporation validly existing
and in good standing under the laws of Delaware and has the requisite power and
authority to conduct its business as now being conducted.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by Adviser have been duly authorized by all necessary action on
<PAGE>
the part of Adviser and no other action or proceeding is necessary for the
execution and delivery of this Agreement by Adviser. This Agreement has been
duly executed and delivered by Adviser and constitutes a legal, valid and
binding obligation of Adviser.
ARTICLE IV
COVENANTS
4.1 The Conseco Trust and Adviser. The Conseco Trust and Adviser
covenant as follows:
(a) Advance Review of Certain Documents. Either the Conseco
Trust or Adviser will furnish to AMR Trust and AMR, at least five business days
prior to filing or first use, as the case may be, with a draft of any amendment
or supplement to its Form N-1A registration statement to the extent that such
document relates to the Fund. Any proposed advertisement or sales literature
relating to the Fund will be furnished to AMR Trust and AMR by the party
responsible for preparing such materials at least two business days prior to the
filing of such materials with appropriate regulators or first use, whichever is
sooner. The Conseco Trust and Adviser will include in all such materials which
relate to the Fund any disclosures that may be required by law, and will include
in all such materials any material comments reasonably made by AMR or AMR Trust
prior to such filing or first use. However, AMR and AMR Trust will not be liable
for any errors or omissions in such documents, whether or not they make any
objection thereto, except to the extent such errors or omissions result from
information provided by AMR or AMR Trust. The Conseco Trust and Adviser will not
make any other written or oral representation for general publication about the
AMR Trust or AMR without their prior written consent.
(b) Tax Status. The Fund will qualify for treatment as a
regulated investment company under Subchapter M of the Code for all fiscal
periods of the Fund and Portfolio during which this Agreement is in effect,
except to the extent a failure to so qualify may result from any action or
omission of the Portfolio.
(c) Investment Securities. The Fund will own no investment
security other than its Interest in the Portfolio.
(d) Proxy Voting. If requested to vote on matters pertaining
to AMR Trust or the Portfolio, the Fund will (1) call a timely meeting of
shareholders of the Fund for the purpose of seeking instructions from
<PAGE>
shareholders regarding such matters, (2) vote the Fund's Interest proportionally
as instructed by Fund shareholders, and (3) vote the Fund's Interest with
respect to the shares held by Fund shareholders who do not give voting
instructions in the same proportion as the shares of Fund shareholders who do
give voting instructions.
(e) Auditors. As long as the Fund's independent public
accountants differ from those of the Portfolio, the Fund shall be responsible
for any reasonable costs and expenses associated with the need for the
Portfolio's independent public accountants to provide information to the Fund's
independent public accountants.
4.2 Indemnification by Adviser.
---------------------------
(a) Indemnification. Adviser will indemnify and hold harmless
AMR Trust, the Portfolio, AMR and their respective trustees, directors, officers
and employees and each other person who controls AMR Trust, the Portfolio or
AMR, as the case may be, within the meaning of Section 15 of the 1933 Act (each
a "Covered Person" and collectively "Covered Persons"), against any and all
losses, claims, demands, damages, liabilities and expenses (each a "Liability"
and collectively the "Liabilities") (including, unless Adviser elects to assume
the defense pursuant to paragraph (b), the reasonable cost of investigating and
defending against any claims therefor and any counsel fees incurred in
connection therewith), joint or several, which:
(1) arise out of any misstatement of a material fact or an omission of
a material fact provided by Adviser in the Conseco Trust's registration
statement (including amendments and supplements thereto) or in
advertisements or sales literature prepared by Adviser or an affiliate
of Adviser on behalf of the Conseco Trust, other than a misstatement or
omission arising from information provided by AMR Trust, the Portfolio
or AMR;
(2) result from the failure of any representation or warranty made by
Adviser to be accurate when made or the failure of such parties to
perform any covenant contained herein or otherwise to comply with the
terms of this Agreement; or
(3) arise out of any unlawful or negligent act or omission by Adviser
or any director, officer, employee or agent of Adviser;
provided, however, that in no case shall Adviser be liable with respect to any
claim made against any Covered Person unless the Covered Person shall have
<PAGE>
notified Adviser in writing of the nature of the claim within a reasonable time
after the summons, other first legal process or formal or informal initiation of
a regulatory investigation or proceeding shall have been served upon or provided
to a Covered Person, or any federal, state or local tax deficiency has come to
the attention of Adviser, the Portfolio or a Covered Person. Failure to notify
Adviser of such claim shall not relieve it from any liability that it may have
to any Covered Person otherwise than on account of the indemnification contained
in this Section.
(b) Assumption of Defense. Adviser is entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but, if Adviser elects to assume
the defense, such defense shall be conducted by legal counsel acceptable to the
applicable Covered Persons, which acceptance shall not be unreasonably withheld
or delayed. In the event Adviser elects to assume the defense of any such suit
and retain such counsel, each Covered Person and any other defendant or
defendants may retain additional counsel, but shall bear the fees and expenses
of such counsel unless (1) Adviser shall have specifically authorized the
retaining of such counsel or (2) the parties to such suit include any Covered
Person and Adviser, and any such Covered Person has been advised by counsel that
one or more legal defenses may be available to it that may not be available to
Adviser, in which case Adviser shall not be entitled to assume the defense of
such suit notwithstanding its obligation to bear the fees and expenses of such
counsel. Adviser shall not be liable to indemnify any Covered Person for any
settlement of any claim affected without Adviser' written consent, which consent
shall not be unreasonably withheld or delayed. The indemnities set forth in
paragraph (a) will be in addition to any liability that the Adviser might
otherwise have to a Covered Person.
4.3 AMR and AMR Trust. AMR and AMR Trust, on behalf of the
Portfolio, covenants as follows:
(a) Advance Review of Certain Documents. AMR and AMR Trust
will furnish to the Conseco Trust or Adviser, at least five business days prior
to filing or first use, as the case may be, with a draft of any amendment or
supplement to its Form N-1A registration statement to the extent that such
document relates to any material change concerning the Portfolio. AMR and AMR
Trust will not make any written or oral representation for general publication
about the Conseco Trust, Fund or Adviser without their prior written consent.
<PAGE>
(b) Tax Status. The Portfolio will qualify to be taxed as a
partnership under the Code for all periods during which this Agreement is in
effect, except to the extent that the failure to so qualify results in whole or
in part from any action or omission of the Fund.
(c) Availability of Interests. Conditional upon the Conseco
Trust complying with the terms of this Agreement, the Portfolio shall permit the
Fund to make additional Investments in the Portfolio on each business day on
which shares of the Fund are sold to the public; provided, however, that the
Portfolio may refuse to permit the Fund to make additional Investments in the
Portfolio on any day on which (1) the Portfolio has refused to permit all other
investors in the Portfolio to make additional Investments in the Portfolio or
(2) the Trustees of the Portfolio have reasonably determined that permitting
additional Investments by the Fund in the Portfolio could constitute a breach of
their fiduciary duties to the Portfolio.
4.4 Indemnification by AMR.
-----------------------
(a) Indemnification. AMR will indemnify and hold harmless the
Conseco Trust, the Fund, Adviser, their respective trustees, directors, officers
and employees and each other person who controls the Conseco Trust, the Fund or
Adviser, as the case may be, within the meaning of Section 15 of the 1933 Act
(each a "Covered Person" and collectively, "Covered Persons"), against any and
all losses, claims, demands, damages, liabilities and expenses (each a
"Liability" and collectively the "Liabilities") (including, unless AMR elects to
assume the defense pursuant to paragraph (b), the reasonable costs of
investigating and defending against any claims therefor and any counsel fees
incurred in connection therewith), joint or several, including liabilities
incurred directly by the Conseco Trust, the Fund or Adviser or indirectly by the
Conseco Trust, the Fund or Adviser through the Fund's Investment in the
Portfolio, which
(1) arise out of or are based upon any Securities Laws, any other
statute or common law or are incurred in connection with or as a result
of any formal or informal administrative proceeding or investigation by
a regulatory agency, insofar as such Liabilities arise out of or are
based upon the ground or alleged ground that any direct or indirect
omission or commission by AMR or the Portfolio (either during the
course of its daily activities or in connection with the accuracy of
its representations or its warranties in this Agreement) caused or
<PAGE>
continues to cause the Adviser, the Conseco Trust or the Fund to
violate any federal or state securities laws or regulations or any
other applicable domestic or foreign law or regulations or common law
duties or obligations, but only to the extent that such Liabilities do
not arise out of and are not based upon an omission or commission of
the Conseco Trust, Fund or Adviser;
(2) arise out of the Portfolio or AMR having caused the Conseco Trust
or the Fund to fail to qualify as a regulated investment company under
the Code;
(3) arise out of any misstatement of a material fact or an omission of
a material fact in the AMR Trust's registration statement (including
amendments and supplements thereto) or included at the request of AMR
or the Portfolio in advertising or sales literature used by the Fund,
other than a misstatement of a material fact or an omission arising
from information provided by the Conseco Trust, Fund or Adviser;
(4) result from the failure of any representation or warranty made by
the AMR Trust, the Portfolio or AMR to be accurate when made or the
failure of such parties to perform any covenant contained herein or
otherwise to comply with the terms of this Agreement; or
(5) arise out of any unlawful or negligent act or omission by the
Portfolio, AMR or any director, trustee, officer, employee or agent of
such persons;
provided, however, that in no case shall AMR be liable with respect to any claim
made against any such Covered Person unless such Covered Person shall have
notified AMR in writing of the nature of the claim within a reasonable time
after the summons, other first legal process or formal or informal initiation of
a regulatory investigation or proceeding shall have been served upon or provided
to a Covered Person or any federal, state or local tax deficiency has come to
the attention of the Conseco Trust, Adviser or a Covered Person. Failure to
notify AMR of such claim shall not relieve it from any liability that it may
have to any Covered Person otherwise than on account of the indemnification
contained in this paragraph.
(b) Assumption of Defense. AMR is entitled to participate at
its own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but, if AMR elects to assume the
defense, such defense shall be conducted by legal counsel acceptable to the
applicable Covered Persons, which consent shall not be unreasonably withheld or
delayed. In the event AMR elects to assume the defense of any such suit and
retain such counsel, each Covered Person and any other defendant or defendants
in the suit may retain additional counsel but shall bear the fees and expenses
of such counsel unless (1) AMR shall have specifically authorized the retaining
<PAGE>
of such counsel or (2) the parties to such suit include any Covered Person and
AMR, and any such Covered Person has been advised by counsel that one or more
legal defenses may be available to it that may not be available to AMR, in which
case AMR shall not be entitled to assume the defense of such suit
notwithstanding the obligation to bear the fees and expenses of such counsel.
AMR shall not be liable to indemnify any Covered Person for any settlement of
any such claim effected without AMR's written consent, which consent shall not
be unreasonably withheld or delayed. The indemnities set forth in paragraph (a)
will be in addition to any liability that the AMR Trust in respect of the
Portfolio might otherwise have to a Covered Person.
4.5 In-Kind Redemption. If the Fund desires to withdraw or redeem all
of its Interests in the Portfolio, the Portfolio can effect such redemption "in
kind" and in such a manner that the securities delivered to the Fund's custodian
for the account of the Fund will mirror, as closely as practicable, the
composition of the Portfolio immediately prior to such redemption. No other
withdrawal or redemption of any Interest in the Portfolio will be satisfied by
means of an "in kind" redemption except in compliance with Rule 18f-1 under the
1940 Act.
4.6 Reasonable Actions. Each party covenants that it will, subject to
the provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and deliver
or cause to be executed and delivered all such assignments and other
instruments, take or cause to be taken such actions, and do or cause to be done
all things reasonably necessary, proper or advisable in order to consummate the
transactions contemplated by this Agreement and to carry out its intent and
purpose.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions Precedent. The obligations of each party to consummate
the transactions provided for herein shall be subject to (a) performance by such
other parties of all the obligations to be performed by the other parties
hereunder on or before each Closing, and (b) all representations and warranties
of the other parties contained in this Agreement being true and correct in all
material respects as of the date hereof and, except as they may be affected by
<PAGE>
the transactions contemplated by this Agreement, as of each date of Closing,
with the same force and effect as if made on and as of the time of such Closing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Notification of Certain Matters. Each party will give prompt notice
to the other parties of (a) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause either (1) any
representation or warranty contained in this Agreement to be untrue or
inaccurate, or (2) any condition precedent set forth in Article V hereof to be
unsatisfied in any material respect at the time of any Closing and (b) any
material failure of a party or any trustee, director, officer, employee or agent
thereof to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such person hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.1 shall not limit or otherwise
affect the remedies available, hereunder or otherwise, to the party receiving
such notice.
6.2 Access to Information. The Portfolio and the Fund shall afford each
other access at all reasonable times to such party's officers, employees and
agents and to all its relevant books and records and shall furnish each other
party with all relevant financial and other data and information as reasonably
requested; provided, however, that nothing contained herein shall obligate any
party to provide another party with access to their books and records as they
relate to any series of the Conseco Trust or AMR Trust other than the Fund or
the Portfolio respectively, except as may be required to comply with applicable
law or any provision of this Agreement.
6.3 Confidentiality. Each party agrees that it shall hold in strict
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable from public or published
information or trade sources) and shall ensure that its officers, employees and
authorized representatives do not disclose such information to others without
the prior written consent of the party from whom it was obtained, except if
disclosure is required by the SEC, any other regulatory body or the Fund's or
Portfolio's respective auditors, or in the opinion of counsel such disclosure is
required by law, and then only with as much prior written notice to the other
party as is practical under the circumstances.
6.4 Public Announcements. No party shall issue any press release or
otherwise make any public statements with respect to the matters covered by this
<PAGE>
Agreement without the prior consent of the other parties hereto, which consent
shall not be unreasonably withheld; provided, however, that consent shall not be
required if, in the opinion of counsel, such disclosure is required by law,
provided further, however, that the party making such disclosure shall provide
the other parties hereto with as much prior written notice of such disclosure as
is practical under the circumstances.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination.
(a) This Agreement may be terminated by the mutual agreement of
all parties.
(b) This Agreement may be terminated at any time by the Conseco Trust
by redeeming all of the Fund's Interests in the Portfolio.
(c) This Agreement may be terminated on not less than 60 days'
prior written notice by AMR or the AMR Trust to the Fund and Adviser.
(d) This Agreement may be terminated immediately at any time upon
written notice to the other parties in the event that formal proceedings are
instituted against another party to this Agreement by the SEC or any other
regulatory body relating to the Fund or the Portfolio, provided that the
terminating party has a reasonable belief that the institution of the proceeding
is not without foundation and will have a material adverse impact on the
terminating party.
(e) The indemnification obligations in Article IV shall survive the
termination of this Agreement.
7.2 Amendment. This Agreement may be amended, modified or supplemented
at any time in such manner as may be mutually agreed upon in writing by the
parties.
7.3 Waiver. At any time prior to any Closing, any party may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein.
<PAGE>
ARTICLE VIII
DAMAGES
8.1 Damages. The parties agree that, if this Agreement is breached, the
remedy of money damages would not be adequate and agree that injunctive relief
would be the appropriate relief.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications given or made
pursuant hereto shall to in writing and shall be deemed to have been duly given
or made when actually received in person or by fax, or three days after being
sent by certified or registered United States mail, return receipt requested,
postage prepaid, addressed as follows:
If to AMR or AMR Investment Services, Inc.
AMR Trust: 4333 Amon Carter Boulevard, MD-5645
Fort Worth, Texas 76155
Attn.: Barry Y. Greenberg, Esq.
Tel.: (817) 967-3514
Fax: (817) 967-0768
If to the Conseco Trust:
or the Fund
Conseco Services LLC
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attn: William Latimer
Tel: (317) 817-6863
Fax: (317) 817-6161
If to Adviser: Conseco Capital Management
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attn: Greg Hahn
Cc: William Latimer
Tel: (317) 817-6323
Fax: (317) 817-6161
9.2 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
9.3 Headings. The headings and captions contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
<PAGE>
interpretation of this Agreement.
9.4 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
9.5 Entire Agreement. This Agreement and the agreements and other
documents delivered pursuant hereto set forth the entire understanding between
the parties concerning the subject matter of this Agreement and incorporate or
supersede all prior negotiations and understandings. There are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them relating to the subject matter of this Agreement other than those
set forth herein. No representation or warranty has been made by or on behalf of
any party to this Agreement (or any officer, director, trustee, employee or
agent thereof) to induce any other party to enter into this Agreement or to
abide by or consummate any transactions contemplated by any terms of this
Agreement, except representations and warranties expressly set forth herein.
9.6 Successors and Assignments. Each and all of the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and, except as otherwise specifically provided in this Agreement, their
respective successors and assigns. Notwithstanding the foregoing, no party shall
make any assignment of this Agreement or any rights or obligations hereunder
without the written consent of all other parties. As used herein, the term
"assignment" shall have the meaning ascribed thereto in the 1940 Act.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
choice of law or conflicts of law provisions thereof.
9.8 Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
<PAGE>
party hereto may execute this Agreement by signing one or more counterparts.
9.9 Third Parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
9.10 Interpretation. Any uncertainty or ambiguity existing herein shall
not presumptively be interpreted against any party, but shall be interpreted
according to the application of the rules of interpretation for arm's length
agreements.
9.11 Limitation of Liability. The parties acknowledge that the Conseco
Trust and AMR Trust have entered into this Agreement solely on behalf of the
Fund and Portfolio, respectively, and that no other series of Conseco Trust or
AMR Trust shall have any obligation hereunder with respect to any liabilities
arising hereunder. The parties further acknowledge and agree that the
obligations of the AMR Trust and Conseco Trust under this Agreement are not
personally binding upon any shareholder or trustee of the AMR Trust or Conseco
Trust, but bind only the property of the Portfolio and the Fund, respectively.
The Adviser and the Conseco Trust represent that they have notice of the
provisions of the Declaration of Trust of the AMR Trust disclaiming shareholder
liability for acts or obligations of the AMR Trust. AMR and the AMR Trust
represent that they have notice of the provisions of the Declaration of Trust of
the Conseco Trust disclaiming shareholder liability for acts or obligations of
the Conseco Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the date
first written above.
AMR INVESTMENT SERVICES, INC.
By
-----------------------------
Name:
---------------------------
Title:
--------------------------
AMR INVESTMENT SERVICES TRUST,
on behalf of itself and
the International Equity
Portfolio, a series thereof
By
-----------------------------
Name:
---------------------------
Title:
--------------------------
CONSECO FUND GROUP,
on behalf itself and
the International Fund, a
series thereof
By
-----------------------------
Name:
---------------------------
Title:
--------------------------
CONSECO CAPITAL MANAGEMENT, INC.
By
-----------------------------
Name:
---------------------------
Title:
--------------------------
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE (202) 778-9000
FACSIMILE (202) 778-9100
December 29, 1997
Conseco Fund Group
11815 N. Pennsylvania Street
P.O. Box 1911
Carmel, Indiana 46032
Ladies and Gentlemen:
Conseco Fund Group ("Trust") is a unincorporated voluntary association
organized under the laws of the State of Massachusetts and governed by a Trust
Instrument dated September 20, 1996. You have requested our opinion regarding
certain matters in connection with the Trust's issuance of shares of beneficial
interest ("Shares"), in its new series, Conseco 20 Fund, Conseco High Yield Fund
and Conseco International Fund (collectively, "New Series").
As counsel to the Trust, we have participated in various matters
relating to the Trust. We have examined copies of the Trust Instrument and the
Trust's By-Laws, as now in effect, and the minutes of meetings of the trustees
of the Trust, and we are generally familiar with its affairs. For certain
matters of fact, we have relied upon representations of officers of the Trust.
Based on the foregoing, it is our opinion that the unlimited number of Shares of
the New Series currently being registered may be legally and validly issued in
accordance with the Trust's Declaration of Trust and By-Laws and subject to
compliance with the Securities Act of 1933, the Investment Company Act of 1940
and applicable state laws regulating the offer and sale of securities; and, when
so issued, the Shares will be legally issued, fully paid and non-assessable by
the Trust.
We express no opinion as to compliance with the Securities Act of 1933,
the Investment Company Act of 1940, or applicable state securities laws in
connection with the sale of Shares.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Declaration of Trust states that that persons seeking to subject shareholders to
any personal liability whatsoever, in tort, contract or otherwise, in connection
with the Trust property or affairs of the Trust, shall look solely to the Trust
for satisfaction of their claims. It also requires that notice of such
disclaimer be given in any written instrument creating an obligation of the
Trust, but that the omission of such recital shall not operate to impose
personal liability on any of the shareholders of the Trust. The Declaration of
Trust further provides for indemnification from the assets of the series for all
loss and expense of any shareholder held personally liable for the obligations
of the Trust or a particular series by virtue of ownership of shares of such
series. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust or series
would be unable to meet its obligations.
<PAGE>
We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 4 to the Trust's Registration Statement on Form
N-1A. We also consent to the reference to our firm under the caption "Legal
Counsel" in the Statement of Additional Information filed as part of the
Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART LLP
By: /s/ Donald W. Smith
---------------------------
Donald W. Smith
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Independent Public
Accountants/Auditors" and "Financial Statements" and to the use of our report on
the financial statements of AMR Investment Services Trust International Equity
Portfolio dated December 19, 1997 in the Registration Statement (Form N-1A) of
Conseco Fund Group filed with the Securities and Exchange Commission in this
Post-Effective Amendment No. 4 to the Registration Statement under the
Securities Act of 1933 (File No. 333-13185) and this Amendment No. 5 under the
Investment Company Act of 1940 (File No. 811-07839).
By: /s/ Ernst & Young LLP
------------------------
ERNST & YOUNG LLP
Dallas, Texas
December 22, 1997
PLAN OF DISTRIBUTION AND SERVICE
PURSUANT TO RULE 12B-1
CONSECO FUND GROUP
DECEMBER 31, 1997
WHEREAS, Conseco Fund Group (the "Trust"), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company;
WHEREAS, the Trust has established several separate series of shares, each
of which represents a separate portfolio of investments, and may establish
additional series of shares (each series of the Trust shall be referred to
herein as a "Fund"); and
WHEREAS, the Trust is authorized to issue shares of each Fund in one or
more classes (each a "Class").
WHEREAS, the Trust has engaged Conseco Equity Sales, Inc. (the
"Distributor") as distributor of the shares of the Funds pursuant to an Amended
and Restated Principal Underwriting Agreement dated as of January 2, 1997, as
amended December 23, 1997; and
WHEREAS, the Trust desires to adopt a Plan of Distribution and Service
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act with respect to those
Classes of the Funds listed on Schedule A hereto, as such schedule may be
amended from time to time, (each a "Designated Class" and collectively the
"Designated Classes") and the Board of Trustees of the Trust (the "Trustees")
has determined that there is a reasonable likelihood that adoption of this Plan
will benefit the Trust, each Fund and the shareholders of each Designated Class
thereof.
NOW, THEREFORE, the Trust, with respect to each Designated Class, hereby
adopts this Plan in accordance with Rule 12b-1, on the following terms and
conditions:
1. Each Fund shall pay to the Distributor, as compensation for
distributing each Designated Class's shares and for servicing
shareholder accounts, a fee for each Designated Class computed at the
annual rate set forth on Schedule A hereto, as such schedule may be
amended from time to time. The fees shall be payable regardless of
whether those fees exceed or are less than the actual expenses incurred
by the Distributor with respect to that Designated Class in a
particular year. Such compensation shall be calculated and accrued
daily and paid monthly or at such other intervals as the Trustees may
determine.
<PAGE>
2. (a) As principal underwriter of each Designated Class's shares, the
Distributor may spend such amounts as it deems appropriate on any
activities or expenses primarily intended to result in the sale
of such shares, including, but not limited to, compensation to
employees of the Distributor; compensation to the Distributor and
to brokers, dealers or other financial intermediaries that have a
Selling Group Agreement in effect with the Distributor
("Authorized Dealers"); expenses of the Distributor and
Authorized Dealers, including overhead, salaries, and telephone
and other communication expenses; the printing of prospectuses,
statements of additional information, and reports for other than
existing shareholders; and the preparation, printing, and
distribution of sales literature and advertising materials.
(b) The Distributor may spend such amounts as it deems appropriate on
the servicing of shareholder accounts, including, but not limited
to, maintaining account records for shareholders; answering
inquiries relating to shareholders' accounts, the policies of the
Funds and the performance of their investments; providing
assistance and handling transmission of funds in connection with
purchase, redemption and exchange orders for shares; providing
assistance in connection with changing account setups and
enrolling in various optional services; and producing and
disseminating shareholder communications or servicing materials;
and may pay compensation and expenses, including overhead,
salaries, and telephone and other communications expenses, to
Authorized Dealers and employees who provide such services.
3. This Plan shall not take effect with respect to any Class of a Fund
until the Plan, together with any related agreement(s), has been
approved for that Class of the Fund by votes of a majority of both (a)
the Trustees and (b) those Trustees who are not "interested persons" of
the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or any
agreements related to the Plan (the "Rule 12b-1 Trustees") cast in
person at a meeting called for the purpose of voting on the Plan and
such related agreement(s); and only if the Trustees who approve the
Plan have reached the conclusion required by Rule 12b-1(e) with respect
to that Class's shares.
4. This Plan shall remain in effect for one year from the date above written
and shall continue in effect with respect to each Designated Class
thereafter so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in paragraph 3.
5. The Distributor shall provide to the Trustees and the Trustees shall
review, at least quarterly, a written report of the amounts expended by
the Distributor under the Plan and the purposes for which such
expenditures were made.
6. This Plan may be terminated with respect to any Designated Class at any
time by vote of a majority of the Rule 12b-1 Trustees or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act)
of that Designated Class, voting separately from any other Class.
2
<PAGE>
7. This Plan may not be amended to increase materially the amount of
compensation payable by any Designated Class under paragraph 1 hereof
unless such amendment is approved by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of that
Designated Class, voting separately from any other Class. No material
amendment to the Plan shall be made unless approved in the manner provided
in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of Trustees who
are not "interested persons" of the Trust (as defined in the 1940 Act)
shall be committed to the discretion of the Trustees who are themselves
not such interested persons.
9. The Trust shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 5 hereof, for a period of not
less than six years from the date of the Plan, any such agreement, or any
such report, as the case may be, the first two years in an easily
accessible place.
IN WITNESS WHEREOF, the Trust has executed this Plan as of the day and
year first above written.
CONSECO FUND GROUP
By:
-----------------------------
Gregory J. Hahn
Vice President
3
<PAGE>
SCHEDULE A
SERIES ANNUAL FEE
------ ----------
Conseco 20 Fund
Class A 0.50%
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco High Yield Fund
Class A 0.50%
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco International Fund
Class A 0.50%
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco Equity Fund
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco Asset Allocation Fund
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco Fixed Income
Class B 1.00%
Class C 1.00%
Class S 0.25%
4
CONSECO FUND GROUP
SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
December 31, 1997
WHEREAS, Conseco Fund Group, a Massachusetts business trust (the
"Trust"), engages in business as an open-end management investment company;
WHEREAS, the Trust issues shares of beneficial interest in separate
series, with shares of each series representing interests in a separate
portfolio of securities and other assets (the Trust's series together with all
other such series subsequently established by the Trust are referred to herein
individually as a "Series" and collectively as the "Series");
WHEREAS, the Trust has designated for each Series certain separate
classes of shares, as set forth on Schedule A hereto (each a "Class"); and
WHEREAS, the Trustees of the Trust, including a majority of the
Trustees who are not interested persons of the Trust (as defined in the
Investment Company Act of 1940, as amended ("1940 Act") ("Non-interested
Trustees")), having been furnished with and having evaluated information
reasonably necessary to evaluate this Second Amended and Restated Multiple Class
Plan Pursuant to Rule 18f-3 ("Plan"), have determined in the exercise of their
reasonable business judgment that the Plan is in the best interests of each
class of each Series individually, and each Series and the Trust as a whole;
NOW, THEREFORE, the Trust hereby adopts this Plan on behalf of its
Series set forth on Schedule A hereto.
Section 1. Class Differences.
Each Class of a Series shall represent an equal pro
rata interest in the same portfolio of investments of that
Series and, except as otherwise set forth in this Plan, shall
differ solely with respect to : (i) distribution, service and
other charges and expenses as provided for in Sections 2 and 3
of this Plan; (ii) the exclusive voting rights of each Class
on matters submitted to shareholders that relate solely to
that Class; (iii) the separate voting rights of each Class on
matters submitted to shareholders in which the interests of
one Class differ from the interests of another Class, (iv)
such differences relating to eligible investors as may be set
forth in the prospectuses and statements of additional
information of each Series, as the same may be amended or
supplemented from time to time (each a "Prospectus" and "SAI"
and collectively, the "Prospectus" and "SAI"); (v) the
designation of each Class; (vi) exchange privileges; and (vii)
conversion features.
<PAGE>
Section 2. Distribution and Service Arrangements.
Class A shares shall be subject to an initial sales
charge. The initial sales charge shall be reduced or waived
for certain eligible purchasers and for certain large volume
purchases. Class A shares shall be charged annual distribution
and service fees under a Distribution and Service Plan adopted
pursuant to Rule 12b-1 under the 1940 Act. The amount of the
initial sales charge, and the amount of fees under the
Distribution and Service Plan pertaining to the Class A
shares, are set forth on Schedule B hereto. Class A shares
shall not be subject to a contingent deferred sales charge.
Class B shares shall not be subject to an initial
sales charge, but shall be subject to a contingent deferred
sales charge and shall be charged annual distribution and
service fees under a Distribution and Service Plan adopted
pursuant to Rule 12b-1 under the 1940 Act. The amount of and
the provisions related to the contingent deferred sales
charge, and the amount of fees under the Distribution and
Service Plan pertaining to the Class B shares, are set forth
on Schedule B hereto.
Class C shares shall not be subject to an initial
sales charge, but shall be subject to a contingent deferred
sales charge and shall be charged annual distribution and
service fees under a Distribution and Service Plan adopted
pursuant to Rule 12b-1 under the 1940 Act. The amount of and
the provisions related to the contingent deferred sales
charge, and the amount of fees under the Distribution and
Service Plan pertaining to the Class C shares, are set forth
on Schedule B hereto.
Class S shares shall not be subject to an initial
sales charge, but shall be charged annual distribution and
service fees under a Distribution and Service Plan adopted
pursuant to Rule 12b-1 under the 1940 Act. The amount of fees
under the Distribution and Service Plan pertaining to the
Class S shares is set forth on Schedule B hereto.
Class Y shares shall be offered without imposition of
an initial sales charge or contingent deferred sales charge
and are not subject to any distribution or service fees. Class
Y shares shall be offered only to those institutional and
individual investors meeting the eligibility requirements set
forth in the Prospectus and SAI.
2
<PAGE>
Section 3. Expense Allocation.
(a) Class Expenses.
Certain expenses may be attributable to a particular
Class ("Class Expenses"). Class Expenses shall be allocated
exclusively to the particular Class to which they are
attributable. In addition to the distribution and service fees
described in Section 2 above, Class Expenses may include, but
are not limited to, (a) expenses associated with the addition
of classes of shares to the Trust (to the extent that the
expenses were not fully accrued prior to the issuance of the
new classes of shares); (b) expenses of administrative
personnel and services required to support the shareholders of
a specific Class; (c) litigation or other legal expenses
relating to a specific Class of shares; (d) Trustees' fees or
expenses incurred as a result of issues relating to a specific
Class of shares, (e) accounting expenses relating to a
specific Class of shares; and (f) transfer agency fees and
expenses.
Expenses attributable to a Series other than Class
Expenses shall be allocated to each Class based on its net
asset value relative to the net asset value of the Series.
Section 4. Conversion Feature.
Class B shares shall automatically convert to Class A
shares after a specified period of time after the date of
purchase, based on the relative net asset value of each such
Class without imposition of any sales charge, fee or other
charge, as set forth in Schedule C. No other Class shall be
subject to any automatic conversion feature.
Section 5. Exchange Privilege.
Shares of a Class may be exchanged only for shares of
the same Class of another Series, or for shares of the
Federated Money Market Fund, as set forth in the Prospectus.
Section 6. Additional Information.
The Prospectus and SAI contain additional information
about each Class and the Series' multiple class structure.
This Plan is subject to the terms of the Prospectus and SAI;
provided, however, that none of the terms set forth in the
Prospectus and SAI shall be inconsistent with the terms of
this Plan.
3
<PAGE>
Section 7. Term and Termination.
(a) The Series.
This Plan shall become effective with respect to each Series
as set forth on Schedule A hereto, and shall continue in
effect with respect to the Classes of each such Series until
terminated in accordance with the provisions of Section 7(b)
hereof.
(b) Termination.
This Plan may be terminated at any time with respect
to the Trust or any Series or Class thereof, as the case may
be, by vote of a majority of both the Trustees of the Trust
and the Non-Interested Trustees. The Plan may remain in effect
with respect to the Trust or any Series or Class thereof even
if it has been terminated in accordance with this Section 7(b)
with respect to any other Series or Class of the Trust.
Section 8. Amendments.
Before any material amendment to this Plan affecting
the Trust or any Series or Class thereof, a majority of both
the Trustees of the Trust and the Non-Interested Trustees
shall find that the amendment is in the best interests of each
Class of each Series individually and each Series and the
Trust as a whole.
4
<PAGE>
CONSECO FUND GROUP
SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
SCHEDULE A
Name of Series & Classes Date Subject to Plan
Conseco Equity Fund December 5, 1996
Class A, Class B, Class C, Class S, (Amended and Restated as of December 31,
and Class Y 1997)
Conseco Asset Allocation Fund December 5, 1996
Class A, Class B, Class C, Class S, (Amended and Restated as of December 31,
and Class Y 1997)
Conseco Fixed Income Fund December 5, 1996
Class A, Class B, Class C, Class S, (Amended and Restated as of December 31,
and Class Y 1997
Conseco 20 Fund December 31, 1997
Class A, Class B, Class C, Class S,
and Class Y
Conseco High Yield Fund December 31, 1997
Class A, Class B, Class C, Class S,
and Class Y
Conseco International Fund December 31, 1997
Class A, Class B, Class C, and
Class Y
5
<PAGE>
CONSECO FUND GROUP
SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
SCHEDULE B
1. Class A
-------
Initial Sales Charge - Class A Shares. The offering price of Class A
shares is net asset value plus a varying sales charge depending on the amount
invested. The maximum initial sales charge imposed on purchases of Class A
shares is 5% of the offering price. The sales charge applicable to Class A
shares is determined as follows:
Sales Charge
As % of Public As % of Net
Offering Price Amount Invested
-------------- ---------------
On purchases of:
$500 - 50,000 5.75% 6.10%
$50,000 - 100,000 4.50% 4.71%
$100,000 - 250,000 3.50% 3.63%
$250,000 - 500,000 2.50% 2.56%
Over $500,000 None None
Amount of Distribution and Service Plan Fees. Class A shares of each
Series except the Conseco Fixed Income Fund are subject to distribution and
service fees at a rate of up to 0.50% of the average daily net assets of that
Class. Class A shares of the Conseco Fixed Income Fund are subject to
distribution and service fees at an annual rate of up to 0.65% of the average
daily net assets of that Class.
2. Class B
-------
Contingent Deferred Sales Charge - Class B Shares. A contingent
deferred sales charge is imposed upon redemptions of Class B shares within six
years of their purchase. The contingent deferred sales charge is a percentage of
(1) the net asset value of the shares at the time of purchase or (2) the net
asset value of the shares at the time of redemption, whichever is less. The
contingent deferred sales charge is determined as follows:
<PAGE>
Redemption During Contingent Deferred Sales Charge
- ----------------- --------------------------------
1st year since purchase 5%
2nd year since purchase 4%
3rd year since purchase 3%
4th year since purchase 3%
5th year since purchase 2%
6th year since purchase 1%
7th year since purchase 0%
8th year since purchase 0%
The contingent deferred sales charge will not apply to shares acquired by the
reinvestment of dividends or capital gains distributions.
In determining the applicability and rate of any contingent deferred
sales charge, Class B shares acquired through reinvestment of dividends and
capital gains distributions will be redeemed first, followed by the Class B
shares held by the shareholder for the longest period of time. The contingent
deferred sales charge, if any, upon redemption of Class B shares acquired
through an exchange will be calculated based on the original purchase date of
the Class B shares exchanged.
Waiver of the Contingent Deferred Sales Charge. The contingent deferred
sales charge on Class B shares shall be waived in connection with: (a) any
partial or complete redemption in connection with a distribution without federal
tax income penalty under a tax-qualified retirement plan, upon separation from
service and attaining age 55; (b) any partial or complete redemption in
connection with a qualifying loan or hardship withdrawal from a tax-qualified
retirement plan, eligible 457 plan, or 403(b)(7) plan; (c) any complete
redemption in connection with a distribution from a tax-qualified retirement
plan, eligible 457 plan, or 403(b)(7) plan in connection with termination of
employment or termination of the employer's plan; (d) any redemption resulting
from a tax-free return of an excess contribution from a tax-qualified retirement
plan, IRA, savings incentive match plan for an employee ("SIMPLE" plan),
eligible 457 plan, or 403(b)(7) plan; (e) mandated minimum distributions from a
tax-qualified retirement plan, IRA, SIMPLE plan, eligible 457 plan, or 403(b)
plan; (f) substantially equal periodic payments as defined in Section 72(t) of
the Code; (g) any partial or complete redemption following death or disability
of a shareholder (including one who owns the shares as joint tenant with his
spouse), provided the redemption is requested within one year of the death or
initial determination of disability (as defined in Section 72(m) of the Code);
(h) redemptions under a Fund's Systematic Withdrawal Plan (investors may not
withdraw annually more than 12% of the value of their account under the
Systematic Withdrawal Plan); (i) redemptions in connection with investments
7
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related to a bona fide medical savings account; (j) redemptions in connection
with distributions from a Roth IRA or Roth Conversion IRA that are qualified
distributions under the Code; (k) redemptions in connection with distributions
from an Education IRA that are used for qualified higher education expenses
under the Code or which are required by the Code to be distributed; and (1)
redemptions from an account established under a wrap fee or asset allocation
program where the accountholder pays the sponsor an asset-based fee.
Amount of Distribution and Service Plan Fees. Class B shares of a
Series are subject to distribution and service fees at an annual rate of up to
1.00% of the average daily net assets of that Class.
3. Class C
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Contingent Deferred Sales Charge - Class C Shares. Class C shares held
for less than one year are subject to a contingent deferred sales charge on
redemptions in an amount equal to 1% of the lower of (1) the net asset value of
the shares at the time of purchase or (2) the net asset value of the shares at
the time of redemption. Class C shares held one year or longer are not subject
to this contingent deferred sales charge. The contingent deferred sales charge
also will not apply to shares acquired by the reinvestment of dividends or
capital gains distributions. The order in which Class C shares are redeemed will
be determined as described for Class B shares in Schedule C hereto. In addition,
the provisions for waiving the contingent deferred sales charge shall be those
set forth for Class B shares in Schedule C hereto.
The contingent deferred sales charge, if any, upon redemption of Class
C shares acquired through an exchange and held less than one year will be
calculated based on the original purchase date of the Class C shares exchanged.
Amount of Distribution and Service Plan Fees. Class C shares of a
Series are subject to distribution and service fees at an annual rate of up to
1.00% of the average daily net assets of that Class.
4. Class S
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Amount of Distribution and Service Plan Fees. Class S shares of a
Series are subject to distribution and service fees at an annual rate of up to
0.25% of the average daily net assets of that Class.
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CONSECO FUND GROUP
SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
SCHEDULE C
Conversion Feature - Class B Shares. Class B shares will automatically
convert to a number of Class A shares of equal dollar value eight years after
purchase. No initial sales charge or other charge is imposed at conversion. When
Class B shares convert, a pro rata amount of Class B shares that were acquired
by the reinvestment of dividends and capital gains distributions will also
convert to Class A shares.
9
