As Filed With The Securities And Exchange Commission On October 24, 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__
Pre-Effective Amendment No.___
Post-Effective Amendment No.__3__
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 __X__
Amendment No. __4__
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)
[ ] On _______________________ pursuant to Rule 485(b)
[ X ] 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>
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of shares under the Securities
Act of 1933 and filed the declaration pursuant to that rule on December 20,
1996.
<PAGE>
CONSECO FUND GROUP
Equity Fund
Asset Allocation Fund
Fixed Income Fund
Contents of Registration Statement
This Registration Statement consists of the following papers and documents:
. Cover Sheet
. Contents of Registration Statement
. Cross Reference Sheet
. Part A - Conseco Fund Group, Class B and C prospectus
. Part B - Statement of Additional Information
. Part C - Other Information
. Signature Pages
No change is intended to be made by this Post-Effective Amendment No. 3 to
the prospectuses or statements of additional information for Class A and Class Y
of the Equity Fund, the Asset Allocation Fund or the Fixed Income Fund, or to
the prospectuses and statements of additional information for Classes A, B, C
and Y of the Conseco 20 Fund, High Yield Fund or International Fund.
<PAGE>
CONSECO FUND GROUP
Equity Fund
Asset Allocation Fund
Fixed Income Fund
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A Location in
Item No. Registration Statement
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Part A: Information Required In Prospectus
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1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Not applicable
4. General Description of Registrant Cover Page
5. Management of the Fund Management
6. Capital Stock and Other Securities Investment Objectives and
Policies of the Funds
7. Purchase of Securities Being Offered Purchase and Redemption of
Shares
8. Redemption or Repurchase Purchase and Redemption of
Shares
9. Pending Legal Proceedings Not Applicable
Part B: Information Required In
Statement Of Additional Information
-----------------------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General Information
13. Investment Objectives and Policies Investment Restrictions
14. Management of the Registrant Management
15. Control Persons and Principal Holders of Control Persons and
Securities Principal Holders of
Securities
16. Investment Advisory and Other Services Management
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N-1A Location in
Item No. Registration Statement
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17. Brokerage Allocation Portfolio Turnover and
Securities Transactions
18. Capital Stock and Other Securities General
19. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Being Offered Shares
20. Tax Status Taxes
21. Underwriters Distribution Arrangements
22. Calculation of Performance Data Investment Performance
23. Financial Statements Financial Statements
Part C: Other Information
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24. Financial Statements and Exhibits Financial Statements and
Exhibits
25. Persons Controlled by or Under Common Persons Controlled by or
Control 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
of Investment Adviser Connections of Investment
Adviser
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts and
Records
31. Management Services Management Services
32. Undertakings Undertakings
<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 diversified 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 B shares and Class C shares
of the Funds. Class A shares, which are offered to individual investors, and
Class Y shares, which are offered to certain institutional investors and
qualifying individual investors, are offered through separate prospectuses. Each
class may have different expenses, which may affect performance.
The investment objectives of the Funds are as follows:
EQUITY FUND seeks to provide a high equity total return consistent with
preservation of capital and a prudent level of risk primarily by investing in
selected equity securities and other securities having the investment
characteristics of common stocks.
ASSET ALLOCATION FUND seeks a high total investment return, consistent
with the preservation of capital and prudent investment risk. The Fund seeks to
achieve this objective by pursuing an active asset allocation strategy whereby
investments are allocated, based upon thorough investment research, valuation
and analysis of market trends and the anticipated relative total return
available, among various asset classes, including debt securities, equity
securities, and money market instruments.
FIXED INCOME FUND seeks the highest level of income as is consistent with
preservation of capital by investing primarily in investment grade debt
securities.
Conseco Capital Management, Inc. (the "Adviser") serves as the Trust's
investment adviser. The Adviser supervises the Trust's management and investment
program, performs a variety of administrative services on behalf of the Trust,
and pays all compensation of officers and Trustees of the Trust who are
affiliated persons of the Adviser or the Trust. The Trust pays all other
expenses incurred in the operation of the Trust, including fees and expenses of
Trustees who are unaffiliated persons of the Adviser and the Trust.
There is no assurance that any of the Funds will achieve its investment
objective. The various Funds may be used independently or in combination. You
may also purchase shares of a money market fund currently managed by Federated
Investors, which seeks current income consistent with stability of capital and
liquidity, through a separate prospectus. That prospectus is available upon
request by calling 1-800-825-1530.
<PAGE>
This Prospectus sets forth concisely the information about the Trust that
an investor should know before investing in Class B or Class C shares of a Fund.
A Statement of Additional Information ("SAI") dated December __, 1997,
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 December __, 1997.
TABLE OF CONTENTS
Page
Cover Page.......................................................... 1
Fee Table........................................................... 3
Investment Objectives and Policies of the Funds..................... 5
Investment Techniques and Other Investment Policies................. 10
Management.......................................................... 15
Purchase of Shares.................................................. 17
Alternative Pricing Arrangements.................................... 19
Redemption of Shares................................................ 23
Dividends, Other Distributions and Taxes............................ 27
Performance Information............................................. 30
Other Information................................................... 33
Table of Contents of the Statement of Additional Information........ 36
Appendix A Securities Ratings....................................... 37
2
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FEE TABLE
The following fee tables are provided to assist investors in understanding
the various costs and expenses which may be borne directly or indirectly by an
investment in Class B and Class C shares of the Funds.
Shareholder Transaction Expenses Class B Class C
-------------------------------- ------- -------
ALL FUNDS
Maximum Sales Charge Imposed on None None
Purchases (as a percentage of
offering price)
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage
of offering price) None None
Maximum Contingent Deferred Sales Charge 5% * 1% **
(as a percentage of offering price or
net asset value at the time of sale,
whichever is less)
Redemption Fees 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
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(as a percentage of average daily net assets)
Class B Class C
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EQUITY FUND
Management Fees 0.70% 0.70%
Administrative Fees 0.20% 0.20%
12b-1 Fees (1) 1.00% 1.00%
Other Expenses (2) 0.10% 0.10%
===== =====
Total Operating Expenses (3) 2.00% 2.00%
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Class B Class C
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ASSET ALLOCATION FUND
Management Fees 0.70% 0.70%
Administrative Fees 0.20% 0.20%
12b-1 Fees (1) 1.00% 1.00%
Other Expenses (2) 0.10% 0.10%
===== =====
Total Operating Expenses (3) 2.00% 2.00%
Class B Class C
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FIXED INCOME FUND
Management Fees (4) 0.40% 0.40%
Administrative Fees 0.20% 0.20%
12b-1 Fees (1) 1.00% 1.00%
Other Expenses (2) 0.00% 0.00%
===== =====
Total Operating Expenses(3) 1.60% 1.60%
(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 charges permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD").
(2) Other Expenses are based on estimated amounts for the current fiscal year
and exclude taxes, interest, brokerage and other transaction expenses, and any
extraordinary expenses.
(3) The expense information set forth above reflects voluntary commitments of
the Adviser, Conseco Services, LLC and Conseco Equity Sales, Inc. to waive a
portion of their fees under each Fund's Investment Advisory Agreement,
Administration Agreement and Distribution and Service Plans, 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 (including the reduction
in Fixed Income Fund's advisory fee discussed below), with respect to Class B
and Class C shares, it is estimated that Other Expenses would be .92%, 1.38%,
and 2.17% and Total Operating Expenses would be 2.82%, 3.28% and 3.97%, of the
average daily net assets of the Equity, Asset Allocation and Fixed Income Funds,
respectively.
(4) The Adviser has voluntarily undertaken to reduce its advisory fee with
respect to the Fixed Income Fund to .40% of the Fund's average daily net assets
until April 30, 1998. Absent such undertaking, the advisory fee would be .45% of
the Fund's average daily net assets.
4
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EXAMPLE
Assuming a hypothetical investment of $1,000 and a 5% annual return, an
investor in Class B and Class C shares of each of the Funds would have paid
transaction and operating expenses at the end of each year as follows:
EQUITY FUND
1 Year 3 Years
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Class B (Assuming redemption at end of period) $72 $95
Class B (Assuming no redemption) $20 $62
Class C (Assuming redemption at end of period) $30 $62
Class C (Assuming no redemption) $20 $62
ASSET ALLOCATION FUND
1 Year 3 Years
------ -------
Class B (Assuming redemption at end of period $72 $95
Class B (Assuming no redemption) $20 $62
Class C (Assuming redemption at end of period $30 $62
Class C (Assuming no redemption) $20 $62
FIXED INCOME FUND
1 Year 3 Years
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Class B (Assuming redemption at end of period $68 $83
Class B (Assuming no redemption) $16 $50
Class C (Assuming redemption at end of period $26 $50
Class C (Assuming no redemption) $16 $50
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. Each Fund is managed by the Adviser. 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 the Adviser to make changes in a Fund's investments in anticipation
of changes in economic, business, and financial conditions.
The different types of securities and investment techniques common to one
or more Funds all have attendant risks of varying degrees. For example, with
respect to equity securities, there can be no assurance of capital appreciation
and there is a substantial risk of decline. With respect to debt securities,
there can be no assurance that the issuer of such securities will be able to
meet its obligations on interest or principal payments in a timely manner. In
addition, the value of debt instruments generally rises and falls inversely with
interest rates.
5
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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 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
shareholders of the affected Funds. Among other things, the "fundamental
policies" prohibit each Fund, with respect to 75 percent of its total assets,
from (i) investing more than 5 percent of its assets in the securities of any
one issuer (except 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")); and (ii) investing more than 25
percent of its assets in the securities of issuers in the same industry (except
cash equivalent items and U.S. government securities). Except for the Trust's
fundamental policies, all investment policies and practices described in this
Prospectus and in the SAI are not fundamental, meaning that the Board of
Trustees may change them without shareholder approval. See "Description of
Securities and Investment Techniques" and "Investment Restrictions" in the SAI
for further information.
EQUITY FUND
In seeking its objective of providing a high equity total return
consistent with preservation of capital and a prudent level of risk, the Equity
Fund will attempt to achieve a total return (i.e., price appreciation plus
potential dividend yield) primarily through investment in selected equities
(i.e., common stocks and other securities having the investment characteristics
of common stocks, such as convertible debentures and warrants). However, if
market conditions indicate their desirability, the Adviser may, for defensive
purposes, temporarily invest all or a part of the assets of the Equity Fund in
money market instruments. See "Debt Securities" below and in the SAI for further
information.
The Adviser expects that the Fund's equity investments will be widely
diversified by both industry and number of issuers. The Adviser's stock
selection methods will be based in part upon the analysis of variables which it
believes significantly relate to the future market performance of a stock, such
as recent changes in earnings per share and their deviations from analysts'
expectations, past growth trends, price movement of the stock itself, publicly
recorded trading transactions by corporate insiders, and relative price-earnings
ratios. The Adviser expects that investment opportunities will often be sought
among securities of larger, established companies, although securities of
smaller, less well-known companies may also be selected. Small company stocks
have higher risk and volatility, because most are not as broadly traded as
stocks of larger companies and their prices thus may fluctuate more widely and
abruptly.
By investing in securities that are subject to market risk, the Equity
Fund is subject to greater fluctuations in its market value and involves the
assumption of a higher degree of risk as compared to a fund seeking stability of
principal, such as a money market fund, or a fund investing primarily in U.S.
government securities. To maximize potential return, the Adviser may utilize a
6
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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 such options; purchasing and selling, for hedging
purposes, stock index, interest rate, and other futures contracts, and
purchasing options on such futures contracts; purchasing warrants and preferred
and convertible preferred stocks; borrowing from banks to purchase securities;
purchasing foreign securities in the form of American Depository Receipts
("ADRs"); purchasing securities of other investment companies; entering into
repurchase agreements; purchasing restricted securities; investing in
when-issued or delayed delivery securities; and selling securities short
"against the box." See "Description of Securities and Investment Techniques" in
the SAI for further information. The Equity Fund may also invest in high yield,
high risk, lower-rated debt securities. See "Risks Associated With High Yield
Debt Securities" below and in the SAI for further information.
ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to seek a high
total investment return consistent with the preservation of capital and prudent
investment risk. The Fund seeks to achieve this objective by pursuing an active
asset allocation strategy whereby investments are allocated, based upon thorough
investment research, valuation and analysis of market trends and the anticipated
relative total return available, among various asset classes, including debt
securities, equity securities and money market instruments. Total investment
return consists of current income, including dividends, interest, and discount
accruals, and capital appreciation. Achieving this Fund's objective depends on
the Adviser's ability to assess the effect of economic and market trends on
different sectors of the market. In seeking to maximize total return, the Asset
Allocation Fund will follow an asset allocation strategy contemplating shifts
(which may be frequent) among a wide range of investments and market sectors.
The Fund's investments will be designed to maximize total return during all
economic and financial environments, consistent with prudent risk as determined
by the Adviser.
The Asset Allocation Fund will invest in U.S. government securities,
intermediate and long-term debt securities and equity securities of domestic and
foreign issuers, including common and preferred stocks, convertible debt
securities, and warrants. If the Adviser deems stock market conditions to be
favorable or debt market conditions to be uncertain or unfavorable, a
substantially higher percentage of the Fund's total assets may be invested in
equity securities. If, however, the Adviser believes that the equity environment
is uncertain or unfavorable, the Fund may decrease its investments in equity
securities and increase its investments in debt securities. Furthermore, if the
Adviser believes that inflationary or monetary conditions warrant a significant
investment in companies involved in precious metals, the Fund may invest up to
10% of its total assets in the equity securities of companies exploring, mining,
developing, producing, or distributing gold or other precious metals.
Additionally, the Asset Allocation Fund may make temporary defensive investments
(i.e., money market instruments) without limit if it is believed that market
conditions warrant a more conservative investment strategy.
7
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The Asset Allocation Fund may use various investment strategies and
techniques when the Adviser determines that such use is appropriate in an effort
to meet the Fund's investment objective, including but not limited to: writing
listed "covered" call and "secured" put options, including options on stock
indices, and purchasing such options; purchasing and selling, for hedging
purposes, stock index, interest rate, gold, and other futures contracts, and
purchasing options on such futures contracts; purchasing warrants and preferred
and convertible preferred stocks; purchasing foreign securities; entering into
foreign currency transactions and options on foreign currencies; borrowing from
banks to purchase securities; purchasing securities of other investment
companies; entering into repurchase agreements; purchasing restricted
securities; investing in when-issued or delayed delivery securities; and selling
securities short "against the box." See "Description of Securities and
Investment Techniques" in the SAI for further information.
The maturities of the debt securities in the Asset Allocation Fund will
vary based in large part on the Adviser's expectations as to future changes in
interest rates. However, the Adviser anticipates that the debt component of the
Fund will generally be invested primarily in intermediate and/or long-term debt
securities. The Adviser anticipates that the equity portion of the Fund will be
widely diversified by both industry and number of issuers. The Adviser's stock
selection methods will be based in part upon variables which it believes
significantly relate to the future market performance of a stock, such as recent
changes in earnings per share and their deviations from analysts' expectations,
past growth trends, price movement of the stock itself, publicly recorded
trading transactions by corporate insiders, and relative price-earnings ratios.
The Adviser anticipates that investment opportunities will often be sought among
securities of larger, established companies, although securities of smaller,
less well-known companies may also be selected. Small company stocks are subject
to the risks described with respect to the Equity Fund.
The Asset Allocation Fund may invest in high yield, high risk, lower-rated
debt securities which are not believed to involve undue risk to income or
principal. The Asset Allocation Fund does not intend to invest more than 25% of
its total assets (measured at the time of investment) in high yield, high risk
debt securities. Generally, higher yielding bonds carry ratings assigned by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's ("S&P") that
are lower than those assigned to investment grade debt securities, or they are
unrated and the Adviser determines such securities are not of comparable quality
to investment grade debt securities. A debt security will be considered
"investment grade" if it is rated in one of the four highest rating categories
by at least one nationally recognized statistical rating organization ("NRSRO"),
or, in the case of an unrated security, if the Adviser determines such security
is of comparable quality to securities rated in one of the four highest rating
categories. See "Appendix A" to this Prospectus for further discussion regarding
securities ratings.
Lower-rated securities carry higher investment risk than investment grade
debt securities. The market values of lower-rated securities generally fluctuate
more widely than those of higher-rated securities. In addition, changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity for the issuers of such securities to make principal and interest
8
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payments than is generally the case for higher grade debt securities. The lowest
rating categories in which the Fund will invest are CCC/Caa. Securities in those
categories are considered to be of poor standing and are predominantly
speculative. The Adviser seeks to enhance total return specifically through
purchasing securities which the Adviser believes are undervalued and selling,
when appropriate, those securities the Adviser believes are overvalued. In order
to determine value, the Adviser utilizes independent fundamental analysis of the
issuer as well as an analysis of the specific structure of the security. See
"Risks Associated With High Yield Debt Securities" below and "Description of
Securities and Investment Techniques" in the SAI.
The Asset Allocation Fund may also invest in zero coupon securities and
payment-in-kind securities. A zero coupon security pays no interest to its
holders prior to maturity and a payment-in-kind security pays interest in the
form of additional securities. These securities will be subject to greater
fluctuation in market value in response to changing interest rates than
securities of comparable maturities that make periodic cash distributions of
interest.
The Asset Allocation Fund may also invest in equity and debt securities of
foreign issuers, including non-U.S. dollar-denominated securities, Eurodollar
securities and securities issued, assumed or guaranteed by foreign governments
or political subdivisions or instrumentalities thereof. As a non-fundamental
operating policy, the Asset Allocation Fund will not invest more than 50% of its
total assets (measured at the time of investment) in foreign securities. See
"Foreign Securities" below and "Description of Securities and Investment
Techniques" in the SAI for further information.
FIXED INCOME FUND
In seeking its investment objective of providing the highest level of
income as is consistent with the preservation of capital, the Fixed Income Fund
invests primarily in investment grade debt securities (as defined above). The
Adviser seeks to reduce risk, increase income, and preserve or enhance total
return by actively managing the Fund in light of market conditions and trends.
The Adviser seeks to enhance total return specifically through purchasing
securities which the Adviser believes are undervalued and selling, when
appropriate, those securities the Adviser believes are overvalued. In order to
determine value, the Adviser utilizes independent fundamental analysis of the
issuer as well as an analysis of the specific structure of the security. The
Fixed Income Fund may invest in debt securities issued by publicly and privately
held U.S. and foreign companies, the U.S. government and agencies and
instrumentalities thereof, states and their political subdivisions, agencies,
and instrumentalities ("municipal securities"), and foreign governments and
their agencies and instrumentalities. The interest on the municipal securities
in which the Fund invests typically is not exempt from federal income tax. The
Fixed Income Fund may also invest in mortgage-related debt securities,
asset-backed debt securities, and other forms of debt securities. See "Debt
Securities" and "Mortgage-Backed Securities" below and in the SAI. In addition,
up to 15% of the Fund's assets may be invested directly in equity securities,
including preferred and common stocks, convertible debt securities and debt
securities carrying warrants to purchase equity securities, and up to 10% of the
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Fund's assets may be invested in debt securities rated below investment grade
(as defined above) and comparable unrated securities.
Debt securities purchased by the Fixed Income Fund may be of any maturity.
It is anticipated that the dollar weighted average life of the debt portfolio
will be between seven and 15 years, but may be shorter or longer depending on
market conditions. While the Fixed Income Fund intends to invest in fixed income
securities in order to achieve its investment objective of obtaining the highest
level of income consistent with preservation of capital, it may from time to
time invest in fixed income securities which offer higher capital appreciation
potential. Such investments would be in addition to that portion of the Fund
which may be invested in common stocks and other types of equity securities.
Fixed income securities will be affected by changes in interest rates.
When interest rates decline, the market value of a fund invested at higher
yields can be expected to rise. Conversely, when interest rates rise, the market
value of a fund invested at lower yields can be expected to decline. Therefore,
the Fixed Income Fund may engage in portfolio trading to take advantage of
market developments and yield disparities; for example, shortening the average
maturity of the Fund in anticipation of a rise in interest rates so as to
minimize depreciation of principal, or lengthening the average maturity of the
Fund in anticipation of a decline in interest rates so as to maximize
appreciation of principal.
The Fixed Income Fund may use various investment strategies and techniques
when the Adviser determines that such use is appropriate in an effort to meet
the Fund's investment objective. Such strategies and techniques include, but are
not limited to, writing listed "covered" call and "secured" put options and
purchasing such options; purchasing and selling, for hedging purposes, interest
rate and other futures contracts, and purchasing options on such futures
contracts; borrowing from banks to purchase securities; investing in securities
of other investment companies; entering into repurchase agreements; investing in
when-issued or delayed delivery securities; and selling securities short
"against the box." See "Description of Securities and Investment Techniques" in
the SAI for further information.
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES
MORTGAGE-BACKED SECURITIES
Each Fund 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). The 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.
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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 the
Federal Home Loan Mortgage Corporation, "FHLMC"). Mortgage pass-through
securities created by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers, and other secondary market issuers) may be uninsured or may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance, and letters of credit, which may be
issued by governmental entities, private insurers, or the mortgage poolers.
GNMA CERTIFICATES. GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
government. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Although the mortgage loans in the pool will have maturities of up to
30 years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages may be purchased at any time prior to
maturity, will be subject to normal principal amortization, and may be prepaid
prior to maturity. Reinvestment of prepayments may occur at higher or lower
rates than the original yield on the certificates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS. FNMA, a federally chartered
and privately owned corporation, issues pass-through securities representing
interests in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not backed by the full
faith and credit of the U.S. government. FNMA also issues REMIC certificates,
which represent interests in a trust funded with FNMA certificates. REMIC
certificates are guaranteed by FNMA and not by the full faith and credit of the
U.S. government.
FHLMC, a corporate instrumentality of the U.S. government, issues
participation certificates which represent an interest in a pool of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal and maintains reserves to protect holders against losses
due to default, but these securities are not backed by the full faith and credit
of the U.S. government.
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As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MORTGAGE-BACKED BONDS. All Funds
may purchase mortgage-backed securities issued by financial institutions such as
commercial banks, savings and loan associations, mortgage banks, and securities
broker-dealers (or affiliates of such institutions established to issue these
securities) in the form of either collateralized mortgage obligations ("CMOs")
or mortgage-backed bonds. CMOs are obligations fully collateralized directly or
indirectly by a pool of mortgages on which payments of principal and interest
are dedicated to payment of principal and interest on the CMOs. Payments are
passed through to the holders on the same schedule as they are received,
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.
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, 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.
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DEBT SECURITIES
All Funds may invest in U.S. dollar-denominated corporate debt securities
of domestic issuers, and the Asset Allocation Fund and the Fixed Income Fund may
invest in debt securities of foreign issuers that may or may not be U.S.
dollar-denominated.
The investment return on a corporate debt security reflects interest
earnings and changes in the market value of the security. The market value of
corporate debt obligations may be expected to rise and fall inversely with
interest rates 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.
RISKS ASSOCIATED WITH HIGH YIELD DEBT SECURITIES. The Funds may invest in
high yield, high risk, lower-rated debt securities. High yield debt securities
are subject to all risks inherent in any investment in debt securities. As
discussed below, these risks are significantly greater in the case of high yield
debt securities.
Lower-rated debt securities generally offer a higher current yield than
that available from higher-rated issues. However, lower-rated securities involve
higher risks in that they are especially subject to (1) adverse changes in
general economic conditions and in the industries in which the issuers are
engaged, (2) adverse changes in the financial condition of the issuers and (3)
price fluctuation in response to changes in interest rates. Accordingly, the
yield on lower-rated debt securities will fluctuate over time. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of principal and interest, and increase the possibility of default. In
addition, the market for lower-rated securities has expanded rapidly in recent
years, and this expanded market has not been tested in a period of extended
economic downturn. This market may be thinner and less active than the market
for higher quality securities, which may limit the ability to sell such
securities at their fair value in response to changes in the economy or the
financial markets. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the values and liquidity of
lower-rated securities, especially in a thinly traded market.
Differing yields on fixed income securities of the same maturity are a
function of several factors, including the relative financial strength of the
issuers. Higher yields are generally available from securities rated below
investment grade (I.E., Ba1 or lower by Moody's or BB+ or lower by S&P). Debt
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securities rated below investment grade are deemed by these agencies to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal and may involve major risk exposure to adverse conditions.
FOREIGN SECURITIES
The Asset Allocation Fund may invest in equity securities of foreign
issuers, including ADRs, which are described below, and in debt securities of
foreign issuers. That Fund may invest up to 50 percent of its total assets in
such securities. The Equity Fund may invest in ADRs. The Fixed Income Fund may
invest in debt obligations of foreign issuers, including foreign governments and
their agencies and instrumentalities.
Investments in foreign securities may offer unique potential benefits such
as substantial growth in industries not yet developed in the particular country.
Such investments also permit a Fund to invest in foreign countries with economic
policies or business cycles different from those of the United States, or to
reduce fluctuations in portfolio value by taking advantage of foreign 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. In addition, with respect to certain countries, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability, or diplomatic developments that could adversely affect
investments in those countries. Since the Asset Allocation Fund and the Fixed
Income Fund may invest in securities denominated or quoted in currencies other
than the U.S. dollar, changes in foreign currency exchange rates will affect the
value of securities in those Funds and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those to which U.S. companies are subject.
Foreign securities markets, while growing in volume, have, for the most part,
substantially less volume than U.S. markets. Securities of many foreign
companies are less liquid and their prices more volatile than securities of
comparable U.S. companies. Transactional costs in non-U.S. securities markets
are generally higher than in U.S. securities markets. There is generally less
government supervision and regulation of exchanges, brokers, and issuers than
there is in the United States. A Fund might have greater difficulty taking
appropriate legal action with respect to foreign investments in non-U.S. courts
than with respect to domestic issuers in U.S. courts. In addition, transactions
in foreign securities may involve greater time from the trade date until
settlement than domestic securities transactions and involve the risk of
possible losses through the holding of securities by custodians and securities
depositories in foreign countries.
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Dividend and interest income from foreign securities may generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by a Fund or its investors in all cases.
ADRs are certificates issued by a U.S. bank or trust company representing
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 Fund 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.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities such as private placements,
although a Fund may not invest in any restricted security that is illiquid if,
after acquisition thereof, more than 15 percent of the Fund's assets would be
invested in illiquid securities. Once acquired, restricted securities may be
sold by a Fund only in privately negotiated transactions or in a public offering
with respect to which a registration statement is in effect under the Securities
Act of 1933. If sold in a privately negotiated transaction, a Fund may have
difficulty finding a buyer and may be required to sell at a price that is less
than the Adviser had anticipated. Where registration is required, a Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the Fund
might obtain a less favorable price than prevailed when it decided to sell.
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 Board of Trustees and the Trust's officers, see
"Management" in the SAI.
The Adviser, 11825 N. Pennsylvania Street, Carmel, Indiana 46032, has been
retained under Investment Advisory Agreements with the Trust to provide
investment advice and in general to supervise the management and investment
program of the Trust and each Fund. The Adviser is a wholly-owned subsidiary of
Conseco, Inc., a publicly-owned financial services company, the principal
operations of which are in development, marketing, and administration of
specialized annuity, life and health insurance products. The Adviser generally
manages the affairs of the Trust, subject to the supervision of the Board of
Trustees.
Under the Investment Advisory Agreements, the Adviser has contracted to
receive an investment advisory fee equal to an annual rate of .45% of the
average daily net asset value of the Fixed Income Fund, .70% of the average
daily net asset value of the Equity Fund, and .70% of the average daily net
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asset value of the Asset Allocation Fund. 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, together with Conseco Services, LLC (the
"Administrator") and Conseco Equity Sales, Inc. (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 B shares
and Class C shares of the Equity Fund exceeds 2.00%, the Asset Allocation Fund
exceeds 2.00%, and the Fixed Income Fund exceeds 1.60%. These voluntary limits
may be discontinued at any time after April 30, 1999.
The investment professionals primarily responsible for the management of
each Fund, with the respective responsibilities and business experience for the
past five years, are as follows:
EQUITY FUND: Thomas J. Pence, Vice President for the Adviser. He is
responsible for the management of the Adviser's equity portfolios and
oversight of the equity investment process. Mr. Pence joined the Adviser in
1992. Previously, Mr. Pence worked for five years as a securities analyst in
the field of real estate acquisition and development in which he specialized
in residential development and construction finance and was responsible for
overseeing a project portfolio of $750 million in real estate assets.
FIXED INCOME FUND: Gregory J. Hahn, Senior Vice President, Portfolio
Analytics, for the Adviser. He is responsible for the portfolio analysis and
management of the institutional client accounts and analytical support for
taxable portfolios. In addition, he has responsibility for SEC registered
investment products as well as investments in the insurance industry. Mr.
Hahn joined the Adviser in 1989.
ASSET ALLOCATION FUND: Gregory J. Hahn, Portfolio Manager of the fixed
income portion of the Fund. See Mr. Hahn's business experience above.
Thomas J. Pence, Portfolio Manager of the equity portion of the Fund. See
Mr. Pence's business experience above.
ADMINISTRATIVE FEES
Pursuant to an administration agreement ("Administration Agreement"), 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. For these services, each Fund pays the
Administrator a fee of 0.20% of that Fund's 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 the Funds
pursuant to agreements with the Administrator.
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DISTRIBUTION AND SERVICE PLANS
The Funds have adopted Distribution and Service Plans for Class B and
Class C shares to compensate the Distributor for distributing the shares and
servicing the accounts of shareholders of the corresponding class. With respect
to Class B and Class C shares, each Fund's Plan authorizes payments to the
Distributor up to 1.00% annually of the Fund's average daily net assets
attributable to its Class B and Class C shares, respectively. The Plans further
provide 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 under a Fund's Class B or
Class C Plan 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.
PURCHASE OF SHARES
HOW TO BUY SHARES
You may purchase Class B or Class C shares of each Fund 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 either class of shares of a Fund by mailing to the Conseco Fund
Group, PO 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
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, which is net asset value plus any applicable sales charge.
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.
The minimum initial investment by a shareholder in Class B or Class C
shares of a Fund is $500, and the minimum subsequent investment is $50. 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
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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 in excess of the applicable sales charge 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
Orders for purchase of shares placed through brokers, dealers and other
financial intermediaries will receive the offering price next computed following
receipt of the order provided the broker, dealer or other financial intermediary
receives the order prior to the close of the NYSE and transmits it to the
Transfer Agent prior to its close of business that same day (normally 4:00 p.m.
Eastern Time). Such firms are required to provide payment within three business
days after placing an order. BROKERS, DEALERS AND OTHER FINANCIAL INTERMEDIARIES
MAKING PAYMENT FOR CONFIRMED PURCHASES VIA FEDERAL FUNDS WIRE MUST REFERENCE THE
CONFIRMATION NUMBER TO ENSURE TIMELY CREDIT.
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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 or periodic automatic investment, redemptions will not be allowed until
the investment being redeemed has been in the account for 15 business days.
PRE-AUTHORIZED INVESTMENT PLAN
For your convenience, a pre-authorized investment plan 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 Fund for purchases made
pursuant to certain programs such as payroll deduction plans and retirement
plans.
ALTERNATIVE PRICING ARRANGEMENTS
Investors in the Funds may select Class B or Class C shares. The primary
difference between the classes lies in their contingent deferred sales charge
structures. In addition, Class B shares have an automatic conversion feature,
while Class C shares do not. 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 possibility that a sales charge will be reduced
or waived, and the automatic conversion of Class B shares to Class A shares.
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. 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:
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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%
The contingent deferred sales charge will not apply to shares acquired by the
reinvestment of dividends or capital gain distributions.
In determining the applicability and rate of any contingent deferred sales
charge, Class B shares acquired through reinvestment of dividends and capital
gain 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.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares will automatically convert to a number of Class A shares of
equal dollar value seven 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 that were acquired
by the reinvestment of dividends and capital gain distributions will also
convert to Class A shares.
The following tables are provided to assist investors in understanding the
various costs and expenses which may be borne directly or indirectly by an
investment in Class A shares of the Funds. Please note that Class A shares have
the same management and administration fees as Class B and Class C shares, but
have lower ongoing expenses.
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CLASS A ANNUAL FUND OPERATING EXPENSES
- --------------------------------------
(as a percentage of average daily net assets)
ASSET ALLOCATION FIXED INCOME
EQUITY FUND FUND FUND
Management Fees 0.70% 0.70% 0.40% (4)
Administrative Fees 0.20% 0.20% 0.20%
12b-1 Fees (1) 0.50% 0.50% 0.65%
Other Expenses (2) 0.10% 0.10% 0.00%
===== ===== =====
Total Operating Expenses (3) 1.50% 1.50% 1.25%
(1) As a result of 12b-1 fees, a long-term shareholder in a Fund may pay
more than the economic equivalent of maximum sales charges permitted by the
Conduct Rules of the NASD.
(2) Other Expenses are based on estimated amounts for the current fiscal
year and exclude taxes, interest, brokerage and other transaction expenses, and
extraordinary expenses.
(3) The expense information set forth above reflects voluntary commitments
of the Adviser, the Administrator and the Distributor to waive a portion of
their fees under each Fund's Investment Advisory Agreement, Administration
Agreement and Distribution and Service Plans, respectively, and/or to reimburse
a portion of the Funds' 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 (including the reduction
in Fixed Income Fund's advisory fee discussed below), with respect to Class A
shares, it is estimated that Other Expenses would be 92%, 1.38% and 2.17% and
Total Operating Expenses would be 2.32%, 2.78% and 3.47% of the average daily
net assets of the Equity, Asset Allocation and Fixed Income Funds, respectively.
(4) The Adviser has voluntarily undertaken to reduce its advisory fee with
respect to the Fixed Income Fund to .40% of the Fund's average daily net assets
until April 30, 1998. Absent such undertaking, the advisory fee would be .45% of
the Fund's average daily net assets.
EXAMPLE
Assuming a hypothetical investment of $1,000 and a 5% annual return, an
investor in Class A of each of the Funds would have paid transaction and
operating expenses at the end of each year as follows:
EQUITY FUND ASSET ALLOCATION FUND FIXED INCOME FUND
1 Year $65 $65 $62
3 Years $96 $96 $88
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THIS EXAMPLE ILLUSTRATES THE EFFECT OF EXPENSES, BUT IS NOT MEANT TO
SUGGEST ACTUAL OR EXPECTED COSTS OR RETURNS, ALL OF WHICH MAY VARY.
Investors may purchase Class A shares through a separate prospectus. A
maximum initial sales charge of 5% is imposed on purchases of Class A shares.
This sales charge may be reduced or waived under certain circumstances. For more
information on purchasing Class A shares, call the Transfer Agent at
1-800-986-3384.
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. 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
(a) the net asset value of the shares at the time of purchase or (b) 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 gain 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.
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 any tax 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;
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. any redemption resulting from a tax-free return of an excess contribution
from a tax-qualified retirement plan, IRA, savings incentive match plan
for employees ("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)(7) plan;
. substantially equal periodic payments as defined in Section 72(t) of the
Internal Revenue Code (the "Code");
. 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 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 by any applicable
contingent deferred sales charge and by the amount of any federal income tax
required to be withheld.
REDEMPTIONS BY MAIL
A written request for redemption must be received by the Transfer Agent to
constitute a valid tender for redemption. It will also be necessary for
corporate investors and other associations to have an appropriate certification
authorizing redemptions by a corporation or an association on file before a
redemption request will be considered in proper form. A suggested form of such
certification is provided on the application 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.
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<PAGE>
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.
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
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<PAGE>
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.
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
Trust's Administrative Office, which must be received at least seven days before
the next transfer date.
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<PAGE>
EXCHANGE PRIVILEGE
Class B or Class C shares of one Fund described in this Prospectus may be
exchanged for shares of the same class of the other Funds, 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.
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 the other Funds,
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.
A shareholder holding Class A shares of one Fund (as a result of an
automatic conversion from Class B shares) may exchange those shares for shares
of the same class of the other Funds, 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.
The total value of shares in a Fund after the exchange must at least equal
the minimum investment requirement of the Fund. You should consider the
differences in investment objectives and expenses of the Funds before making an
exchange. Shares are normally redeemed from one Fund and purchased from the
other Fund in the exchange transaction on the same business day on which the
Transfer Agent receives an exchange request that is in proper form by the close
of the NYSE that day.
REINSTATEMENT PRIVILEGE
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 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.
If you hold Class A shares of a Fund (as a result of an automatic
conversion from Class B shares) and you redeem any or all of your Class A
shares, you may reinvest all or any portion of the redemption proceeds in Class
A shares of any Fund at net asset value without any initial sales charge,
provided that you make such reinvestment within 60 calendar days after the
redemption date.
The reinstatement privilege may be utilized by a shareholder only once
with respect to a Fund and may be subject to other restrictions.
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<PAGE>
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. Sales charges
and initial purchase minimums apply. You must complete the "ACH" section of the
application for this privilege to be applicable.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined for each class of shares for
each Fund as of the close of 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. The
assets of each Fund are valued primarily on the basis of market quotations. If
quotations are not readily available, assets are valued by a method that the
Trustees of the Trust believe accurately reflects fair value. Foreign securities
are valued on the basis of quotations from the primary market in which they are
traded, and are translated from the local currency into U.S. dollars using
current exchange rates. With respect to all Funds, short-term investments that
will mature in 60 days or less are valued at amortized cost, which approximates
market value.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are declared and distributed monthly
by the Fixed Income Fund and quarterly by the Equity Fund and the Asset
Allocation Fund. However, the Trustees may decide to declare dividends at other
intervals. For dividend purposes, net investment income consists of all
dividends and interest received and any net short-term gains from the sale of
its investments less expenses (including fees payable to the Adviser).
Distributions of each Fund's net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and, in the case of the Asset
Allocation Fund, net realized gains from foreign currency transactions, if any,
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 B and
Class C shares of a Fund are expected to be lower than those on its Class A and
Class Y shares because Class B and 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.
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<PAGE>
DISTRIBUTION OPTIONS. When you open your account, specify on your
application how you want to receive your distributions. For Conseco Fund Group
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.
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 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 ("Relief Act"), different maximum
tax rates apply to net capital gain depending on your holding period and
marginal rate of federal income tax -- generally, 28% for gain 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) on capital assets held for more than
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<PAGE>
18 months. However, the application of these rules to distributions of net
capital gain by RICs, including whether those distributions may be treated by
its shareholders in accordance with the RIC's holding period for the assets it
sold that generated the gain, must be determined by further legislation or
future regulations that are not available as this Prospectus is being prepared.
Accordingly, you should consult your tax adviser as to the effect of the Relief
Act on those distributions by a Fund to you.
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.
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 (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.
The Asset Allocation Fund is required to include in its gross income each
year a portion of the original issue discount on zero coupon securities it
holds, even though the Fund receives no interest payment on the securities
during the year. Similarly, the Fund must include in its gross income each year
any interest on payment-in-kind securities distributed in the form of additional
securities. Accordingly, to qualify for treatment as a RIC, the Fund may be
required to distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. Those distributions will be made from the
Fund's cash assets or the proceeds from sales of Fund securities, if necessary.
The foregoing is only a summary of certain federal tax considerations
about your affecting 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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<PAGE>
PERFORMANCE INFORMATION
The Funds commenced operations on January 2, 1997. Although no Class B or
Class C shares of any Fund have been issued as of the date of this Prospectus,
Class A shares are currently offered to individual investors. Class A shares of
each Fund represent an interest in the same portfolio of securities as Class B
and C shares of that Fund. The average annualized total returns for the Funds
for the period from January 2, 1997 to September 30, 1997 assuming Class A's
expenses and the maximum contingent deferred sales charge applicable to Class B
shares were ____%, ____% and ____% for Equity Fund, Asset Allocation Fund, and
Fixed Income Fund, respectively. The total returns for the Funds for that period
with Class A's expenses and the maximum contingent deferred sales charge
applicable to Class C shares were ____%, ____%, and ____% for Equity Fund, Asset
Allocation Fund, and Fixed Income Fund, respectively. Class B and Class C shares
have higher projected on-going expenses than Class A shares; total returns of
the Funds would have been lower had the higher expenses of the new classes been
reflected. Total returns also would have been lower if the Adviser,
Administrator and/or Distributor had not waived fees and/or reimbursed expenses
of each Fund.
The Equity Fund, Asset Allocation Fund and Fixed Income Fund are modeled
after previously existing funds of the Conseco Series Trust (the "CST Funds")
that are managed by the Adviser and have investment objectives and policies
substantially similar to the corresponding Funds. The CST Funds are used as
investment vehicles for the assets of variable annuity and variable life
insurance contracts issued by Conseco affiliates.
Below you will find information about the performance of the CST Funds.
Although the Funds offered by this Prospectus have substantially similar
investment objectives and policies, the same investment adviser and the same
portfolio managers as the corresponding CST Funds, you should not assume that
the Funds will have the same future performance as the CST Funds. For example,
any Fund's future performance may be greater or less than the performance of the
corresponding CST Fund due to, among other things, differences in expenses and
cash flows between a Fund and the corresponding CST Fund. Moreover, past
performance information is based on historical earnings and is not intended to
indicate future performance.
The investment characteristics of each Fund will closely resemble the
investment characteristics of the corresponding CST Fund. Depending on the Fund
involved, similarity of investment characteristics may involve factors such as
industry diversification, portfolio beta, portfolio quality, average maturity of
fixed-income assets, equity/non-equity mixes, and individual holdings.
The Funds do have differences from the CST Funds, although the Adviser
does not believe these practices would cause a significant change in investment
results. Investors should note the following differences from the CST Funds: (1)
the Funds may invest in swaps, caps, floors and collars; (2) the Funds may lend
portfolio securities; and (3) the Funds may sell securities short. See the SAI
for further details about these practices.
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<PAGE>
The table below sets forth each Fund, its corresponding CST Fund, the date
the Adviser began managing the CST Fund (referred to as the "inception date")
and asset size as of September 30, 1997.
Fund Corresponding CST Fund
---- (Inception Date And Asset Size)
-------------------------------
Equity Fund Common Stock Portfolio (Jan. 31, 1992)
$
Asset Allocation Fund Asset Allocation Portfolio (Dec. 1, 1991)
$
Fixed Income Fund Corporate Bond Portfolio (July 31, 1990)
$
The following two tables show the average annualized total returns for the
CST Funds for the one, three and five year periods ended September 30, 1997 and
for the periods from inception of the CST Funds to September 30, 1997. These
figures are based on the gross investment performance of the CST Funds. Note
that the actual investment performance experienced by investors in variable
annuity and variable life insurance contracts issued by Conseco affiliates would
be lower than the gross investment performance of the CST Funds due to expenses
at the separate account level; these expenses typically are higher than those
borne by investors in the Funds. From the gross investment performance figures,
the Total Operating Expenses reflected in the fee table herein are deducted to
arrive at the net return. The first two tables reflect a deduction for the
applicable sales charges, while the third table reflects no deduction for sales
charges. Performance figures will be lower when sales charges are taken into
account. CST Fund performance does not represent the historical performance of
the Funds and should not be interpreted as indicative of the future performance
of the Funds.
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<PAGE>
Assuming Class B Share Total Operating Expenses And The Sales Charge
Applicable To Class B Shares.
- ---------------------------------------------------------------------
CST Fund
(Inception Date) 1 Year 3 Years 5 Years Since Inception
- ---------------- ------ ------- ------- ---------------
Common Stock _____% ____% ____% ____%
Portfolio (Jan. 31,
1992)
Asset Allocation ____% ____% ____% ____%
Portfolio (Dec. 31,
1991)
Corporate Bond ____% ____% ____% _____%
Portfolio (July 31,
1990)
Assuming Class C Share Total Operating Expenses And The Sales Charge
Applicable To Class C Shares.
- --------------------------------------------------------------------
CST Fund
(INCEPTION DATE) 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
- ---------------- ------ ------- ------- ---------------
Common Stock _____% _____% _____% _____%
Portfolio (Jan. 31,
1992)
Asset Allocation _____% _____% _____% _____%
Portfolio (Dec. 31,
1991)
Corporate Bond _____% _____% _____% _____%
Portfolio (July 31,
1990)
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<PAGE>
Assuming Class B Or Class C Share Total Operating Expenses With No
Sales Charge.
- ------------------------------------------------------------------
CST Fund
(INCEPTION DATE) 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
- ---------------- ------ ------- ------- ---------------
Common Stock ____% ____% ____% ____%
Portfolio (Jan. 31,
1992)
Asset Allocation ____% ____% ____% ____%
Portfolio (Dec. 31,
1991)
Corporate Bond ____% ____% ____% ____%
Portfolio (July 31,
1990)
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 1, 5 and 10 year periods that
would equate to the initial amount invested to the ending redeemable value,
assuming reinvestment of all income dividends and capital gain distributions.
"Total return" quotations reflect the performance of the Fund and include the
effect of capital changes.
Further information about the performance of the Funds is contained in the
SAI and 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.
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<PAGE>
OTHER INFORMATION
BROKERAGE COMMISSIONS
Although the Conduct Rules of the NASD prohibit its members from seeking
orders for the execution of investment company portfolio transactions on the
basis of their sales of investment company shares, under such rules, sales of
investment company shares may be considered in selecting brokers to effect
portfolio transactions. Accordingly, some portfolio transactions are, subject to
such rules and to obtaining best prices and executions, effected through brokers
who sell shares of the Funds. 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.
RETIREMENT PLANS AND MEDICAL SAVINGS ACCOUNTS
Class B and Class C shares are available for purchase by qualified
retirement plans for both corporations and self-employed individuals. The Trust
has available prototype IRA plans (for both individuals and employers),
Simplified Employee Pension ("SEP") plans, eligible Section 457 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.
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 the 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, exchange or
similar rights, and are freely transferable. In addition, each issued and
outstanding share of a class of a Fund is entitled to participate equally in
dividends and distributions declared by that class.
REPORTS TO SHAREHOLDERS
Investors in the Funds will be informed of their progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually.
CLASS Y SHARES
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
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<PAGE>
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
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
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 Transfer Agent at (800) 986-3384 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 Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as the Trust's transfer agent.
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<PAGE>
CUSTODIAN
The Bank of New York, 90 Washington Street, 22nd Floor, New York, New York
10826, serves as custodian of each Fund's assets. The Bank of New York also
performs certain administrative services for the Funds pursuant to agreements
with Conseco Services, LLC.
INDEPENDENT PUBLIC ACCOUNTANTS
The Trust's independent public accountants are Coopers & Lybrand L.L.P.,
2900 One American Square, Box 82002, Indianapolis, Indiana 46282-0002.
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.
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<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Page
General Information.........................................
Investment Restrictions.....................................
Description of Securities and Investment Techniques.........
Investment Performance .....................................
Portfolio Turnover and Securities Transactions..............
Control Persons and Principal Holders of Securities.........
Management..................................................
Net Asset Values of the Shares of the Funds ................
Fund Expenses ..............................................
Distribution Arrangements ..................................
Purchase and Redemption of Shares...........................
General ....................................................
Taxes.......................................................
Other Information...........................................
Financial Statements........................................
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
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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<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.
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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 - 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.
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STATEMENT OF ADDITIONAL INFORMATION
CONSECO FUND GROUP
EQUITY FUND
ASSET ALLOCATION FUND
FIXED INCOME FUND
CLASS B AND CLASS C SHARES
December __, 1997
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: the Equity Fund, the Asset Allocation Fund and the
Fixed Income Fund (collectively, the "Funds"). It should be read in conjunction
with the Funds' Class B and Class C Prospectus dated December __, 1997
("Prospectus"). You may obtain a copy by contacting the Trust's Administrative
Office, 11815 N. Pennsylvania Street, Carmel, Indiana 46032. Each Fund also
offers Class A and Class Y shares through a separate prospectus and SAI.
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION..........................................................2
INVESTMENT RESTRICTIONS......................................................2
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES..........................5
INVESTMENT PERFORMANCE......................................................22
PORTFOLIO TURNOVER AND SECURITIES TRANSACTIONS..............................25
MANAGEMENT..................................................................27
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.........................32
NET ASSET VALUES OF THE SHARES OF THE FUNDS.................................33
FUND EXPENSES...............................................................33
DISTRIBUTION ARRANGEMENTS...................................................34
PURCHASE AND REDEMPTION OF SHARES...........................................36
GENERAL.....................................................................37
TAXES.......................................................................39
OTHER INFORMATION...........................................................45
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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 diversified
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.
INVESTMENT RESTRICTIONS
The Trust has adopted the following policies relating to the investment of
assets of the Funds and their activities. These are fundamental policies and may
not be changed without the approval of the holders of a "majority" of the
outstanding shares of each Fund affected. Under the 1940 Act, the vote of such a
"majority" means the vote of the holders of the lesser of (i) 67 percent of the
shares represented at a meeting at which more than 50 percent of the outstanding
shares are represented or (ii) more than 50 percent of the outstanding shares. A
change in policy affecting only one Fund may be effected with the approval of
the holders of a "majority" of the outstanding shares of such Fund. The Trust
may not, and each Fund may not (except as noted):
1. Purchase securities on margin, except that Funds engaged in transactions
in options, futures, and options on futures may make margin deposits in
connection with those transactions, and except that effecting short sales
against the box will not be deemed to constitute a purchase of securities
on margin;
2. Purchase or sell commodities or commodity contracts (which, for the
purpose of this restriction, shall not include foreign currency futures or
forward currency contracts), except: (a) any Fund may engage in interest
rate futures contracts, stock index futures, futures contracts based on
other financial instruments, and options on such futures contracts; and
(b) the Asset Allocation Fund may engage in futures contracts on gold;
3. Borrow money or pledge, mortgage, or assign assets, except that a Fund
may: (a) borrow from banks, but only if immediately after each borrowing
and continuing thereafter it will have an asset coverage of at least 300
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percent; (b) enter into reverse repurchase agreements, options, futures,
options on futures contracts, foreign currency futures contracts and
forward currency contracts as described in the Prospectus and in this SAI.
(The deposit of assets in escrow in connection with the writing of covered
put and call options and the purchase of securities on a when-issued or
delayed delivery basis and collateral arrangements with respect to initial
or variation margin deposits for future contracts, and options on futures
contracts and foreign currency futures and forward currency contracts will
not be deemed to be pledges of a Fund's assets);
4. Underwrite securities of other issuers;
5. With respect to 75% of a Fund's total assets, invest more than 5% of the
value of its assets in the securities of any one issuer if thereafter the
Fund in question would have more than 5% of its assets in the securities
of any issuer or would own more than 10% of the outstanding voting
securities of such issuer; this restriction does not apply to U.S.
government securities;
6. Invest in securities of a company for the purpose of exercising control or
management;
7. Write, purchase or sell puts, calls or any combination thereof, except
that the Funds may write listed covered or secured calls and puts and
enter into closing purchase transactions with respect to such calls and
puts if, after writing any such call or put, not more than 25% of the
assets of the Fund are subject to covered or secured calls and puts, and
except that the Funds may purchase calls and puts with a value of up to 5%
of each such Fund's net assets;
8. Participate on a joint or a joint and several basis in any trading account
in securities;
9. Invest in the securities of issuers in any one industry if thereafter more
than 25% of the assets of the Fund in question would be invested in
securities of issuers in that industry; investing in cash items, U.S.
government securities, or repurchase agreements as to these securities,
shall not be considered investments in an industry;
10. Purchase or sell real estate, except that it may purchase marketable
securities which are issued by companies which invest in real estate or
interests therein;
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11. Make loans of its assets, except the Funds may enter into repurchase
agreements and lend portfolio securities in an amount not to exceed 15% of
the value of a Fund's total assets. Any loans of portfolio securities will
be made according to guidelines established by the SEC and the Board of
Trustees; or
12. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except as permitted herein and in Investment Restriction
Nos. 1, 2 and 3. Obligations under interest rate swaps will not be
treated as senior securities for purposes of this restriction so long
as they are covered in accordance with applicable regulatory
requirements. Other good faith hedging transactions and similar
investment strategies will also not be treated as senior securities for
purposes of this restriction so long as they are covered in accordance
with applicable regulatory requirements and are structured consistent
with current SEC interpretations.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS
The following restrictions are designated as nonfundamental and may be changed
by the Board of Trustees without shareholder approval.
The Trust may not, and each Fund may not (except as noted):
1. With respect to in excess of 15% of a Fund's assets, sell securities
short, except that each Fund may, without limit, make short sales against
the box.
2. Purchase any high yield, high risk security if as a result more than 35%
of the Fund's assets would be invested in high yield, high risk
securities.
In order to limit the risks associated with entry into repurchase agreements,
the Trustees have adopted certain criteria (which are not fundamental policies)
to be followed by the Funds. These criteria provide for entering into repurchase
agreement transactions (a) only with banks or 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. In accordance with
regulatory requirements, a Fund will segregate assets whenever it enters into
reverse repurchase agreements or mortgage dollar rolls.
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DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes in greater detail different types of
securities and investment techniques used by the individual Funds, as described
in "Investment Objectives and Policies of the Funds" in the Prospectus, as well
as the risks associated with such securities and techniques.
U.S. GOVERNMENT SECURITIES
All of the Funds may invest in U.S. government securities as described in the
Prospectus.
All Funds may also purchase obligations of the World Bank, the Inter-American
Development Bank, the Asian Development Bank and the International Bank for
Reconstruction and Development, which, while technically not U.S. government
agencies or instrumentalities, have the right to borrow from the participating
countries, including the United States.
ASSET-BACKED SECURITIES
Each Fund may invest in asset-backed securities which represent fractional
interests in pools of leases, retail installment loans and revolving credit
receivables, both secured and unsecured. These assets are generally held by a
trust. Payments of principal and interest or interest only are passed through to
certificate holders and may be guaranteed up to certain amounts by letters of
credit issued by a financial institution affiliated or unaffiliated with the
trustee or originator of the trust.
Underlying automobile sales contracts or credit card receivables are subject to
prepayment, which may reduce the overall return to certificate holders.
Nevertheless, principal repayment rates tend not to vary much with interest
rates and the short-term nature of the underlying car loans or other receivables
tends to dampen the impact of any change in the prepayment level. Certificate
holders may experience delays in payment on the certificates if the full amounts
due on underlying sales contracts or receivables are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If consistent with
its investment objective and policies, each Fund may invest in other
asset-backed securities that may be developed in the future.
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DEBT SECURITIES
New issues of certain debt securities are often offered on a when-issued or
delayed delivery basis; that is, the payment obligation and the interest rate
are fixed at the time the buyer enters into the commitment, but delivery and
payment for the securities normally take place after the customary settlement
time. The value of when-issued or delayed delivery securities may vary prior to
and after delivery depending on market conditions and changes in interest rate
levels. However, a Fund will not accrue any income on these securities prior to
delivery. A Fund will maintain in a segregated account with the Trust's
custodian an amount of cash or liquid securities, including equity securities
and debt securities of any grade, equal (on a daily mark-to-market basis) to the
amount of its commitment to purchase the when-issued or delayed delivery
securities.
As discussed more fully in the Prospectus, the Fixed Income Fund will invest
primarily in debt securities that are "investment grade," except that the Fixed
Income Fund may invest up to 10 percent of the Fund's assets in non-investment
grade debt securities. The Equity and Asset Allocation Funds may also invest in
high yield, high risk lower-rated fixed income securities. The Asset Allocation
Fund does not intend to invest more than 25% of its total assets (measured at
the time of investment) in high yield, high risk debt securities. The Equity and
Asset Allocation Funds will not invest in rated debt securities which are rated
below CCC/Caa. All Funds may invest in unrated securities as long as Conseco
Capital Management, Inc. (the "Adviser") determines that such securities have
investment characteristics comparable to securities that would be eligible for
investment by a Fund by virtue of a rating. Many securities of foreign issuers
are not rated by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's ("S&P"); therefore, the selection of such issuers depends, to a large
extent, on the credit analysis performed or used by the Adviser.
HIGH YIELD DEBT SECURITIES
Although the Adviser considers security ratings when making investment
decisions, it performs its own investment analysis and does not rely principally
on the ratings assigned by the rating services. Rather, the Adviser performs
research and independently assesses the value of particular securities relative
to the market. The Adviser's analysis may include consideration of the issuer's
experience and managerial strength, changing financial condition, borrowing
requirements or debt maturity schedules, and the issuer's responsiveness to
changes in business conditions and interest rates. It also considers relative
6
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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. From time to time, consistent with a
Fund's investment objective, the Adviser may also trade high yield debt
securities for the purpose of seeking short-term profits. These securities may
be sold in anticipation of a market decline or bought in anticipation of a
market rise. They may also be traded for securities of comparable quality and
maturity to take advantage of perceived short-term disparities in market values
or yields.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery basis.
When-issued and delayed delivery transactions arise when securities are bought
with payment and delivery taking place in the future. The settlement dates of
these transactions, which may be a month or more after entering into the
transaction, are determined by mutual agreement of the parties. A Fund bears the
risk that, on the settlement date, the market value of the securities may 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 each day of such securities in determining the
Fund's net asset value. There are no fees or other expenses associated with
these types of transactions other than normal transaction costs. To the extent a
Fund engages in when-issued and delayed delivery transactions, it will do so for
the purpose of acquiring instruments consistent with the investment objective
and policies of the respective Fund and not for the purpose of investment
leverage or to speculate on interest rate changes. When effecting when-issued
and delayed delivery transactions, cash or liquid securities of a Fund in an
amount sufficient to make payment for the obligations to be purchased will be
segregated at the trade date and maintained until the transaction has been
settled. The Adviser will ensure that such assets are segregated at all times
and are sufficient to satisfy these obligations. A Fund may dispose of these
securities before the issuance thereof. However, absent extraordinary
circumstances not presently foreseen, it is each Fund's policy not to divest
itself of its right to acquire these securities prior to the settlement date
thereof.
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VARIABLE AND FLOATING RATE SECURITIES
Each Fund may invest in variable and floating rate securities. Variable rate
securities provide for automatic establishment of a new interest rate at fixed
intervals (i.e., daily, monthly, semi-annually, etc.). Floating rate securities
provide for automatic adjustment of the interest rate whenever some specified
interest rate index changes. The interest rate on variable or floating rate
securities is ordinarily determined by reference to, or is a percentage of, a
bank's prime rate, the 90-day U.S. Treasury bill rate, the rate of return on
commercial paper or bank certificates of deposit, an index of short-term
interest rates, or some other objective measure.
Variable or floating rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par value. In many
cases, the demand feature can be exercised at any time on seven days' notice; in
other cases, the demand feature is exercisable at any time on 30 days' notice or
on similar notice at intervals of not more than one year.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
Each Fund may invest in certificates of deposit, time deposits, bankers'
acceptances, and other short-term debt obligations issued by commercial banks
and in certificates of deposit, time deposits, and other short-term obligations
issued by savings and loan associations ("S&Ls"). Certificates of deposit are
receipts from a bank or an S&L for funds deposited for a specified period of
time at a specified rate of return. Time deposits in banks or S&Ls are generally
similar to certificates of deposit, but are uncertificated. Bankers' acceptances
are time drafts drawn on commercial banks by borrowers, usually in connection
with international commercial transactions. The Equity Fund and Fixed Income
Fund may each invest in obligations of foreign branches of domestic commercial
banks and foreign banks so long as the securities are U.S. dollar-denominated.
The Asset Allocation Fund may also invest in these types of instruments but such
instruments will not necessarily be U.S. dollar-denominated. See "Foreign
Securities" in the Prospectus for information regarding risks associated with
investments in foreign securities.
The Funds will not invest in obligations issued by a commercial bank or S&L
unless:
1. The bank or S&L has total assets of at least $1 billion, or the equivalent
in other currencies, and the institution has outstanding securities rated
A or better by Moody's or S&P, or, if the institution has no outstanding
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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 AND REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements and reverse repurchase
agreements. Repurchase agreements permit a Fund to maintain liquidity and earn
income over periods of time as short as overnight. Repurchase agreements may be
characterized as loans collateralized by the underlying securities. In these
transactions, a Fund purchases securities (the "underlying securities") from a
broker or bank, which agrees to repurchase the underlying securities on a
certain date or on demand and at a fixed price calculated to produce a
previously agreed upon return to the Fund. If the broker or bank were to default
on its repurchase obligation and the underlying securities were sold for a
lesser amount, the Fund would realize a loss. A repurchase transaction will be
subject to guidelines approved by the Board of Trustees of the Trust, which
include monitoring the creditworthiness of the parties with which the Fund
engages in repurchase transactions, obtaining collateral at least equal in value
to the repurchase obligation, and marking the collateral to market on a daily
basis.
Although not one of the Trust's fundamental policies, it is the Trust's present
policy not to enter into a repurchase transaction which will cause more than 15
percent of the assets of the Fixed Income Fund to be subject to repurchase
agreements having a maturity of more than seven days. This 15 percent limit also
includes the aggregate of (i) fixed time deposits subject to withdrawal
penalties, other than overnight deposits; and (ii) any restricted securities
(i.e., securities which cannot freely be sold for legal reasons) that are
illiquid and any other securities for which market quotations are not readily
available; however, this 15 percent limit does not include any obligations
payable at principal amount plus accrued interest, on demand or within seven
days after demand, and thus does not include repurchase agreements having a
maturity of seven days or less.
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A reverse repurchase agreement involves the temporary sale of a security by a
Fund and its agreement to repurchase the instrument at a specified time and
price. Such agreements are short-term in nature and involve minimal credit
risks.
WARRANTS
The Equity and Asset Allocation Funds may invest in warrants. Each of these
Funds may invest up to 5 percent of its net assets in warrants (excluding those
that have been acquired in units or attached to other securities), measured at
the time of acquisition, and each such Fund may acquire warrants not listed on
the New York or American Stock Exchanges if, after such acquisition, no more
than 2 percent of the Fund's net assets would be invested in such warrants.
The holder of a warrant has the right to purchase a given number of shares of a
security of a particular issuer at a specified price until expiration of the
warrant. Such investments provide greater potential for profit 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
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
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 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
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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 nationally recognized statistical
rating organization ("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.
LENDING SECURITIES
Each Fund may lend its securities so long as such loans do not represent in
excess of 15% of the Fund's total assets. This is a fundamental policy. When a
Fund lends securities, the borrower gives the Fund collateral consisting of cash
or cash-equivalents. The Fund may invest the cash collateral and earn additional
income or receive an agreed-upon fee from a borrower which has delivered
cash-equivalent collateral. It is anticipated that securities will be loaned
only under the following conditions: (1) the borrower must furnish collateral
equal at all times to the market value of the securities loaned and the borrower
must agree to increase the collateral on a daily basis if the securities
increase in value; (2) the borrower, after notice, must redeliver the securities
within three business days; (3) any cash collateral invested by a Fund will be
in short-term investments which give maximum liquidity so that the collateral
may be paid back to the borrower when the securities are returned; and (4) the
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Fund may pay reasonable service, placement, custodian or other fees in
connection with loans of securities and share a portion of the interest from
investments of cash collateral with the borrower of the securities.
FUTURES CONTRACTS
The Funds may purchase and sell stock index futures contracts, interest rate
futures contracts, and futures contracts based upon other financial instruments
and components. The Asset Allocation Fund may also engage in gold futures
contracts.
Such investments may be made by the Funds solely for the purpose of hedging
against the effect that changes in general market conditions, interest rates,
and conditions affecting particular industries may have on the values of
securities held in a Fund or which a Fund intends to purchase, and not for
purposes of speculation.
GENERAL DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides for the
future sale by one party and purchase by another party of a specified amount of
a particular financial instrument (debt security) or commodity for a specified
price at a designated date, time, and place. Although futures contracts by their
terms require actual future delivery of and payment for the underlying financial
instruments, such contracts are usually closed out before the delivery date.
Closing out an open futures contract position is effected by entering into an
offsetting sale or purchase, respectively, for the same aggregate amount of the
same financial instrument on the same delivery date. Where a Fund has sold a
futures contract, if the offsetting price is more than the original futures
contract purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss.
At the time a Fund enters into a futures contract, an amount of cash or liquid
securities, equal to the fair market value less initial and variation margin of
the futures contract, will be deposited in a segregated account with the Trust's
custodian to collateralize the position and thereby ensure that such futures
contract is covered. A Fund may be required to deposit additional assets in the
segregated account in order to continue covering the contract as market
conditions change. In addition, each Fund will comply with certain regulations
of the Commodity Futures Trading Commission to qualify for an exclusion from
being a "commodity pool operator."
INTEREST RATE FUTURES CONTRACTS. The Funds may purchase and sell interest rate
futures contracts. An interest rate futures contract is an obligation traded on
an exchange or board of trade that requires the purchaser to accept delivery,
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and the seller to make delivery, of a specified quantity of the underlying
financial instrument, such as U.S. Treasury bills and bonds, in a stated
delivery month, at a price fixed in the contract.
These Funds may purchase and sell interest rate futures as a hedge against
changes in interest rates that 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.
OPTIONS ON FUTURES CONTRACTS. The Funds may purchase options on interest rate
futures contracts, although these Funds will not write options on any such
contracts. A futures option gives a Fund the right, in return for the premium
paid, to assume a long position (in the case of a call) or short position (in
the case of a put) in a futures contract at a specified exercise price prior to
the expiration of the option. Upon exercise of a call option, the purchaser
acquires a long position in the futures contract and the writer of the option is
assigned the opposite short position. In the case of a put option, the converse
is true. In most cases, however, a Fund would close out its position before
expiration by an offsetting purchase or sale.
The Funds would enter into options on futures contracts only in connection with
hedging strategies. Generally, these strategies would be employed under the same
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market conditions in which a Fund would use put and call options on debt
securities, as described in "Options on Securities" below.
STOCK INDEX FUTURES CONTRACTS. The Equity and Asset Allocation Funds may
purchase and sell stock index futures contracts. A stock index (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 the Equity Fund or Asset Allocation
Fund correspond to changes in a given stock index, the sale of futures contracts
on that index ("short hedge") would substantially reduce the risk to the Fund of
a market decline and, by so doing, provide an alternative to a liquidation of
securities positions, which may be difficult to accomplish in a rapid and
orderly fashion. Stock index futures contracts might also be sold:
1. When a sale of Fund securities at that time would appear to be
disadvantageous in the long-term because such liquidation would:
a. Forego possible appreciation,
b. Create a situation in which the securities would be difficult to
repurchase, or
c. Create substantial brokerage commission;
2. When a liquidation of part of the investment portfolio has commenced or is
contemplated, but there is, in the Adviser's determination, a substantial
risk of a major price decline before liquidation can be completed; or
3. To close out stock index futures purchase transactions.
Where the Adviser anticipates a significant market or market sector advance, the
purchase of a stock index futures contract ("long hedge") affords a hedge
against the possibility of not participating in such advance at a time when a
Fund is not fully invested. Such purchases would serve as a temporary substitute
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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.
GOLD FUTURES CONTRACTS. The Asset Allocation Fund may enter into futures
contracts on gold. A gold futures contract is a standardized contract which is
traded on a regulated commodity futures exchange and which provides for the
future delivery of a specified amount of gold at a specified date, time, and
price. When the Fund purchases a gold contract, it becomes obligated to take
delivery and pay for the gold from the seller in accordance with the terms of
the contract. When the Fund sells a gold futures contract, it becomes obligated
to make delivery of the gold to the purchaser in accordance with the terms of
the contract. The Fund will enter into gold futures contracts only for the
purpose of hedging its holdings or intended holdings of gold stocks. The Fund
will not engage in these contracts for speculation or for achieving leverage.
The hedging activities may include purchases of futures contracts as an offset
against the effect of anticipated increases in the price of gold or sales of
futures contracts as an offset against the effect of anticipated declines in the
price of gold.
RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS. There are several risks
associated with the use of futures and futures options for hedging purposes.
While hedging transactions may protect a 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
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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.
OPTIONS ON SECURITIES
The Funds may purchase put and call options on securities, and the Equity and
Asset Allocation Funds may purchase put and call options on stock indices, at
such times as the Adviser deems appropriate and consistent with a Fund's
investment objective. Such Funds may also write listed "covered" call and
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"secured" put options. A Fund may write covered and secured options with respect
to not more than 25 percent of its net assets. A Fund may purchase call and put
options (listed on an exchange or traded in the over-the-counter ("OTC") market)
with a value of up to 5 percent of its net assets. Each of these Funds may enter
into closing transactions in order to terminate its obligations either as a
writer or a purchaser of an option prior to the expiration of the option.
PURCHASING OPTIONS ON SECURITIES. An option on a security is a contract that
gives the purchaser of the option, in return for the premium paid, the right to
buy a specified security (in the case of a call option) or to sell a specified
security (in the case of a put option) from or to the seller ("writer") of the
option at a designated price during the term of the option. A Fund may purchase
put options on securities to protect holdings in an underlying or related
security against a substantial decline in market value. Securities are
considered related if their price movements generally correlate to one another.
For example, the purchase of put options on debt securities held by a Fund would
enable a Fund to protect, at least partially, an unrealized gain in an
appreciated security without actually selling the security. In addition, the
Fund would continue to receive interest income on such security.
A Fund may purchase call options on securities to protect against substantial
increases in prices of securities which the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner. A Fund may sell put
or call options it has previously purchased, which could result in a net gain or
loss depending on whether the amount realized on the sale is more or less than
the premium and transactional costs paid on the option which is sold.
WRITING COVERED CALL AND SECURED PUT OPTIONS. In order to earn additional income
on its portfolio securities or to protect partially against declines in the
value of such securities, the Funds may each write "covered" 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
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enable the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both.
In order to earn additional income or to 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.
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. The Equity and Asset Allocation Funds may
purchase call and put 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 Equity and Asset
Allocation Funds may write put and call options on securities indices. When such
options are written, the Fund is required to maintain a segregated account
consisting of cash or liquid securities, or the Fund must purchase a like option
of greater value that will expire no earlier than the option written. The
purchase of such options may not enable a Fund to hedge effectively against
stock market risk if they are not highly correlated with the value of a Fund's
securities. Moreover, the ability to hedge effectively depends upon the ability
to predict movements in the stock market, which cannot be done accurately in all
cases.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves
certain risks. During the option period, the covered call writer has, in return
for the premium on the option, given up the opportunity to profit from a price
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increase in the underlying securities above the exercise price, and, as long as
its obligation as a writer continues, has retained the risk of loss should the
price of the underlying security decline. The writer of an option has no control
over the time when it may be required to fulfill its obligation as a writer of
the option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation under
the option and must deliver 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:
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 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
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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
The Asset Allocation Fund may enter into foreign currency futures contracts and
forward currency contracts. A foreign currency futures contract is a
standardized contract for the future delivery of a specified amount of a foreign
currency, at a future date at a price set at the time of the contract. A forward
currency contract is an obligation to purchase or sell a currency against
another currency at a future date at a price agreed upon by the parties. The
Fund may either accept or make delivery of the currency at the maturity of the
contract or, prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. The Fund will engage in foreign
currency futures contracts and forward currency transactions in anticipation of
or to protect itself against fluctuations in currency exchange rates. The Fund
will not commit more than 15 percent of its total assets computed at market
value at the time of commitment to a foreign currency futures or forward
currency contracts. The Fund will purchase and sell such contracts for hedging
purposes and not as an investment. The Fund will not enter into a foreign
currency contract with a term of greater than one year.
Forward currency contracts are not traded on regulated commodities exchanges.
When the 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 the 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
a decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
Although the Asset Allocation Fund values assets daily in U.S. dollars, it does
not intend to physically convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund will do so from time to time and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
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to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
OPTIONS ON FOREIGN CURRENCIES
The Asset Allocation Fund may invest up to 5 percent of its total assets, taken
at market value at the time of investment, in call and put options on domestic
and foreign securities and foreign currencies. The Fund may purchase call and
put options on foreign currencies as a hedge against changes in the value of the
U.S. dollar (or another currency) in relation to a foreign currency in which
portfolio securities of the Fund may be denominated. A call option on a foreign
currency gives the purchaser the right to buy, and a put option the right to
sell, a certain amount of foreign currency at a specified price during a fixed
period of time. The Fund may enter into closing sale transactions with respect
to such options, exercise them, or permit them to expire.
The Asset Allocation Fund may employ hedging strategies with options on
currencies before the Fund purchases a foreign security denominated in the
hedged currency, during the period the Fund holds the foreign security, or
between the day the foreign security is purchased or sold and the date on which
payment therefor is made or received. Hedging against a change in the value of a
foreign currency in the foregoing manner does not eliminate fluctuations in the
prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions reduce or preclude
the opportunity for gain if the value of the hedged currency should increase
relative to the U.S. dollar. The Fund will purchase options on foreign
currencies only for hedging purposes and will not speculate in options on
foreign currencies. The Fund may invest in options on foreign currency which are
either listed on a domestic securities exchange or traded on a recognized
foreign exchange.
An option position on a foreign currency may be closed out only on an exchange
which provides a secondary market for an option of the same series. Although the
Asset Allocation Fund will purchase only exchange-traded options, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time. In the event no liquid secondary
market exists, it might not be possible to effect closing transactions in
particular options. If the Fund cannot close out an exchange-traded option which
it holds, it would have to exercise its option in order to realize any profit
and would incur transactional costs on the purchase or sale of the underlying
assets.
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BORROWING
For temporary purposes, such as to facilitate redemptions, a Fund may borrow
money from a bank, but only if immediately after each such borrowing and
continuing thereafter the Fund would have asset coverage of 300 percent.
Leveraging by means of borrowing will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Fund's net asset value; money
borrowed will be subject to interest and other costs which may or may not exceed
the income received from the securities purchased with borrowed funds. The use
of borrowing tends to result in a faster than average movement, up or down, in
the net asset value of a Fund's shares. A Fund also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
INVESTMENT IN SECURITIES OF OTHER INVESTMENT COMPANIES
Each Fund may purchase securities of other investment companies. Such securities
have the potential to appreciate as do any other securities, but tend to present
less risk because their value is based on a diversified portfolio of
investments. The 1940 Act expressly permits mutual funds such as the Trust to
invest in other investment companies within prescribed limitations. An
investment company may invest in other investment companies if at the time of
such investment (1) it does not 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. Each Fund will comply
with all of these limitations with respect to the purchase of securities issued
by other investment companies.
Investment companies in which the Funds may invest charge advisory and
administrative fees and may also assess a sales load and/or distribution fees.
Therefore, investors in a Fund that invested in other investment companies would
indirectly bear costs associated with those investments as well as the costs
associated with investing in the Fund. The percentage limitations described
above significantly limit the costs a Fund may incur in connection with such
investments.
INVESTMENT PERFORMANCE
STANDARDIZED YIELD QUOTATIONS. Each class of the Fixed Income Fund, Equity Fund,
and Asset Allocation Fund may advertise investment performance figures,
including yield. Each class' yield will be based upon a stated 30-day period and
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will be computed by dividing the net investment income per share earned during
the period by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2 [(A-B/CD)+1)[SUPERSCRIPT]6-1]
Where:
A = the dividends and interest earned during the period.
B = the expenses accrued for the period (net of reimbursements, if any).
C = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
D = the maximum offering price (which is the net asset value) per share on the
last day of the period.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS. Each class of the Funds may
advertise its total return and its cumulative total return. The total return
will be based upon a stated period and will be computed by finding the average
annual compounded rate of return over the stated period that would equate an
initial amount invested to the ending redeemable value of the investment
(assuming reinvestment of all distributions), according to the following
formula:
P (1+T)[SUPERSCRIPT]n=ERV
Where:
P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value at the end of the stated period
of a hypothetical $1,000 payment made at the beginning of the
stated period.
The total return for Class B and Class C shares will assume the maximum
applicable contingent deferred sales charge is deducted at the times, in the
amounts, and under the terms disclosed in the Prospectus. The 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
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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 B and Class C shares may or may not take contingent deferred
sales charges into account; performance data calculated without taking the
effect of deferred 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 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 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 Mortgage-Backed
Securities Index consists of 15 and 30-year fixed rate securities backed by
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mortgage pools of GNMA, FHLMC and FNMA (excluding buydowns, manufactured homes
and graduated equity mortgages). The Asset-Backed Securities Index consists of
credit card, auto and home equity loans (excluding subordinated tranches) with
an average life of one year.
Each Index includes income and distributions but does not reflect fees,
brokerage commissions or other expenses of investing.
In addition, from time to time in reports and promotions a Fund's performance
may be compared to: (1) other groups of mutual funds tracked by: (a) Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives, and assets; (b)
Morningstar, Inc., another widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets; or (c)
other financial or business publications, such as Business Week, Money Magazine,
Forbes and Barron's which provide similar information; (2) the Consumer Price
Index (measure for inflation) may be used to assess the real rate of return from
an investment in a Fund; (3) other statistics such as GNP and net import and
export figures derived from governmental publications, e.g., The Survey of
Current Business or 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 the
Fund invests may be compared to relevant indices or surveys (e.g., S&P Industry
Surveys) in order to evaluate the Fund's historical performance or current or
potential value with respect to the particular industry or sector.
PORTFOLIO TURNOVER AND SECURITIES TRANSACTIONS
A portfolio turnover rate is, in general, the percentage computed by taking the
lesser of purchases or sales of portfolio securities (excluding certain
short-term securities) for a year and dividing it by the monthly average of the
market value of such securities during the year. The Funds do not have a
predetermined rate of portfolio turnover since such turnover will be incidental
to transactions taken with a view to achieving their respective objectives. It
is anticipated that the annual turnover rate of the Funds normally will not
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exceed 300%. 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 each
Fund, broker-dealer selection, and negotiation of brokerage commission rates.
The Adviser's primary consideration in effecting a securities transaction will
be execution at the most favorable price. A substantial majority of a 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 a Fund on a continuing basis.
Broker-dealers may be selected who provide brokerage and/or research services to
a Fund and/or other accounts over which the Adviser exercises investment
discretion. Such services may include advice concerning the value of securities
(including providing quotations as to securities); the advisability of investing
in, purchasing or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analysis and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto, such as clearance and settlement.
The Adviser shall not be deemed to have acted unlawfully or to have breached any
duty created by a 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 a Fund in such amounts and
proportions as the Adviser shall determine and the Adviser will report on said
allocations regularly to a Fund indicating the broker-dealers to whom such
allocations have been made and the basis therefor.
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The receipt of research from broker-dealers may be useful to the Adviser in
rendering investment management services to the Funds and/or the Adviser's other
clients; conversely, information provided by broker-dealers who have executed
transaction orders on behalf of other clients may be useful to the Adviser in
carrying out its obligations to the Funds. The receipt of such research will not
be substituted for the independent research of the Adviser. It does enable the
Adviser to reduce costs to less than those which would have been required to
develop comparable information through its own staff. The use of broker-dealers
who supply research may result in the payment of higher commissions than those
available from other broker-dealers who provide only the execution of portfolio
transactions.
Orders on behalf of the Funds may be bunched with orders on behalf of other
clients of the Adviser. 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 of Trustees periodically reviews the Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Trust.
MANAGEMENT
THE ADVISER
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.
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 Agreements, dated March 28, 1997, provide that the
Adviser shall not be liable for any error in judgment or mistake of law or for
any loss suffered by a Fund in connection with any investment policy or the
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purchase, sale or redemption of any securities on the recommendations of the
Adviser. The Agreements provide that the Adviser is not protected against any
liability to a Fund or its security holders for which the Adviser shall
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by the
Agreements or the violation of any applicable law.
Under the terms of the Investment Advisory Agreements, the Adviser is entitled
to receive an investment advisory fee equal to an annual rate of 0.70% of the
daily net asset value of the Equity Fund, 0.70% of the daily net asset value of
the Asset Allocation Fund and 0.45% of the daily net asset value of the Fixed
Income Fund. The Adviser, together with the Funds' administrator and
distributor, have voluntarily agreed to waive its investment advisory fees
and/or reimburse the Funds through April 30, 1999, to the extent that the ratio
of expenses (exclusive of taxes, interest, brokerage and other transaction
expenses and any other extraordinary expenses) to net assets on an annual basis
exceeds the following percentage of average annual net assets of Class B shares
of each Fund: 2.00% for Equity, 2.00% for Asset Allocation, and 1.60% for Fixed
Income; and of Class C Shares of each Fund: 2.00% for Equity, 2.00% for Asset
Allocation, and 1.60% for Fixed Income.
Each Fund receives credits from the Trust's custodian based on cash held by the
Fund at the custodian. These credits are used to reduce the custody fees payable
by the Fund. The Adviser's (and, as discussed below, other affiliates')
voluntary agreement to waive fees or reimburse expenses in order to maintain the
above expense ratios 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. Under that agreement, the Administrator
supervises the preparation and filing of all documents required for compliance
by the Funds with applicable laws and regulations, supervises the maintenance of
books and records of the Funds and provides other general and administrative
services. For providing these services, the Administrator receives compensation
at the annual rate of 0.20% of the average daily net assets of each Fund. The
Administrator has voluntarily agreed to waive its fees and/or reimburse the
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Funds through April 30, 1999 to the extent that annual total operating expenses
exceed the following percentage of average annual net assets: 2.00% for Class B
shares of the Equity and Asset Allocation Funds and 1.60% for the Class B shares
of the Fixed Income Fund, and 2.00% for Class C shares of the Equity and Asset
Allocation Funds and 1.60% for the Class C shares of the Fixed Income Fund. This
voluntary commitment of the Administrator was undertaken in conjunction with
similar commitments made by the Adviser and the Funds' distributor.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their affiliations, if any, with the
Adviser and their principal occupations are set forth below.
Name, Address Position Held Principal Occupation(s)
And Age With Trust During Past 5 Years
------------- ------------- -----------------------
William P. Daves, Jr. (71) Chairman of Consultant to insurance and
5723 Trail Meadow the Board, healthcare industries.
Dallas, TX 75230 Trustee Director, President and Chief
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.
11825 N. Pennsylvania St. Trustee President and Director,
Carmel, IN 46032 Adviser. Previously,
Sr. Vice President, Adviser.
President and Trustee of one
other mutual fund managed by
the Adviser.
Gregory J. Hahn* (36) Vice President Chartered Financial Analyst.
11825 N. Pennsylvania St. for Senior Vice President,
Carmel, IN 46032 Investments Adviser. Portfolio Manager of
and Trustee the fixed income portion of
Asset Allocation and Fixed
Income Funds.
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Name, Address Position Held Principal Occupation(s)
And Age With Trust During Past 5 Years
------------- ------------- -----------------------
Harold W. Hartley (74) Trustee Retired. Chartered Financial
317 Peppard Drive, S.W. Analyst. Previously,
Ft. Myers Beach, Fl 33913 Executive Vice President,
Tenneco Financial Services,
Inc. Trustee of one other
mutual fund managed by the
Adviser.
Dr. R. Jan LeCroy (66) Trustee President, Dallas Citizens
Dallas Citizens Council Council. Trustee of one
1201 Main Street, other mutual fund managed by
Suite 2444 the Adviser.
Dallas, TX 75202
Dr. Jesse H. Parrish (70) Trustee Former President, Midland
2805 Sentinel College. Higher Education
Midland, TX 79701 Consultant. Trustee of one
other mutual fund managed by
the Adviser.
William P. Latimer (62) Vice President Vice President, Senior
11825 N. Pennsylvania St. and Secretary Counsel, Secretary, Chief
Carmel, IN 46032 Compliance Officer and
Director of Adviser. Vice
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.
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Name, Address Position Held Principal Occupation(s)
And Age With Trust During Past 5 Years
------------- ------------- -----------------------
James S. Adams (38) Treasurer Sr. Vice President, Bankers
11815 N. Pennsylvania St. National, Great American
Carmel, IN 46032 Reserve. Senior Vice
President, 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 Sr. Vice President, Corporate
11815 N. Pennsylvania St. President, Taxes, Bankers National and
Carmel, IN 46032 Corporate Taxes Great American Reserve.
Senior Vice President,
Corporate Taxes, Conseco
Equity Sales, Inc. and
Conseco Services LLC. Vice
President of one other mutual
fund managed by the Adviser.
* 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.
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COMPENSATION TABLE
Total Compensation from
Aggregate Investment Companies in the
Compensation from Trust Complex Paid to
Name Of Person, Position The Trust 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)
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of ____________, 1997, the following shareholders owned of record, or were
known by a Fund to own beneficially, five percent or more of the outstanding
shares of the Class A and Class Y shares of each Fund. As of that date, there
were no Class B or Class C shares outstanding.
CONSECO EQUITY FUND CLASS A
CONSECO ASSET ALLOCATION FUND CLASS A
CONSECO FIXED INCOME FUND CLASS A
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CONSECO EQUITY FUND CLASS Y
CONSECO ASSET ALLOCATION FUND CLASS Y
CONSECO FIXED INCOME FUND CLASS Y
The Trustees and officers of the Trust, as a group, own less than 1% of each
Fund's outstanding shares.
NET ASSET VALUES OF THE SHARES OF THE FUNDS
Securities held by the Funds will be valued as follows. Fund securities which
are traded on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued or, lacking any sales, at
the mean between the closing bid and asked prices. Securities traded in the
over-the-counter market are valued at the mean between the bid and asked prices
or yield equivalent as obtained from one or more dealers that make markets in
the securities. Fund securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market, and it is expected that for debt securities this
ordinarily will be the over-the-counter market. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Trust. In valuing lower-rated debt securities, it should be recognized that
judgment plays a greater role than is the case with respect to securities for
which a broader range of dealer quotations and last sale information is
available. Debt securities with maturities of sixty (60) days or less are valued
at amortized cost.
FUND EXPENSES
Each Fund pays its own expenses including, without limitation (i) expenses of
maintaining the Fund and continuing its existence, (ii) registration of the Fund
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under the 1940 Act, (iii) auditing, accounting and legal expenses, (iv) taxes
and interest, (v) governmental fees, (vi) expenses of issue, sale, repurchase
and redemption of Fund shares, (vii) expenses of registering and qualifying the
Fund and its shares under federal and state securities laws and of preparing and
printing prospectuses for such purposes and for distributing the same to
shareholders, (viii) expenses of reports and notices to shareholders and of
meetings of shareholders and proxy solicitations thereof, (ix) expenses of
reports to governmental officers and commissions, (x) insurance expenses, (xi)
association membership dues, (xii) fees, expenses and disbursements of
custodians for all services to the Fund, (xiii) fees, expenses and disbursements
of transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Fund, (xiv) expenses for servicing
shareholder accounts, (xv) compensation and expenses of Trustees of the Trust
who are not "interested persons" of the Trust, and (xvi) such nonrecurring items
as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Fund to indemnify its Trustees
and officers with respect thereto.
DISTRIBUTION ARRANGEMENTS
Conseco Equity Sales, Inc. (the "Distributor") serves as the principal
underwriter for each Fund pursuant to an Underwriting Agreement, dated January
2, 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 as well as any advertising or
sales literature. The Underwriting Agreement continues in effect for two years
from initial approval and for successive one-year periods thereafter, provided
that each such continuance is specifically approved (i) by the vote of a
majority of the Trustees of the Trust, including a majority of the Trustees who
are not "interested persons" of the Trust (as that term is defined in the 1940
Act); or (ii) by the vote of a majority of the outstanding voting securities of
a Fund. The Distributor is not obligated to sell any specific amount of shares
of any Fund.
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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 __, 1997,
for Class B and Class C shares of each Fund (each a "Plan" and collectively the
"Plans"), in accordance with the requirements of Rule 12b-1 under the 1940 Act
and the requirements of the applicable rules of the NASD regarding asset-based
sales charges.
Pursuant to the Class B and Class C Plans, each Fund may compensate the
Distributor for its expenditures in financing any activity primarily intended to
result in the sale of the corresponding class of Fund shares and for maintenance
and personal service provided to existing shareholders of that class. Each
Fund's Class B Plan authorizes payments to the Distributor up to 1.00% annually
of the Fund's average daily net assets attributable to its Class B shares. Each
Fund's Class C Plan authorizes payments to the Distributor up to 1.00% annually
of the 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 Plans further provide 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 under a Fund's Class B or Class C
Plan 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.
In accordance with the terms of the Plans, the Distributor provides to each
Fund, for review by the Trustees, a quarterly written report of the amounts
expended under the Plans and the purpose for which such expenditures were made.
In the Trustees' quarterly review of the Plans, they will review the level of
compensation the Plans provide in considering the continued appropriateness of
the Plans.
The Plans were 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 Plans, cast in
person at a meeting called for the purpose of voting on the Plans. The Trustees
believe that there is a reasonable likelihood that the Plans will benefit each
Fund and its current and future shareholders. Among the anticipated benefits are
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higher levels of sales and lower levels of redemptions of Class B and Class C
shares of each Fund, economies of scale, reduced expense ratios and greater
portfolio diversification.
Under their terms, the Plans remain in effect from year to year provided such
continuance is approved annually by vote of the Trustees in the manner described
above. The Plans may not be amended to increase materially the amount to be
spent under the Plans without approval of the shareholders of the affected Fund,
and material amendments to the Plans must also be approved by the Trustees in a
manner described above. The Plans 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 Plans, or by a vote of a majority of the outstanding voting
securities of the Fund affected thereby. The Plans 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.
SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan ("SWP") is designed
to provide a convenient method of receiving fixed payments at regular intervals
from Class B or 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
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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.
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 redemption beyond this amount also will be cash unless the Board of
Trustees 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 redemption 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 of Trustees 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
receive less than the redemption value thereof and 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 New York Stock Exchange
("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) disposal by a Fund of securities owned by it is not
reasonably practicable, or (2) it is not reasonably practicable for a Fund to
fairly determine the value of its assets, or for such other periods as the 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
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shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees. The Trust
is not required to hold Annual Meetings of Shareholders for action by
shareholders' vote except as may be required by the 1940 Act or the Declaration
of Trust. The Declaration of Trust provides that shareholders can remove
Trustees by a vote of two-thirds of the vote of the outstanding shares. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the holders of 10 percent of the Trust's shares. In
addition, 10 or more shareholders meeting certain conditions and holding the
lesser of $25,000 worth or 1 percent of the Trust's shares may advise the
Trustees in writing that they wish to communicate with other shareholders for
the purpose of requesting a meeting to remove a Trustee. The Trustees will then
either give those shareholders access to the shareholder list or, if requested
by those shareholders, mail at the shareholders' expense the shareholders'
communication to all other shareholders.
Each issued and outstanding share of each class of a Fund is entitled to
participate equally in dividends and distributions of the respective class of
the Fund and, upon liquidation or dissolution, in the net assets of such 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, the Class B and Class C shares 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
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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 a trust such as the Trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the Trust. The Declaration of Trust, however, contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or its Trustees. The Declaration of Trust
provides for indemnification and reimbursement of expenses out of Trust property
for any shareholder held personally liable for its obligations. The Declaration
of Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust
and satisfy any judgment thereon. Thus, while Massachusetts law permits a
shareholder of a trust such as the Trust to be held personally liable as a
partner under certain circumstances, the risk of a shareholder incurring
financial loss on account of shareholder liability is highly unlikely and is
limited to the relatively remote circumstances in which the Trust would be
unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Trust and the Adviser have Codes of Ethics governing the personal securities
transactions of officers and employees. These codes require prior approval for
certain transactions and prohibit transactions which may be deemed to conflict
with the securities trading of the Adviser's clients.
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)
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("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.
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 ("Relief Act"),
different maximum tax rates apply to 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 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) on capital
assets held for more than 18 months. The Tax Act, however, does not address the
application of these rules to distributions of net capital gain by a RIC,
including whether those distributions may be treated by its shareholders in
accordance with the RIC's holding period for the assets it sold that generated
the gain; the application thereof must be determined by further legislation or
future regulations that are not available as this SAI is being prepared.
Accordingly, shareholders should consult their tax advisers as to the effect of
the Relief Act on distributions by a Fund to them of net capital gain.
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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 realized or 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 non-deductible 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.
INCOME FROM FOREIGN SECURITIES
Dividends and interest received by the Asset Allocation Fund may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions ("foreign taxes") that would reduce the yield 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.
Each Fund 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 the Fund is a U.S. shareholder -- 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 portion of any "excess distribution" received
by it on the stock of a PFIC or of any gain on its disposition of the stock
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(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.
If a Fund 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 would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain -- which
likely would have to be distributed by the 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 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 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.
Foreign exchange gains and losses realized by the Asset Allocation Fund 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.
42
<PAGE>
INVESTMENTS IN DEBT SECURITIES
If a Fund 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, to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax. Therefore, a Fund may have
to dispose of its portfolio securities under disadvantageous circumstances to
generate cash, or may have to leverage itself by borrowing the cash, to make the
necessary distributions.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Fund that holds such obligations. Tax rules are not
entirely clear about issues such as when a Fund may cease to accrue interest,
original issue discount or market discount, when and to what extent deductions
may be taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by any Fund that 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
with respect to its business of investing in securities or foreign currencies --
and gains realized by the Asset Allocation Fund 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.
Certain options and futures in which a Fund may invest will be "section 1256
contracts." Section 1256 contracts held by a Fund 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 has made an election not to have the following rules
43
<PAGE>
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. It is not entirely clear, as of the date of
preparation of this SAI, whether the 60% portion of that capital gain that is
treated as long-term capital gain will qualify for the reduced maximum tax rates
on net capital gain enacted by the Relief Act noted above -- 20% (10% for
taxpayers in the 15% marginal tax bracket) on capital assets held for more than
18 months -- instead of the maximum rate in effect before that legislation, 28%,
which now applies to gain on capital assets held for more than one year but not
more than 18 months. 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 a Fund may invest. Section 1092 defines a
"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 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 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 will be treated as having made an actual sale thereof, with
the result that gain will be recognized at that time. A constructive sale
44
<PAGE>
generally consists of a short sale, an offsetting notional principal contract or
futures or forward contract entered into by the Fund 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.
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
Portfolio securities of each Fund are held pursuant to a Custodian Agreement
between the Trust and The Bank of New York, 90 Washington Street, 22nd Floor,
New York, New York 10826. The Bank of New York also performs certain
administrative services for the Funds pursuant to agreements with Conseco
Services, LLC.
TRANSFER AGENCY SERVICES
State Street Bank and Trust Company is the transfer agent for each Fund.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P., 2900 One American Square, Box 82002, Indianapolis,
Indiana 46282-0002 serves as the Trust's independent public accountant.
45
<PAGE>
CONSECO FUND GROUP:
Equity Fund
Asset Allocation Fund
Fixed Income Fund
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) No Financial Statements are included.
(b) Exhibits:
(1) Agreement and Declaration of Trust(1)
(2) By-laws(1)
(3) Voting trust agreement - None
(4)(a) Agreement and Declaration of Trust of Conseco Fund Group,
Articles V, VI, VII, VIII, and X(1)
(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 Fund(2)
(b) Investment Advisory Agreement between Conseco Fund Group
and Conseco Capital Management, Inc. with respect to the
Asset Allocation Fund(2)
(c) Investment Advisory Agreement between Conseco Fund Group
and Conseco Capital Management, Inc. with respect to the
Fixed Income Fund(2)
(6) Principal Underwriting Agreement between Conseco Fund
Group and Conseco Equity Sales, Inc.(2)
(7) Bonus, profit sharing or pension plans - None
- -----------------------------
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 the Registrant's registration statement, SEC
File No. 333-13185, filed on July 30, 1997.
<PAGE>
(8) Custody Agreement between Conseco Fund Group and The
Bank of New York.(2)
(9)(a) Administration Agreement between Conseco Fund Group and
Conseco Services, LLC(2)
(b) Sub-Administration Agreement between Conseco Services,
LLC and The Bank of New York(2)
(c) Fund Accounting Agreement between Conseco Services, LLC
and The Bank of New York(2)
(d) Transfer Agency Agreement between Conseco Fund Group and
State Street Bank and Trust Company(2)
(10) Opinion and Consent of Counsel as to the Legality of the
Securities being Registered(3)
(11) Consent of Coopers & Lybrand L.L.P., Independent
Accountants(2)
(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 Fund(2)
(b) Class A Plan of Distribution and Service pursuant to Rule
12b-1 with respect to the Asset Allocation Fund(2)
(c) Class A Plan of Distribution and Service pursuant to Rule
12b-1 with respect to the Fixed Income Fund(2)
(d) Class B and C Plan of Distribution and Service pursuant to
Rule 12b-1 with respect to the Equity Fund (to be filed)
(e) Class B and C Plan of Distribution and Service pursuant to
Rule 12b-1 with respect to the Asset Allocation Fund (to be
filed)
(f) Class B and C Plan of Distribution and Service pursuant to
Rule 12b-1 with respect to the Fixed Income Fund (to be
filed)
- ------------------------
3 Incorporated by reference from Pre-Effective Amendment No. 1, to
Registrant's registration statement SEC File No. 333-13185, filed on December
20, 1996.
C-2
<PAGE>
(g) Selling Group Agreement(3)
(16) Performance Computation Schedule - None
(17) Financial Data Schedules(2)
(18) Plan pursuant to Rule 18f-3(3)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number Of Record Holders
Title Of Class October 22, 1997
-------------- ------------------------
Equity Fund
Class A shares 310
Class B shares 0
Class C shares 0
Class Y shares 28
Asset Allocation Fund
Class A shares 120
Class B shares 0
Class C shares 0
Class Y shares 16
Fixed Income Fund
Class A shares 32
Class B shares 0
Class C shares 0
Class Y shares 18
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.
C-3
<PAGE>
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.
Name and Principal Positions and Offices Positions and Offices
Business Address With Principal Underwriter With Registrant
---------------- -------------------------- ---------------------
L. Gregory Gloeckner President None
William P. Latimer Vice President, Senior Vice President and
Counsel, Secretary, and Secretary
Director
James S. Adams Senior Vice President, Treasurer, Principal
Treasurer, and Director Financial and Accounting
Officer
William T. Devanney, Jr. Senior Vice President, Vice President,
Corporate Taxes Corporate Taxes
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.
C-4
<PAGE>
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.
C-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 certifies
that it meets all of the requirements for effectiveness of this amendment to its
Registration Statement pursuant to the Rule 485(a) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment No. 3 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Carmel and State of Indiana on the 16th day of
October, 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. 3 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 October 16, 1997
- -------------------------- Executive Officer) and
Maxwell E. Bublitz Trustee
/s/ James S. Adams Treasurer (Principal October 16, 1997
- -------------------------- Financial and Accounting
James S. Adams Officer)
/s/ William P. Daves, Jr. Chairman of the Board and October 16, 1997
- -------------------------- Trustee
William P. Daves, Jr.*
/s/ Gregory J. Hahn Trustee October 16, 1997
- --------------------------
Gregory J. Hahn*
/s/ Harold W. Hartley Trustee October 16, 1997
- --------------------------
Harold W. Hartley*
/s/ R. Jan Lecroy Trustee October 16, 1997
- --------------------------
Dr. R. Jan LeCroy*
/s/ Jesse H. Parrish Trustee October 16, 1997
- --------------------------
Dr. Jesse H. Parrish*
/s/ William P. Latimer October 16, 1997
- -------------------------
*By: William P. Latimer
Attorney-In-Fact
<PAGE>
INDEX OF EXHIBITS
Index No. Description
- --------- -----------
(1) Agreement and Declaration of Trust(1)
(2) By-laws(1)
(3) Voting trust agreement - None
(4)(a) Agreement and Declaration of Trust of Conseco Fund Group,
Articles V, VI, VII, VIII, and X(1)
(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
Fund(2)
(b) Investment Advisory Agreement between Conseco Fund Group and
Conseco Capital Management, Inc. with respect to the Asset
Allocation Fund(2)
(c) Investment Advisory Agreement between Conseco Fund Group and
Conseco Capital Management, Inc. with respect to the Fixed
Income Fund(2)
(6) Principal Underwriting Agreement between Conseco Fund Group
and Conseco Equity Sales, Inc.(2)
(7) Bonus, profit sharing or pension plans - None
(8) Custody Agreement between Conseco Fund Group and The Bank of
New York.(2)
(9)(a) Administration Agreement between Conseco Fund Group and
Conseco Services, LLC(2)
(b) Sub-Administration Agreement between Conseco Services, LLC and
The Bank of New York(2)
(c) Fund Accounting Agreement between Conseco Services, LLC and
The Bank of New York(2)
- -----------------------------
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 the Registrant's registration statement, SEC
File No. 333-13185, filed on July 30, 1997.
<PAGE>
(d) Transfer Agency Agreement between Conseco Fund Group and State
Street Bank and Trust Company(2)
(10) Opinion and Consent of Counsel as to the Legality of the
Securities being Registered(3)
(11) Consent of Coopers & Lybrand L.L.P., Independent Accountants(2)
(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 Fund(2)
(b) Class A Plan of Distribution and Service pursuant to Rule 12b-1
with respect to the Asset Allocation Fund(2)
(c) Class A Plan of Distribution and Service pursuant to Rule 12b-1
with respect to the Fixed Income Fund(2)
(d) Class B and C Plan of Distribution and Service pursuant to Rule
12b-1 with respect to the Equity Fund (to be filed)
(e) Class B and C Plan of Distribution and Service pursuant to Rule
12b-1 with respect to the Asset Allocation Fund (to be filed)
(f) Class B and C Plan of Distribution and Service pursuant to Rule
12b-1 with respect to the Fixed Income Fund (to be filed)
(g) Selling Group Agreement(3)
(16) Performance Computation Schedule - None
(17) Financial Data Schedules(2)
(18) Plan pursuant to Rule 18f-3(3)
- ----------------------------
3 Incorporated by reference from Pre-Effective Amendment No. 1, to
Registrant's registration statement SEC File No. 333-13185, filed on December
20, 1996.
